SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K
Current
Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date
of
Report (Date of Earliest Event Reported): March 14, 2008
FERIS
INTERNATIONAL, INC.
(Exact
Name of Registrant as Specified in its Charter)
Nevada
(State
or
Other Jurisdiction of Incorporation)
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000-24477
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86-0776876
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(Commission
File Number)
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(I.R.S.
Employer Identification No.)
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8439
Sunset Boulevard, 2nd
Floor, West Hollywood, CA
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90069
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(Address
of Principal Executive Offices)
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(Zip
Code)
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800
504 8834
(Registrant’s
Telephone Number, Including Area Code)
3155
East Patrick Lane, Suite 1, Las Vegas, Nevada 89120
(Former
Name or Former Address, if Changed Since Last Report)
Item 2.01
Completion of Acquisition or Disposition of Assets
On
or
about March 10, 2008, pursuant to an Agreement and Plan of Merger dated as
of
August 20, 2007 (the “Merger Agreement”) by and among Feris International, Inc.
(“Feris”), Feris Merger Sub, Inc. and Patty Linson, on the one hand; and Pro
Sports & Entertainment, Inc. (“PSEI” or the “Company”), on the other hand,
Feris issued 49,500,000 shares of its common stock in exchange (the “Exchange”)
for all of the issued and outstanding shares of the Company. Pursuant to the
terms of the Share Exchange Agreement, there will be 55,000,000 shares of common
stock issued and outstanding after giving effect to the Exchange. As a result
of
the Merger, PSEI became a wholly owned subsidiary of the Company.
NOTE:
The
discussion contained in this Item 2.01 relates primarily to PSEI. Information
relating to the business and results of operations of Feris and all other
information relating to Feris has been previously reported in its Annual Report
on Form 10-KSB for the year ended December 31, 2007 and prior periodic filings
with the SEC and is herein incorporated by reference to those
reports.
Overview
Pro
Sports & Entertainment, Inc. (“PSEI”), located in Los Angeles, was formed as
a California corporation in November 1998. PSEI owns or is targeting the
acquisition of live entertainment companies in the following areas (“Strategic
Verticals”): Action Sports, Auto Shows, College Sports, Concerts & Music
Festivals, Food Entertainment, Diversified Media Marketing, Motor Sports,
Running Events, Trade Shows & Expos, and Talent Management. In addition, the
Company has acquired the Stratus Rewards Visa White Card marketing and
redemption platform which provides benefits to its cardholders for use of the
card in the form of luxury trips, private jet travel, luxury automobiles, high
end merchandise and other rewards for specified levels of use. Assuming PSEI
is
able to raise appropriate capital, PSEI intends to operate its current portfolio
of live entertainment events, activate certain existing properties, operate
Stratus Rewards and acquire and aggregate a global platform of live
entertainment events.
The
business plan of PSEI is to own and operate 100% of all event revenue rights
and
derive its revenue primarily from ticket /admission sales, corporate
sponsorship, television, print, radio, on-line and broadcast rights fees,
merchandising, and hospitality activities. With additional funding, the
objective of management is to build a profitable business by implementing an
aggressive acquisition growth plan to acquire quality companies, build corporate
infrastructure, and increase organic growth. The plan is to leverage operational
efficiencies across an expanded portfolio of events to reduce costs and increase
revenues. The Company intends to promote the Stratus Rewards card and its events
together, obtaining maximum cross marketing benefit among card members,
corporate sponsors and PSEI events.
Strategy
PSEI
is a
“roll up” strategy, targeting sports and live entertainment events and companies
that are independently owned and operated or being divested by larger companies
with the plan to aggregate them into one large leading live entertainment
company. The strategy is to purchase these events for approximately 4-6 times
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of the
events with the expectation that the combined EBITDA of the Company from these
events will receive a much higher valuation multiple in the public
markets.
Assuming
the availability of capital, PSEI is targeting acquisitions of event properties
in each of the Strategic Verticals. The goal is to aggressively build-up a
critical mass of events, venues and companies that allow for numerous
cross-event synergies. Specifically:
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On
the expense side, to share sales, financial and operations resources
across multiple events, creating economies of scale, increasing the
Company’s purchasing power, eliminating duplicative costs, and bringing
standardized operating and financial procedures to all events, thus
increasing the margins of all
events.
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On
the revenue side, to present to advertisers and corporate sponsors
a
diverse menu of demographics and programming that allows sponsors
“one
stop shopping” rather than having to deal with each event on its
own.
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With
these core operational synergies and subject to available capital, PSEI intends
to (1) expand its acquisition strategy of additional live sports and
entertainment events and companies, (2) combine existing and future events
to
serve targeted demographic markets, and (3) cross-promote the Stratus Rewards
Visa card with these events to enhance the results of the card and event
businesses.
The
business plan of PSEI is to provide integrated event management, television
programming, marketing, talent representation and consulting services in the
sports and other live entertainment industries. PSEI’s event management,
television programming and marketing services may involve:
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·
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managing
sporting events, such as college bowl games, golf tournaments and
auto
racing team and events;
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managing
live entertainment events, such as music festivals, car shows and
fashion
shows;
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producing
television programs, principally sports entertainment and live
entertainment programs; and
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·
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marketing
athletes, models and entertainers and
organizations.
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The
objective of this approach is to consolidate event properties and then craft
individual large-scale deals to allow companies to bundle advertising across
diverse events.
For
example, subject to available capital, PSEI is targeting the acquisition of
eight music festivals by the end of 2009, with the goal of combining them with
its current music festival events and having one event per month. Through these
acquisitions, the Company plans to utilize core competencies in the areas of
promotion, operations, marketing, sales and distribution. The objective is
to
afford PSEI better negotiating leverage with cost centers such as advertising,
marketing, venue and talent costs on a regional, national and international
scale. Additionally, by offering advertisers access to other PSEI’s properties,
the Company hopes to create greater value for the advertisers by offering other
key demographic target markets to the client and creating greater value, more
impression and a higher cost point for less risk.
Properties
The
following is the Company’s current portfolio of properties (pursuant to which
PSEI has rights to the names and/or contract rights to operate). Most of the
properties have never been activated by the Company (such as the college
football bowl games), require the payment of additional amounts to complete
the
acquisitions ( such as the Core Tour alternative sports events) or have not
generated revenues in the last year and require reactivation (such as auto
shows
and music festivals).
College
Sports Events
Freedom
Bowl College Bowl Game
acquired
in October 1998 by PSEI. Played for the first time in 1984 at Anaheim Stadium,
the Freedom Bowl was for years one of the “big” bowl games, hosting top teams
from UCLA, USC, Washington, Colorado, Brigham Young and Arizona State. In 1996
this event became inactive and PSEI is now seeking certification for a 2009
date. PSEI intends to host this event at a major venue for potential 60,000
or
more attendees with attendant television rights.
-2-
Seattle
Bowl College Bowl Game
This
bowl was known previously as the Aloha Bowl and is up for recertification by
the
NCAA. PSEI has a letter of intent to use Seattle Seahawk Stadium for this event
Sponsorships and television broadcast rights will be negotiated pending the
NCAA’s final decision.
PSEI
is
reviewing the opportunity to acquire an additional college bowl game and combine
the three bowls into a series in which common cost centers will be shared and
believes that increased sponsorship interest and revenue will result by
expanding benefits to all three events. PSEI intends to seek major sponsors
for
a long-term multi-million title naming sponsorship, providing recurring revenues
for multiple years. Implementation will depend on obtaining necessary capital
and NCAA certifications.
Action
Sports Events
Core
Tour Action Sports & Music Festival
- The
Company entered into a contract to acquire its assets in October 2003. To
complete the acquisition, the Company is required to make payment of the balance
of $482,126.30 in cash and $125,000 in Common Stock. The event is a summer
series of “extreme sports” events and concerts which visit multiple cities
including Los Angeles, New York and Chicago. The festival has involves
competitions in BMX dirt motorcycle jumping, in-line skating, mountain boarding
and skateboarding. A concert series runs in conjunction with the events that
features music targeted at the intended market. Past events have resulted in
an
audience size of approximately 30,000 per day over three days and included
major
television coverage of the events. PSEI intends to expand this series of events
to 4 summer events and 4 winter events for a total of 8 events. The winter
events will include snowboarding, skiing and snowmobile racing
events.
Auto
Show Events
Santa
Barbara Concours d’ Elegance
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acquired all of the assets in October 1998 from Crane School, after twenty
years
of operations. This is one of the oldest vintage automobile shows in the USA
and
in the past has drawn audiences of 40,000 or more per day over a four-day
period. Anticipated to be held in October of this year, the show is planned
to
move from its old location at the Sandpiper golf course in Santa Barbara to
the
Santa Barbara International Polo Club and Fields, to increase audience and
revenue opportunities. This event will compliment the 10 city tour of Concours
d’ Elegance events owned by PSEI. PSEI is adding additional elements to this
event which include a vintage and modern Italian auto show, American classics
auto show, fashion show, music festival, wine festival, charity gala and
auction, and a road rally visiting top Central Coast wineries and points of
interest. In 2009, PSEI plans to add an auto auction to this week of
events.
The
Beverly Hills Concours d’ Elegance
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acquired in June 2004. The Beverly Hills Concours historically has drawn over
65,000 spectators. In order to allow for ticket revenue and restricted access,
PSEI is moving from the Rodeo Drive location used in the past to the Playboy
Mansion and UCLA. Past exhibitors at the show have included car enthusiasts
such
as Jay Leno, Tim Allen and Nicolas Cage. Past corporate sponsors have included
Daimler Chrysler, Rolex, Lladro, Ferrari, Brooks Brothers, Mequires, Geary’s of
Beverly Hills and Grundy.
PSEI
has
established or has taken over at no cost, 22 additional auto shows and
intends to combine the 29 auto shows into a national series in which common
cost
centers will be shared. PSEI believes that increased sponsorship interest and
revenue will result from this combination. PSEI is currently seeking series
and
individual event sponsors for a sponsorship.
Concert
and Music Festivals
Maui
Music Festival
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Acquired in October 2003, this three-day event features jazz and alternative
rock performers from around the world. Past events have attracted
3,000 to 5,000 tourists and locals each day. PSEI plans to expand the event
to a
5-day format with expos, merchandising opportunities and new music genres,
including rhythm and blues and soft rock.
-3-
Core
Tour Music Festival
- This
will be part of the Core Tour Action Sports acquisition and is intended to
feature music that caters to the younger demographic (the same group to
which the events are targeted). PSEI intends to expand the series to operate
in
part with the action sports series and with additional tour stops that operate
separately.
PSEI
has
established or is taking over at no cost 4 additional music festivals that
include the Santa Barbara Music Festival, the Santa Barbara Jazz Festival,
the
Napa Jazz Festival and the Maui Jazz Festival. PSEI is targeting other key
music
festival acquisitions and believes that increased sponsorship interest and
revenue will result. PSEI intends to expand the ticket, merchandising,
concessions and sponsorship revenues by creating a series of events and key
geographic locations, and by providing a venue for emerging talent to showcase,
at little to no talent fee cost to PSEI, and by leveraging the booking of talent
among a larger number of performances to reduce the cost per event.
Talent
Management Vertical
Pro
Sports Talent Management
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acquired in November 2000 from a PSEI executive, this effort has represented
over 100 professional and retired athletes and has held non-exclusive agreements
to represent appearances, corporate endorsements and player contracts to such
highly recognized names as Muhammad Ali, Kareem Abdul-Jabbar and Joe Namath
.
PSEI’s
talent representation activities are planned to consist of athletes,
entertainers and models principally with representation in contract and
endorsement negotiations. PSEI expects to receive a percentage of monies earned
by an athlete client, of approximately 4% of a player’s sports contract and
approximately from 15% to 25% of endorsement deals. It is expected that modeling
clients will pay to PSEI 33% of a photo shoot or runway contract,10% of film,
television and commercial revenues, and 33% of endorsement deals. Revenue from
these sources is dependent upon a number of variables, many of which are outside
PSEI’s control, including a player’s model’s skill, health, and public appeal.
Principal operating expenses include salaries, wages and travel and
entertainment expenses Agent representation can be a lucrative business.
Affiliate
Lifestyle Marketing Vertical
Stratus
Rewards VISA
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acquired in August 2005, Stratus Rewards is a lifestyle management and
entertainment club, credit card and rewards system known as the “White Card for
Visa” similar to the Black Card for American Express. The program was created
expressly to support and enhance the affluent lifestyle. The program was
designed to offer private jet travel, African safaris, exclusive events and
personal services to an affluent or near-affluent individual or business owner
who seeks card-card usage rewards not found elsewhere.
PSEI
is
reviewing the opportunity to change sponsoring banks and combine the program
with a premier international bank to expand the program in 2008 and 2009 so
that
the Stratus Rewards VISA White Card may be offered to clients in Europe, Canada,
U.K. and Asia, in addition to the United States, where it is currently marketed.
OPERATIONS
GENERAL
Subject
to raising sufficient capital, the Company’s operations will consist primarily
of (a) live sports events, (b) music concerts, (c) specialized live
entertainment events, (d) other proprietary and non-proprietary entertainment
events and, (e) media platform marketing. The Company and the acquired
businesses also engage in other activities ancillary to its live entertainment
businesses.
-4-
Seasonality
The
Company’s event operations and revenues are expected to be largely seasonal in
nature, with generally higher revenue generated in the third and fourth quarters
of the year. For example, based on the Company’s internal forecasts, the
Company’s existing portfolio of events will generate approximately 65% of its
revenues in the third and fourth quarters because the Company’s outdoor
venues will be primarily utilized in the summer months, resulting in substantial
revenues in the late fall, winter and early spring. Similarly, the musical
concerts that the Company promotes largely occur in the second and third
quarters. To the extent that the Company’s entertainment marketing and
consulting relate to musical concerts, they also predominantly generate revenues
in the second and third quarters. Therefore, the seasonality of the Company’s
business causes (and, upon consummation of the intended Acquisitions) will
likely probably continue to cause a significant variation in the Company’s
quarterly operating results. These variations in demand could have a material
adverse effect on the timing of the Company’s cash flows and, therefore, on its
ability to service its obligations with respect to its indebtedness. However,
the Company believes that this variation can be somewhat offset with the
acquisition of events that are typically non-summer seasonal businesses.
Overview
of the Live Entertainment Industry
With
annual attendance at USA sporting events exceeding 470 million people, the
sports business is estimated to generate $214 billion annually, (larger than
the
US automobile business). Combined with the $140 billion entertainment business,
this represents a $354 billion market with tens of thousands of event properties
available for acquisition. The industry is subject to recessionary pressures
but
has historically grown 5-10 percent annually with greater numbers of fans,
higher television ratings, and increased corporate sponsorships.
The
sports marketing industry has been historically fragmented, with local and
regional entrepreneurs comprising the majority of the companies. In the late
1990’s and early 2000’s, several companies launched consolidation efforts and
one of the companies, SFX, was extremely successful in building a multi-million
dollar company. Fourteen months after launching a $256M IPO, SFX was acquired
by
Clear Channel Communications for $4.4 billion. By 2000 there were three major
companies -- Clear Channel Communications (Owner of SFX), Interpublic Group
(Owner of Octagon and Magna Global Entertainment), and International Management
Group (IMG).
In
recent
years, these companies (known as “the Big 3”) have begun divesting significant
portions of their live sports and entertainment holdings for several reasons,
detailed below in the “Competition” section.
In
the
marketing niche of the industry that PSEI occupies, the addressable market
is
estimated at $63 billion, divided as follows:
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Sponsorships
- $14 billion
~
represents sponsorships of leagues, teams, broadcasts and events.
Sponsorships are high margin, and have enjoyed robust growth. Sports
receive 67 percent of all sponsorship dollars, with entertainment
receiving nine percent and festivals receiving nine
percent.
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Event
Entrance & Spending - $30 billion
~
includes ticket sales of $14 billion; concessions, parking, on-site
merchandise sales of $12 billion; and premium seating revenue of
$4
billion. Spectator spending in these categories grew an average 18%
between 2005 and 2006.
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Endorsements
- $2 billion
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Media
Broadcast Rights - $12 billion
~
includes the four major professional leagues (football, baseball,
basketball, hockey), NASCAR, and College
Sports.
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Professional
Services -- $15 billion
~
includes facility and event management at $7 billion; financial,
legal and
insurance services at $6 billion; marketing and consulting services
at $2
billion; athlete representation at $385
million
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-5-
Initially
Targeted Events
Subject
to available capital, PSEI has targeted specific niches in the live sports
and
entertainment markets for its initial growth. These targets are expected to
provide a combination of growth potential and reliable revenue
streams.
Action
Sports Industry
~ The
action sports industry has expanded, evolved and contracted in the past ten
years. The sports superstars admired by youth come not only from
traditional sports, but from skateboarding, snowboarding, motorcycles and bikes.
Currently dominated by the X-Games and now the Action Sports Tour promoted
by
NBC and Clear Channel, these events have elevated these more non-traditional
sports, including as well their sponsorships to a level that has eliminated
all
but the biggest of potential sponsors of action sports.
Running
Events Industry
~
Marathons dominate road running sports, but there is a growing market for
shorter runs. Half-marathons (13.1 miles), 10 kilometer (6.2 miles) and 5
kilometer (3.1 miles) races actually draw more participants and can generate
participation revenues equal to all but the major marathon events. Until
recently, these shorter events have not been marketed to create larger
sponsorship and advertising interest. Only now are shorter races offering the
merchandising, as well as the hospitality events and amenities associated with
full marathons. Sponsors are beginning to recognize these opportunities.
Revenues
for these events could be dramatically improved with aggressive marketing and
event design. Television broadcasters such as ESPN, NBC and CBS have expressed
interest in this sector.
Concert
and Music Festival Industry
~ The
concert and music festival industry consists primarily of regional promoters
focused generally in major metropolitan markets. According to Amusement
Business, industry gross box office receipts for North American concert tours
totaled over $6 billion in 2007, compared to $1.1 billion in 1997, representing
a compounded annual growth rate of approximately 20.9%. PSEI believes that
increases in ticket sales during the last several years are in part due to
the
increasing popularity of outdoor venues and amphitheaters as live entertainment
venues, as well as an increasing number of tours that attract older audiences
who did not previously attend musical concerts .
The
music
festival industry consists primarily of regional promoters focused in a single
geographic area. Many live event experiences are created with unique accents
that are targeted at specific audiences through activity or location on an
annual basis. PSEI believes there is significant opportunity in developing
these
music events, that are unique in nature and held in desirable locations. For
example, PSEI’s multiple music festivals, if and when activated, will provide a
destination event and location that can capture fans on a national basis. Costs
can be reduced through consolidating travel expenses including hotels, ground
and air transportation and government travel subsidies. These travel packages
and the desirable locations will allow for a premium ticket price driven by
top
name acts that can combine performance with a vacation at a reduced fee.
Additionally,
PSEI intends to use television and broadcast media to extend the reach of each
event well beyond the festival itself PSEI believes that the music industry
has
not realized the full benefits of tour sponsorships. PSEI expects to change
this
opportunity by providing the methods by which sponsors can receive greated
advantage of musical acts.
College
Sports Industry
~ The
NCAA’s limitation of new bowl games makes the established, and generally
profitable, bowl games that do exist much more valuable. This situation could
further improve if a playoff system is instituted in the existing bowl
structure.
Bowl
properties can generate significant revenues. For example, MasterCard’s
sponsorship of the Alamo Bowl costs between $1 million and $1.5 million a
year.
Motor
Sports Industry
~
Specialized motor sports events make up a growing segment of the live
entertainment industry. This growth has resulted from additional demand in
existing markets and new demand in markets where new arenas and stadiums have
been built. The increasing popularity of specialized motor sports over the
last
several years has coincided with, and, in part, been due to, the increased
popularity of other professional motor sports events, such as professional
auto
racing, including NASCAR, Grand AM and Indy/IRL Car Racing. A number of
specialized motor sports events are televised on several of the major television
networks and are also shown on television in markets outside of the United
States.
-6-
In
general, most markets host one to four motor sports events each year, with
larger markets hosting more performances. Stadiums and arenas typically work
with producers and promoters to manage the scheduling of events to maximize
their respective revenues. The cost of producing and promoting a typical single
stadium event ranges from $300,000 to $600,000, and the cost of producing and
presenting a typical single arena event ranges from $50,000 to $150,000.
Typically, third parties create and finance monster trucks, demolition derbies,
thrill acts, air shows and other motor sports concepts and events. They may
perform in an individual event or in an entire season of events. As in other
motor sports, corporate sponsorships and television exposure are important
financial components that contribute to the success of a single event or season
of events.
Automobile
shows and races draw an affluent demographic, and while participant fees, ticket
and merchandise sales can be healthy, the main revenue sources are from
sponsors, advertisers, and hospitality events. Shows tend to be regional in
nature, and within the region only a limited number of shows can be profitably
operated. Four shows dominate the western USA; they are independently operated
but could offer an opportunity if consolidated and marketed with synergies
in
mind. Additionally, auto shows integrated well with lifestyle sports, such
as
golf and tennis, and a coordinated program could enhance the combined event
revenues.
Talent
Representation Industry
~
Agenting involves the negotiation of employment contracts and the creation
and
evaluation of endorsement, promotional and other business opportunities, for
the
client. Agenting can be a lucrative business with high average margins. A
provider in this industry may also provide ancillary services, such as financial
advisory or management services to its clients in the course of the
representation. By acquiring agent firms, PSEI can be in the position to add
known names to its events, thereby increasing ticket sales, sponsorships and
advertising.
Trade
Shows/Expos Industry
~ The
USA trade show market generated $4.8 billion in revenue in 2007, with high
margins and low capital expenditures. Trade shows and expos, such as health
or
auto shows, can be a natural complement to PSEI’s major events. By creating
“cookie cutter” trade shows and expos that run concurrent with major anchor
events, PSEI expects to gain maximum synergy from its event properties.
COMPETITION
The
live
sports and entertainment industry has been historically fragmented, with local
and regional entrepreneurs comprising the majority of the companies. In the
late
1990s, several companies launched consolidation efforts and one of the
companies, SFX, was extremely successful in building a $280 million company
that
was acquired by Clear Channel Communications for $4.4 billion. By the early
2000’s three major companies -- Clear Channel Communications (Owner of SFX),
Interpublic Group (Owner of Octagon, Magna Global Entertainment), and
International Management Group (IMG) had established dominant positions which
comprised an estimated 60-70 percent of industry revenues.
These
companies (known as “the Big 3”) have begun divesting some of their live sports
and entertainment holdings for several reasons:
1. The
capital markets have demanded that the parent companies focus on core
competencies.
2. The
companies face capital shortfalls and view the sports units as easy
divestments.
-7-
3. The
parent companies have not successfully integrated the sports
units.
4. A
larger-than-life owner passed on and the family is reorganizing
(IMG).
5. There
are potential conflicts between advertising division and event sales
division.
PSEI
believes that its acquisition strategy can be more profitable than the
strategies used by the “Big 3” in the past. PSEI has learned from their
strategies (as outlined in “Industry”), and PSEI’s strategy is fundamentally
different from the SFX model. SFX sought total vertical integration, from
ownership of the venue to negotiating a player’s salary. This required the
company to manage the venues, which tend to run on low seven to eight percent
margins. PSEI’s sole focus is on owning the event content and talent rights that
generate high margins and are in increasing demand in the Experience
Economy.
In
addition to the “Big 3” there are a number of second-tier sports marketing
groups. One or more of these groups may be attempting acquisition strategies
that are similar to PSEI’s, though the Company is unaware of any such efforts.
The principal second-tier sports marketing groups are:
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Velocity
Sports & Entertainment
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Vulcan
Ventures
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Anschutz
Entertainment Group
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Although
these groups are significantly larger than PSEI, management believes that PSEI
can implement its strategy in its targeted verticals. Additionally, several
of
these companies are evaluating their strategic direction and may decide to
sell
parts of their sports portfolios, creating acquisition opportunities for PSEI.
The
majority of the remaining live sports and entertainment events are owned and
operated by smaller organizations and individuals. This industry remains
fragmented and PSEI believes it is prime for consolidation.
Intellectual
Property
PSEI
has
trademarked its currently owned events, and plans to trademark and/or copyright
all new events.
Company
Offices
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Square
Footage
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Annual
Lease
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Expires
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Los
Angeles, CA
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2,804
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120,40
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12/14/11
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Santa
Barbara, CA
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1,800
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48,000
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12/31/10
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Legal
Proceedings
In
connection with a settlement agreement, on or about May 27, 2005, a legal
judgment was entered in the Superior Court of the County of Los Angeles against
the Company in favor of the previous owners of the “Core Tour” event, in the
amount of $483,718. In addition, this judgment specified that the Company must
pay interest of $72,552. The dispute arose out of the Company’s asset purchase
of the “Core Tour” event from the plaintiffs. The Company has reflected the
total liability of $523,582 as of December 31, 2005, December 31, 2004 and
October 31, 2007 (unaudited) and has included the acquisition cost in intangible
assets. PSEI Management and Core Tour have agreed to settle this where as PSEI
will make full payment and all rights of the Core Tour event will transfer
to
PSEI. PSEI has proposed a settlement offer of $482,126.30 in cash, plus related
interest, and $125,000 in Common Stock.
-8-
On
or
about February 27, 2006, a plaintiff, an ex-employee, filed a complaint against
the Company, seeking $356,250 in damages. On or about June 23, 2006, the
Superior Court of the County of Los Angeles entered a default against the
Company in favor of this former employee. The Company has recorded the entire
liability as of December 31, 2005 and September 30, 2006 (unaudited). The
Company plans to seek to set aside the default, disputing that it owes the
plaintiff the amount claimed but, rather, the plaintiff was fully paid upon
his
voluntary resignation from the Company. PSEI believes that this judgment is
without merit and filed a lawsuit to have the judgment dismissed in the court
due to company was not properly notified and case was incorrectly awarded to
plaintiff by default. The Judge’s initial ruling is that the judgment was
incorrectly award to plaintiff and to dismiss the judgment against PSEI.
On
or
about June 20, 2006, the plaintiff, Wells Fargo Bank, provided a notice of
entry
of judgment in the amount of $78,651 against, among others, the Company,
formerly known as GMG Sports and Entertainment, Incorporated. The Company
believes that all payments are current with Wells Fargo Bank and has submitted
proof of payments in February of 2008.
RISK
FACTORS
Development
Stage Company.
The
Company is currently in the process of completing its development stage,
bringing its staffing, infrastructure and marketing programs to an operational
level. Revenues are expected to be generated from the event business in the
near
future and limited revenues have been generated by the Stratus credit card
business. Funding is needed to reestablish operations, expand the business
concept within current markets and to extend the business into new revenue
generating markets through acquisitions.
Going
Concern.
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of
the
Company as a going concern. For the Period revenue ended October 31, 2007,
the
Company incurred net losses of $915,152. For the years ended December 31, 2006
and December 31, 2005, the Company incurred net losses of $740,700 and
$1,837,030. In addition, the Company had accumulated deficits of $9,908,144,
$9,167,444 and $10,823,296 as of December 31, 2006, December 31, 2005 and
October 31, 2007 and had negative working capital of $6,334,123,
$5,943,127 and $5,628,366 as of October 31, 2007, December 31, 2006 and
2005.
The
Company has raised total equity of $9,998,800 consisting of $2,000,000 related
to equity issued for the acquisition of Stratus Rewards plus $7,998,800 in
cash
sales of common stock since inception. Management expects that as a result
of
the reverse merger, the Company can raise capital through the sale of common
stock and generate sufficient capital to fund its operations by having access
to
the wider variety of financing sources available to public companies. In
addition, management believes that event operations and the Stratus Rewards
affiliate redemption credit card rewards program will generate positive cash
flow in the near future. However, until such time as operations are established,
the Company will require capital to continue as a going concern.
Uncertainty
of Profitability.
The
Company expects to incur substantial losses until such time as the cash inflows
from events and card operations are established. While the Company expects
to be
profitable in the future, there can be no assurance that it will be able to
do
so.
Expansion
Strategy; Need for Additional Funds.
The
Company intends to aggressively pursue additional expansion opportunities,
including establishment of existing events owned by or under contract with
the
Company and by acquisitions. The marketing, promotion and operation of events
owned by the Company will require that cash be spent on staffing and promotion
in advance of the receipt of cash from the events. The Company will require
outside funding to initiate these events. While the Company has identified
several promising acquisition targets and expects to be able to secure financing
and complete these acquisitions, there can be no assurances that it will be
able
to do so. While the Company intends that the value added by acquisitions will
more than offset the dilution created by the issuance of additional shares
issued for acquisitions, there can be no assurance that this offset will occur.
Additional financing for future acquisitions may be unavailable and, depending
on the terms of the proposed acquisitions, financings may be restricted by
the
terms of credit agreements and privately placed debt securities contained in
the
financing. Any debt financing would require payments of principal and interest
and would adversely impact the Company’s cash flow. Furthermore, future
acquisitions may result in charges to operations relating to losses related
to
the acquired events, interest expense, or the write down of goodwill, thereby
increasing the Company’s losses or reducing or eliminating its earnings, if any.
-9-
Risks
Related To Acquisitions.
Although management believes that pursuing the Company’s acquisition strategy is
in the best interests of the Company, such strategy involves substantial
expenditures and risks on the part of the Company. There can be no assurance
that acquisitions will be completed successfully or, if completed, will yield
the expected benefits to the Company, or will not materially and adversely
affect the Company’s business, financial condition or results of operations.
There can be no assurance that the value attributed by the market to
acquisitions will offset the dilution created by the issuance of additional
shares. In addition, the Company may be unable to obtain financing on terms
acceptable to the Company, or at all. Furthermore, consummation of the intended
Acquisitions could result in charges to operations relating to losses from
the
acquired events, interest expense, or the write down of goodwill, which would
increase the Company’s losses or reduce or eliminate its earnings, if any. As a
result of the foregoing, there can be no assurance as to when the intended
acquisitions will be consummated or that they will be consummated. Furthermore,
the results of the intended acquisitions may fail to conform to the assumptions
of management. Therefore, in analyzing the information contained in this
document, stockholders should consider that the intended acquisitions may not
be
consummated at all.
Although
acquisition agreements generally provide for indemnification from the seller
for
a limited period of time with respect to certain matters, it is possible that
some sellers may not be willing to provide indemnification, or may limit the
scope of indemnification or that other material matters not identified in the
due diligence process will subsequently be identified or that the matters
heretofore identified will prove to be more significant than currently expected.
Future acquisitions by the Company could result in (a) potentially dilutive
issuances of equity securities, (b) the incurrence of substantial additional
indebtedness and/or (c) incurrence of expenses for interest, operating losses
and the write down of goodwill and other intangible assets, any or all of which
could materially and adversely affect the Company’s business, financial
condition and results of operations. Acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies,
services and products of the acquired companies and the diversion of
management’s attention from other business concerns. In the event that any such
acquisition were to occur, there can be no assurance that the Company’s
business, financial condition and results of operations would not be materially
and adversely affected.
Economic
Conditions and Consumer Taste.
The
Company’s operations will be affected by general economic conditions and
consumer tastes. The demand for live entertainment tends to be highly sensitive
to consumers’ disposable incomes, and thus a decline in general economic
conditions that generally reduce consumers’ disposable incomes could, in turn,
materially and adversely affect the Company’s revenues. In addition, the
profitability of events promoted or produced by the Company is directly related
to the ancillary revenues generated by such events, and such ancillary revenues
decrease with lower attendance levels. The success of a sports or entertainment
event is dependent upon public tastes, which are unpredictable and susceptible
to change, and may also be significantly affected by the number and popularity
of competitive productions, or events as well as other forms of entertainment.
It is impossible for the Company to predict the success of any sports or
entertainment event. In addition, decreased attendance, a change in public
tastes or an increase in competition could have a material adverse effect on
the
Company.
-10-
Availability
of Athletes, Artists and Events.
The
Company’s ability to sell tickets (including subscriptions) is highly dependent
on the availability of popular athletes, artists and events. There can be no
assurance that popular athletes, artists and events will be available to the
Company in the future, or will be available on terms acceptable to the Company.
The lack of availability of these artists and productions could have a material
adverse effect on the Company’s results of operations and financial condition.
Control
of Venue.
Because
the Company will operate its live entertainment events under leasing or booking
agreements with venues, its long-term success will depend upon its ability
to
renew these agreements upon their expiration or termination. There can be no
assurance that the Company will be able to renew these agreements on acceptable
terms or at all, or that it will be able to obtain attractive agreements with
substitute venues.
Need
for Additional Financing.
To
date, the Company has funded its business plan through event revenue, loans
from
founders and sale of its Common Stock to investors. The implementation of the
Company’s business plan will require additional financing. Funds will be
required to fund targeted acquisitions and their integration into the Company.
Based on market conditions at the time, the Company may be unable to obtain
sufficient additional financing on favorable terms, or at all. If it raises
additional funds by selling its equity securities, the relative ownership of
its
existing investors will be diluted or the new investors could obtain terms
more
favorable than those of its existing investors. If it raises additional funds
through debt financing, it could incur significant borrowing costs as well
as
face the possibility of default of the Company if it is unable to repay the
financing. If it cannot obtain sufficient financing, it may have to delay,
reduce or eliminate its marketing and promotion campaign, which could
significantly limit its revenues.
Competition.
Competition in the live entertainment industry is intense, and competition
is
fragmented among a wide variety of entities. In addition, television, movies,
internet and other non-live events compete for the time and attention for
potential attendees for live events. The Company intends to compete on a local,
regional and national basis with large venue owners and entertainment promoters
for the hosting, booking, promoting and producing of live entertainment events.
Moreover, the Company’s marketing and consulting operations will compete with
advertising agencies and other marketing organizations. The Company will compete
not only with other live entertainment events, including sporting events and
theatrical presentations, but also with non-live forms of entertainment, such
as
television, radio and motion pictures. The Company’s competitors have
substantially greater resources than the Company. Certain of the Company’s
competitors may also operate on a less leveraged basis, and have greater
operating and financial flexibility than the Company. In addition, many of
these
competitors have long standing relationships with performers, producers, and
promoters and may offer other services that are not provided by the Company.
There can be no assurance that the Company will be able to compete successfully
in this market or against these competitors.
Government
Regulation.
The
ability to conduct live entertainment events is subject to extensive local,
state and federal governmental licensing, approval and permit requirements,
including, among other things, approvals of state and local land-use and
environmental authorities, building permits, zoning permits and liquor licenses.
Significant acquisitions may also be subject to the requirements of the
Hart-Scott-Rodino Act or other antitrust laws or regulations. Other types of
licenses, approvals and permits from governmental or quasi-governmental agencies
may also be required for other opportunities that the Company may pursue in
the
future, although the Company has no agreements or understandings with respect
to
these opportunities at this time. In addition, the Stratus credit card operates
in a highly regulated and controlled market. The Company uses a large,
established commercial bank to run its credit card processing and payments,
but
there can be no assurance that the Company may not be subject to current or
future rules or regulations that could adversely affect its ability to operate
the Stratus card in the manner intended or to achieve the results expected.
There can be no assurance that the Company will be able to obtain the licenses,
approvals and permits it may require from time to time in order to operate
its
business.
-11-
Cash
Nature and Remote Locations of Events.
Live
entertainment events are conducted in numerous locations and often involve
significant cash collections for tickets, concessions, merchandise, etc. The
Company has developed and will continue to develop controls and procedures
to control cash, to monitor cash proceeds, and to ensure that it is collected
and deposited properly, however there can be no assurance that all cash
proceeds at an event will be deposited properly into the Company
accounts.
Risks
of International Operations.
The
Company’s existing portfolio of events is currently all conducted in the U.S.,
but the Company is investigating the purchase of events outside the U.S. To
the
extent that the Company operates outside the U.S., it will be subject to the
laws and regulations of the countries in which it is operating. Such laws and
regulations could adversely affect the Company’s ability to conduct its
operations in such countries and/or adversely affect its ability to bring the
cash generated outside the U.S. back into the U.S. to fund other Company
operations.
Reestablishing
Events.
The
Company has spent the past years acquiring events and operations in order to
reestablish those events with sufficient critical mass to afford economies
of
scale in operations. While the Company believes that the nature of the event
business allows for events to be readily reestablished and that it has the
experience and management expertise to re-establish those events, there can
be
no assurance that such events will be successfully reestablished. The Company
believes that it has full ownership of these events and related intellectual
property, but there can be no assurance that unknown or unforeseen
claims will not arise after successful reestablishment of such
events.
Bank
Sponsorship of Visa Card Operations.
A
contractual relationship with a sponsoring bank is necessary for the Company
to
conduct its Stratus Rewards operations. The Company is ending it relationship
with its current bank that was limited to U.S. operations and is negotiating
a
new relationship with a larger bank that can support international operations.
While the Company believes that these negotiations will be successful and this
contractual relationship will be established, there can be no assurance that
this relationship will be established.
Dependence
on Key Personnel.
The
Company is dependent on its present employees and advisors, especially Paul
Feller. A key employee may terminate his employment with the Company at any
time
without penalty. The loss of the services of a key employee could seriously
impair the Company’s ability to operate and improve its events portfolio, which
could reduce its revenues. In order to achieve its business objective, the
Company must hire additional personnel to fill key managerial positions. The
Company’s future success will depend upon the ability of its executive officers
to establish clear lines of responsibility and authority, to work effectively
as
a team and to gain the trust and confidence of its employees. The Company must
also identify, attract, train, motivate and retain other highly skilled,
technical, managerial, merchandising, engineering, accounting, marketing and
customer service personnel.
No
Assurance of Dividends.
At the
present time, the Company intends to reinvest cash generated from operations
into expansion of operations and does not intend to pay dividends. The Company
will periodically evaluate the best means to bring value to shareholders and
such evaluations could result in a continuation of this policy. Investors should
look to the growth in value as the primary means of realizing a return on their
investment and should not look to dividends for a return. There can be no
assurance that the proposed operations of the Company will result in sufficient
revenues to enable the Company to operate at profitable levels or to generate
a
positive cash flow. Any delay in the successful execution of the Company’s
operations of or the acquisition and marketing strategies could delay the
payment of dividends for an undetermined amount of time.
Limited
Transferability.
There
is no public market for the Common Stock of Feris. There is no assurance that
a
regular public market for the Common Stock will develop or, if a regular public
market does develop, that it will continue.
-12-
THE
FOREGOING IS A SUMMARY OF SOME OF THE MORE SIGNIFICANT RISKS RELATING TO
INVESTMENT IN THE COMPANY. THE FOREGOING SHOULD NOT BE INTERPRETED AS A
REPRESENTATION THAT THE MATTERS REFERRED TO HEREIN ARE THE ONLY RISKS INVOLVED
IN THIS INVESTMENT, NEITHER THE REFERENCE TO THE RISKS INVOLVED IN THIS
INVESTMENT, NOR THE REFERENCE TO THE RISKS HEREIN SHOULD BE DEEMED A
REPRESENTATION THAT SUCH RISKS ARE OF EQUAL MAGNITUDE. PROSPECTIVE INVESTORS
ARE
URGED TO CONSULT THEIR OWN ADVISORS AS TO THE INVESTMENT AND ANY TAX
CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
DIVIDEND
POLICY
PSEI
has
never declared or paid cash dividends on shares of our common stock. We
currently intend to retain all of our earnings to finance the development and
expansion of our business and therefore do not intend to declare or pay cash
dividends on our common stock in the foreseeable future. Any future declaration
and payment of dividends will be subject to the discretion of our board of
directors, will be subject to applicable law and will depend upon our results
of
operations, earnings, financial condition, contractual limitations, cash
requirements, future prospects and other factors deemed relevant by our board
of
directors.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Form
contains forward-looking statements that involve risks and uncertainties. These
statements relate to future events or our future financial performance and
include statements about our plans, objectives, products and services as well
as
our expectations and intentions. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or
the negative of such terms or other comparable terminology. These statements
are
only predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under “Risk Factors,” that may cause our
or our industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by any
forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements
are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of this Form 8-K to conform these statements to actual
results.
-13-
Management
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion of the financial condition and results of operations of
the
Company should be read in conjunction with the consolidated financial statements
and related notes thereto included in this Memorandum. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company’s actual results could differ materially from those
discussed herein. Factors that could cause or contribute to the differences
are
discussed in “Risk Factors” and elsewhere in this Prospectus. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
Results
of Operations for the Ten Months Ended October 31, 2007 Compared With the Prior
Year
Revenues:
Revenues for the Ten Months ended October 31, 2007 (“Current Period”) were
$301,310, a decrease of $20,957, or 7%, from the $322,267 in revenues realized
for the ten months ended October 31, 2006 (“Prior Period”). There were $129,259
of event revenues in the Current Period, which was an increase of $129,259
compared to $0 in the Prior Year. Stratus card revenues were $172,051 in the
Current Period, a decrease of $150,216, or 47%, from the Prior Period. The
bank
providing support for the Stratus card operations restricted the addition of
new
members and provided a lower level of service to existing members, resulting
in
declines in revenues from membership fees and from the Company’s share of fees
related to purchase volume on the card. The Company is currently arranging
for a
new bank to provide support for the Stratus card operations
Cost
of Goods Sold/Gross Margin:
Cost of
Goods Sold was $77,103 in the Current Period, an increase of $77,103 from $0
in
the Prior Period. Cost of Goods Sold for events was $77,103, a increase of
$77,103 from $0 in the Prior Period, resulting in a gross margin of $52,156,
or
40.3%, on event revenues of $129,259 Cost of Goods Sold for Stratus was $0
in
both the Current Period and the Prior Period since the Company receives its
revenues from the sponsoring bank on a net basis without offsetting fees.
Operating
Expenses:
Overall
operating expenses for the Current Period were $991,364, an increase of
$138,436, or 16%, from $852,928 in the Prior Period. General and administrative
expenses of $516,019 increased by $61,967, or 14%, from $454,052 in the Prior
Period related to higher staffing levels in the Current Period. Legal and
professional services of $$426,863 increased by $76,334, or 22%, from $350,519
in the Prior Period, related to increased use of sales and marketing consultants
in the Current Period. Depreciation and amortization remained consistent with
$48,482 for the Current Period and $48,357 for the Prior Period.
Other
income/(expenses):
Other
income/(expense) was a net expense of $147,995 in the Current Period, an
increase of $15,650, or 12%, from a net expense of $132,345 in the Prior Period.
Interest expense was $169,636 in the Current Period, an increase of $53,837,
or
46%, from $115,799 in the Prior Period, primarily related to higher average
debt
levels in the Current Period. Other income was $21,641 in the Current Period,
an
increase of $38,187, or 231%, from a net other expense of $16,546 related to
accounting adjustments related to the Stratus redemption program to reflect
the
proper balances.
Results
of Operations for the Year Ended December 31, 2006 Compared With the Prior
Year
Revenues:
Revenues for the Year Ended December 31, 2006 were $371,739, an increase of
$135,982, or 58%, from the $235,757 in revenues realized for the Year Ended
December 31, 2005 (“Prior Year”). There were no event revenues in the Current
Year, which was a decrease of $89,876, or 100%, compared to $89,876 in the
Prior
Year. Stratus card revenues were $371,739 in the Current Year, an increase
of
$225,858, or 155%, from the prior year. The Stratus card operations were
purchased in August 2005, and the increase in revenues in the Current Year
was
largely related to the inclusion of five months of operations for the Prior
Year
and twelve months for the Current Year.
Cost
of Goods Sold/Gross Margin:
Cost of
Goods Sold were $0 in the Current Year, a decrease of $530,374, or 100%, from
$530,374 in the Prior Year. This decrease was related to the decline in event
revenues. Cost of Goods Sold for Stratus was $0 in both the Current Year and
the
Prior Year since the Company receives its revenues from the sponsoring bank
on a
net basis without offsetting fees.
-14-
Operating
Expenses:
Overall
operating expenses for the Current Year were $1,102,623, a decrease of $326,900,
or 23%, from $1,429,523 in the Prior Year. This decrease was related to $356,250
in legal judgment expense incurred in the Prior Year with $0 incurred in the
Current Year. A decline of $88,830, or 13%, to $572,627 in General and
Administrative expenses was offset by an increase of $83,370, or 22%, to
$471,967 in legal and professional services, and an increase of $34,810,or
150%,
in depreciation and amortization expense, related to a full year of depreciation
and amortization for Stratus assets in the Current Year, versus five months
in
the Prior Year.
Other
income/(expenses):
Other
income/(expense) was a net expense of $9,816 in the Current Year, a decrease
of
$103,074, or 91%, from a net expense of $112,890 in the Prior Year. Interest
expense was $137,870 in the Current Year, an increase of $24,980, or 22%, from
$112,890 in the Prior Year. This increase was related to debt levels being
on
the books for a full year in 2006 and less than a full year in 2005, when
several debt instruments were set up in the first quarter of that year. Other
income was $128,054 in the Current Year, related to the reversal of an accrued
expense that the Company believed will no longer be incurred, and was $0 in
the
Prior Year.
Liquidity
and Capital Resources
Cash
Flows
Net
cash
used by operations was $203,411 for the Ten Months Ended October 31, 2007,
primarily related to the net loss of $915,152 being offset by $711,741 in
positive working capital adjustments, primarily $274,372 increase in accounts
payable, $200,000 in deferred salary by the Company’s president and $141,195 in
accrued interest. There were no cash flows from investing activities during
this
period and cash needs were met with $459,500 from the sale of common stock,
partially offset by $124,974 to pay down loans to shareholders.
Net
cash
used by operations was $225,471 for the Ten Months Ended October 31, 2006,
primarily by the net loss of $663,006 being offset by $413,612 in positive
working capital adjustments, primarily $200,000 in deferred salary by the
Company’s president and $86,436 in accrued interest. There were no cash flows
from investing activities during this period and cash needs were met with
$335,000 from the sale of common stock, partially offset by $132,802 to pay
down
loans to shareholders.
Net
cash
used by operations was $424,937 for the Current Year, primarily by the net
loss
of $740,700 being offset by $270,353 in positive working capital adjustments,
primarily $240,000 in deferred salary by the Company’s president. There were no
cash flows from investing activities during the Current Year and cash needs
were
met with an increase of $18,636 in loans from shareholders, $335,000 from the
sale of stock, and a temporary $60,880 overdraft on December 31,
2006.
Liquidity
Requirements and Outlook
The
Company requires outside funding to develop its current portfolio or events,
acquire new events and develop its Stratus card business and to continue
operations. Even in the absence of acquisitions, cash will be required for
the
Company to develop an infrastructure and re-launch its current portfolio of
events. This offering should be sufficient for the Company to initiate its
acquisition program if the maximum offering is achieved, but additional capital
will be required to complete this program.
The
Company had a line of credit with Wells Fargo Bank that is inactive and is
being
paid down. This line of credit carries a variable interest rate based on the
prime rate plus a 0.75% spread per annum.
The
balance outstanding at October 31, 2007 was $68,041. There can be no assurances
that the Company will be able to utilize this facility or any credit facilities
as a source of capital for future expansion.
-15-
MANAGEMENT
AND BOARD OF DIRECTORS
The
following table sets forth certain information regarding the executive officers,
directors and advisors of the Company:
|
NAME
|
POSITION(S)
HELD WITH PSEI
|
AGE
|
||
|
Paul
H. Feller
|
Director,
President, Chief Executive Officer And Executive Chairman and Member
of
the Office of the Chairman
|
43
|
||
|
John
Moynahan (1)
|
Director,
Vice President and Chief Financial Officer and Member of the Office
of the
Chairman
|
50
|
||
|
Bradley
Birkenfeld
|
Director
|
44
|
|
(1)
|
CFO
working as a consultant pending the completion of Employment Agreement
and
approval of the Board of Directors.
|
Management
Biographies
Paul
Feller, President and CEO
- Mr.
Feller has been involved with the management of live entertainment events for
over 15 years. He has been the President & CEO of Pro Sports &
Entertainment, Inc. since November 1998 except during the period commencing
February 2002 to November of 2004 when he left to work on his MBA at Pepperdine
University. Prior to founding Pro Sports & Entertainment, he served as COO
and CEO of PSI, an international live entertainment business which operated
sports events in Asia, Europe and North America. Mr. Feller had responsibility
for developing PSI’s new markets in China and the US. He negotiated agency
rights and agreements with the America’s Cup syndicate, Professional Volleyball
Tour, Disney’s Freedom Bowl, Andretti Indy Racing Team, Long Beach Marathon, and
both the Vancouver Open and ATP Shanghai Open Tennis Tournaments. As head of
PSI’s Asia division, Mr. Feller managed a $35 million revenue operation, and
developed agreements with STAR Television and China’s CCTV and operated the
first international professional soccer tournament in China. He has been a
member of the Los Angeles Sports Council, Orange County Sports Council, Asia
International Business and Entertainment Association, US Professional Cycling
Association, and the UK Professional Cycling Association. Prior to PSI, Mr.
Feller was a vice president of marketing and sales with Osborne Computer
Corporation and a senior engineer with McDonnell Douglas. He attended Purdue
University in Mechanical Engineering and has taken a hiatus from completing
his
Juris Doctorate from Columbus University Law School while completing his MBA
at
Pepperdine University.
John
Moynahan, Senior Vice President and Chief Financial Officer
(Consultant) - With over 28 years of business experience, Mr. Moynahan has
been a treasurer for four years and CFO for 13 years of publicly-traded
companies ranging from development stage to a billion dollars in annual
revenues. During this span, Mr. Moynahan has been responsible for SEC reporting
and compliance, successfully executed an IPO, completed over $500 million in
debt financings, over $120 million in equity financings, and investigated and
closed acquisitions with companies such as Fischer Scientific Group, Card
Systems Solutions, Inc., Innovative Technology Applications, Inc., and Xybernaut
Corporation. Mr. Moynahan was the President of Novastar Group, Inc. from June
2006 May 2007 - Senior Vice President and Chief Financial Officer of Xybernaut
Corporation from November 2005 to June 2006, its Executive Vice President,
Educational Products November 2002 to February 2003, Its Senior Vice President
and Chief Financial Officer from April 1999 to November 2002 ad the Vice
President of Finance and Corporate Development of Innovative Technology
Application Inc. from May 2004 to October 2005. Mr. Moynahan received a B.A.
from Colgate University, where he was elected to the Phi Beta Kappa honor
society, an M.B.A from New York University and a C.P.A. from New York State.
Mr.
Moynahan is also a co-inventor on five issued U.S. patents and over 100
corresponding international patents
-16-
BOARD
OF DIRECTORS
Brad
Birkenfeld, Partner, Chairman Wealth Management of Union
Charter
- Mr.
Birkenfeld brings to PSEI more than two decades of experience in Financial
Advisory, Investment Banking, and Private Banking. From 2002 - 2006, he was
the
Director of Key Clients for UBS Geneva. In 2006, He joined Union Charter as
Chairman and Wealth Manager. He effectively managed positions as Director Key
Clients - Wealth Management, Senior Private Banker, and as Financial Advisor
for
some of the world’s leading private banking firms including UBS, Barclays Bank,
and Credit Suisse. Mr. Birkenfeld began his financial career at State Street
Bank and Trust Company in Massachusetts where he served as an Investment Analyst
managing a currency hedging program for 20 institutional portfolios, as well
as
FOREX trading for 90 portfolios with a net asset value of $30 billion. Mr.
Birkenfeld is a visiting lecturer at the International Institute for Management
Development - IMD, Lausanne Switzerland, as well as at The American Graduate
School of International Management, Thunderbird in Archamps, France. He received
his Bachelor of Science in Economics from Norwich University, Military College
of Vermont, and his Masters of International Business Administration from the
American Graduate School of Business, Institute of Business Studies, Vevey
Switzerland.
DIRECTORS
AND EXECUTIVE OFFICERS
Pursuant
to the Certificate of Incorporation and Bylaws, the Board manages the business
of PSEI. The Board conducts its business through meetings of the Board and
its
committees. The standing committees of the Board are described
below.
The
Bylaws authorize the Board to fix the number of directors from time to time.
The
number of directors of PSEI is currently three. All directors hold office until
the next annual meeting of stockholders following their election or until their
successors are elected and qualified. Officers of PSEI are to be elected
annually by the Board and serve at the Board’s discretion.
COMPENSATION
COMMITTEE
The
Compensation Committee reviews and makes recommendations with respect to certain
PSEI compensation programs and compensation arrangements for certain officers,
including Messrs. Feller, Moynahan, and Roundtree. The members of the
Compensation Committee will be designated and appointed at the next Board
Meeting.
STOCK
OPTION COMMITTEE
The
Stock
Option Committee grants options, determines which employees and other
individuals performing substantial services to PSEI may be granted options
and
determines the rights and limitations of options granted under PSEI’s plans. The
members of the Stock Option Committee will be designated and appointed at the
next Board Meeting.
-17-
EXECUTIVE
COMPENSATION
PSEI
did
not pay any of its executive officers any compensation for the fiscal year
ended
December 31, 2007.
Employment
Agreements
The
Company entered into an employment agreement dated January 1, 2007 with Paul
Feller, the Company’s Chief Executive Officer. Under the agreement, Mr. Feller’s
annual salary may not be less than $240,000. The agreement further provides
that
Mr. Feller is entitled to receive one-time bonuses of $250,000 in the event
of a
Valuing Event that causes the Company to be valued in excess of $100,000,000;
and an additional bonus of $500,000 shall be paid in the event of a valuing
event that causes the Company to be valued in excess of $250,000,000. The
Agreement further provides that Mr. Feller will receive annual stock options
as
approved by the Board of Directors. The exercise price for options shall be
eighty percent (80%) of the per share value of Company’s common stock at the
time of the applicable acquisition or financing as determined by reference
to
the Company’s public trading price, if any, or, if no public trading market
exists, the per share valuation of the Company made in connection with the
acquisition or financing or, if no such valuation exists, the per share value
of
the Company as determined in good faith by the Company’s Board of Directors.
Each of the options granted shall have a term of five years, shall vest in
full
upon grant; provided that such options shall terminate ninety (90) days after
the Executive’s employment with the Company is terminated if such termination is
for Cause or is a the result of a resignation by Executive for reasons other
than Good Reason. Such options shall not be assignable by Executive. Each option
described above shall be subject to customary anti-dilution provision with
respect to any stock splits, mergers, reorganizations or other such events.
No
such options have been granted to date.
The
Company is in the process of an employment agreement with John Moynahan, the
Company’s Chief Financial Officer, pending which he is currently working on a
consultancy basis. Under the proposed agreement, Mr. Moynahan annual salary
may
not be less than $200,000. The Agreement further provides that Mr. Moynahan
will
receive annual stock options as approved by the Board of Directors. The exercise
price for options shall be the per share value of Company’s common stock at the
time of the applicable acquisition or financing as determined by reference
to
the Company’s public trading price, if any, or, if no public trading market
exists, the per share valuation of the Company made in connection with the
acquisition or financing or, if no such valuation exists, the per share value
of
the Company as determined in good faith by the Company’s Board of Directors.
Each of the options granted shall have a term of five years, shall vest in
full
upon grant; provided that such options shall terminate forty-five (45) days
after the Executive’s employment with the Company is terminated if such
termination is for Cause or is a the result of a resignation by Executive for
reasons other than Good Reason. Such options shall not be assignable by
Executive. Each option described above shall be subject to customary
anti-dilution provision with respect to any stock splits, mergers,
reorganizations or other such events. No such options have been granted to
date.
Indemnification
of Officers and Directors
Under
its
Corporate By-laws, the Company may indemnify officers and directors against
all
expenses, including legal fees, and against all judgments, fines and amounts
paid in settlements and reasonably incurred in connection with legal,
administrative or investigative proceedings any person who is or was a party
to
any threatened, pending or completed proceedings, whether civil, criminal,
administrative or investigative, by reason of the fact that the person is or
was
a director, an officer or liquidator of the Company, or is or was, at the
request of the Company serving as an officer, director or liquidator of, or
in
any other capacity is, or was acting for, another company or partnership, joint
venture, trust or other enterprise. The Company may only indemnify a person
if
the person acted honestly and in good faith with a view to the best interests
of
the Company, and in the case of criminal proceedings, the persona had no
reasonable cause to believe that his or her conduct was unlawful. This
indemnification may be available for liabilities arising in connection with
this
offering. The Articles of Incorporation also provide that the Company may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, or liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other enterprise,
against any liability asserted against the person and incurred by the person
in
that capacity, whether or not the Company has or would have had the power to
indemnify the person against the liability.
-18-
The
Company has executed Indemnification Agreements with its officers and directors,
so as to provide them with the maximum protection permitted by law. The Company
has agreed to indemnify its officers and directors against third party
proceedings, proceedings by or in the right of the Company, expenses of a
successful party, advances of expenses, indemnification upon or advance of
application, and partial indemnification of expenses, judgments, fines or
penalties under the governing laws of California and elsewhere.
Stock
Compensation Program
The
Company is intending to adopt, but has not yet completed its Stock Compensation
Program (the “Stock Compensation Program”). This program is intended to provide
key employees, vendors, directors, consultants and other key contributors to
Company growth an opportunity to participate in the Company’s success. It is
estimated that 15% of total shares outstanding will be authorized in options
and
reserved for this program. Awards under the program may be made in the form
of
incentive stock options, nonqualified stock options, restricted shares, rights
to purchase shares under a employee stock plan, grants of options to
non-employee directors, and or other specified stock rights as defined under
the
plan. PSEI, subject to Shareholder approval, plans to adopt a new stock option
plan that will be submitted to vote of shareholders at PSEI’s annual meeting
scheduled to be held in 2008.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of March 10, 2008 with
respect to the beneficial ownership of the Company’s outstanding common stock by
(i) any holder of more than five (5%) percent; (ii) each of the named executive
officers, directors and director nominees; and (iii) our directors, director
nominees and named executive officers as a group. Except as otherwise indicated,
each of the stockholders listed below has sole voting and investment power
over
the shares beneficially owned.
|
Name
of Beneficial Owner
|
Common
Stock Beneficially Owned
|
Percent
of Common Stock Beneficially Owned (2)
|
|||||
|
Paul
Feller
|
24,255,000
|
44
|
%
|
||||
|
Ralph
Feller
|
9,405,000
|
17
|
%
|
||||
|
John
Moynahan (1)
|
1,485,000
|
2.7
|
%
|
||||
|
Bradley
Birkenfeld
|
495,000
|
.9
|
%
|
||||
|
All
officers and directors as a group (3 persons)
|
26,235,000
|
47.7
|
%
|
||||
*
Less
than one percent.
| (1) |
CFO
working as a consultant pending the completion of Employee Agreement
and
approval of the Board of Directors.
|
-19-
| (2) |
Beneficial
ownership percentages gives effect to the completion of the Exchange,
and
are calculated based on shares of common stock issued and outstanding
(55,000,000). Beneficial ownership is determined in accordance
with Rule
13d-3 of the Exchange Act. The number of shares beneficially owned
by a
person includes shares of common stock underlying options or warrants
held
by that person that are currently exercisable or exercisable within
60
days of March 10, 2008. The shares issuable pursuant to the exercise
of
those options or warrants are deemed outstanding for computing
the
percentage ownership of the person holding those options and warrants
but
are not deemed outstanding for the purposes of computing the percentage
ownership of any other person. The persons and entities named in
the table
have sole voting and sole investment power with respect to the
shares set
forth opposite that person’s name, subject to community property laws,
where applicable, unless otherwise noted in the applicable
footnote.
|
Item 5.01.
Changes in Control of Registrant
See
Item
2.01 above.
Item 5.02.
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers.
Immediately
following the completion of the Exchange, Patty Linson, the existing director
and executive officer resigned and Paul Feller and Bradley Birkenfeld were
elected to the Board and Mr. Feller was appointed as the Company’s Chief
Executive Officer.
Item 9.01
Financial Statements and Exhibits.
(a) Financial
Statement of Businesses Acquired.
Attached
hereto
(b) Pro
Forma
Financial Information.
Attached
hereto
(d) Exhibits.
|
Exhibit No.
|
Description
|
|
|
10.1
|
Agreement
and Plan of Merger dated as of August 20, 2007
|
|
|
10.2
|
Amendment
to Agreement and Plan of Merger dated as of March 10,
2008
|
|
|
10.3
|
Employment
Agreement dated January 1, 2007 between Pro Sports Entertainment,
Inc. and
Paul Feller
|
-20-
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
FERIS
INTERNATIONAL, INC.
|
||
| |
|
|
|
Date:
March 14, 2008
|
By: |
/s/
Paul Feller
|
|
Paul
Feller, Chairman of the Board and Chief Executive Officer (principal
executive officer)
|
||
-21-
EXHIBIT
INDEX
|
Exhibit No.
|
Description
|
|
|
10.1
|
Agreement
and Plan of Merger dated as of August 20, 2007
|
|
|
10.2
|
Amendment
to Agreement and Plan of Merger dated as of March 10,
2008
|
|
|
10.3
|
Employment
Agreement dated as of January 1, 2007 between PSEI and Paul
Feller
|
-22-
PRO
SPORTS & ENTERTAINMENT, INC.
FINANCIAL
STATEMENTS
Years
ended December 31, 2006 and 2005
Ten
Months Ended October 31, 2007 and 2006 (unaudited)
PRO
SPORTS & ENTERTAINMENT, INC.
Years
Ended December 31, 2006 and 2005
Ten
Months Ended October 31, 2007 and 2006 (Unaudited)
|
Page
|
||||
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1
|
|||
|
FINANCIAL
STATEMENTS
|
||||
|
Balance
Sheets
|
2
|
|||
|
Statements
of Operations
|
3
|
|||
|
Statements
of Shareholders' Equity / (Deficit)
|
4
|
|||
|
Statements
of Cash Flows
|
5
|
|||
|
Notes
to Financial Statements
|
8 -
22
|
|||
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
Pro
Sports & Entertainment, Inc.
Los
Angeles, California
We
have
audited the accompanying balance sheets of Pro Sports & Entertainment, Inc.
(the “Company”) as of December 31, 2006 and 2005, and the related statements of
operations, shareholder’s equity/(deficit) and cash flows for each of the two
years in the period ended December 31, 2006. These financial statements are
the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).
Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provided a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pro Sports & Entertainment,
Inc. as of December 31, 2006 and 2005, and the results of its operations and
its
cash flows for each of the two years in the period ended December 31, 2006
in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses and has negative cash
flow
from operations. This raises 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 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As
discussed in note 3 to the financial statements, the Company adopted Statement
of Financial Accounting Standards No. 123R, “Share Based Payments,” effective
January 1, 2006.
/s/
Singer Lewak Greenbaum & Goldstein LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los
Angeles, California
March 12,
2008
1
PRO
SPORTS & ENTERTAINMENT, INC.
BALANCE
SHEETS
|
December
31,
|
December
31,
|
October
31,
|
||||||||
|
2006
|
2005
|
2007
|
||||||||
|
(unaudited)
|
||||||||||
|
ASSETS
|
||||||||||
|
Current
assets
|
||||||||||
|
Cash
|
$
|
-
|
$
|
15,586
|
$
|
128,545
|
||||
|
Restricted
cash
|
365,689 | 464,378 | 162,855 | |||||||
|
Receivables
|
12,778
|
27,499
|
0
|
|||||||
|
Deposits
and prepaid expenses
|
17,915
|
11,947
|
14,915
|
|||||||
|
Inventory
|
9,483
|
9,483
|
9,483
|
|||||||
|
Total
current assets
|
405,865
|
528,893
|
315,798
|
|||||||
|
Property
and equipment,
net
|
25,530
|
38,149
|
15,016
|
|||||||
|
Intangible
assets,
net
|
4,474,408
|
4,519,818
|
4,421,266
|
|||||||
|
Goodwill
|
2,073,345
|
2,073,345
|
2,073,345
|
|||||||
|
Total
assets
|
$
|
6,979,148
|
$
|
7,160,205
|
$
|
6,825,425
|
||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY / (DEFICIT)
|
||||||||||
|
Current
liabilities
|
||||||||||
|
Bank
overdraft
|
$
|
66,980
|
$
|
6,100
|
$
|
92,928
|
||||
|
Accounts
Payable
|
908,586 | 831,414 | 1,182,959 | |||||||
|
Deferred
salary
|
1,305,512
|
1,065,512
|
1,505,512
|
|||||||
|
Accrued
interest
|
527,523
|
395,092
|
668,718
|
|||||||
|
Accrued
expenses - legal judgment
|
365,579
|
365,579
|
365,579
|
|||||||
|
Other
accrued expenses and other liabilities
|
380,073
|
514,619
|
468,634
|
|||||||
|
Line
of credit
|
70,611
|
75,776
|
68,041
|
|||||||
|
Loans
payable to shareholders
|
905,085
|
886,450
|
780,111
|
|||||||
|
Current
portion of notes payable - related parties
|
90,000
|
90,000
|
90,000
|
|||||||
|
Note
payable
|
125,000
|
125,000
|
125,000
|
|||||||
|
Event
acquisition liabilities
|
1,153,761
|
1,153,761
|
1,153,761
|
|||||||
|
Deferred
revenue
|
102,475
|
165,309
|
24,385
|
|||||||
|
Redemption
fund reserve
|
346,806
|
482,647
|
124,293
|
|||||||
|
Total
current liabilities
|
6,347,992
|
6,157,259
|
6,649,921
|
|||||||
|
Non-current
liabilities
|
||||||||||
|
Non-current
portion of notes payable - related parties
|
1,000,000
|
1,000,000
|
1,000,000
|
|||||||
|
Total
liabilities
|
7,347,992
|
7,157,259
|
7,649,921
|
|||||||
|
Commitments
and contingencies
|
||||||||||
|
Shareholders'
equity / (deficit)
|
||||||||||
|
Preferred
stock, $0.01 par value:
|
||||||||||
|
5,000,000
shares authorized
|
||||||||||
|
0,
0 and 0 shares issued and outstanding, respectively
|
0
|
0
|
0
|
|||||||
|
Common
stock, $0.01 par value:
|
||||||||||
|
45,000,000
shares authorized-13,575,541, 13,384,359
|
||||||||||
|
and
13,728,708(unaudited) shares issued and outstanding
|
135,756
|
133,844
|
137,287
|
|||||||
|
Additional
paid-in capital
|
9,403,544
|
9,036,546
|
9,861,513
|
|||||||
|
Accumulated
deficit
|
(9,908,144
|
)
|
(9,167,444
|
)
|
(10,823,296
|
)
|
||||
|
Total
shareholders' equity / (deficit)
|
(368,844
|
)
|
2,946
|
(824,496
|
)
|
|||||
|
Total
liabilities and shareholders' equity / (deficit)
|
$
|
6,979,148
|
$
|
7,160,205
|
$
|
6,825,425
|
||||
The
accompanying notes are an integral part of these financial
statements
2
PRO
SPORTS & ENTERTAINMENT, INC.
STATEMENTS
OF OPERATIONS
|
Ten
months
|
Ten
months
|
||||||||||||
|
Year
ended
|
Year
ended
|
ended
|
ended
|
||||||||||
|
December
31,
|
December
31,
|
October
31,
|
October
31,
|
||||||||||
|
2006
|
2005
|
2007
|
2006
|
||||||||||
|
(unaudited)
|
(unaudited)
|
||||||||||||
|
Net
revenues
|
|||||||||||||
|
Event
revenues
|
$
|
-
|
$
|
89,876
|
$
|
129,259
|
$
|
-
|
|||||
|
Stratus
revenues
|
380,989
|
153,436
|
172,051
|
322,267
|
|||||||||
|
Total
revenues
|
380,989
|
243,312
|
301,310
|
322,267
|
|||||||||
|
Cost
of goods sold
|
|||||||||||||
|
Event
cost of goods sold
|
-
|
530,374
|
77,103
|
-
|
|||||||||
|
Stratus
cost of goods sold
|
9,250
|
7,555
|
-
|
-
|
|||||||||
|
Total
cost of goods sold
|
-
|
537,929
|
77,103
|
-
|
|||||||||
|
Gross
profit / (loss)
|
371,739
|
(294,617
|
)
|
224,207
|
322,267
|
||||||||
|
Operating
expenses
|
|||||||||||||
|
General
and administrative
|
572,627
|
661,457
|
516,019
|
454,052
|
|||||||||
|
Legal
and professional services
|
471,967
|
388,597
|
426,863
|
350,519
|
|||||||||
|
Depreciation
and amortization
|
58,029
|
23,219
|
48,482
|
48,357
|
|||||||||
|
Legal
judgment
|
-
|
356,250
|
-
|
-
|
|||||||||
|
Total
operating expenses
|
1,102,623
|
1,429,523
|
991,364
|
852,928
|
|||||||||
|
Loss
from operations
|
(730,884
|
)
|
(1,724,140
|
)
|
(767,157
|
)
|
(530,661
|
)
|
|||||
|
Other
income/(expenses)
|
|||||||||||||
|
Other
Income/(Expense)
|
128,054
|
-
|
21,641
|
(16,546
|
)
|
||||||||
|
Interest
expense
|
(137,870
|
)
|
(112,890
|
)
|
(169,636
|
)
|
(115,799
|
)
|
|||||
|
Total
other expenses
|
(9,816
|
)
|
(112,890
|
)
|
(147,995
|
)
|
(132,345
|
)
|
|||||
|
Net
loss
|
$
|
(740,700
|
)
|
$
|
(1,837,030
|
)
|
$
|
(915,152
|
)
|
$
|
(663,006
|
)
|
|
|
Basic
and diluted earnings
|
$
|
(0.05
|
)
|
$
|
(0.14
|
)
|
$
|
(0.07
|
)
|
$
|
(0.05
|
)
|
|
|
per
share
|
|||||||||||||
|
Basic
and diluted weighted-
|
|||||||||||||
|
average
common shares
|
13,501,724
|
12,946,224
|
13,668,224
|
13,486,908
|
|||||||||
The
accompanying notes are an integral part of these financial
statements
3
PRO
SPORTS & ENTERTAINMENT, INC.
STATEMENTS
OF SHAREHOLDERS’ DEFICIT
|
Common
Stock
|
Additional
Paid-In |
Accumulated
|
||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||
|
Balance
at December 31, 2004
|
12,494,639
|
$
|
124,946
|
$
|
6,764,679
|
$
|
(7,330,414
|
)
|
$
|
(440,789
|
)
|
|||||
|
Issuance
of common stock for cash
|
223,053
|
2,231
|
181,019
|
183,250
|
||||||||||||
|
Issuance
of common stock for
|
||||||||||||||||
|
Stratus
acquisition
|
666,667
|
6,667
|
1,993,333
|
2,000,000
|
||||||||||||
|
Value
of stock options granted to
|
||||||||||||||||
|
consultants
for services
|
97,515
|
97,515
|
||||||||||||||
|
Net
loss
|
(1,837,030
|
)
|
(1,837,030
|
)
|
||||||||||||
|
Balance
at December 31, 2005
|
13,384,359
|
133,844
|
9,036,546
|
(9,167,444
|
)
|
2,946
|
||||||||||
|
Issuance
of common stock for cash
|
191,182
|
1,912
|
333,088
|
335,000
|
||||||||||||
|
Value
of stock options granted to
|
||||||||||||||||
|
consultants
for services
|
33,910
|
33,910
|
||||||||||||||
|
Net
loss
|
(740,700
|
)
|
(740,700
|
)
|
||||||||||||
|
Balance
at December 31, 2006
|
13,575,541
|
$
|
135,756
|
$
|
9,403,544
|
$
|
(9,908,144
|
)
|
$
|
(368,844
|
)
|
|||||
|
Issuance
of common stock for cash
|
153,157
|
1,531
|
457,969
|
459,500
|
||||||||||||
|
Offering
cost related to issuance of
|
||||||||||||||||
|
common
stock settled in stock options
|
-
|
-
|
||||||||||||||
|
Net
loss
|
(915,152
|
)
|
(915,152
|
)
|
||||||||||||
|
Balance
at October 31, 2007 (Unaudited)
|
13,728,708
|
$
|
137,287
|
$
|
9,861,513
|
$
|
(10,823,29
|
)
|
$
|
(824,496
|
)
|
|||||
The
accompanying notes are an integral part of these financial
statements.
4
PRO
SPORTS & ENTERTAINMENT, INC.
STATEMENTS
OF CASH FLOWS
|
Ten
months
|
Ten
months
|
||||||||||||
|
Year
ended
|
Year
ended
|
ended
|
ended
|
||||||||||
|
December
31,
|
December
31,
|
October
31,
|
October
31,
|
||||||||||
|
2006
|
2005
|
2007
|
2006
|
||||||||||
|
(unaudited)
|
(unaudited)
|
||||||||||||
|
Cash
flows from operating activities:
|
|||||||||||||
|
Net
loss
|
$
|
(740,700
|
)
|
$
|
(1,837,030
|
)
|
$
|
(915,152
|
)
|
$
|
(663,006
|
)
|
|
|
Adjustments
to reconcile net loss
|
|||||||||||||
|
to
net cash provided by/(used in) operating
activities:
|
|||||||||||||
|
Depreciation
and amortization
|
58,029
|
23,219
|
48,482
|
48,357
|
|||||||||
|
Stock
option compensation expense
|
33,910
|
97,515
|
-
|
33,910
|
|||||||||
|
Gain
recognized on payables written off
|
(155,054 | ) | - | - | - | ||||||||
|
Accretion
of warrants liability
|
5,437
|
3,113
|
-
|
5,438
|
|||||||||
|
(Increase)
/ decrease in:
|
|||||||||||||
|
Receivables
|
14,721
|
(27,499
|
)
|
12,778
|
24,904
|
||||||||
|
Deposits
and prepaid expenses
|
(5,968
|
)
|
98,053
|
3,000
|
(3,212
|
)
|
|||||||
|
Increase
/ (decrease) in:
|
|||||||||||||
|
Accounts
payable
|
77,172
|
51,944
|
274,372
|
54,974
|
|||||||||
|
Deferred
salary
|
240,000
|
234,231
|
200,000
|
200,000
|
|||||||||
|
Accrued
interest
|
132,431
|
112,889
|
141,195
|
110,359
|
|||||||||
|
Accrued
expenses - legal judgment
|
-
|
356,250
|
-
|
-
|
|||||||||
|
Other
accrued expenses and other liabilities
|
15,071
|
|
300,774
|
88,561
|
(35,606
|
)
|
|||||||
|
Deferred
revenue
|
(62,834
|
)
|
165,308
|
(78,090
|
)
|
(68,455
|
)
|
||||||
|
Redemption
fund reserve
|
(37,152
|
)
|
18,270
|
21,443
|
66,866
|
||||||||
|
Net
cash provided by/(used in) operating activities
|
(424,937
|
)
|
(402,963
|
)
|
(203,411
|
)
|
(225,471
|
)
|
|||||
|
Cash
flows from investing activities:
|
|||||||||||||
|
Purchase
of events
|
-
|
(15,000
|
)
|
-
|
-
|
||||||||
|
Net
cash used in investing activities
|
-
|
(15,000
|
)
|
-
|
-
|
||||||||
|
Cash
flows from financing activities:
|
|||||||||||||
|
Proceeds
from bank overdraft
|
60,890
|
6,100
|
-
|
15,873
|
|||||||||
|
Proceeds/(payments)
of line of credit
|
(5,165
|
)
|
15,292
|
(2,570
|
)
|
(5,165
|
)
|
||||||
|
Proceeds/(payments)
- loans payable to shareholders
|
18,636
|
12,986
|
(124,974
|
)
|
(132,802
|
)
|
|||||||
|
Proceeds
from notes payable-related parties (current)
|
-
|
90,000
|
-
|
-
|
|||||||||
|
Proceeds
from note payable (current)
|
-
|
125,000
|
-
|
-
|
|||||||||
|
Proceeds
from issuance of common stock for cash
|
335,000
|
183,250
|
459,500
|
335,000
|
|||||||||
|
Net
cash provided by financing activities
|
409,351
|
432,628
|
331,956
|
212,906
|
|||||||||
|
Net
change in cash and cash equivalents
|
(15,586
|
)
|
14,665
|
128,545
|
(12,565
|
)
|
|||||||
|
Cash
and cash equivalents, beginning of period
|
15,586
|
921
|
-
|
15,586
|
|||||||||
|
Cash
and cash equivalents, end of period
|
$
|
-
|
$
|
15,586
|
$
|
128,545
|
$
|
3,021
|
|||||
|
Supplemental
disclosures of cash flow information:
|
|||||||||||||
|
Liabilities
assumed as part of event acquisitions
|
$
|
-
|
$
|
240,000
|
$
|
-
|
$
|
-
|
|||||
|
Stock
issuance related to acquisition of Stratus
|
$
|
-
|
$
|
2,000,000
|
$
|
-
|
$
|
-
|
|||||
|
Note
payable for acquisition of Stratus
|
$
|
-
|
$
|
1,000,000
|
$
|
-
|
$
|
-
|
|||||
The
accompanying notes are an integral part of these financial
statements
5
PRO
SPORTS & ENTERTAINMENT, INC.
STRATUS
ENTERTAINMENT,
INC.
PRO
FORMA COMBINED BALANCE
SHEET
|
As
of October 31, 2007 (Unaudited)
|
||||||||||||||||
|
|
Feris
|
|||||||||||||||
|
Pro
Sports
|
International
|
Adjustments
|
Pro
Forma
|
|||||||||||||
|
ASSETS
|
|
|||||||||||||||
|
Current
assets
|
||||||||||||||||
|
Cash
and cash equivalents
|
$
|
128,545
|
$
|
-
|
$
|
-
|
$
|
128,545
|
||||||||
|
Restricted
cash
|
162,855
|
-
|
-
|
162,855
|
||||||||||||
|
Receivables
|
0
|
-
|
-
|
-
|
||||||||||||
|
Deposits
and prepaid expenses
|
14,915
|
-
|
-
|
14,915
|
||||||||||||
|
Inventory
|
9,483
|
-
|
-
|
9,483
|
||||||||||||
|
Total
current assets
|
315,798
|
-
|
-
|
315,798
|
||||||||||||
|
Property
and equipment, net
|
15,016
|
-
|
-
|
15,016
|
||||||||||||
|
Intangible
assets, net
|
4,421,266
|
-
|
-
|
4,421,266
|
||||||||||||
|
Goodwill
|
2,073,345
|
-
|
-
|
2,073,345
|
||||||||||||
|
Total
assets
|
$
|
6,825,425
|
$
|
-
|
$
|
-
|
$
|
6,825,425
|
||||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY / (DEFICIT)
|
||||||||||||||||
|
Current
liabilities
|
||||||||||||||||
|
Bank
overdraft
|
$
|
92,928
|
$
|
-
|
$
|
-
|
92,928
|
|||||||||
|
Accounts
payable
|
1,182,959
|
-
|
-
|
1,182,959
|
||||||||||||
|
Deferred
salary
|
1,505,512
|
32,400
|
28,800
|
(a
|
)
|
1,566,712
|
||||||||||
|
Accrued
interest
|
668,718
|
13,821
|
-
|
682,539
|
||||||||||||
|
Accrued
expenses - legal judgment
|
365,579
|
-
|
-
|
365,579
|
||||||||||||
|
Other
accrued expenses and other liabilities
|
468,634
|
82,500
|
-
|
551,134
|
||||||||||||
|
Line
of credit
|
68,041
|
-
|
-
|
68,041
|
||||||||||||
|
Loans
and accounts payable to shareholders and related parties
|
780,111
|
-
|
-
|
780,111
|
||||||||||||
|
Current
portion of notes payable - related parties
|
90,000
|
-
|
-
|
90,000
|
||||||||||||
|
Note
payable
|
125,000
|
75,000
|
(75,000
|
)
|
(b
|
)
|
125,000
|
|||||||||
|
Event
acquisition liabilities
|
1,153,761
|
-
|
-
|
1,153,761
|
||||||||||||
|
Deferred
revenue
|
24,385
|
-
|
-
|
24,385
|
||||||||||||
|
Redemption
fund reserve
|
124,293
|
-
|
-
|
124,293
|
||||||||||||
|
Total
current liabilities
|
6,649,921
|
203,721
|
(46,200
|
)
|
6,807,442
|
|||||||||||
|
Non-current
liabilities
|
||||||||||||||||
|
Non-current
portion of notes payable - related parties
|
1,000,000
|
-
|
-
|
1,000,000
|
||||||||||||
|
Total
liabilities
|
7,649,921
|
203,721
|
(46,200
|
)
|
7,807,442
|
|||||||||||
|
|
|
|||||||||||||||
|
Commitments
and contingencies
|
|
|
||||||||||||||
|
Shareholders'
equity / (deficit)
|
|
|
||||||||||||||
|
Preferred
stock, $0.0001 par value:
|
-
|
-
|
-
|
-
|
||||||||||||
|
5,000,000
shares authorized
|
|
|
||||||||||||||
|
0
shares issued and outstanding
|
|
|
||||||||||||||
|
Common
stock, $0.001 par value:
|
137,287
|
243
|
(137,372
|
)
|
(c
|
)
|
5,500
|
|||||||||
|
200,000,000
shares authorized
|
5,342
|
(b
|
)
|
|
||||||||||||
|
55,000,000
shares issued and outstanding
|
|
|||||||||||||||
|
|
||||||||||||||||
|
Additional
paid-in capital
|
9,861,513
|
12,598,563
|
137,372
|
(c
|
)
|
9,861,513
|
||||||||||
|
69,658
|
(b
|
)
|
|
|||||||||||||
|
(12,598,563
|
)
|
(d
|
)
|
|
||||||||||||
|
(207,030
|
)
|
(f
|
)
|
|
||||||||||||
|
Accumulated
deficit
|
(10,823,296
|
)
|
(12,802,527
|
)
|
12,598,563
|
(d
|
)
|
(10,849,030
|
)
|
|||||||
|
(28,800
|
)
|
(a
|
)
|
|
||||||||||||
|
207,030
|
(f
|
)
|
|
|||||||||||||
|
Total
shareholders' equity / (deficit)
|
(824,496
|
)
|
(203,721
|
)
|
(132,030
|
)
|
(982,017
|
)
|
||||||||
|
Total
liabilities and shareholders' equity / (deficit)
|
$
|
6,825,425
|
$
|
-
|
$
|
(178,230
|
)
|
$
|
6,825,425
|
|||||||
(a) To
adjust
for post-October 31, 2007 award of $28,800 to Custodian for Feris International
(b) Reflects
conversion of Feris notes payable of $75,000 into 5,341,500 shares of common
stock
(c) Adjustments
to reflect 55,000,000 shares outstanding following the merger at par value
of
$0.001 per share
(d) Reverse
Additional Paid-in Capital for Feris
(e) Adjustments
to reflect 55,000,000 shares outstanding following the merger at par value
of
$0.001 per share
(f) To
adjust
pro-forma Additional Paid in Capital to the PSEI amount
6
PRO
SPORTS & ENTERTAINMENT, INC.
STRATUS
ENTERTAINMENT,
INC.
PRO
FORMA COMBINED STATEMENT OF
OPERATIONS
|
Ten
Months Ended October 31, 2007 (Unaudited)
|
||||||||||||||||
|
Feris
|
||||||||||||||||
|
Pro
Sports
|
International
|
Adjustments
|
Pro
Forma
|
|||||||||||||
|
Net
revenues
|
$
|
301,310
|
$
|
-
|
$
|
-
|
$
|
301,310
|
||||||||
|
Cost
of goods sold
|
77,103
|
-
|
-
|
77,103
|
||||||||||||
|
Gross
profit / (loss)
|
224,207
|
-
|
-
|
224,207
|
||||||||||||
|
Operating
expenses
|
||||||||||||||||
|
General
and administrative
|
516,019
|
55,800
|
28,800
|
(a
|
)
|
600,619
|
||||||||||
|
Legal
and professional services
|
426,863
|
-
|
-
|
426,863
|
||||||||||||
|
Depreciation
& amortization
|
48,482
|
-
|
-
|
48,482
|
||||||||||||
|
Total
operating expenses
|
991,364
|
55,800
|
28,800
|
1,075,964
|
||||||||||||
|
Loss
from operations
|
(767,157
|
)
|
(55,800
|
)
|
(28,800
|
)
|
(851,757
|
)
|
||||||||
|
Other
income/(expenses)
|
||||||||||||||||
|
Other
income
|
21,641
|
-
|
(203,964
|
)
|
(d
|
)
|
24,707
|
|||||||||
|
207,030
|
(f
|
)
|
|
|||||||||||||
|
Interest
expense, net
|
(169,636
|
)
|
(4,962
|
)
|
-
|
(174,598
|
)
|
|||||||||
|
Total
other expenses
|
(147,995
|
)
|
(4,962
|
)
|
3,066
|
(149,891
|
)
|
|||||||||
|
Net
loss
|
$
|
(915,152
|
)
|
$
|
(60,762
|
)
|
$
|
(25,734
|
)
|
$
|
(1,001,648
|
)
|
||||
|
Basic
and diluted earnings
|
$
|
(0.07
|
)
|
$
|
(0.51
|
)
|
$
|
-
|
$
|
(0.02
|
)
|
|||||
|
per
share
|
||||||||||||||||
|
Basic
and diluted weighted-
|
||||||||||||||||
|
average
common shares
|
13,668,224
|
118,500
|
41,213,276
|
(b
|
)
|
55,000,000
|
||||||||||
|
|
||||||||||||||||
(a) To
adjust
for post-October 31, 2007 award of $28,800 to Custodian for Feris International
(b) To
adjust
weighted average common shares to the post-merger level of
55,000,000
(d) Non-cash
net loss on reversing paid-in capital for Feris
(f) To
adjust
pro-forma Additional Paid in Capital to the PSEI amount
7
NOTE
1 - ORGANIZATION AND BUSINESS
Pro
Sports & Entertainment, Inc. (the “Company”), a California corporation, was
organized on November 23, 1998. The Company specializes in sports and
entertainment events that it owns, operates, manages, markets and sells in
national markets.
In
August
2005 the Company acquired the business of Stratus Rewards (“Stratus”), an
affiliate redemption credit card rewards program. Stratus is a private lifestyle
club offering a unique luxury rewards redemption program, including private
jet
travel, premium travel opportunities, exclusive events and luxury
merchandise.
The
Company’s name was changed from GMG Sports and Entertainment, Incorporated to
Pro Sports & Entertainment, Inc. on March 23, 2000.
NOTE
2 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. For the years ended
December 31, 2006 and 2005, the Company incurred net losses of $740,700 and
$1,837,030 respectively, and for the ten months ended October 31, 2007 and
2006,
the Company incurred net losses of $915,152 and $663,006, respectively. In
addition, the Company had accumulated deficits of $9,908,144 and $9,167,444
as
of December 31, 2006 and 2005, respectively, and accumulated deficits of
$10,823,296 as of October 31, 2007.
The
Company has raised $459,500 and $335,000 through the issuance of common stock
during the ten months ended October 31, 2007 and 2006, respectively. The Company
believes that sufficient sources of funds exist to cover working capital needs.
Management expects that the Company can generate sufficient capital to fund
its
operations following its anticipated reverse merger (refer to Note 17), which
would result in the Company being public and having access to the wider variety
of financing sources available to public companies. In addition, management
believes that event operations and the Stratus Rewards affiliate redemption
credit card rewards program will generate positive cash flow in the near future.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements reflect the operating results and financial
position of the Company in accordance with accounting principles generally
accepted in the United States of America.
Cash
and Cash Equivalents
For
purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with original maturities of three months or less
to
be cash equivalents.
Restricted
Cash
A
portion
of each credit card transaction by a card member is deposited into a trust
account. This account is used to fund the purchase of goods or services by
the
card member through redemption of purchasing points. If a card member cancels
their card and leaves unclaimed redemption points, the Company is entitled
to
the cash equivalent of those unclaimed points. With that exception, the cash
otherwise is earmarked for member benefits and is not available to the Company
for use in operations.
The
Company maintains its cash in an account with a major financial institution.
Deposits with this financial institution may exceed the amounts of insurance
provided on such deposits. The Company has not experienced any losses on its
deposits of cash with this financial institution.
Inventory
Inventory
consists of merchandise for sale at Company events. The Company regularly
reviews its inventory quantities on hand and, if required, would record a
provision for excess and obsolete inventory based on management’s estimated
forecast of future sales.
8
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
is provided using the straight-line method over estimated useful lives of three
to five years.
Expenditures
for major renewals and betterments that extend the useful lives of property
and
equipment are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred.
Accounting
for Acquisitions
The
acquisition of the business of Stratus has been accounted for under Statement
of
Financial Accounting Standards ("SFAS") No. 141, “Business Combinations.”
Goodwill represents the excess of the purchase price of an acquisition over
the
fair market value of the net assets acquired.
Impairment
of Long-Lived Assets
In
accordance with SFAS No. 142, goodwill and other intangible assets are
considered to have indefinite lives and are therefore no longer amortized,
but
rather are subject to annual impairment tests. In accordance with SFAS
No. 142, the Company reviews the recoverability of the carrying value of
goodwill and other intangible assets at least annually or whenever events or
circumstances indicate a potential impairment. The Company’s annual impairment
testing date is December 31. Recoverability of goodwill and other
intangible assets is determined by comparing the fair value to the carrying
value of the underlying net assets. If the fair value is determined to be less
than the carrying value of its net assets, goodwill or other intangible assets
are deemed impaired and an impairment loss is recognized to the extent that
the
carrying value exceeds the difference between the estimated fair value and
the
carrying value. Long-lived intangible assets that are determined to have fixed
lives are amortized over a fixed period of time, generally ten
years.
Revenue
Recognition
Event
revenue consists of ticket sales, participant entry fees, corporate
sponsorships, advertising, television broadcast fees, athlete management,
concession and merchandise sales, charity receipts, commissions and hospitality
functions. The Company recognizes admissions and other event-related revenues
when the events are held in accordance with Statement Accounting Bulletin
(“SAB”) 104. Revenues received in advance and related direct expenses pertaining
to specific events are deferred until the events are actually held.
Stratus
Rewards, the Company’s affiliate redemption credit card rewards program,
generates revenues from transaction fees generated by member purchases using
the
card, and membership fees. Revenue is recognized when transaction fees are
received and membership fees are amortized and recognized ratably over the
twelve-month membership period from the time of receipt. Revenue is also
recognized from interest income earned on the redemption trust
fund.
Income
Taxes
The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
As
of
December 31, 2006, the Company had a deferred tax asset of $4,104,897, that
has
been fully reserved and a net operating loss carryforward of $9,652,540 for
Federal purposes. The Company will continue to monitor all available evidence
and reassess the potential realization of its deferred tax assets. If the
Company continues to meet its financial projections and improve its results
of
operations, or if circumstances otherwise change, it is possible that the
Company may release all or a portion of its valuation allowance in the future.
Any such release would result in recording a tax benefit that would increase
net
income in the period the valuation is released.
Fair
Value of Financial Instruments
The
Company's financial instruments include accounts payable, accrued expenses
and
other liabilities, a line of credit, notes payable - related parties, notes
payable, event acquisition liabilities and redemption fund reserve. The book
value of these financial instruments are representative of their fair
values.
9
Stock-Based
Compensation
For
the
year ended December 31, 2005 the Company accounted for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to
Employees” and related interpretations. SFAS No. 123, “Accounting for
Stock-Based Compensation,” requires the disclosure of pro forma net income
(loss) and income (loss) per share had the Company adopted the fair
value method. Under SFAS No. 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company’s stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values.
If
the
computed fair values of
the
awards granted in the year ended December 31, 2005 had been accounted for under
SFAS No. 123, the pro forma net loss would have been as
follows:
|
Year
Ended
|
||||
|
December
31,
|
||||
|
2005
|
||||
|
Net
loss, as reported
|
$
|
1,837,030
|
||
|
Less:
Employee stock compensation expense under APB 25
|
-
|
|||
|
Plus:
Total stock-based employee compensation
|
250
|
|||
|
Pro
forma net loss
|
$
|
1,837,280
|
||
|
Weighted
average common shares outstanding, basic & diluted
|
12,946,224
|
|||
|
Loss
per common share:
|
||||
|
As
reported
|
$
|
0.14
|
||
|
Pro
forma
|
$
|
0.14
|
||
Stock-based
awards to non-employees are calculated through the use of the Black-Scholes
option-pricing model. This model requires subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. For options granted to consultants, the Company
recognizes compensation expense based on the vesting terms of the stock option
agreements.
Beginning
in fiscal 2006, the Company has adopted FAS 123R, which requires the expensing
of stock options issued to employees. Taking into account options issued and
outstanding at December 31, 2005, the Company recorded no stock
compensation expense in 2006.
The
Company’s calculations for these stock options granted to employees and
non-employees were made using the Black-Scholes option-pricing model with the
following weighted average assumptions:
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
Risk-free
interest rate (range)
|
5.11%
- 5.20
|
%
|
3.21%
- 3.86
|
%
|
|||
|
Expected
life
|
1
- 2 years
|
2
- 3 years
|
|||||
|
Expected
stock volatility
|
70
|
%
|
71
|
%
|
|||
|
Expected
dividends
|
0
|
0
|
|||||
Net
Loss per Share
Pursuant
to SFAS No. 128, “Earnings per Share,” the Company is required to provide
dual presentation of “basic” and “diluted” earnings (loss) per share (EPS).
Basic EPS amounts are based upon the weighted average number of common shares
outstanding. Diluted EPS amounts are based upon the weighted average number
of
common and potential common shares outstanding. Potential common shares include
stock options using the treasury stock method. Potential common shares are
excluded from the calculation of diluted EPS in loss years, as the impact is
antidilutive. Basic and diluted losses per share are the same for the years
ended December 31, 2006 and December 31, 2005 because the effect of potential
common stock to be issued is anti-dilutive. At December 31, 2005, there were
1,193,209 vested stock options and 16,000 unvested options outstanding. At
December 31, 2006, there were 1,240,876 vested stock options and 0 unvested
options outstanding. At October 31, 2007, there were 1,240,876 vested stock
options and 0 unvested options outstanding. These options were not included
in
the diluted losses per share calculation because the effect would have been
anti-dilutive.
10
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the
financial statements, and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
New
Accounting Pronouncements
In
May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 154, “Accounting Changes and Error Corrections,” an amendment to APB
Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting
Accounting Changes in Interim Financial Statements.” SFAS No. 154 carries
forward the guidance in APB No.20 and SFAS No.3 with respect to accounting
for
changes in estimates, changes in reporting entity and the correction of errors,
but SFAS No. 154 establishes new standards on accounting for changes in
accounting principles, whereby all such changes must be accounted for by
retrospective application to the financial statements of prior periods, unless
it is impracticable to do so. SFAS No. 154 is effective for accounting
changes and error corrections made in fiscal years beginning after
December 15, 2005, with early adoption permitted for changes and
corrections made in years beginning after May 2005. The Company implemented
SFAS No. 154 in its fiscal year beginning January 1, 2006. The Company does
not believe that implementing SFAS No. 154 will have a material impact on the
Company’s financial position, results of operations or cash flows.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments,” which amends SFAS No. 133, “Accounting for Derivatives
Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities.” SFAS No.
155 amends SFAS No. 133 to narrow the scope exception for interest-only and
principal-only strips on debt instruments to include only such strips
representing rights to receive a specified portion of the contractual interest
or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow
qualifying special-purpose entities to hold a passive derivative financial
instrument pertaining to beneficial interests that itself is a derivative
instrument. The Company does not believe that the application of SFAS No. 155
will have a material impact on the Company’s financial position, results of
operations or cash flows.
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets,” which provides an approach to simplify efforts to obtain hedge-like
(offset) accounting. This Statement amends FASB Statement No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” with respect to the accounting for separately recognized servicing
assets and servicing liabilities. The Statement (1) requires an entity to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
certain situations; (2) requires that a separately recognized servicing asset
or
servicing liability be initially measured at fair value, if practicable; (3)
permits an entity to choose either the amortization method or the fair value
method for subsequent measurement for each class of separately recognized
servicing assets or servicing liabilities; (4) permits at initial adoption
a
one-time reclassification of available-for-sale securities to trading securities
by an entity with recognized servicing rights, provided the securities
reclassified offset the entity’s exposure to changes in the fair value of the
servicing assets or liabilities; and (5) requires separate presentation of
servicing assets and servicing liabilities subsequently measured at fair value
in the balance sheet and additional disclosures for all separately recognized
servicing assets and servicing liabilities. SFAS No. 156 is effective for all
separately recognized servicing assets and liabilities as of the beginning
of an
entity’s fiscal year that begins after September 15, 2006, with earlier adoption
permitted in certain circumstances. The Statement also describes the manner
in
which it should be initially applied. The Company does not believe that the
application of SFAS No. 156 will have a material impact on its financial
position, results of operations or cash flows.
In
September 2006, the FASB issued Statement of Financial Accounting Issues No.
157, “Fair Value Measurements,” which defines the fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. Early adoption is encouraged, provided that the Company has not
yet issued financial statements for that fiscal year, including any financial
statements for an interim period within that fiscal year. The Company does
not
believe that the application of SFAS 157 will have a material impact on its
financial condition, results of operations, or cash flows.
In
September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined
Benefit Pension and Other Post Retirement Plans”. SFAS No. 158 requires
employers to recognize in its statement of financial position an asset or
liability based on the retirement plan’s over or under funded status. SFAS
No. 158 is effective for fiscal years ending after December 15, 2006. The
Company does not believe that the application of SFAS No. 158 will have a
material impact on its financial condition, results of operations, or cash
flows.
In
September 2006, the United States Securities and Exchange Commission (“SEC”)
issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements.” This SAB provides guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an approach
that requires quantification of financial statement errors based on the effects
on each of the company’s balance sheets, statements of operations and related
financial statement disclosures. The SAB permits existing public companies
to
record the cumulative effect of initially applying this approach in the first
year ending after November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as of the beginning
of that year with the offsetting adjustment recorded to the opening balance
of
retained earnings. Additionally, the use of the cumulative effect transition
method requires detailed disclosure of the nature and amount of each individual
error being corrected through the cumulative adjustment and how and when it
arose. The Company does not believe that the application of SAB 108 will have
a
material impact on its financial condition, results of operations, or cash
flows.
11
In
October 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, “How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement,” (That is, Gross versus Net Presentation)
to clarify diversity in practice on the presentation of different types of
taxes
in the financial statements. The Task Force concluded that, for taxes within
the
scope of the issue, a company may adopt a policy of presenting taxes either
gross within revenue or net. That is, it may include charges to customers for
taxes within revenues and the charge for the taxes from the taxing authority
within cost of sales or, alternatively, it may net the charge to the customer
and the charge from the taxing authority. If taxes subject to EITF 06-3 are
significant, a company is required to disclose its accounting policy for
presenting taxes and the amounts of such taxes that are recognized on a gross
basis. The guidance in this consensus is effective for the first interim
reporting period beginning after December 15, 2006 (the first quarter of our
fiscal year 2007). The Company does not believe that the application of EITF
06-3 will have a material impact on its financial position, results of
operations or cash flows.
In
June,
2006 the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes.” (“FIN 48”) FIN 48 clarifies, among other things,
the accounting for uncertain income tax positions by prescribing a minimum
probability threshold that a tax position must meet before a financial statement
income tax benefit is recognized. The minimum threshold is defined as a tax
position that, based solely on its technical merits, is more likely than not
to
be sustained upon examination by the relevant taxing authority. The tax benefit
to be recognized is measured as the largest amount of benefit that is greater
than fifty percent likely of being realized upon ultimate settlement. FIN 48
must be applied to all existing tax positions upon adoption. The cumulative
effect of applying FIN 48 at adoption is required to be reported separately
as
an adjustment to the opening balance of retained earnings in the year of
adoption. FIN 48 is required to be implemented at the beginning of a fiscal
year, although early adoption is permitted. The Company does not believe that
the application of FIN 48 will have a material impact on its financial position,
results of operations or cash flows.
NOTE
4 - ACQUISITION OF STRATUS REWARDS
Stratus
Rewards
In
accordance with the Asset Purchase Agreement dated August 15, 2005, by and
between the Company and Stratus Rewards, LLC (“Stratus”), the Company acquired
the business of Stratus, an affiliate redemption credit card rewards
program.
The
total
consideration for this acquisition was $3,000,000, with the Company entering
into a note payable of $1,000,000 and issuing 666,667 common shares valued
at
$2,000,000. The note is payable in eight quarterly equal payments over a 24
month period, with the first payment due upon completion of the first
post-public merger funding, with such funding to be at a minimum amount of
$3,000,000.
The
results of operations of the business acquired have been included in the
Company’s Statements of Operations from the date of acquisition. Depreciation
and amortization related to the acquisition were calculated based on the
estimated fair market values and estimated useful lives for property and
equipment and an independent valuation for certain identifiable intangible
assets acquired.
The
Company’s allocation of the purchase price is summarized as
follows:
|
Assets:
|
||||
|
Cash
|
$
|
343,627
|
||
|
Property
and equipment
|
20,800
|
|||
|
Intangible
assets
|
927,400
|
|||
|
Goodwill
|
2,073,345
|
|||
|
Total
Assets
|
3,365,172
|
|||
|
Liabilities:
|
||||
|
Redemption
fund reserve
|
343,627
|
|||
|
Accrued
liabilities
|
21,545
|
|||
|
Total
Liabilities
|
365,172
|
|||
|
Total
Purchase Price
|
$
|
3,000,000
|
||
12
Unaudited
pro forma results of operations for the year ended December 31, 2005, as if
the acquisition had occurred as of January 1, 2005 are as follows:
|
Year
Ended December 31, 2005
|
|||||||
|
Historical
|
Pro
Forma
|
||||||
|
Net
revenues
|
$
|
408,620
|
$
|
641,254
|
|||
|
Net
loss
|
$
|
1,652,800
|
$
|
2,406,516
|
|||
|
Net
loss per common share, basic and diluted
|
$
|
0.13
|
$
|
0.19
|
|||
|
Weighted
average common shares outstanding,
|
|||||||
|
basic
and diluted
|
12,946,224
|
12,946,224
|
|||||
NOTE
5 - PROPERTY AND EQUIPMENT
Property
and equipment as of December 31, 2006 and December 31, 2005 consisted of the
following:
|
December
31,
|
October
31,
|
|||||||||
|
2006
|
2005
|
2007
|
||||||||
|
(Unaudited)
|
||||||||||
|
Computers
and peripherals
|
$
|
,873
|
$
|
52,873
|
$
|
52,873
|
||||
|
Office
machines
|
11,058
|
11,058
|
11,058
|
|||||||
|
Furniture
and fixtures
|
56,468
|
56,468
|
56,468
|
|||||||
|
120,399
|
120,399
|
120,399
|
||||||||
|
Less:
accumulated depreciation
|
(94,869
|
)
|
(82,250
|
)
|
(105,383
|
)
|
||||
|
$
|
25,530
|
$
|
38,149
|
$
|
15,016
|
|||||
For
the
years ended December 31, 2006 and 2005 and the ten months ended October 31,
2007, depreciation expense was $12,619, $4,298 and $10,514,
respectively
NOTE
6 - GOODWILL AND INTANGIBLE ASSETS
The
following sets forth the intangible assets of the Company as of December 31,
2006 and 2005:
|
December
31,
|
October
31,
|
|||||||||
|
2006
|
2005
|
2007
|
||||||||
|
(Unaudited)
|
||||||||||
|
Intangible
Assets
|
||||||||||
|
(A)
Events
|
||||||||||
|
●
Long Beach Marathon
|
$
|
300,000
|
$
|
300,000
|
$
|
300,000
|
||||
|
●
Millrose Games
|
61,233
|
61,233
|
61,233
|
|||||||
|
●
Concours on Rodeo
|
600,000
|
600,000
|
600,000
|
|||||||
|
●
Santa Barbara Concours d'Elegance
|
243,000
|
243,000
|
243,000
|
|||||||
|
●
Cour Tour/Action Sports Tour
|
1,067,069
|
1,067,069
|
1,067,069
|
|||||||
|
●
Freedom Bowl
|
344,232
|
344,232
|
344,232
|
|||||||
|
●
Maui Music Festival
|
725,805
|
725,805
|
725,805
|
|||||||
|
●
Athlete Management
|
15,000
|
15,000
|
15,000
|
|||||||
|
●
Snow & Ski Tour
|
255,000
|
255,000
|
255,000
|
|||||||
|
Total
- Events
|
$
|
3,611,339
|
$
|
3,611,339
|
$
|
3,611,339
|
||||
|
(B)
Stratus Rewards
|
||||||||||
|
●
Purchased Licensed Technology, net of
|
||||||||||
|
Accum.
Amort. of $49,031, $14,421 and $99,873
|
297,069
|
331,679
|
256,227
|
|||||||
|
●
Membership List, net of accumulated
|
||||||||||
|
amort.
of $15,300, $4,500 and $27,600
|
92,700
|
103,500
|
80,400
|
|||||||
|
●
Corporate Partner List
|
23,300
|
23,300
|
23,300
|
|||||||
|
●
Corporate Membership
|
450,000
|
450,000
|
450,000
|
|||||||
|
Total
- Stratus Rewards
|
863,069
|
908,479
|
809,927
|
|||||||
|
Total
Intangible Assets
|
$
|
4,474,408
|
$
|
4,519,818
|
$
|
4,421,266
|
||||
13
In
accordance with SFAS No. 142, the Company’s goodwill and intangible assets,
other than the purchased license technology and the membership list for Stratus,
are considered to have indefinite lives and are therefore no longer amortized,
but rather are subject to annual impairment tests. The Company’s annual
impairment testing date is December 31. The Company determined that it did
not have any impairment of goodwill or intangible assets at December 31,
2006 or December 31, 2005 and thus did not recognize any impairment expense
in
the years ended December 31, 2006 or December 31, 2005. The purchased license
technology and membership list are being amortized over their estimated useful
life of 10 years. For the years ended December 31, 2006 and 2005 and the ten
months ended October 31, 2007, amortization expense was $45,410, $18,921 and
$37,842, respectively.
NOTE
7 - LINE OF CREDIT
The
company has a line of credit with Wells Fargo Bank. This line of credit has
a
limit of $100,000 and is guaranteed by a majority shareholder. This line of
credit carries a variable interest rate based on the prime rate, being 8.25%
at
December 31, 2006 and 7.25% at December 31, 2005, plus a 0.75% spread per
annum.
The
balances outstanding at December 31, 2006, 2005 and the ten months ended October
31, 2007, were $70,611, $75,776 and $68,041 respectively. On or about
June 20, 2006 Wells Fargo Bank provided a notice of entry of judgment in the
amount of $78,651 against, among others, the Company to ensure payment of the
amount outstanding on the line as of that date. The Company is not able to
draw
additional amounts under this line of credit.
For
the
years ended December 31, 2006 and 2005, the Company incurred interest expense
in
relation to the line of credit totaling $5,387 and $5,520, respectively. In
addition, as at December 31, 2006 and 2005, the Company has accrued interest
in
relation to the line of credit of $12,030 and $6,643, respectively.
NOTE
8 - LOANS PAYABLE TO SHAREHOLDERS
Loans
Payable to Shareholders at December 31, 2006 and 2005 and October 31, 2007
consisted of the following:
|
December
31,
|
October
31,
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2007
|
||||
|
(Unaudited)
|
||||||||||
|
Loans
payable to shareholders, due on demand,
|
||||||||||
|
with
an interest rate of 9.5%
|
$
|
905,086
|
$
|
886,450
|
$
|
780,111
|
||||
For
the
years ended December 31, 2006 and 2005 and the ten months ended October 31,
2007, the Company incurred interest expense on these Loans Payable to
Shareholders of $72,657, $86,999, and $73,227 respectively. As at December
31,
2006 and 2005 and the ten months ended October 31, 2007 the Company has accrued
interest on these Loans Payable to Shareholders of $401,071 and $328,414, and
$474,298, respectively. Loans payable to the Company’s president comprised
$895,086, $886,450 and $770,111 of the total loans payable to shareholders
as of
December 31, 2006 and 2005, and October 31, 2007.
14
NOTE
9 - NOTES PAYABLE TO RELATED PARTIES
Notes
Payable to Related Parties at December 31, 2006 and 2005 and October 31, 2007
consisted of the following:
|
December
31,
|
October
31,
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2007
|
||||
|
(Unaudited)
|
||||||||||
|
●
Note
payable to shareholder (unsecured), dated
|
$
|
70,000
|
$
|
70,000
|
$
|
70,000
|
||||
|
January
14, 2005, with maturity date of May 14, 2005.
|
||||||||||
|
The
principal amount and accrued interest were payable
|
||||||||||
|
on
May 14, 2005, plus interest at 10% per annum. This
|
||||||||||
|
note
is currently in default.
|
||||||||||
|
●
Note
payable to shareholder (unsecured), dated
|
10,000
|
10,000
|
10,000
|
|||||||
|
February
1, 2005, with maturity date of June 1, 2005.
|
||||||||||
|
The
principal amount and accrued interest were payable
|
||||||||||
|
on
June 1, 2005, plus interest at 10% per annum. This
|
||||||||||
|
note
is currently in default.
|
||||||||||
|
●
Note
payable to shareholder (unsecured), dated
|
10,000
|
10,000
|
10,000
|
|||||||
|
February
5, 2005, with maturity date of June 5, 2005.
|
||||||||||
|
The
principal amount and accrued interest were payable
|
||||||||||
|
on
June 5, 2005, plus interest at 10% per annum. This
|
||||||||||
|
note
is currently in default.
|
||||||||||
|
●
Note
payable to shareholder related to purchase of
|
1,000,000
|
1,000,000
|
1,000,000
|
|||||||
|
Stratus.
The note is payable in eight quarterly equal
|
||||||||||
|
payments
over a 24 month period, with the first payment
|
||||||||||
|
due
upon completion of the first post-public merger
|
||||||||||
|
funding,
with such funding to be at a minimum amount
|
||||||||||
|
of
$3,000,000.
|
||||||||||
|
Total
|
1,090,000
|
1,090,000
|
1,090,000
|
|||||||
|
Less:
current portion
|
90,000
|
90,000
|
90,000
|
|||||||
|
Long-term
portion
|
$
|
1,000,000
|
$
|
1,000,000
|
$
|
1,000,000
|
||||
The
future obligations under these Notes Payable to Related Parties were as follows
at December 31, 2006:
|
Year
Ending
|
||||
|
December
31,
|
||||
|
2008
|
$
|
90,000
|
||
|
2009
|
$
|
500,000
|
||
|
2010
|
$
|
500,000
|
||
| $ | 1,090,000 | |||
For
the
years ended December 31, 2006 and 2005 and the ten months ended October 31,
2007, the Company incurred interest expense on these Notes Payable to Related
Parties of $9,000, $8,521, and $7,500respectively. As at December 31, 2006
and
2005 and October 31, 2007, the Company has accrued interest on these Notes
Payable to Related Parties of $17,520, $8,522 and $25,020,
respectively.
15
NOTE
10 - NOTE PAYABLE
The
Note
Payable at December 31, 2006 and 2005, and October 31, 2007 consisted of the
following:
|
December
31,
|
October
31,
|
|||||||||
|
2006
|
2005
|
2007
|
||||||||
|
(Unaudited)
|
||||||||||
|
●
Note
payable to non-shareholder (unsecured),
|
$
|
125,000
|
$
|
125,000
|
$
|
125,000
|
||||
|
date
January 19, 2005 with maturity date of
|
||||||||||
|
May
19, 2005. The principal amount and accrued
|
||||||||||
|
interest
were payable June 1, 2005, plus interest
|
||||||||||
|
at
10% per annum. This note is currently in default.
|
||||||||||
|
Total
|
125,000
|
125,000
|
125,000
|
|||||||
|
Less:
current portion
|
125,000
|
125,000
|
125,000
|
|||||||
|
Long-Term
portion
|
$
|
0
|
$
|
0
|
$
|
0
|
||||
For
the
years ended December 31, 2006 and 2005 and the ten months ended October 31,
2007, the Company incurred interest expense on this Note Payable of $12,500,
$11,849 and $10,417, respectively. As at December 31, 2006 and 2005 and October
31, 2007, the Company has accrued interest on this Note Payable of $24,349,
$11,849 and $34,766, respectively.
NOTE
11 - EVENT ACQUISITION LIABILITIES
The
following sets forth the liabilities, in relation to the acquisition of events
(refer to Note 6), assumed by the Company as of December 31, 2006 and December
31, 2005:
|
December
31,
|
October
31,
|
|||||||||
|
2006
|
2005
|
2007
|
||||||||
|
(Unaudited)
|
||||||||||
|
●
Concours
on Rodeo
|
$
|
430,043
|
$
|
430,043
|
$
|
430,043
|
||||
|
●
Core
Tour/Action Sports Tour
|
483,718
|
483,718
|
483,718
|
|||||||
|
●
Snow
& Ski Tour
|
240,000
|
240,000
|
240,000
|
|||||||
|
$
|
1,153,761
|
$
|
1,153,761
|
$
|
1,153,761
|
|||||
NOTE
12 - REDEMPTION FUND RESERVE
The
redemption fund reserve records the liabilities related to the Company’s
obligations to pay for the redemption of rewards from the Stratus credit card
rewards program. As at December 31, 2006 and 2005 and October 31, 2007, the
Company has balances in this redemption fund reserve account of $346,806,
$482,647 and $124,293, respectively.
NOTE
13 - RELATED PARTY TRANSACTION
During
the years ended December 31, 2005 and 2006 and the ten months ended October
31,
2007, under an agreement which expired at September 30, 2006 and was extended
on
a month-to-month basis, the Company rented office space owned by the Chairman,
President and Chief Executive Officer of the Company. The total rent expense
paid by the Company in the years ended December 31, 2006 and 2005 was $25,000
and $12,000, respectively, and $20,833 for the ten months ended October 31,
2007. The Company believes that such rents are at or below prevailing market
rates and is continuing to rent this space.
NOTE
14 - SHAREHOLDERS’ EQUITY / (DEFICIT)
(A)
Preferred Stock
The
Company has 5,000,000 authorized shares of preferred stock and, as of December
31, 2006 and 2005 and October 31, 2007, there were no preferred shares issued
and outstanding.
(B)
Common Stock
During
the years ended December 31, 2006 and 2005 the Company raised $335,000 and
$183,250, respectively, through the issuance of 191,182 and 223,053 shares
of
common stock, respectively. The capital raised through these issuances of common
stock includes offering costs for the years ended December 31, 2006 and 2005
of
$5,844 and $0, respectively, and was used to fund the general operations of
the
company. During the ten months ended October 31, 2007, the company raised
$459,500 through the issuance of 153,167 shares of common stock
16
(C)
Stock Options
During
the year ended December 31, 2005, the Company granted options, for financing
services, to a shareholder to purchase 8,000 shares of its common stock. These
stock options were granted with an exercise price of $1.55 and have a five-year
term.
During
the year ended December 30, 2006, the Company granted options, for finders’ fees
and consulting advice, to two shareholders and one non-shareholder, to purchase
31,667 shares of its common stock. These stock options were granted with
exercise prices ranging from $2.00 to $3.00 and have five-year
terms.
In
relation to the above options, for the years ended December 31, 2006 and 2005,
the Company has recorded expenses of $33,910 and $14,521, respectively. There
were no stock options granted during the ten months ended October 31,
2007
Stock
option activity is as follows:
|
Number
|
Average
Exercise |
||||||
|
of
Options
|
Price
|
||||||
|
Balance
outstanding at December 31, 2004
|
1,201,209
|
$
|
0.79
|
||||
|
(1,142,217
options exercisable at weighted average exercise price of
$0.75)
|
|||||||
|
Granted
(weighted average fair value of $3.00)
|
8,000
|
$
|
1.55
|
||||
|
Exercised
|
0
|
||||||
|
Balance
outstanding at December 31, 2005
|
1,209,209
|
$
|
0.79
|
||||
|
(1,193,209
options exercisable at weighted average exercise price of
$0.78)
|
|||||||
|
Granted
(weighted average fair value of $2.21)
|
31,667
|
$
|
3.00
|
||||
|
Exercised
|
0
|
||||||
|
Balance
outstanding at December 31, 2006
|
1,240,876
|
$
|
0.83
|
||||
|
(1,240,876
options exercisable at weighted average exercise price of
$0.83)
|
|||||||
|
Granted
|
0
|
||||||
|
Exercised
|
0
|
||||||
|
Balance
outstanding at October 31, 2007
|
1,240,876
|
$
|
0.83
|
||||
|
(1,240,876
options exercisable at weighted average exercise price of
$0.83)
|
|||||||
Additional
information regarding options outstanding as of October 31, 2007 is as
follows:
|
Options
outstanding
|
Options
Exercisable
|
|||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Weighted
average
|
Average
|
Average
|
||||||||||||||
|
Range
of
|
Number
|
remaining
life
|
Exercise
|
Number
|
Exercise
|
|||||||||||
|
Exercise
Prices
|
Outstanding
|
(years)
|
Price
|
Exercisable
|
Price
|
|||||||||||
|
$0.00
- $0.50
|
878,431
|
2.0
|
$
|
0.50
|
878,431
|
$
|
0.50
|
|||||||||
|
$0.51
- $1.55
|
328,378
|
2.5
|
$
|
1.55
|
312,378
|
$
|
1.55
|
|||||||||
|
$1.56
- $3.00
|
2,400
|
2.0
|
$
|
3.00
|
2,400
|
$
|
3.00
|
|||||||||
|
Totals
|
1,209,209
|
2.5
|
$
|
0.79
|
1,193,209
|
$
|
0.78
|
|||||||||
Additional
information regarding options outstanding as of October 31, 2007 is as follows:
|
Options
outstanding
|
Options
Exercisable
|
|||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Weighted
average
|
Average
|
Average
|
||||||||||||||
|
Range
of
|
Number
|
remaining
life
|
Exercise
|
Number
|
Exercise
|
|||||||||||
|
Exercise
Prices
|
Outstanding
|
(years)
|
Price
|
Exercisable
|
Price
|
|||||||||||
|
$0.00
- $0.50
|
878,431
|
1.0
|
$
|
0.50
|
878,431
|
$
|
0.50
|
|||||||||
|
$0.51
- $1.55
|
328,378
|
1.5
|
$
|
1.55
|
328,378
|
$
|
1.55
|
|||||||||
|
$1.56
- $3.00
|
34,067
|
4.0
|
$
|
2.27
|
34,067
|
$
|
2.27
|
|||||||||
|
Totals
|
1,240,876
|
2.0
|
$
|
0.83
|
1,240,876
|
$
|
0.83
|
|||||||||
17
(D)
Warrants
During
the year ended December 31, 2005 the Company granted warrants with rights to
purchase $36,250 of its common stock. These warrants have terms of five years
and the exercise prices for these warrants are to be the share prices applicable
in the next Company Financing after February 2005 as a result of the proposed
Reverse Merger. The warrants will expire in 2010. The Company valued these
warrants, using the Black-Scholes option pricing model, at December 31, 2006
and
2005, at $15,562 and $15,562, respectively, and included this liability in
other
accrued expenses and other liabilities. There were no warrants granted in the
ten months ended October 31, 2007.
These
warrants were granted as financing costs related to notes payable agreements
with two shareholders and one non-shareholder. The warrants are accounted for
as
financing costs which were capitalized and amortized over the five-year life
of
the debt. Total amortization expense for the years ended December 31, 2006
and
2005 were $5,437 and $3,112, respectively.
The
Company analyzed these warrants in accordance with EITF pronouncement No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock”. The Company determined that the warrants
should be classified as a liability based on the fact that the number of shares
attributable to these warrants is indeterminate.
NOTE
15 - INCOME TAXES
Significant
components of the Company's deferred tax assets for federal income taxes for
the
years ended December 31, 2006 and December 31, 2005
and the
ten months ended October 31, 2007 consisted
of the following:
|
December
31,
|
October
31,
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2007
|
||||
|
(Unaudited)
|
||||||||||
|
Net
operating loss carryforward
|
$
|
3,916,987
|
$
|
3,605,292
|
$
|
4,235,436
|
||||
|
Amortization
|
(521,784
|
)
|
(332,943
|
)
|
(577,235
|
)
|
||||
|
Stock
option compensation
|
170,327
|
155,800
|
170,327
|
|||||||
|
Deferred
compensation
|
559,281
|
456,465
|
644,961
|
|||||||
|
Deferred
state tax
|
(246,411
|
)
|
(225,579
|
)
|
(275,118
|
)
|
||||
|
Other
|
226,467
|
170,278
|
286,955
|
|||||||
|
Valuation
allowance
|
(4,104,867
|
)
|
(3,829,313
|
)
|
(4,485,326
|
)
|
||||
|
Net
deferred tax asset
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
For
the
years ended December 31, 2006 and December 31, 2005 and
the
ten months ended October 31, 2007,
the
Company had net operating loss carry-forwards (“NOL”) for federal and state
income tax purposes of approximately:
|
December
31,
|
October
31,
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2007
|
||||
|
(Unaudited)
|
||||||||||
|
Combined
NOL:
|
||||||||||
|
Federal
|
$
|
9,652,540
|
$
|
8,924,260
|
$
|
10,314,928
|
||||
|
California
|
7,230,066
|
6,457,076
|
8,239,367
|
|||||||
18
The
net
operating loss carry-forwards begin expiring in 2019 and 2009, respectively.
The
utilization of net operating loss carry-forwards may be limited due to the
ownership change under the provisions of Internal Revenue Code Section 382
and
similar state provisions. The Company recorded a 100% valuation allowance on
the
deferred tax assets at December 31, 2006 and 2005 and the ten months ended
October 31, 2007 because of the uncertainty of their realization.
A
reconciliation of the income tax credit computed at the federal statutory rate
to that recorded in the financial statements is as follows:
|
|
December
31, 2006
|
December
31, 2005
|
October
31, 2007
|
||||||||||||||||
|
Rate
reconciliation:
|
|
|
|
|
|
|
|||||||||||||
|
Federal
credit at statutory rate
|
(251,838
|
)
|
34.00
|
%
|
(561,952
|
)
|
34.00
|
%
|
(311,152
|
)
|
34.00
|
%
|
|||||||
|
State
tax, net of Federal benefit
|
(42,289
|
)
|
5.80
|
%
|
(95,517
|
)
|
5.78
|
%
|
(55,038
|
)
|
5.80
|
%
|
|||||||
|
Change
in valuation allowance
|
294,188
|
-39.81
|
%
|
656,023
|
-39.69
|
%
|
362,642
|
-39.81
|
%
|
||||||||||
|
Other
|
739
|
-0.10
|
%
|
2,246
|
-0.14
|
%
|
4,348
|
-0.10
|
%
|
||||||||||
|
Total
provision
|
800
|
-0.11
|
%
|
800
|
-0.05
|
%
|
800
|
-0.11
|
%
|
||||||||||
NOTE
16 - COMMITMENTS AND CONTINGENCIES
Leases
Effective
September 1, 2006, the Company entered into a lease agreement for office
facilities on a month-to-month basis and this agreement requires monthly
payments of $4,318.
Effective
October 1, 2005, the Company entered into a one-year lease agreement for office
facilities and this agreement required monthly payments of $4,000.
Rent
expense for the years ended December 31, 2006 and 2005 and the ten months ended
October 31, 2007 amounted to $64,426, $100,609 and $49,764,
respectively.
Legal
matters
In
connection with a settlement agreement, on or about May 27, 2005, a legal
judgment was entered in the Superior Court of the County of Los Angeles against
the Company in favor of the previous owners of the “Core Tour” event, in the
amount of $483,718. The dispute arose out of the Company’s asset purchase of the
“Core Tour” event from the plaintiffs. In addition, this judgment specified that
the Company must pay interest at a stipulated amount per day. The Company
recorded interest expense related to this note of $32,888 and $39,664 in the
years ending December 31, 2006 and 2005. The Company has recorded the total
liability of $556,270 and $523,382 as of December 31, 2006 and 2005 and has
included the acquisition cost in intangible assets. The terms of the judgment
call for ownership of the “Cour Tour” event to revert to the plaintiffs if they
are not paid the judgment plus interest by October 31, 2006. While the Company
did not make this payment, the Company is in active discussions regarding having
the Plaintiffs join the Company and manage these events upon obtaining initial
funding. The Plaintiffs have not moved to enforce this judgment and the Company
expects that the discussions with the Plaintiffs will result in them joining
the
Company and running the events, although there can be no assurance that this
outcome will occur.
On
or
about May 18, 2004, a plaintiff, an ex-employee, filed a complaint against
the
Company, seeking damages.. On or about July 14, 2005, the Labor Commissioner
for
the State of California entered a judgment against the Company in favor of
this
former employee for a total award amount of $9,329. The Company has recorded
the
entire liability as of December 31, 2006 and December 31, 2005. The Company
plans to seek to set aside this judgment, disputing that it owes the plaintiff
the amount claimed.
On
or
about February 27, 2006, a plaintiff, an ex-employee, filed a complaint against
the Company, seeking $356,250 in damages. On or about June 23, 2006, the
Superior Court of the County of Los Angeles entered a default against the
Company in favor of this former employee. The Company has recorded the entire
liability as of December 31, 2006 and December 31, 2005. The Company plans
to
seek to set aside the default, disputing that it owes the plaintiff the amount
claimed but, rather, that the plaintiff was fully paid upon his voluntary
resignation from the Company. On January 24, 2008, the Company received a
tentative order from the Court vacating the award.
On
or
about June 20, 2006, the plaintiff, Wells Fargo Bank, provided a notice of
entry
of judgment in the amount of $78,651 against, among others, the Company,
formerly known as GMG Sports and Entertainment, Incorporated to ensure payment
of the amount outstanding on the line as of that date. The remaining, undrawn
amount on the line is not available to the Company.
19
The
Company is currently involved in disputes with the previous owners of the
“Concours on Rodeo”, “Millrose Games” and “American Snowboard Tour and American
Freeski Tour” events. Company management believes that these disputes could
result in future litigation or disruption of the ability of the Company to
run
these events, but is unable at this time to estimate the potential
outcomes.
Employment
Agreement
The
Company has an Employment Agreement (“Agreement”), dated January 1, 2002, with
its President and Chief Executive Officer, which requires the Company to offer
a
non-qualified stock option to purchase 10% of the fully diluted shares of the
Company’s capital stock issued and outstanding on January 1, 2002, the effective
date of the Agreement. The stock option has a term of five years at an exercise
price of $0.50 per share (which was equal to the fair value) and vested
immediately on the date of the agreement. This stock option is subject to a
customary anti-dilution provision with respect to any stock splits, mergers,
reorganizations and other such events. The length of this Agreement is five
years from the effective date unless the employment is terminated for another
cause. During the duration of this Agreement, the Chief Executive Officer is
entitled to an annual salary of $240,000 and a bonus of $250,000 in the event
a
Valuing Event causes the Company to be valued in excess of $100,000,000 and
an
additional bonus of $500,000 in the event a Valuing Event causes the Company
to
be valued in excess of $500,000,000. For the years ended December 31, 2006
and
December 31, 2005, no bonuses have been paid by the Company in relation to
this
Agreement.
NOTE
17 - SUBSEQUENT EVENTS
Reverse
Merger
Subsequent
to October 31, 2007, the Company signed an “Agreement and Plan of Merger”
(Reverse Merger Agreement) with
Feris International. (“FIIS”), a public company. FIIS will acquire all the
issued and outstanding shares of the Company in exchange for issuing
approximately 49,500,000 common shares of FIIS to the shareholders of the
Company, resulting in current shareholders of the Company owning 90% of the
combined entity.
This
reverse merger will result in the Company becoming a public company and able
to
access additional capital for the purpose of funding its
operations.
(Remainder
of page intentionally blank)
20
|
PRO
SPORTS ENTERTAINMENT, INC.
|
|||||||||||||
|
STRATUS
ENTERTAINMENT, INC.
|
|||||||||||||
|
PRO
FORMA COMBINED BALANCE SHEET
|
|||||||||||||
|
As
of October 31, 2007 (Unaudited)
|
||||||||||||||||
|
|
Feris
|
|||||||||||||||
|
ASSETS
|
Pro
Sports
|
International
|
Adjustments
|
Pro
Forma
|
||||||||||||
|
Current
assets
|
||||||||||||||||
|
Cash
and cash equivalents
|
$
|
128,545
|
$
|
-
|
$
|
-
|
$
|
128,545
|
||||||||
|
Restricted
cash
|
162,855
|
-
|
-
|
162,855
|
||||||||||||
|
Receivables
|
0
|
-
|
-
|
-
|
||||||||||||
|
Deposits
and prepaid expenses
|
14,915
|
-
|
-
|
14,915
|
||||||||||||
|
Inventory
|
9,483
|
-
|
-
|
9,483
|
||||||||||||
|
Total
current assets
|
315,798
|
-
|
-
|
315,798
|
||||||||||||
|
Property
and equipment, net
|
15,016
|
-
|
-
|
15,016
|
||||||||||||
|
Intangible
assets, net
|
4,421,266
|
-
|
-
|
4,421,266
|
||||||||||||
|
Goodwill
|
2,073,345
|
-
|
-
|
2,073,345
|
||||||||||||
|
Total
assets
|
$
|
6,825,425
|
$
|
-
|
$
|
-
|
$
|
6,825,425
|
||||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY / (DEFICIT)
|
||||||||||||||||
|
Current
liabilities
|
||||||||||||||||
|
Bank
overdraft
|
$
|
92,928
|
$
|
-
|
$
|
-
|
92,928
|
|||||||||
|
Accounts
payable
|
1,182,959
|
-
|
-
|
1,182,959
|
||||||||||||
|
Deferred
salary
|
1,505,512
|
32,400
|
28,800
|
(a) |
1,566,712
|
|||||||||||
|
Accrued
interest
|
668,718
|
13,821
|
-
|
682,539
|
||||||||||||
|
Accrued
expenses - legal judgment
|
365,579
|
-
|
-
|
365,579
|
||||||||||||
|
Other
accrued expenses and other liabilities
|
468,634
|
82,500
|
-
|
551,134
|
||||||||||||
|
Line
of credit
|
68,041
|
-
|
-
|
68,041
|
||||||||||||
|
Loans
and accounts payable to shareholders and related parties
|
780,111
|
-
|
-
|
780,111
|
||||||||||||
|
Current
portion of notes payable - related parties
|
90,000
|
-
|
-
|
90,000
|
||||||||||||
|
Note
payable
|
125,000
|
75,000
|
(75,000
|
)
|
(b) |
125,000
|
||||||||||
|
Event
acquisition liabilities
|
1,153,761
|
-
|
-
|
1,153,761
|
||||||||||||
|
Deferred
revenue
|
24,385
|
-
|
-
|
24,385
|
||||||||||||
|
Redemption
fund reserve
|
124,293
|
-
|
-
|
124,293
|
||||||||||||
|
Total
current liabilities
|
6,649,921
|
203,721
|
(46,200
|
)
|
6,807,442
|
|||||||||||
|
Non-current
liabilities
|
||||||||||||||||
|
Non-current
portion of notes payable - related parties
|
1,000,000
|
-
|
-
|
1,000,000
|
||||||||||||
|
Total
liabilities
|
7,649,921
|
203,721
|
(46,200
|
)
|
7,807,442
|
|||||||||||
|
Commitments
and contingencies
|
||||||||||||||||
|
Shareholders'
equity / (deficit)
|
||||||||||||||||
|
Preferred
stock, $0.0001 par value:
|
-
|
-
|
-
|
-
|
||||||||||||
|
5,000,000
shares authorized
|
||||||||||||||||
|
0
shares issued and outstanding
|
||||||||||||||||
|
Common
stock, $0.001 par value:
|
137,287
|
243
|
(137,372
|
)
|
(c) |
5,500
|
||||||||||
|
200,000,000
shares authorized
|
5,342 | (b) | ||||||||||||||
|
55,000,000
shares issued and outstanding
|
||||||||||||||||
|
Additional
paid-in capital
|
9,861,513
|
12,598,563
|
137,372
|
(c) |
9,861,513
|
|||||||||||
| 69,658 | (b) | |||||||||||||||
| (12,598,563 | ) | (d) | ||||||||||||||
|
(207,030
|
)
|
(f) | ||||||||||||||
|
Accumulated
deficit
|
(10,823,296
|
)
|
(12,802,527
|
)
|
12,598,563
|
(d) |
(10,849,030
|
)
|
||||||||
| (28,800 | ) | (a) | ||||||||||||||
|
207,030
|
(f) | |||||||||||||||
|
Total
shareholders' equity / (deficit)
|
(824,496
|
)
|
(203,721
|
)
|
(132,030
|
)
|
(982,017
|
)
|
||||||||
|
Total
liabilities and shareholders' equity / (deficit)
|
$
|
6,825,425
|
$
|
-
|
$
|
(178,230
|
)
|
$
|
6,825,425
|
|||||||
_________________________________________________________________
|
(a)
|
To
adjust for post-October 31, 2007 award of $28,800 to Custodian
for Feris
International
|
|||||||
|
(b)
|
Reflects
conversion of Feris notes payable of $75,000 into 5,341,500
shares of
common stock
|
|||||||
|
(c)
|
Adjustments
to reflect 55,000,000 shares outstanding following the merger
at par value
of $0.001 per share
|
|||||||
|
(d)
|
Reverse
Additional Paid-in Capital for Feris
|
|||||||
|
(e)
|
Adjustments
to reflect 55,000,000 shares outstanding following the merger
at par value
of $0.001 per share
|
|||||||
|
(f)
|
To
adjust pro-forma Additional Paid in Capital to the PSEI
amount
|
|||||||
21
|
PRO
SPORTS ENTERTAINMENT, INC.
STRATUS ENTERTAINMENT, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS |
|||||||||||||
|
Ten
Months Ended October 31, 2007 (Unaudited)
|
||||||||||||||||
|
Feris
|
||||||||||||||||
|
Pro
Sports
|
International
|
Adjustments
|
Pro
Forma
|
|||||||||||||
|
Net
revenues
|
$
|
301,310
|
$
|
-
|
$
|
-
|
$
|
301,310
|
||||||||
|
Cost
of goods sold
|
77,103
|
-
|
-
|
77,103
|
||||||||||||
|
Gross
profit / (loss)
|
224,207
|
-
|
-
|
224,207
|
||||||||||||
|
Operating
expenses
|
||||||||||||||||
|
General
and administrative
|
516,019
|
55,800
|
28,800
|
(a) |
600,619
|
|||||||||||
|
Legal
and professional services
|
426,863
|
-
|
-
|
426,863
|
||||||||||||
|
Depreciation
& amortization
|
48,482
|
-
|
-
|
48,482
|
||||||||||||
|
Total
operating expenses
|
991,364
|
55,800
|
28,800
|
1,075,964
|
||||||||||||
|
Loss
from operations
|
(767,157
|
)
|
(55,800
|
)
|
(28,800
|
)
|
(851,757
|
)
|
||||||||
|
Other
income/(expenses)
|
||||||||||||||||
|
Other
income
|
21,641
|
-
|
(203,964
|
)
|
(d) |
24,707
|
||||||||||
|
207,030
|
(f) | |||||||||||||||
|
Interest
expense, net
|
(169,636
|
)
|
(4,962
|
)
|
-
|
(174,598
|
)
|
|||||||||
|
Total
other expenses
|
(147,995
|
)
|
(4,962
|
)
|
3,066
|
(149,891
|
)
|
|||||||||
|
Net
loss
|
$
|
(915,152
|
)
|
$
|
(60,762
|
)
|
$
|
(25,734
|
)
|
$
|
(1,001,648
|
)
|
||||
|
Basic
and diluted earnings
per
share
|
$
|
(0.07
|
)
|
$
|
(0.51
|
)
|
$
|
-
|
$
|
(0.02
|
)
|
|||||
|
Basic
and diluted weighted-
|
||||||||||||||||
|
average
common shares
|
13,668,224
|
118,500
|
41,213,276
|
(b) |
55,000,000
|
|||||||||||
_________________________________________________________________
|
(a)
|
To
adjust for post-October 31, 2007 award of $28,800 to Custodian
for Feris
International
|
|||||||
|
(b)
|
To
adjust weighted average common shares to the post-merger level
of
55,000,000
|
|||||||
|
(d)
|
Non-cash
net loss on reversing paid-in capital for Feris
|
|||||||
|
(f)
|
To
adjust pro-forma Additional Paid in Capital to the PSEI
amount
|
|||||||
22
Exhibit
10.1
AGREEMENT
AND PLAN OF MERGER,
dated
as of August 20, 2007 (the “Agreement”), among Feris
International, Inc.
a Nevada
Corporation (“Feris”), Feris Merger Sub, Inc., a California corporation and
wholly owned subsidiary of Feris (“Merger Sub”), and Patty
Linson, an
individual (“Shareholder”), on the one hand; and Pro Sports & Entertainment,
Inc., a California corporation (the “Company), on the other hand. Feris,
Shareholder, Merger Sub and the Company are collectively referred to herein
as
the “Parties”. Feris, Shareholder and Merger Sub are sometimes referred to
herein collectively as the Feris Parties.
RECITALS
WHEREAS,
the
respective boards of directors of each of Feris, Merger Sub and the Company
have
approved the merger of Merger Sub with and into the Company (the “Merger”) upon
the terms, and subject to the conditions, set forth in this
Agreement;
WHEREAS,
Shareholder beneficially owns or controls an aggregate of 124,000 shares of
the
outstanding capital stock of Feris, representing a majority of the outstanding
shares of Feris and will benefit from the transactions contemplated
herein.
WHEREAS,
it is
intended that, for federal income tax purposes, the Merger shall qualify as
a
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated there under
(the “Code”); and
WHEREAS,
Feris,
Merger Sub, Shareholder and the Company desire to make certain representations,
warranties, covenants and agreements in connection with this
Agreement.
NOW,
THEREFORE,
in
consideration of the premises and mutual promises herein made, and in
consideration of the representations, warranties, covenants and agreements
herein contained, and intending to be legally bound hereby, the Parties agree
as
follows:
ARTICLE
I
DEFINITIONS
1.1 Certain
Definitions.
The
following terms shall, when used in this Agreement, have the following
meanings:
“Acquisition”
means the acquisition by a Person of any businesses, assets or property other
than in the ordinary course, whether by way of the purchase of assets or stock,
by merger, consolidation or otherwise.
“Affiliate”
means, with respect to any Person: (i) any Person directly or indirectly owning,
controlling or holding with power to vote ten percent (10%) or more of the
outstanding voting securities of such other Person (other than passive or
institutional investors); (ii) any Person ten percent (10%) or more of whose
outstanding voting securities are directly or indirectly owned, controlled
or
held with power to vote, by such other Person; (iii) any Person directly or
indirectly controlling, controlled by or under common control with such other
Person; and (iv) any officer, director or partner of such other Person.
“Control” for the foregoing purposes shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and
policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
“Business
Day” means any day other than Saturday, Sunday or a day on which banking
institutions in Los Angeles, California, are required or authorized to be
closed.
“Code”
means the United States Internal Revenue Code of 1986, as amended.
“Collateral
Documents” mean the Exhibits and any other documents, instruments and
certificates to be executed and delivered by the Parties hereunder or there
under.
“Commission”
means the Securities and Exchange Commission or any Regulatory Authority that
succeeds to its functions.
“Company
Assets” mean all properties, assets, privileges, powers, rights, interests and
claims of every type and description that are owned, leased, held, used or
useful in the Company Business and in which the Company has any right, title
or
interest or in which the Company acquires any right, title or interest on or
before the Closing Date, wherever located, whether known or unknown, and whether
or not now or on the Closing Date on the books and records of the Company,
but
excluding any of the foregoing, if any, transferred prior to the Closing
pursuant to this Agreement or any Collateral Documents.
“Company
Business” means the acquisition and operating of sports and entertainment
events.
“Company
Common Stock” means the common shares of the Company.
“Company
Shareholders” means, as of any particular date, the holders of Company Common
Stock on that date.
“Encumbrance”
means any material mortgage, pledge, lien, encumbrance, charge, security
interest, security agreement, conditional sale or other title retention
agreement, limitation, option, assessment, restrictive agreement, restriction,
adverse interest, restriction on transfer or exception to or material defect
in
title or other ownership interest (including restrictive covenants, leases
and
licenses).
“ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations there under.
“GAAP”
means United States generally accepted accounting principles as in effect from
time to time.
“Legal
Requirement” means any statute, ordinance, law, rule, regulation, code,
injunction, judgment, order, decree, ruling, or other requirement enacted,
adopted or applied by any Regulatory Authority, including judicial decisions
applying common law or interpreting any other Legal Requirement.
2
“Losses”
shall mean all damages, awards, judgments, assessments, fines, sanctions,
penalties, charges, costs, expenses, payments, diminutions in value and other
losses, however suffered or characterized, all interest thereon, all costs
and
expenses of investigating any claim, lawsuit or arbitration and any appeal
there
from, all actual attorneys’, accountants’ investment bankers’ and expert
witness’ fees incurred in connection therewith, whether or not such claim,
lawsuit or arbitration is ultimately defeated and, subject to Section 9.4,
all
amounts paid incident to any compromise or settlement of any such claim, lawsuit
or arbitration.
“Liability”
means any liability or obligation (whether known or unknown, whether asserted
or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
“Material
Adverse Effect” means a material adverse effect on (i) the assets, Liabilities,
properties or business of the Parties, (ii) the validity, binding effect or
enforceability of this Agreement or the Collateral Documents or (iii) the
ability of any Party to perform its obligations under this Agreement and the
Collateral Documents; provided, however, that none of the following shall
constitute a Material Adverse Effect on the Company: (i) the filing, initiation
and subsequent prosecution, by or on behalf of shareholders of any Party, of
litigation that challenges or otherwise seeks damages with respect to the
Merger, this Agreement and/or transactions contemplated thereby or hereby,
(ii)
occurrences due to a disruption of a Party’s business as a result of the
announcement of the execution of this Agreement or changes caused by the taking
of action required by this Agreement, (iii) general economic conditions, or
(iv)
any changes generally affecting the industries in which a Party
operates.
“Merger
Shares” means the shares of Feris Common Stock deliverable by Feris in exchange
for Company Common Stock pursuant to Section 2.6.
“Feris
Assets” mean all properties, assets, privileges, powers, rights, interests and
claims of every type and description that are owned, leased, held, used or
useful in the Feris Business and in which Feris or any of its Subsidiaries
has
any right, title or interest or in which Feris or any of its Subsidiaries
acquires any right, title or interest on or before the Closing Date, wherever
located, whether known or unknown, and whether or not now or on the Closing
Date
on the books and records of Feris or any of its Subsidiaries.
“Feris
Business” means the business conducted by Feris.
“Feris
Common Stock” means the common shares of Feris.
“Permit”
means any license, permit, consent, approval, registration, authorization,
qualification or similar right granted by a Regulatory Authority.
“Permitted
Liens” means (i) liens for Taxes not yet due and payable or being contested in
good faith by appropriate proceedings; (ii) rights reserved to any Regulatory
Authority to regulate the affected property; (iii) statutory liens of banks
and
rights of set off; (iv) as to leased assets, interests of the lessors and
sublessors thereof and liens affecting the interests of the lessors and
sublessors thereof; (v) inchoate materialmen’s, mechanics’, workmen’s,
repairmen’s or other like liens arising in the ordinary course of business; (vi)
liens incurred or deposits made in the ordinary course in connection with
workers’ compensation and other types of social security; (vii) licenses of
trademarks or other intellectual property rights granted by the Company or
Feris, as the case may be, in the ordinary course and not interfering in any
material respect with the ordinary course of the business of the Company or
Feris, as the case may be; and (viii) as to real property, any encumbrance,
adverse interest, constructive or other trust, claim, attachment, exception
to
or defect in title or other ownership interest (including, but not limited
to,
reservations, rights of entry, rights of first refusal, possibilities of
reverter, encroachments, easement, rights of way, restrictive covenants, leases,
and licenses) of any kind, which otherwise constitutes an interest in or claim
against property, whether arising pursuant to any Legal Requirement, under
any
contract or otherwise, that do not, individually or in the aggregate, materially
and adversely affect or impair the value or use thereof as it is currently
being
used in the ordinary course.
3
“Person”
means any natural person, corporation, partnership, trust, unincorporated
organization, association, limited liability company, Regulatory Authority
or
other entity.
“Proposed
Acquisition” means any of the following transactions (other than the
transactions contemplated by this Agreement): (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the shareholders of the
Company immediately preceding such transaction hold less than fifty percent
(50%) of the aggregate equity interests in the surviving or resulting entity
of
such transaction, (ii) a sale or other disposition by the Company of assets
representing in excess of fifty percent (50%) of the aggregate fair market
value
of the Company Business immediately prior to such sale or (iii) the acquisition
by any person or group (including by way of a tender offer or an exchange offer
or issuance by the Company), directly or indirectly, of beneficial ownership
or
a right to acquire beneficial ownership of shares representing in excess of
fifty percent (50%) of the voting power of the then outstanding shares of
capital stock of the Company.
“Regulatory
Authority” means: (i) the United States of America; (ii) any state,
commonwealth, territory or possession of the United States of America and any
political subdivision thereof (including counties, municipalities and the like);
(iii) Canada and any other foreign (as to the United States of America)
sovereign entity and any political subdivision thereof; or (iv) any agency,
authority or instrumentality of any of the foregoing, including any court,
tribunal, department, bureau, commission or board.
“Representative”
means any director, officer, employee, agent, consultant, advisor or other
representative of a Person, including legal counsel, accountants and financial
advisors.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations
there under.
“Subsidiary”
of a specified Person means (a) any Person if securities having ordinary voting
power (at the time in question and without regard to the happening of any
contingency) to elect a majority of the directors, trustees, managers or other
governing body of such Person are held or controlled by the specified Person
or
a Subsidiary of the specified Person; (b) any Person in which the specified
Person and its subsidiaries collectively hold a fifty percent (50%) or greater
equity interest; (c) any partnership or similar organization in which the
specified Person or subsidiary of the specified Person is a general partner;
or
(d) any Person the management of which is directly or indirectly controlled
by
the specified Person and its Subsidiaries through the exercise of voting power,
by contract or otherwise.
4
“Tax”
means any U.S. or non U.S. federal, state, provincial, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, intangible property, recording,
occupancy, sales, use, transfer, registration, value added minimum, estimated
or
other tax of any kind whatsoever, including any interest, additions to tax,
penalties, fees, deficiencies, assessments, additions or other charges of any
nature with respect thereto, whether disputed or not.
“Tax
Return” means any return, declaration, report, claim for refund or credit or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
“Treasury
Regulations” means regulations promulgated by the U.S. Treasury Department under
the Code.
1.2 Other
Definitions.
The
following terms shall, when used in this Agreement, have the meanings assigned
to such terms in the Sections indicated.
|
Term
|
Schedule
|
|
|
“Agreement”
|
Preamble
|
|
|
“Bridge
Financing
|
8.12
|
|
|
“CCC”
|
2.1
|
|
|
“Certificate
of Merger”
|
2.5
|
|
|
“Closing”.
|
2.12
|
|
|
“Closing
Date”
|
2.12
|
|
|
“Company
Common Stock”
|
2.7(a)
|
|
|
“Company
Certificates”
|
2.7(a)
|
|
|
“Company
Financial Statements”
|
3.8
|
|
|
“Company
Intellectual Property Rights”
|
3.6
|
|
|
“Company
Option”
|
2.6(b)
|
|
|
“Conversion”
|
2.6(a)(ii)
|
|
|
“Current
Market Price”
|
2.7(a)
|
|
|
“Dissenting
Shares”
|
2.9
|
|
|
“Effective
Time”
|
2.5
|
|
|
“Excluded
Shares”
|
2.6(a)
|
|
|
“Material
Company Contract”
|
3.4
|
|
|
“Material
Feris Contract”
|
4.4
|
|
|
“Merger”
|
2.1
|
|
|
“Options”
|
3.2(b)
|
|
|
“Parties”
|
Preamble
|
|
|
“Preferred
Shares”
|
2.6(a)(ii)
|
|
|
“Share
Cancellation”
|
6.10
|
|
|
“Share
Increase Authorization”
|
6.9
|
|
|
“Shareholder
Meeting”
|
5.6
|
|
|
“Surviving
Corporation”
|
2.1
|
5
ARTICLE
II
THE
MERGER
2.1 Merger;
Surviving Corporation.
In
accordance with and subject to the provisions of this Agreement and the
California Corporations Code (“CCC”), at the Effective Time, Merger Sub shall be
merged with and into the Company (the “Merger”), and the Company shall be the
surviving corporation in the Merger (hereinafter sometimes called the “Surviving
Corporation”) and shall continue its corporate existence under the laws of the
State of California, and shall immediately effect a name change. At the
Effective Time, the separate existence of the Company shall cease. All
properties, franchises and rights belonging to the Company and Feris, by virtue
of the Merger and without further act or deed, shall be vested in the Surviving
Corporation, which shall thenceforth be responsible for all the liabilities
and
obligations of each of Feris and the Company. For avoidance of doubt, upon
the
Effective Time, the Company will become a wholly owned subsidiary of
Feris.
2.2 Articles
of Incorporation.
The
Company’s articles of incorporation, as in effect at the Effective Time, shall
continue in full force and effect as the articles of incorporation of the
Surviving Corporation until altered or amended as provided therein or by
law.
2.3 By
Laws.
The
Company’s by laws, as in effect at the Effective Time, shall be the by laws of
the Surviving Corporation until altered, amended or repealed as provided therein
or by law.
2.4 (Intentionally
deleted)
2.5 Effective
Time.
The
Merger shall become effective at the time and date that the certificate of
merger of each of the Merger Sub and the Company (the “Certificate of Merger”),
in form and substance acceptable to the Parties, is accepted for filing by
the
Secretary of State of the State of California in accordance with the provisions
related thereto. The Certificate of Merger shall be executed by Merger Sub
and
the Company and delivered to the Secretary of State of the State of California
for filing on the Closing Date. The date and time when the Merger becomes
effective are referred to herein as the “Effective Time.”
2.6 Merger
Shares; Conversion and Cancellation of Securities.
(a) Conversion
of Company Common Stock.
At the
Effective Time, all shares of Company Common Stock outstanding immediately
before the Effective Time, other than shares described in Section 2.6(c) and
other than Dissenting Shares (as defined in Section 2.9 below), collectively,
the “Excluded Shares”, shall be converted, by virtue of the Merger, into
36,000,000 shares of Feris Common Stock (the “Merger Shares”) so that the
holders of Company Common Stock will upon conversion of the Merger Shares own
approximately 85.22% of Feris’ issued and outstanding capital stock (on a fully
diluted basis) as of the Effective Date after giving effect to the Merger and
any shares issuable upon a possible conversion of the Convertible Note referred
to in Section 8.7 below if such Note is converted after the Closing, subject
to
the following:
(i) The
allocation of the Merger Shares among the Company Shareholders excluding the
holders of Dissenting Shares shall be delivered to Feris at least one business
day prior to the Closing;
6
At
the
Effective Time, all Company Shares shall no longer be outstanding and shall
be
cancelled and retired and shall cease to exist, and each certificate formerly
representing any Company Common Stock (other than Excluded Shares) shall
thereafter represent only the right to the Merger Shares and any distribution
or
dividend pursuant to Section .
(b) Stock
Options.
At the
Effective Time, each outstanding option to purchase Company Common Stock (a
“Company Option”), whether vested or unvested, shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Company Option, the same number of shares of Feris Common Stock as the
holder of such Company Option would have been entitled to receive pursuant
to
the Merger had such holder exercised such option in full immediately prior
to
the Effective Time (rounded up to the nearest whole number), at a price per
share (rounded up to the nearest whole cent) equal to (i) the aggregate exercise
price for the Company Common Stock otherwise purchasable pursuant to such
Company Option divided by (ii) the number of full shares of Feris Common Stock
deemed purchasable pursuant to such Company Option in accordance with the
foregoing. At or prior to the Effective Time, Feris shall take all corporate
action necessary to reserve for issuance a sufficient number of Feris Common
Stock for delivery upon exercise of Company Options assumed by it in accordance
with this Section.
(c) Treasury
Shares, Etc.
Each
share of Company Common Stock held in the treasury of the Company and (each
share of Company Common Stock, if any, held by Feris or of the Company
immediately before the Effective Time) shall be cancelled and extinguished,
and
nothing shall be issued or paid in respect thereof.
(d) Fractional
Shares.
No
certificates or scrip evidencing fractional shares of Feris Preferred Stock
shall be issued in exchange for Company Common Stock. All fractional share
amounts shall be rounded up to the nearest whole share.
2.7 Surrender
of Company Certificates.
(a) Exchange
Procedures.
Promptly after the Effective Time, Feris or its appointed designee shall mail
to
each holder of a certificate or certificates of Company Common Stock (“Company
Certificates”) whose shares are converted into the right to receive the Merger
Shares, (i) a letter of transmittal (which shall specify that delivery shall
be
effected, and risk of loss and title to the Company Certificates shall pass
to
Feris, only upon delivery of the Company Certificates to Feris and which shall
be in such form and have such other provisions as Feris may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Company
Certificates in exchange for the Merger Shares and any dividends or other
distributions pursuant to Section. Upon surrender of Company Certificates for
cancellation to Feris, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders
of
such Company Certificates shall be entitled to receive the Merger Shares in
exchange therefore and the Company Certificates so surrendered shall forthwith
be canceled. Notwithstanding the foregoing, if any Company Certificate is lost,
stolen, destroyed or mutilated, such holder shall provide evidence reasonably
satisfactory to Feris as to such loss, theft, destruction or mutilation and
an
affidavit in form and substance satisfactory to Feris, and, thereupon, such
holder shall be entitled to receive the Merger Shares in exchange therefore
and
the Company Certificates so surrendered shall forthwith be
canceled.
7
(b) Required
Withholding.
In
connection with any payment to any holder or former holder of the Company Common
Stock, each of Feris and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable pursuant
to
this Agreement to any holder or former holder of the Company Common Stock such
amounts as may be required to be deducted or withheld there from under the
Code
or under any provision of state, local or foreign tax law or under any other
applicable laws. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the person to whom such amounts would otherwise have been
paid.
(c) No
Liability.
Notwithstanding anything to the contrary in this Section 2.7, neither Feris,
the
Surviving Corporation nor any party hereto shall be liable to any Person for
any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Company Certificate shall not have
been
surrendered prior to the date immediately prior to the date on which such
property would otherwise escheat to or become the property of any Governmental
or Regulatory Authority, any such property, to the extent permitted by
applicable law, shall become the property of the Surviving Corporation, free
and
clear of all claims or interest of any person previously entitled
thereto.
(d) Termination.
Any
holders of the Company Certificates who have not complied with this ARTICLE
II
shall look only to Feris or the Surviving Corporation for, and Feris and the
Surviving Corporation shall remain liable for, payment of their claim for Merger
Shares and any dividends or distributions with respect to Feris Common Stock,
without interest thereon.
2.8 Stock
Transfer Books.
At the
Effective Time, the stock transfer books of the Company shall be closed, and
there shall be no further registration of transfers of shares of Company Common
Stock thereafter on the records of the Company.
2.9 Dissenting
Shares.
Shares
of Company Common Stock which are issued and outstanding immediately prior
to
the Effective Time and which are held by persons who have properly exercised,
and not withdrawn or waived, appraisal rights with respect thereto in accordance
with the CCC (the “Dissenting Shares”), will not be converted into the right to
receive the Merger Shares, and holders of such shares of Company Common Stock
will be entitled, in lieu thereof, to receive payment of the appraised value
of
such shares of Company Common Stock in accordance with the provisions of the
CCC
unless and until such holders fail to perfect or effectively withdraw or lose
their rights to appraisal and payment under the CCC. If, after the Effective
Time, any such holder fails to perfect or effectively withdraws or loses such
right, such shares of Company Common Stock will thereupon be treated as if
they
had been converted at the Effective Time into the right to receive the Merger
Shares, without any interest thereon. The Company will give Feris prompt notice
of any demands received by the Company for appraisal of shares of Company Common
Stock. Prior to the Effective Time, the Company will not, except with the prior
written consent of Feris make any payment with respect to, or settle or offer
to
settle, any such demands.
8
2.10 Restriction
on Transfer.
The
Merger Shares may not be sold, transferred, or otherwise disposed of without
registration under the Act or an exemption there from, and that in the absence
of an effective registration statement covering the Merger Shares or any
available exemption from registration under the Act, the Merger Shares must
be
held indefinitely. The Company Shareholders are aware that the Merger Shares
may
not be sold pursuant to Rule 144 promulgated under the Act unless all of the
conditions of that Rule are met. Among the conditions for use of Rule 144 may
be
the availability of current information to the public about Feris.
2.11 Restrictive
Legend.
All
certificates representing the Merger Shares shall contain the following
legend:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, ARE SUBJECT TO THE TERMS OF AN
AGREEMENT AND PLAN OF MERGER, DATED AS OF AUGUST 8, 2007, BETWEEN FERIS
INTERNATIONAL, INC., FERIS
MERGER
SUB, INC., PETER BERNEY AND PRO SPORTS & ENTERTAINMENT, INC., A COPY OF
WHICH IS ON FILE IN THE PRINCIPAL OFFICE OF THE ISSUER. FURTHER, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF WITHOUT REGISTRATION UNDER THE ACT OR AN EXEMPTION
THEREFROM.”
2.12 Closing.
The
closing of the transactions contemplated by this Agreement and the Collateral
Documents (the “Closing”) shall take place at the offices of Troy & Gould,
1801 Century Park East, Sixteenth Floor, Los Angeles, California 90067, or
at
such other location as the parties may agree at 11:00 a.m., Pacific Time on
the
agreed date, which, shall be within sixty (60) days of the signing hereof (the
“Closing Date”).
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to Feris that the statements contained in this
ARTICLE III are correct and complete as of the date of this Agreement and,
except as provided in Section 7.1, will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ARTICLE III, except
in the case of representations and warranties stated to be made as of the date
of this Agreement or as of another date and except for changes contemplated
or
permitted by this Agreement).
9
3.1 Organization
and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of organization. The Company
has
all requisite power and authority to own, lease and use its assets as they
are
currently owned, leased and used and to conduct its business as it is currently
conducted. The Company is duly qualified or licensed to do business in and
is in
good standing in each jurisdiction in which the character of the properties
owned, leased or used by it or the nature of the activities conducted by it
make
such qualification necessary, except any such jurisdiction where the failure
to
be so qualified or licensed would not have a Material Adverse Effect on the
Company or a material adverse effect on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents or the ability
of
the Company to perform its obligations under this Agreement or any of the
Collateral Documents.
3.2 Capitalization.
(a) The
authorized capital stock and other ownership interests of the Company consist
of
45,000,000 shares of common stock, of which thirteen million three hundred
and
eighty four thousand three hundred and fifty nine (13,575,541) shares were
issued and outstanding as of the date hereof, and 0 shares of Preferred Stock,
none of which are outstanding. All of the outstanding Company Common Stock
have
been duly authorized and are validly issued, fully paid and nonassessable.
It is
anticipated that the number of shares of Company Common Stock will increase
as a
result of private placements to be conducted after the date hereof.
(b) Schedule
3.2(b)(i) lists all outstanding or authorized options, warrants, purchase
rights, preemptive rights or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding any of
its
capital stock or other ownership interests (collectively
“Options”).
(c) All
of
the issued and outstanding shares of Company Common Stock have been duly
authorized and are validly issued and outstanding, fully paid and nonassessable
and have been issued in compliance with applicable securities laws and other
applicable Legal Requirements or transfer restrictions under applicable
securities laws.
3.3 Authority
and Validity.
The
Company has all requisite corporate power to execute and deliver, to perform
its
obligations under, and to consummate the transactions contemplated by, this
Agreement (subject to the approval of the Company Shareholders as contemplated
by Section 5.4 and to receipt of any consents, approvals, authorizations or
other matters referred to in Section 5.4). The execution and delivery by the
Company of, the performance by the Company of its obligations under, and the
consummation by the Company of the transactions contemplated by, this Agreement
have been duly authorized by all requisite action of the Company (subject to
the
approval of the Company Shareholders as contemplated by Section 5.4). This
Agreement has been duly executed and delivered by the Company and (assuming
due
execution and delivery by the Feris Parties and approval by the Company
Shareholders) is the legal, valid, and binding obligation of the Company,
enforceable against it in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors’ rights generally and (ii) general equitable principles. Upon the
execution and delivery of the Collateral Documents by each Person (other than
by
the Feris Parties) that is required by this Agreement to execute, or that does
execute, this Agreement or any of the Collateral Documents, and assuming due
execution and delivery thereof by the Feris Parties, the Collateral Documents
will be the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except that
such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors’ rights generally and (ii) general equitable principles.
10
3.4 No
Breach or Violation.
Subject
to obtaining the consents, approvals, authorizations, and orders of and making
the registrations or filings with or giving notices to Regulatory Authorities
and Persons identified herein, the execution, delivery and performance by the
Company of this Agreement and the Collateral Documents to which it is a party,
and the consummation of the transactions contemplated hereby and thereby in
accordance with the terms and conditions hereof and thereof, do not and will
not
conflict with, constitute a violation or breach of, constitute a default or
give
rise to any right of termination or acceleration of any right or obligation
of
the Company under, or result in the creation or imposition of any Encumbrance
upon the Company, the Company Assets, the Company Business or the Company Common
Stock by reason of the terms of (i) the articles of incorporation, by laws
or
other charter or organizational document of the Company or any Subsidiary of
the
Company, (ii) any material contract, agreement, lease, indenture or other
instrument to which the Company is a party or by or to which the Company, or
the
Assets may be bound or subject and a violation of which would result in a
Material Adverse Effect on the Company, (iii) any order, judgment, injunction,
award or decree of any arbitrator or Regulatory Authority or any statute, law,
rule or regulation applicable to the Company or (iv) any Permit of the Company,
which in the case of (ii), (iii) or (iv) above would have a Material Adverse
Effect on the Company or a material adverse effect on the validity, binding
effect or enforceability of this Agreement or the Collateral Documents or the
ability of the Company to perform its obligations under this Agreement or any
of
the Collateral Documents.
3.5 Consents
and Approvals.
No
consent, approval, authorization or order of, registration or filing with,
or
notice to, any Regulatory Authority or any other Person is necessary to be
obtained, made or given by the Company in connection with the execution,
delivery and performance by the Company of this Agreement or any Collateral
Document or for the consummation by the Company of the transactions contemplated
hereby or thereby, except to the extent the failure to obtain any such consent,
approval, authorization or order or to make any such registration or filing
would not have a Material Adverse Effect on the Company or a material adverse
effect on the validity, binding effect or enforceability of this Agreement
or
the Collateral Documents or the ability of the Company to perform its
obligations under this Agreement or any of the Collateral
Documents.
3.6 Intellectual
Property.
To the
knowledge of the Company, the Company has good title to or the right to use
all
material company intellectual property rights and all material inventions,
processes, designs, formulae, trade secrets and know how necessary for the
operation of the Company Business without the payment of any royalty or similar
payment.
11
3.7 Compliance
with Legal Requirements.
The
Company has operated the Company Business in compliance with all Legal
Requirements applicable to the Company except to the extent the failure to
operate in compliance with all material Legal Requirements would not have a
Material Adverse Effect on the Company or Material Adverse Effect on the
validity, binding effect or enforceability of this Agreement or the Collateral
Documents.
3.8 Financial
Statements.
Prior
to the Closing Date, the Company shall provide Feris with audited balance sheets
of the Company as of December 31, 2005 and December 31, 2006 and statements
of
operations, stockholders’ equity and cash flows for the years then ended,. Such
financial statements (“Company Financial Statements”) have or will have been
prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) applied on a basis consistent throughout all periods presented, present
fairly in all material respects the financial condition of the Company and
its
results of operations as of the date and for the periods indicated.
3.9 Litigation.
Except
as set forth on Item 3.9 of the Disclosure Schedule, there are no outstanding
judgments or orders against or otherwise affecting or related to the Company,
the Company Business or the Company Assets and there is no action, suit,
complaint, proceeding or investigation, judicial, administrative or otherwise,
that is pending or, to the Company’s knowledge, threatened that, if adversely
determined, would have a Material Adverse Effect on the Company or a material
adverse effect on the validity, binding effect or enforceability of this
Agreement or the Collateral Documents, except as noted in the audited Company
Financial Statements or documented by the Company to Feris.
3.10 Taxes.
The
Company has duly and timely filed in proper form all Tax Returns for all Taxes
required to be filed with the appropriate Regulatory Authority, and has paid
all
taxes required to be paid in respect thereof except where such failure would
not
have a Material Adverse Effect on the Company, except where, if not filed or
paid, the exception(s) have been documented by the Company to
Feris.
3.11 Books
and Records.
The
books and records of the Company accurately and fairly represent the Company
Business and its results of operations in all material respects.
3.12 Brokers
or Finders.
Except
as set forth on Item 3.12 of the Disclosure Schedule, all negotiations relative
to this Agreement and the transactions contemplated hereby have been carried
out
by the Company or any of its Affiliates in connection with the transactions
contemplated by this Agreement, and with the exception of certain Investment
Banking fees, for which the Company is obligated, neither the Company, nor
any
of its Affiliates has incurred any obligation to pay any brokerage or finder’s
fee or other commission in connection with the transaction contemplated by
this
Agreement.
3.13 Proxies.
Company
management holds, or prior to the Closing will hold, irrevocable proxies from
the Company Shareholders adequate to ensure Company Shareholder approval of
the
Merger as required by applicable law.
12
3.14 Disclosure.
No
representation or warranty of the Company in this Agreement or in the Collateral
Documents and no statement in any certificate furnished or to be furnished
by
the Company pursuant to this Agreement contained, contains or will contain
on
the date such agreement or certificate was or is delivered, or on the Closing
Date, any untrue statement of a material fact, or omitted, omits or will omit
on
such date to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading.
3.15 No
Undisclosed Liabilities.
The
Company is not subject to any material liability (including unasserted claims),
absolute or contingent, which is not shown or which is in excess of amounts
shown or reserved for in the audited balance sheet as of December 31, 2006,
other than liabilities of the same nature as those set forth in the Company
Financial Statements and reasonably incurred in the ordinary course of its
business after December 31, 2006.
3.16 Absence
of Certain Changes.
Except
as set forth as Item 3.16 of the Company’s Disclosure Schedule hereto, since
December 31, 2006, the Company has not: (a) suffered any material adverse change
in its financial condition, assets, liabilities or business; (b) contracted
for
or paid any capital expenditures; (c) incurred any indebtedness or borrowed
money, issued or sold any debt or equity securities, declared any dividends
or
discharged or incurred any liabilities or obligations except in the ordinary
course of business as heretofore conducted; (d) mortgaged, pledged or subjected
to any lien, lease, security interest or other charge or encumbrance any of
its
properties or assets; (e) paid any material amount on any indebtedness prior
to
the due date, forgiven or cancelled any material amount on any indebtedness
prior to the due date, forgiven or cancelled any material debts or claims or
released or waived any material rights or claims; (f) suffered any damage or
destruction to or loss of any assets (whether or not covered by insurance);
(g)
acquired or disposed of any assets or incurred any liabilities or obligations;
(h) made any payments to its affiliates or associates or loaned any money to
any
person or entity; (i) formed or acquired or disposed of any interest in any
corporation, partnership, limited liability company, joint venture or other
entity; (j) entered into any employment, compensation, consulting or collective
bargaining agreement or any other agreement of any kind or nature with any
person. or group, or modified or amended in any respect the terms of any such
existing agreement; (k) entered into any other commitment or transaction or
experience any other event that relates to or affect in any way this Agreement
or to the transactions contemplated hereby, or that has affected, or may
adversely affect the Company’s business, operations, assets, liabilities or
financial condition; or (1) amended its Articles of Organization or By-laws,
except as otherwise contemplated herein.
3.17 Contracts.
Item
3.17 of the Company’s Disclosure Schedule is a true and complete list of all
contracts, agreements, leases, commitments or other understandings or
arrangements, written or oral, express or implied, to which the Company is
a
party or by which it or any of its property is bound or affected requiring
payments to or from, or incurring of liabilities by, the Company in excess
of
$100,000 (the “Contracts”). Except as set forth as Item 3.17 of the Company’s
Disclosure Schedule, the Company has complied with and performed, in all
material respects, all of its obligations required to be performed under and
is
not in default with respect to any of the Contracts, as of the date hereof,
nor
bas any event occurred which has not been cured which, with or without the
giving of notice, lapse of time, or both, would constitute a default in any
respect there under. To the best knowledge of the Company, no other party has
failed to comply with or perform, in all material respects, any of its
obligations required to be performed under or is in material default with
respect to any such Contracts, as of the date hereof, nor has any event occurred
which, with or without the giving of notice, lapse of time or both, would
constitute a material default in any respect by such party there under. Except
as set forth as Item 3.17 of the Company’s Disclosure Schedule, the Company
knows of and has no reason to believe that there are any facts or circumstances
which would make a material default by any party to any contract or obligation
likely to occur subsequent to the date hereof.
13
3.18 Permits
and Licenses.
The
Company has all certificates of occupancy, rights, permits, certificates,
licenses, franchises, approvals and other authorizations as are reasonably
necessary to conduct its business and to own, lease, use, operate and occupy
its
assets, at the places and in the manner now conducted and operated, except
those
the absence of which would not materially adversely affect its business. The
Company has not received any written or oral notice or claim pertaining to
the
failure to obtain any material permit, certificate, license, approval or other
authorization required by any federal, state or local agency or other regulatory
body, the failure of which to obtain would materially and adversely affect
its
business.
3.19 Assets
Necessary to Business.
The
Company owns or leases all properties and assets, real, personal, and mixed,
tangible and intangible, and is a party to all licenses, permits and other
agreements necessary to permit it to carry on its business as presently
conducted.
3.20 Labor
Agreements and Labor Relations.
The
Company has no collective bargaining or union contracts or agreements. The
Company is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practices; there are no charges of
discrimination or unfair labor practice charges” or complaints against the
Company pending or threatened before any governmental or regulatory agency
or
authority; and, there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or affecting the Company.
3.21 Employment
Arrangements.
Except
as set forth as Item 3.21 of the Company’s Disclosure Schedule hereto, the
Company has no employment or consulting agreements or arrangements, written
or
oral, which are not terminable at the will of the Company, or any pension,
profit-sharing, option, other incentive plan, or any other type of employment
benefit plan as defined in ERISA or otherwise, or any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance or other benefits. No employee of the Company is in
violation of any employment agreement or restrictive covenant.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE Feris PARTIES
Each
of
the Feris Parties, jointly and severally, represents and warrants to the Company
that the statements contained in this ARTICLE IV are correct and complete as
of
the date of this Agreement and, except as provided in Section 8.1, will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this
ARTICLE IV, except in the case of representations and warranties stated to
be
made as of the date of this Agreement or as of another date and except for
changes contemplated or permitted by the Agreement).
14
4.1 Organization
and Qualification.
Each of
Feris and Merger Sub is a corporation duly organized, validly existing and
in
good standing under the laws of Nevada and California, respectively. Each of
Feris and Merger Sub has all requisite power and authority to own, lease and
use
its assets as they are currently owned, leased and used and to conduct its
business as it is currently conducted. Feris is duly qualified or licensed
to do
business in and are each in good standing in each jurisdiction in which the
character of the properties owned, leased or used by it or the nature of the
activities conducted by it makes such qualification necessary, except any such
jurisdiction where the failure to be so qualified or licensed and in good
standing would not have a Material Adverse Effect on Feris or a Material Adverse
Effect on the validity, binding effect or enforceability of this Agreement
or
the Collateral Documents or the ability of the Company or Feris to perform
its
obligations under this Agreement or any of the Collateral
Documents.
4.2 Capitalization.
(a) The
authorized capital stock of Feris consists of 200,000,000 shares of Common
Stock
of which there are 240,474 shares issued and outstanding. The shares of Feris
Common Stock included in the Merger Shares, when issued in accordance with
this
Agreement, will have been duly authorized, validly issued and outstanding and
will be fully paid and non-assessable. Immediately upon execution
hereon.
(b) Schedule
4.2(b) lists all outstanding or authorized options, warrants, purchase rights,
preemptive rights or other contracts or commitments that could require Feris
or
any of its Subsidiaries to issue, sell, or otherwise cause to become outstanding
any of its capital stock or other ownership interests.
(c) All
of
the issued and outstanding shares of Feris Capital Stock have been duly
authorized and are validly issued and outstanding, fully paid and nonassessable
(with respect to Subsidiaries that are corporations) and have been issued in
compliance with applicable securities laws and other applicable Legal
Requirements.
4.3 Authority
and Validity.
Each
Feris Party has all requisite power to execute and deliver, to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement and the Collateral Documents. The execution and delivery by each
Feris
Party of the performance by each Feris Party of its obligations under, and
the
consummation by each Feris Party of the transactions contemplated by, this
Agreement and the Collateral Documents have been duly authorized by all
requisite action of each Feris Party. This Agreement has been duly executed
and
delivered by each of the Feris Parties and (assuming due execution and delivery
by the Company) is the legal, valid and binding obligation of each Feris Party,
enforceable in accordance with its terms except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors’ rights generally
and (ii) general equitable principles. Upon the execution and delivery by each
of the Feris Parties of the Collateral Documents to which each of them is a
party, and assuming due execution and delivery thereof by the other parties
thereto, the Collateral Documents will be the legal, valid and binding
obligations of each such Person, as the case may be, enforceable against each
of
them in accordance with their respective terms except that such enforcement
may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors’ rights generally
and (ii) general equitable principles.
15
4.4 No
Breach or Violation.
Subject
to obtaining the consents, approvals, authorizations, and orders of and making
the registrations or filings with or giving notices to Regulatory Authorities
and Persons identified herein, the execution, delivery and performance by the
Feris Parties of this Agreement and the Collateral Documents to which each
is a
party and the consummation of the transactions contemplated hereby and thereby
in accordance with the terms and conditions hereof and thereof, do not and
will
not conflict with, constitute a violation or breach of, constitute a default
or
give rise to any right of termination or acceleration of any right or obligation
of any Feris Party under, or result in the creation or imposition of any
Encumbrance upon the property of any Feris Party by reason of the terms of
(i)
the articles of incorporation, by laws or other charter or organizational
document of any Feris Party, (ii) any contract, agreement, lease, indenture
or
other instrument to which any Feris Party is a party or by or to which any
Feris
Party or its property may be bound or subject and a violation of which would
result in a Material Adverse Effect on Feris taken as a whole, (iii) any order,
judgment, injunction, award or decree of any arbitrator or Regulatory Authority
or any statute, law, rule or regulation applicable to any Feris Party or (iv)
any Permit of Feris or Merger Sub, which in the case of (ii), (iii) or (iv)
above would have a Material Adverse Effect on Feris or a material adverse effect
on the validity, binding effect or enforceability of this Agreement or the
Collateral Documents or the ability of any Feris Party to perform its
obligations hereunder or there under.
4.5 Consents
and Approvals.
Except
for requirements under applicable United States or state securities laws, no
consent, approval, authorization or order of, registration or filing with,
or
notice to, any Regulatory Authority or any other Person is necessary to be
obtained, made or given by any Feris Party in connection with the execution,
delivery and performance by them of this Agreement or any Collateral Documents
or for the consummation by them of the transactions contemplated hereby or
thereby, except to the extent the failure to obtain such consent, approval,
authorization or order or to make such registration or filings or to give such
notice would not have a Material Adverse Effect on Feris or a material adverse
effect on the validity, binding effect or enforceability of this Agreement
or
the Collateral Documents or the ability of the Company or Feris to perform
its
obligations under this Agreement or any of the Collateral
Documents.
4.6 Compliance
with Legal Requirements.
Feris
has operated the Feris Business in compliance with all material Legal
Requirements including, without limitation, the Exchange Act and the Securities
Act applicable to Feris, except to the extent the failure to operate in
compliance with all material Legal Requirements, would not have a Material
Adverse Effect on Feris or a Material Adverse Effect on the validity, binding
effect or enforceability of this Agreement or the Collateral
Documents.
4.7 Litigation.
There
are no outstanding judgments or orders against or otherwise affecting or related
to Feris, or their business or assets; and there is no action, suit, complaint,
proceeding or investigation, judicial, administrative or otherwise, that is
pending or, to the best knowledge of Feris, threatened that, if adversely
determined, would have a Material Adverse Effect on Feris or a material adverse
effect on the validity, binding effect or enforceability of this Agreement
or
the Collateral Documents.
16
4.8 Ordinary
Course.
Since
the date of the balance sheet included in the most recent Feris Securities
Filings filed through the date hereof, there has not been any occurrence, event,
incident, action, failure to act or transaction involving Feris which is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Feris.
4.9 Assets
and Liabilities.
As of
the date of this Agreement, neither Feris nor any of its Subsidiaries has any
Assets or Liability, except for the (i) Assets and Liabilities disclosed in
the
balance sheet included in the most recent Feris Securities Filings filed through
the date hereof or disclosed on Schedule 4.9 and (ii) Liabilities incurred
in
connection with this Agreement.
4.10 Taxes.
Feris
has, and each of its Subsidiaries has, duly and timely filed in proper form
all
Tax Returns for all Taxes required to be filed with the appropriate Governmental
Authority, except where such failure to file would not have a Material Adverse
Effect on Feris.
4.11 Books
and Records.
The
books and records of Feris and its Subsidiaries accurately and fairly represent
the Feris Business and its results of operations in all material respects.
All
accounts receivable and inventory of the Feris Business are reflected properly
on such books and records in all material respects.
4.12 Financial
and Other Information.
For
at
least the past five full fiscal years, Feris has not conducted any business,
generated any revenues or incurred any liabilities except for liabilities not
to
exceed $85,000 for maintaining the corporate books and records which liabilities
are evidenced by a convertible note (the “Convertible Note”).
4.13 Brokers
or Finders.
Except
as set forth in Item 4.13 of the Disclosure Schedule, no broker or finder has
acted directly or indirectly for Feris in connection with the transactions
contemplated by this Agreement, and Feris has not incurred any obligation to
pay
any brokerage or finder’s fee or other commission in connection with the
transaction contemplated by this Agreement.
4.14 Disclosure.
No
representation or warranty of Feris in this Agreement or in the Collateral
Documents and no statement in any certificate furnished or to be furnished
by
Feris pursuant to this Agreement contained, contains or will contain on the
date
such agreement or certificate was or is delivered, or on the Closing Date,
any
untrue statement of a material fact, or omitted, omits or will omit on such
date
to state any material fact necessary in order to make the statements made,
in
light of the circumstances under which they were made, not
misleading.
4.15 Conduct
of Business.
Prior
to the Closing Date, Feris shall conduct its business in the normal course,
and
shall not sell, pledge, or assign any assets, without the prior written approval
of the Company, except in the regular course of business. Except as otherwise
provided herein, Feris shall not amend its Articles of Incorporation or By-Laws,
declare dividends, redeem or sell stock or other securities, acquire or dispose
of fixed assets, change employment terms, enter into any material or long-term
contract, guarantee obligations of any third party, settle or discharge any
material balance sheet receivable for less than its stated amount, pay more
on
any liability than its stated amount or enter into any other transaction other
than in the regular course of business.
17
ARTICLE
V
COVENANTS
OF THE COMPANY
Between
the date of this Agreement and the Closing Date:
5.1 Additional
Information.
The
Company shall provide to Feris and its Representatives such financial, operating
and other documents, data and information relating to the Company, the Company
Business and the Company Assets and Liabilities of the Company, as Feris or
its
Representatives may reasonably request. In addition, the Company shall take
all
action necessary to enable Feris and its Representatives to review, inspect
and
audit the Company Assets, the Company Business and Liabilities of the Company
and discuss them with the Company’s officers, employees, independent
accountants, customers, licensees, and counsel. Notwithstanding any
investigation that Feris may conduct of the Company, the Company Business,
the
Company Assets and the Liabilities of the Company, Feris may fully rely on
the
Company’s warranties, covenants and indemnities set forth in this Agreement.
5.2 Consents
and Approvals.
As soon
as practicable after execution of this Agreement, the Company shall use
commercially reasonable efforts to obtain any necessary consent, approval,
authorization or order of, make any registration or filing with or give any
notice to, any Regulatory Authority or Person as is required to be obtained,
made or given by the Company to consummate the transactions contemplated by
this
Agreement and the Collateral Documents.
5.3 Non-circumvention.
It is
understood that in connection with the transactions contemplated hereby, Feris
has been and will be seeking to find investors willing to provide loans and/or
capital investments to finance business plans. In connection therewith, the
Company will not, and it will cause its directors, officers, employees, agents
and representatives not to attempt, directly or indirectly, (i) to contact
any
party introduced to it by Feris, or (ii) deal with, or otherwise become involved
in any transaction with any party which has been introduced to it by Feris,
without the express written permission of the introducing party and without
having entered into a commission agreement with the introducing party. Any
violation of the covenant shall be deemed an attempt to circumvent Feris, and
the party so violating this covenant shall be liable for damages in favor of
the
circumvented party.
5.4 No
Solicitations.
From
and after the date of this Agreement until the Effective Time or termination
of
this Agreement pursuant to ARTICLE X, the Company will not nor will it authorize
or permit any of its officers, directors, affiliates or employees or any
investment banker, attorney or other advisor or representative retained by
it,
directly or indirectly, (i) solicit or initiate the making, submission or
announcement of any other acquisition proposal, (ii) participate in any
discussions or negotiations regarding, or furnish to any person any non public
information with respect to any other acquisition proposal, (iii) engage in
discussions with any Person with respect to any other acquisition proposal,
except as to the existence of these provisions, (iv) approve, endorse or
recommend any other acquisition proposal or (v) enter into any letter of intent
or similar document or any contract agreement or commitment contemplating or
otherwise relating to any other acquisition proposal.
18
5.5 Notification
of Adverse Change.
The
Company shall promptly notify Feris of any material adverse change in the
condition (financial or otherwise) of the Company.
5.6 Meeting
of the Company Shareholders.
Promptly after the date hereof, if required under applicable law, the Company
will take all action necessary in accordance with its articles of incorporation
and by-laws to convene a meeting of the Company’s shareholders to consider the
adoption and approval of this Agreement and approval of the Merger to be held
as
promptly as practicable. The Company will use its reasonable efforts to solicit
from its shareholders proxies in favor of the adoption and approval of this
Agreement and the approval of the Merger and will take all other action
necessary or advisable to secure the vote or consent of its shareholders
required by the CCC to obtain such approvals. In lieu of such meeting, the
adoption and approval of this Agreement and the Merger may be approved by
shareholder consent.
5.7 Notification
of Certain Matters.
The
Company shall promptly notify Feris of any fact, event, circumstance or action
known to it that is reasonably likely to cause the Company to be unable to
perform any of its covenants contained herein or any condition precedent in
ARTICLE VII not to be satisfied, or that, if known on the date of this
Agreement, would have been required to be disclosed to Feris pursuant to this
Agreement or the existence or occurrence of which would cause any of the
Company’s representations or warranties under this Agreement not to be correct
and/or complete. The Company shall give prompt written notice to Feris of any
adverse development causing a breach of any of the representations and
warranties in ARTICLE III as of the date made.
5.8 Company
Disclosure Schedule.
The
Company shall, from time to time prior to Closing, supplement the Company
Disclosure Statement with additional information that, if existing or known
to
it on the date of delivery to Feris, would have been required to be included
therein. For purposes of determining the satisfaction of any of the conditions
to the obligations of Feris in ARTICLE VII, the Company Disclosure Statement
shall be deemed to include only (a) the information contained therein on the
date of this Agreement and (b) information added to the Company Disclosure
Statement by written supplements delivered prior to Closing by the Company
that
(i) are accepted in writing by Feris, or (ii) reflect actions taken or events
occurring after the date hereof prior to Closing.
5.9 State
Statutes.
The
Company and its Board of Directors shall, if any state takeover statute or
similar law is or becomes applicable to the Merger, this Agreement or any of
the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by
this
Agreement and otherwise to minimize the effect of such statute or regulation
on
the Merger, this Agreement and the transactions contemplated
hereby.
19
5.10 Conduct
of Business.
Prior
to the Closing Date, the Company shall conduct its business in the normal
course, and shall not sell, pledge, or assign any assets, without the prior
written approval of Feris, except in the regular course of business. Except
as
otherwise provided herein, the Company shall not amend its Articles of
Incorporation or Bylaws, declare dividends, redeem or sell stock or other
securities, acquire or dispose of fixed assets, change employment terms, enter
into any material or long-term contract, guarantee obligations of any third
party, settle or discharge any material balance sheet receivable for less than
its stated amount, pay more on any liability than its stated amount, or enter
into any other transaction other than in the regular course of
business.
ARTICLE
VI
COVENANTS
OF FERIS
Between
the date of this Agreement and the Closing Date,
6.1 Additional
Information.
Feris
shall provide to the Company and its Representatives such financial, operating
and other documents, data and information relating to Feris,, the Feris Business
and the Feris Assets and the Liabilities of Feris and its Subsidiaries, as
the
Company or its Representatives may reasonably request. In addition, the Company
shall take all action necessary to enable the Company and its Representatives
to
review and inspect the Feris Assets, the Feris Business and the Liabilities
of
Feris and discuss them with the Company’s officers, employees, independent
accountants and counsel. Notwithstanding any investigation that the Company
may
conduct of Feris, the Feris Business, the Feris Assets and the Liabilities
of
Feris, the Company may fully rely on Feris’s warranties, covenants and
indemnities set forth in this Agreement.
6.2 No
Solicitations.
From
and after the date of this Agreement until the Effective Time or termination
of
this Agreement pursuant to ARTICLE X, Feris will not nor will it authorize
or
permit any of its officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by it, directly
or
indirectly, (i) solicit or initiate the making, submission or announcement
of
any other acquisition proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any person any non public information
with
respect to any other acquisition proposal, (iii) engage in discussions with
any
Person with respect to any other acquisition proposal, except as to the
existence of these provisions, (iv) approve, endorse or recommend any other
acquisition proposal or (v) enter into any letter of intent or similar document
or any contract agreement or commitment contemplating or otherwise relating
to
any other acquisition proposal.
6.3 Notification
of Adverse Change.
Feris
shall promptly notify the Company of any material adverse change in the
condition (financial or otherwise) of Feris.
6.4 Consents
and Approvals.
As soon
as practicable after execution of this Agreement, Feris shall use its
commercially reasonable efforts to obtain any necessary consent, approval,
authorization or order of, make any registration or filing with or give notice
to, any Regulatory Authority or Person as is required to be obtained, made
or
given by Feris to consummate the transactions contemplated by this Agreement
and
the Collateral Documents.
20
6.5 Notification
of Certain Matters.
Feris
shall promptly notify the Company of any fact, event, circumstance or action
known to it that is reasonably likely to cause Feris to be unable to perform
any
of its covenants contained herein or any condition precedent not to be
satisfied, or that, if known on the date of this Agreement, would have been
required to be disclosed to the Company pursuant to this Agreement or the
existence or occurrence of which would cause Feris’s representations or
warranties under this Agreement not to be correct and/or complete. Feris shall
give prompt written notice to the Company of any adverse development causing
a
breach of any of the representations and warranties in ARTICLE IV.
6.6 Feris
Disclosure Schedule.
Feris
shall, from time to time prior to Closing, supplement the Feris Disclosure
Statement with additional information that, if existing or known to it on the
date of this Agreement, would have been required to be included therein. For
purposes of determining the satisfaction of any of the conditions to the
obligations of the Company in Article VII, the Feris Disclosure Statement shall
be deemed to include only (a) the information contained therein on the date
of
delivery to the Company and (b) information added to the Feris Disclosure
Statement by written supplements delivered prior to Closing by Feris that (i)
are accepted in writing by the Company or (ii) reflect actions taken or events
occurring after the date hereof and prior to Closing.
6.7 Securities
Filings.
Feris
will timely file all reports and other documents relating to the operation
of
Feris required to be filed with the Securities and Exchange Commission, which
reports and other documents do not and will not contain any misstatement of
a
material fact, and do not and will not omit any material fact necessary to
make
the statements therein not misleading.
6.8 Election
to Feris’s Board of Directors.
At the
Effective Time of the Merger, Feris shall take all steps necessary so that
there
will be a one (1) continuing director (the “Feris Director”) and the remaining
directors designated by the Company.
6.9 Meeting
of the Feris Shareholders.
Promptly after the date hereof, if required under applicable law, Feris will
take all action necessary in accordance with its articles of incorporation
and
by-laws to convene a meeting of Feris’s shareholders to consider the adoption
and approval of this Agreement, approval of the Merger and a name change to
a
name as designated by the Company (the “Merger Authorization”) to be held as
promptly as practicable. Feris will use its reasonable efforts to solicit from
its shareholders proxies in favor of the adoption and approval of this
Agreement, the approval of the Merger Authorization and will take all other
action necessary or advisable to secure the vote or consent of its shareholders
required by the Nevada law to obtain such approvals. In lieu of such meeting,
the adoption and approval of this Agreement, the Merger Authorization may be
approved by shareholder consent.
6.10 Reporting
Obligations.
Feris
shall take all steps necessary to bring its reporting obligations current as
of
the Closing.
21
ARTICLE
VII
CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE FERIS
PARTIES
All
obligations of the Feris Parties under this Agreement shall be subject to the
fulfillment at or prior to Closing of each of the following conditions, it
being
understood that the Feris Parties may, in their sole discretion, to the extent
permitted by applicable Legal Requirements, waive any or all of such conditions
in whole or in part.
7.1 Accuracy
of Representations.
All
representations and warranties of the Company contained in this Agreement,
the
Collateral Documents and any certificate delivered by any of the Company at
or
prior to Closing shall be, if specifically qualified by materiality, true in
all
respects and, if not so qualified, shall be true in all material respects,
in
each case on and as of the Closing Date with the same effect as if made on
and
as of the Closing Date, except for representations and warranties expressly
stated to be made as of the date of this Agreement or as of another date other
than the Closing Date and except for changes contemplated or permitted by this
Agreement. The Company shall have delivered to Feris a certificate dated the
Closing Date to the foregoing effect.
7.2 Covenants.
The
Company shall, in all material respects, have performed and complied with each
of the covenants, obligations and agreements contained in this Agreement and
the
Collateral Documents that are to be performed or complied with by them at or
prior to Closing. The Company shall have delivered to Feris a certificate dated
the Closing Date to the foregoing effect.
7.3 Consents
and Approvals.
All
consents, approvals, permits, authorizations and orders required to be obtained
from, and all registrations, filings and notices required to be made with or
given to, any Regulatory Authority or Person as provided herein.
7.4 Delivery
of Documents.
The
Company shall have delivered, or caused to be delivered, to Feris the following
documents:
(i) Certified
copies of the Company articles of incorporation and by laws and certified
resolutions of the board of directors and Shareholders of the Company
authorizing the execution of this Agreement and the Collateral Documents to
which it is a party and the consummation of the transactions contemplated hereby
and thereby.
(ii) Such
other documents and instruments as Feris may reasonably request: (A) to evidence
the accuracy of the Company’s representations and warranties under this
Agreement, the Collateral Documents and any documents, instruments or
certificates required to be delivered hereunder; (B) to evidence the performance
by the Company of, or the compliance by the Company with, any covenant,
obligation, condition and agreement to be performed or complied with by the
Company under this Agreement and the Collateral Documents; or (C) to otherwise
facilitate the consummation or performance of any of the transactions
contemplated by this Agreement and the Collateral Documents.
7.5 No
Material Adverse Change.
Since
the date hereof, there shall have been no material adverse change in the Company
Assets, the Company Business or the financial condition or operations of the
Company, taken as a whole.
22
ARTICLE
VIII
CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE COMPANY
All
obligations of the Company under this Agreement shall be subject to the
fulfillment at or prior to Closing of the following conditions, it being
understood that the Company may, in its sole discretion, to the extent permitted
by applicable Legal Requirements, waive any or all of such conditions in whole
or in part.
8.1 Accuracy
of Representations.
All
representations and warranties of Feris contained in this Agreement and the
Collateral Documents and any other document, instrument or certificate delivered
by any of Feris at or prior to the Closing shall be, if specifically qualified
by materiality, true and correct in all respects and, if not so qualified,
shall
be true and correct in all material respects, in each case on and as of the
Closing Date with the same effect as if made on and as of the Closing Date,
except for representations and warranties expressly stated to be made as of
the
date of this Agreement or as of another date other than the Closing Date and
except for changes contemplated or permitted by this Agreement. Feris shall
have
delivered to the Company a certificate dated the Closing Date to the foregoing
effect.
8.2 Covenants.
Feris
shall, in all material respects, have performed and complied with each
obligation, agreement, covenant and condition contained in this Agreement and
the Collateral Documents and required by this Agreement and the Collateral
Documents to be performed or complied with by Feris at or prior to Closing.
Feris shall have delivered to the Company a certificate dated the Closing Date
to the foregoing effect.
8.3 Consents
and Approvals.
All
consents; approvals, authorizations and orders required to be obtained from,
and
all registrations, filings and notices required to be made with or given to,
any
Regulatory Authority or Person as provided herein.
8.4 Delivery
of Documents.
Feris,
as applicable, shall have executed and delivered, or caused to be executed
and
delivered, to the Company the following documents:
(i) Certified
copies of the articles of incorporation and by laws of Feris and certified
resolutions by the board of directors authorizing the execution of this
Agreement and the Collateral Documents and the consummation of the transactions
contemplated hereby.
(ii) Such
other documents and instruments as the Company may reasonably request: (A)
to
evidence the accuracy of the representations and warranties of Feris under
this
Agreement and the Collateral Documents and any documents, instruments or
certificates required to be delivered hereunder; (B) to evidence the performance
by Feris of, or the compliance by Feris with, any covenant, obligation,
condition and agreement to be performed or complied with by Feris under this
Agreement and the Collateral Documents; or (C) to otherwise facilitate the
consummation or performance of any of the transactions contemplated by this
Agreement and the Collateral Documents, including:
(iii) Letters
of resignation from Feris’s current officers and, as provided in Section
6.8,directors to be effective upon the Closing.
23
(iv) Board
resolutions from Feris’s current directors appointing the designees of the
Company to Feris’s board of directors.
8.5 No
Material Adverse Change.
There
shall have been no material adverse change in the business, financial condition
or operations of Feris and its Subsidiaries taken as a whole.
8.6 No
Litigation.
No
action, suit or proceeding shall be pending or threatened by or before any
Regulatory Authority and no Legal Requirement shall have been enacted,
promulgated or issued or deemed applicable to any of the transactions
contemplated by this Agreement and the Collateral Documents that would: (i)
prevent consummation of any of the transactions contemplated by this Agreement
and the Collateral Documents; (ii) cause any of the transactions contemplated
by
this Agreement and the Collateral Documents to be rescinded following
consummation; or (iii) have a Material Adverse Effect on Feris.
8.7 No
Assets & Liabilities.
Feris
shall have no assets nor liabilities except for the Convertible Note which
Note
may be convertible into 6,000,000 shares of the Common Stock of
Feris.
8.8 Exchange
Act Requirements.
Feris
shall have complied with the provisions of Rule 14f-1 of the Exchange Act,
if
necessary and shall be current in all of its securities filings.
8.9 Dissenters’
Rights.
Not
more than $25,000 in claims shall have been asserted in connection with
dissenters’ approval rights under the CCC in connection with the
Merger.
8.10 Leakage
Agreement.
The
holders of the shares of Ferris Common Stock which may be issued if the
Convertible Note is converted shall have entered into a Leakage Agreement on
terms acceptable to the Company.
8.11 Feris
Shareholder Approval.
All
shareholder approval shall have been obtained to approve the transactions
contemplated hereunder including the approval of the Merger
Agreement.
ARTICLE
IX
INDEMNIFICATION
9.1 Indemnification
by the Company.
The
Company shall indemnify, defend and hold harmless (i) Feris, (ii) each of
Feris’s assigns and successors in interest to the Company Shares, and (iii) each
of their respective shareholders, members, partners, directors, officers,
managers, employees, agents, attorneys and representatives, from and against
any
and all Losses which may be incurred or suffered by any such party and which
may
arise out of or result from any breach of any material representation, warranty,
covenant or agreement of the Company contained in this Agreement. All claims
to
be assorted hereunder must be made for the first anniversary of the
Closing.
9.2 Indemnification
by the Feris Parties.
The
Feris Parties shall indemnify, defend and hold harmless the Company and each
of
the Company Shareholders from and against any and all Losses which may be
incurred or suffered by any such party hereto and which may arise out of or
result from any breach of any material representation, warranty, covenant or
agreement of the Feris Parties contained in this Agreement. All claims to be
assorted hereunder must be made for the first anniversary of the
Closing.
24
9.3 Notice
to Indemnifying Party.
If any
party (the “Indemnified Party”) receives notice of any claim or other
commencement of any action or proceeding with respect to which any other party
(or parties) (the “Indemnifying Party”) is obligated to provide indemnification
pursuant to Sections 9.1 or 9.2, the Indemnified Party shall promptly give
the
Indemnifying Party written notice thereof, which notice shall specify in
reasonable detail, if known, the amount or an estimate of the amount of the
liability arising here from and the basis of the claim. Such notice shall be
a
condition precedent to any liability of the Indemnifying Party for
indemnification hereunder, but the failure of the Indemnified Party to give
prompt notice of a claim shall not adversely affect the Indemnified Party’s
right to indemnification hereunder unless the defense of that claim is
materially prejudiced by such failure. The Indemnified Party shall not settle
or
compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld or delayed) unless suit shall
have been instituted against it and the Indemnifying Party shall not have taken
control of such suit after notification thereof as provided in Section
9.4.
9.4 Defense
by Indemnifying Party.
In
connection with any claim giving rise to indemnity hereunder resulting from
or
arising out of any claim or legal proceeding by a Person who is not a party
to
this Agreement, the Indemnifying Party at its sole cost and expense may, upon
written notice to the Indemnified Party, assume the defense of any such claim
or
legal proceeding (i) if it acknowledges to the Indemnified Party in writing
its
obligations to indemnify the Indemnified Party with respect to all elements
of
such claim (subject to any limitations on such liability contained in this
Agreement) and (ii) if it provides assurances, reasonably satisfactory to the
Indemnified Party, that it will be financially able to satisfy such claims
in
full if the same are decided adversely. If the Indemnifying Party assumes the
defense of any such claim or legal proceeding, it may use counsel of its choice
to prosecute such defense, subject to the approval of such counsel by the
Indemnified Party, which approval shall not be unreasonably withheld or delayed.
In this regard, Troy & Gould LLP is hereby approved by Feris as counsel to
the Company (in its capacity as the Indemnifying Party). The Indemnified Party
shall be entitled to participate in (but not control) the defense of any such
action, with its counsel and at its own expense; provided, however, that if
the
Indemnified Party, in its sole discretion, determines that there exists a
conflict of interest between the Indemnifying Party (or any constituent party
thereof) and the Indemnified Party, the Indemnified Party (or any constituent
party thereof) shall have the right to engage separate counsel, the reasonable
costs and expenses of which shall be paid by the Indemnified Party. If the
Indemnifying Party assumes the defense of any such claim or legal proceeding,
the Indemnifying Party shall take all steps necessary to pursue the resolution
thereof in a prompt and diligent manner. The Indemnifying Party shall be
entitled to consent to a settlement of, or the stipulation of any judgment
arising from, any such claim or legal proceeding, with the consent of the
Indemnified Party, which consent shall not be unreasonably withheld or delayed;
provided, however, that no such consent shall be required from the Indemnified
Party if (i) the Indemnifying Party pays or causes to be paid all Losses arising
out of such settlement or judgment concurrently with the effectiveness thereof
(as well as all other Losses theretofore incurred by the Indemnified Party
which
then remain unpaid or unreimbursed), (ii) in the case of a settlement, the
settlement is conditioned upon a complete release by the claimant of the
Indemnified Party and (iii) such settlement or judgment does not require the
encumbrance of any asset of the Indemnified Party or impose any restriction
upon
its conduct of business.
25
ARTICLE
X
TERMINATION
10.1 Termination.
This
Agreement may be terminated, and the transactions contemplated hereby may be
abandoned, at any time prior to the Effective Time.
(a) by
mutual
written agreement of Feris and the Company hereto duly authorized by action
taken by or on behalf of their respective Boards of Directors; or
(b) by
either
the Company or Feris upon notification to the non terminating party by the
terminating party:
(i) if
the
terminating party is not in material breach of its obligations under this
Agreement and there has been a material breach of any representation, warranty,
covenant or agreement on the part of the non terminating party set forth in
this
Agreement such that the conditions in Sections 7.1, 7.2, 8.1 or 8.2 will not
be
satisfied; provided, however, that if such breach is curable by the non
terminating party and such cure is reasonably likely to be completed prior
to
the date specified in Section 10.1(b)(i), then, for so long as the non
terminating party continues to use commercially reasonable efforts to effect
and
cure, the terminating party may not terminate pursuant to this Section
10.1(b)(i);
(ii) if
the
Closing has not transpired on or before September 30, 2007.
(iii) if
any
court of competent jurisdiction or other competent Governmental or Regulatory
Authority shall have issued an order making illegal or otherwise permanently
restricting, preventing or otherwise prohibiting the Merger and such order
shall
have become final; or
10.2 Effect
of Termination.
If this
Agreement is validly terminated by either the Company or Feris pursuant to
Section 10.1, this Agreement will forthwith become null and void and there
will
be no liability or obligation on the part of the parties hereto, except that
nothing contained herein shall relieve any party hereto from liability for
willful breach of its representations, warranties, covenants or agreements
contained in this Agreement.
ARTICLE
XI
MISCELLANEOUS
11.1 Parties
Obligated and Benefited.
This
Agreement shall be binding upon the Parties and their respective successors
by
operation of law and shall inure solely to the benefit of the Parties and their
respective successors by operation of law, and no other Person shall be entitled
to any of the benefits conferred by this Agreement, except that the Company
Shareholders shall be third party beneficiaries of this Agreement. Without
the
prior written consent of the other Party, no Party may assign this Agreement
or
the Collateral Documents or any of its rights or interests or delegate any
of
its duties under this Agreement or the Collateral Documents.
26
11.2 Publicity.
The
initial press release shall be a joint press release and thereafter the Company
and Feris each shall consult with each other prior to issuing any press releases
or otherwise making public announcements with respect to the Merger and the
other transactions contemplated by this Agreement and prior to making any
filings with any third party and/or any Regulatory Authorities (including any
national securities inter dealer quotation service) with respect thereto, except
as may be required by law or by obligations pursuant to any listing agreement
with or rules of any national securities inter dealer quotation
service.
11.3 Notices.
Any
notices and other communications required or permitted hereunder shall be in
writing and shall be effective upon delivery by hand or upon receipt if sent
by
certified or registered mail (postage prepaid and return receipt requested)
or
by a nationally recognized overnight courier service (appropriately marked
for
overnight delivery) or upon transmission if sent by telex or facsimile (with
request for immediate confirmation of receipt in a manner customary for
communications of such respective type and with physical delivery of the
communication being made by one or the other means specified in this Section
as
promptly as practicable thereafter). Notices shall be addressed as
follows:
|
If
to Feris and/or the Shareholder to:
|
||
|
Patty
Linson
3155
E. Patrick Lane, Suite 1
Las
Vegas, NV 89120
Facsimile
No: (702)
492-9413
|
||
|
If
to the Company to:
|
||
|
Pro
Sports & Entertainment, Inc.
811
Wilshire Boulevard
Los
Angeles, California 90017
Attention: Paul
Feller
President
& Chief Executive Officer
Facsimile
No: (213)
996-7766
|
||
|
With
a copy to:
|
||
|
Troy
& Gould LLC
1801
Century Park East, Suite 1600
Los
Angeles, California 90067-4746
Attention: David
L. Ficksman, Esq.
Facsimile
No: (310)
789-1490
|
||
Any
Party
may change the address to which notices are required to be sent by giving notice
of such change in the manner provided in this Section.
11.4 Attorneys’
Fees.
In the
event of any action or suit based upon or arising out of any alleged breach
by
any Party of any representation, warranty, covenant or agreement contained
in
this Agreement or the Collateral Documents, the prevailing Party shall be
entitled to recover reasonable attorneys’ fees and other costs of such action or
suit from the other Party.
27
11.5 Headings.
The
Article and Section headings of this Agreement are for convenience only and
shall not constitute a part of this Agreement or in any way affect the meaning
or interpretation thereof.
11.6 Choice
of Law.
This
Agreement and the rights of the Parties under it shall be governed by and
construed in all respects in accordance with the laws of the State of
California, without giving effect to any choice of law provision or rule
(whether of the State of California or any other jurisdiction that would cause
the application of the laws of any jurisdiction other than the State of
California).
11.7 Rights
Cumulative.
All
rights and remedies of each of the Parties under this Agreement shall be
cumulative, and the exercise of one or more rights or remedies shall not
preclude the exercise of any other right or remedy available under this
Agreement or applicable law.
11.8 Further
Actions.
The
Parties shall execute and deliver to each other, from time to time at or after
Closing, for no additional consideration and at no additional cost to the
requesting party, such further assignments, certificates, instruments, records,
or other documents, assurances or things as may be reasonably necessary to
give
full effect to this Agreement and to allow each party fully to enjoy and
exercise the rights accorded and acquired by it under this
Agreement.
11.9 Time
of the Essence.
Time is
of the essence under this Agreement. If the last day permitted for the giving
of
any notice or the performance of any act required or permitted under this
Agreement falls on a day which is not a Business Day, the time for the giving
of
such notice or the performance of such act shall be extended to the next
succeeding Business Day.
11.10 Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
11.11 Entire
Agreement.
This
Agreement (including the Exhibits, the Company Disclosure Statement, the Feris
Disclosure Statement and any other documents, instruments and certificates
referred to herein, which are incorporated in and constitute a part of this
Agreement) contains the entire agreement of the Parties.
11.12 Survival
of Representations and Covenants.
Notwithstanding any right of Feris to fully investigate the affairs of the
Company and notwithstanding any knowledge of facts determined or determinable
by
Feris pursuant to such investigation or right of investigation, Feris shall
have
the right to rely fully upon the representations, warranties, covenants and
agreements of the Company contained in this Agreement. Each representation,
warranty, covenant and agreement of the Company contained herein shall survive
the execution and delivery of this Agreement and the Closing and shall
thereafter terminate and expire on the first anniversary of the Closing Date
unless, prior to such date, Feris has delivered to the Company Shareholders
a
written notice of a claim with respect to such representation, warranty,
covenant or agreement.
28
IN
WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of
the
day and year first above written.
|
Dated: August
20, 2007
|
Feris
International, Inc.
a
Nevada Corporation
|
|
| |
|
|
| By: | ||
|
Name: |
||
| Title: Chief Executive Officer | ||
|
Dated: August
20, 2007
|
Feris
Merger Sub, Inc.
a
California Corporation
|
|
| |
|
|
|
|
By: | |
|
Name: |
||
| Title: Chief Executive Officer | ||
|
Dated: August
20, 2007
|
PRO
SPORTS AND ENTERTAINMENT, INC., a California
Corporation
|
|
| |
|
|
|
|
By: | |
|
Name: Paul Feller |
||
|
Title: President
&
Chief Executive Officer
|
||
|
Dated: August
20, 2007
|
||
|
Patty
Linson
|
||
29
Schedule
3.2
Derivative
Securities
NONE
30
Schedule
3.12
Brokers
and Finders Agreements
NONE
31
Schedule
3.9
Legal
Proceedings
Legal
matters
In
connection with a settlement agreement, on or about May 27, 2005, a legal
judgment was entered in the Superior Court of the County of Los Angeles against
the Company in favor of the previous owners of the “Core Tour” event, in the
amount of $483,718. In addition, this judgment specified that the Company must
pay interest of $39,664. The dispute arose out of the Company’s asset purchase
of the “Core Tour” event from the plaintiffs. The Company has recorded the total
liability of $523,582 as of December 31, 2005, December 31, 2004 and September
30, 2006 (unaudited) and has included the acquisition cost in intangible
assets.
On
or
about May 18, 2004, a plaintiff, an ex-employee, filed a complaint against
the
Company, seeking damages. On or about July 14, 2005, the Labor Commissioner
for
the State of California entered a judgment against the Company in favor of
this
former employee for a total award amount of $9,329. The Company has recorded
the
entire liability as of December 31, 2005, December 31, 2004 and September 30,
2006 (unaudited). The Company plans to seek to set aside this judgment,
disputing that it owes the plaintiff the amount claimed.
On
or
about February 27, 2006, a plaintiff, an ex-employee, filed a complaint against
the Company, seeking $356,250 in damages. On or about June 23, 2006, the
Superior Court of the County of Los Angeles entered a default against the
Company in favor of this former employee. The Company has recorded the entire
liability as of December 31, 2005 and September 30, 2006 (unaudited). The
Company plans to seek to set aside the default, disputing that it owes the
plaintiff the amount claimed but, rather, the plaintiff was fully paid upon
his
voluntary resignation from the Company.
On
or
about June 20, 2006, the plaintiff, Wells Fargo Bank, provided a notice of
entry
of judgment in the amount of $78,651 against, among others, the Company,
formerly known as GMG Sports and Entertainment, Incorporated. The Company has
recorded the entire amount as of December 31, 2005 and September 30, 2006
(unaudited).
The
Company is currently involved in disputes with the previous owners of the
“Concours on Rodeo”, “Millrose Games” and “American Snowboard Tour and American
Freeski Tour” events. Company management believes that these disputes may result
in future litigation but is unable to estimate the potential
outcomes.
32
Schedule
3.17
Contracts
in Excess of 100,000
|
Playboy
Mansion Site Agreement
|
$
|
120,000
|
||
|
Seattle
Seahawks Stadium
|
$
|
100,000
|
||
|
Concours
on Rodeo
|
$
|
430,043
|
||
|
Core
Tour/Action Sports Tour
|
$
|
483,718
|
||
|
Snow
& Ski Tour
|
$
|
240,000
|
33
Schedule
3.21
Labor
Contracts
The
Company has an Employment Agreement (“Agreement”), dated January 1, 2002, with
its President and Chief Executive Officer, which requires the Company to offer
a
non-qualified stock option to purchase 10% of the fully diluted shares of the
Company’s capital stock issued and outstanding on January 1, 2002, the effective
date of the Agreement. The stock option has a term of five years at an exercise
price of $0.50 per share (which was equal to the fair value) and vested
immediately on the date of the agreement. This stock option is subject to a
customary anti-dilution provision with respect to any stock splits, mergers,
reorganizations and other such events. The length of this Agreement is five
years from the effective date unless the employment is terminated for another
cause. During the duration of this Agreement, the Chief Executive Officer is
entitled to an annual salary of $240,000 and a bonus of $250,000 in the event
a
Valuing Event causes the Company to be valued in excess of $100,000,000 and
an
additional bonus of $500,000 in the event a Valuing Event causes the Company
to
be valued in excess of $500,000,000. For the years ended December 31, 2005
and
December 31, 2004 and for the nine months ended September 30, 2006 (unaudited),
no bonuses have been paid by the Company in relation to this
Agreement.
34
Schedule
4.9
Assets
and Liabilities
1. See
Audit
35
Exhibit
10.2
AMENDMENT
TO AGREEMENT
AND
PLAN
OF MERGER
This
Amendment (“Amendment”) to Agreement and Plan of Merger dated as of March 10,
2008 among Feris International, Inc., a Nevada corporation, (“Feris”), Feris
Merger Sub, Inc. (“Merger Sub”) and Patty Linson, on the one hand; and Pro
Sports & Entertainment, Inc. (the “Company”), on the other hand, is made
with reference to the following:
A. The
parties to this Amendment (the “Parties”) entered into an Agreement and Plan of
Merger dated as of August 20, 2007 (the “Merger Agreement”).
B. The
Parties with to amend the Merger Agreement to change the number of shares being
issued to the shareholders of the Company
NOW
THEREFORE, the Parties hereby amend the Merger Agreement as
follows:
1. Section
2.6(a) is hereby amended by changing “53,146,359” for “36,000,000” and “90%” for
“85.22%” and deleting the word “possible” before “conversion.”
2. Section
4.2 is hereby amended by deleting the phrase “except for the Convertible Note
which Note may be convertible into 6,000,000 shares of the Common Stock of
Feris.”
3. Section
3.2(a) is hereby amended by changing “thirteen million three hundred and eighty
four thousand three hundred and fifty nine (13,384,359)” to “thirteen million
eight hundred and eighty three thousand and forty three
(13,883,043).”
4. Section
8.7 is hereby amended by changing “6,000,000” to “5,836,651.”
5. There
shall be added to Article VII a new Section 8.12 as follows:
8.12 Cancellation
of Shares.
84,000
shares of the outstanding shares of Feris shall have been
cancelled.
6. In
all
other respects, the Merger Agreement shall remain in full force and
effect.
IN
WITNESS WHEREOF, the Parties have executed this Amendment as of the day and
year
first above written.
|
Feris
International, Inc.
a
Nevada Corporation
|
||
| |
|
|
| By: | ||
|
Name:
Patty Linson
|
||
|
Title:
President
|
||
|
Feris
Merger Sub, Inc.
a
California Corporation
|
||
| By: | ||
|
Name:
Patty Linson
|
||
|
Title:
President
|
||
|
Pro
Sports and Entertainment, Inc., a
California
Corporation
|
||
| |
|
|
| By: |
|
|
|
Name:
Paul
Feller
|
||
|
Title:
President
&
Chief
Executive Officer
|
||
|
Patty
Linson
|
||
Exhibit
10.3
EMPLOYMENT
AGREEMENT
EMPLOYMENT
AGREEMENT (the “Agreement’), dated as of January 1, 2007, between PRO SPORTS
& ENTERTAINMENT, INC., with its principal place of business at 811 Wilshire
Blvd, Los Angeles, California 90017 (the “Company”), and Paul Feller whose
address is PU Box, 1450, Summerland, CA 93067 (“Executive”).
WITNESSETH:
WHEREAS,
the Company is engaged in the business of sports and entertainment event
ownership, television broadcasting of events, product merchandising, marketing,
operations, sales, agent, venue and corporate representation and consultancy
(the “Business”); and
WHEREAS,
the Company wishes to employ Executive, and Executive wishes to accept such
employment, on the terms and conditions set forth in this
Agreement.
NOW
THEREFORE, for and in consideration of the mutual covenants contained herein
and
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT.
The
Company shall employee the Executive and Executive hereby accepts such
employment with the Company, upon the terms and conditions hereinafter set
forth
for the period beginning on January 1 2002 (the “Effective Date”) and ending on
the Termination Date determined pursuant to Section 4 (the “Employment
Term”).
2. POSITION
AND DUTIES.
(a) During
the Employment Term, the executive shall serve as the Chief Executive Officer
of
the Company and shall report to the Board of Directors of the Company or a
committee thereof. Subject to the direction and control of the Board of
Directors of the Company, Executive’s duties shall include principal
responsibility for formulation and implementation of the business policies
and
direction of the Company, employment decisions, financial decisions and
management and oversight of the day-to-day operation of the Business. In
addition, Executive shall perform such other duties requested by or pursuant
to
the lawful direction and control of the Board of Directors of the Company (or
a
committee thereof) including such services and duties normally commensurate
with
the position of Chief Executive Officer. The Executive acknowledges and agrees
that he owes a fiduciary duty of loyalty to the Company to discharge his duties
and otherwise act in a manner consistent with the best interests of the
Company.
(b) During
the Employment Term, the Executive shall devote his reasonable efforts and
all
of his working time, attention and energies to the performance of his duties
and
responsibilities under this Agreement (except for vacations to which he is
entitled pursuant to the terms of this Agreement, illness or incapacity or
activities which do not, in the sole judgment of the Board of Directors (or
a
committee thereof), interfere or conflict with his duties and responsibilities
in any material respect). During the Employment Term, Executive shall not engage
in any business activity which, in the judgment of the Board of Directors
(excluding the Executive if he should be a member of the Board of Directors
at
the time of such determination), conflicts with the duties of Executive
hereunder, whether or not such activity is pursued for gain, profit or other
pecuniary, advantage. Any material outside business activities of Executive,
including, without limitation, serving on the board of directors of any other
entity, must be approved by the Board of Directors of the Company (excluding
any
vote of the Executive) in advance.
(c) Within
ten (10) business days following the Effective Date, Executive shall be
appointed to serve as a member of the Company’s Board of Directors until the
next meeting of the Company’s stockholders at which directors are elected. The
Company agrees that at each meeting of the Company’s stockholders during the
Employment Term at which directors are elected and, to the extent applicable,
in
any proxy statement delivered to stockholders in connection with such meeting,
the Executive shall be named as a nominee for election to the Board of
Directors.
(d) The
Company confirms and agrees that, subject to any requisite approvals of the
Board of Directors and the reasonable oversight of the Board of Directors,
(i)
the Company’s offices shall be relocated to the Boston, Massachusetts
metropolitan area at a time that is reasonably convenient to the Executive
and
(ii) Executive shall be responsible for the details of such relocation, which
is
presently contemplated to occur within the first six months following the
Effective Date.
3. COMPENSATION
AND BENEFITS.
As
compensation in full for the services to be rendered by Executive under this
Agreement, the Company agrees to compensate Executive as follows:
(a) During
the Employment Term (unless earlier terminated as provided herein), the Company
shall pay, and Executive shall accept an annualized salary of not less than
Two
Hundred and Forty Thousand Dollars ($240,000) (“Base Salary”) payable in
accordance with the Company’s normal payroll practices and subject to any and
all necessary and legal payroll and other deductions. The Base Salary and
Executive’s performance will be reviewed by the Board of Directors of the
Company or a compensation committee of the Board of Directors at the end of
the
first year of the Employment Term. Effective on each yearly anniversary of
the
Effective Date during the Employment Term, Executive’s Base Salary shall be
increased by the percentage increase in the national Consumer Price Index for
the 12-month period preceding such anniversary date. Notwithstanding anything
to
the contrary contained in this Section 3(a), the compensation committee of
the Board of Directors will review Executive’s Base Salary on an annual basis to
consider appropriate merit-based increases to the Base Salary in excess of
the
Consumer Price Index adjustment described above.
(b) Simultaneously
with the commencement of the Employment Term and subject to the provisions
of
Section 5 of this Agreement, the Company shall pay Executive a signing
bonus of $100,000. (“Signing Bonus”).
(c) During
the Employment Term, Executive shall be entitled to receive an automobile
allowance of up to $650 per month.
(d) Executive
shall be entitled to receive one-time bonuses as follows: (i) a $250,000 bonus
shall be paid to Executive in the event of a Valuing Event (as defined below)
that causes the Company to be valued in excess of$100,000,000; and (ii) an
additional bonus of $500,000 shall be paid in the event of a valuing event
that
causes the Company to be valued in excess of $500,000,000. For purposes hereof,
a “Valuing Event” shall mean any of the following: (1) in the event that there
is a public trading market for the Company’s common stock and the aggregate
market capitalization of the Company, calculated based upon the average closing
price of the Company’s common stock in the public market over any twenty (20)
consecutive trading day period during the Employment Term, exceeds the
applicable valuation threshold, (2) any sale of assets, sale of equity by the
Company, merger, reorganization, or other transaction which results in all
of
the outstanding common stock of the Company being valued in excess of the
applicable valuation threshold, or (3) any material equity investment in the
Company that values the outstanding capital stock of the Company (on a
pre-investment basis) at an amount in excess of the applicable valuation
threshold. In addition to one-time bonuses described above, the Board of
Directors (or the compensation committee thereof) may elect to grant Executive
a
discretionary, performance-based bonus and shall meet annually in order to
consider whether such discretionary bonus is appropriate.
(e) Executive
shall be eligible to participate in those non-salary benefits and programs
generally made available to executive employees of the Company, as are in effect
from time to time, including, but not limited to, any health, dental, life
or
disability insurance plan, 401(k) or other retirement savings plan, and any
other employee benefit plan, subject to any and all terms, conditions, and
eligibility requirements of said plans or benefits, as may from time to time
be
prescribed by the Company. Full family health and dental insurance coverage
shall be provided for Executive.
(f) Executive
shall be entitled to a vacation period or periods each year during the
Employment Term in accordance with the Company’s vacation policy for officers
per the policy outlined in the Company’s employee manual, as such manual may be
amended from time to time.
(g) Upon
submission of proper vouchers and evidence, the Company will pay or reimburse
Executive for reasonable transportation, hotel, travel and related expenses
incurred by Executive on business trips away from Executive’s principal office,
and for other business expenses reasonably incurred by Executive in connection
with the business of the Company during the Employment Term, all subject to
such
limitations and procedures as may from time to time be prescribed by the Board
of Directors of the Company.
(h) In
addition to the compensation described above, Executive shall be entitled to
receive. options to purchase shares of the Company’s common stock in accordance
with the terms set forth in Exhibit A attached hereto and incorporated herein
by
this reference.
4. TERMINATION.
(a) The
Executive’s employment under this Agreement shall terminate upon the earliest to
occur of (the date of such occurrence being the “Termination Date”) of(1) the
sixth yearly anniversary of the Effective Date, unless extended by mutual
written consent of the Company and the Executive (2) the effective date of
Executive’s resignation for Good Reason (as defined below) or without Good
Reason, (3) the Executive’s death or a Disability (an “Involuntary
Termination”), (4) the effective date of a termination of Executive’s employment
for Cause by the Board of Directors (a “Termination for Cause”), and (5) the
effective date of a termination of the Executive’s employment by the Board of
Directors for reasons that do not constitute cause (a “Termination Without
Cause”),
and (6) the effective date of a resignation of the Executive for Good Reason
(as
defined below).
The
effective date of a resignation shall be the date written resignation by the
Executive is received by the Company; the effective date of an Involuntary
Termination shall be the date of death or, in the event of a Disability, the
date specified in a notice delivered to the Executive by the Company; the
effective date of a Termination for Cause shall be the date specified in a
notice delivered to the Executive by the Company of such termination; and the
effective date of a Termination Without Cause shall be the date specified in
a
notice delivered to Executive by the Company of such termination which effective
date shall be no less than thirty (30) days following the date of such
notice.
(b) For
purposes of this Agreement, “Cause” shall mean those instances in which
Executive actually, or the Board of Directors (excluding the Executive if the
Executive is a member of the Board at such time) determines in good faith that
Executive has, (i) intentionally furnished materially false, misleading, or
omissive information to the Company’s Board of Directors that results or could
reasonably be expected to result in material detriment to the Company (ii)
willfully refused or failed to follow the lawful instructions of the Board
of
Directors with respect to any material matter, consistent with the terms of
this
Agreement, which refusal or failure shall not have been cured, if capable of
being cured, within 10 days following written notice thereof; provided, however,
that no notice or opportunity to cure shall be required with respect to repeated
refusal or failure to follow the lawful instructions of the Board of Directors,
consistent with the terms of this Agreement, (iii) committed or been formally
charged with any act involving moral turpitude (including those involving fraud,
theft or dishonesty by Executive) or any crime (whether felony or misdemeanor)
other than traffic violations or other minor offenses that could not reasonably
be expected to have an adverse effect on the Company’s business or reputation,
(iv) the continued use of alcohol or drugs by the Executive to an extent that,
in the good faith determination of the Board of Directors (excluding the
Executive if the Executive is a member of the Board at such time), such use
interferes with performance of the Executive’s duties and responsibilities, (v)
committed or engaged in any other act constituting or comprising a conflict
or
interest or cause under applicable law, or (vi) breached his obligations under
this Agreement in any material respect, which breach has materially damaged
the
Company and, if capable of being cured, shall not have been cured upon 15 days’
written notice thereof. “Cause” is not intended to include mere dissatisfaction
of the Company or its Board of Directors with the manner in which Executive
performs his duties nor the good faith failure of the Executive to perform
his
duties successfully.
(c) For
purposes of this Agreement, the term “Disability” shall mean the physical or
mental inability of the Executive (1) a good faith determination by the Board
of
Directors (excluding the Executive if the Executive is a member of the Board
at
such time) to substantially perform all of his duties under this Agreement
for a
period of ninety (90) consecutive days or longer or for any 90 days in any
consecutive 12 month period, or (2) that, in the opinion of a physician selected
by the Board of Directors (excluding the Executive if the Executive is a member
of the Board of Directors at such time), is likely to prevent the Executive
from
substantially performing all of his duties under this Agreement for more than
90
days in any period of 365 consecutive days.
(d) For
purposes of this Agreement, the term “Good Reason” shall mean any of the
following events which occur without the consent of Executive (i) a material
change in the scope or nature of Executive’s duties, (ii) the requirement that
Executive report to a person or entity other than the Board of Directors; (iii)
a required change in the city in which Executive’s office is located; (iv) a
sale or change of control of the Company; provided, however, that any change
in
control resulting from the Company’s pending merger with or into a public
“shell” corporation shall not be deemed to be a sale or change of control of the
Company for purposes of this Agreement); (v) a material change in the line
of
the Company’s business; (v) a fundamental and material disagreement between
Executive and the Board of Directors regarding the direction of the Company’s
business; (vi) the failure of Executive to be elected to the Board of Directors;
provided, however, that the Company shall have thirty (30) days following
receipt of written notice of such failure to elect to cure such failure through
appointment to fill a vacancy or other lawful means.
5. EFFECT
OF
TERMINATION; SEVERANCE.
(a) In
the
event of a Termination Without Cause or a resignation of Executive for Good
Reason, the Executive or his beneficiaries or estate shall have the right to
receive only the following:
(1) the
unpaid portion of the Base Salary, computed on a pro rata basis to the
Termination Date;
(2) the
Base
Salary from the Termination Date until the sixth yearly anniversary of the
Effective Date, payable in the same amounts and at the same intervals as the
Base Salary was paid immediately prior to the Termination Date; and
(3) reimbursement
for any expenses incurred prior to the Termination Date for which the Executive
shall not have been previously reimbursed in accordance with the provisions
of
Section 3(g) above.
(b) In
the
event of a Termination for Cause, an Involuntary Termination or a resignation
by
Executive that is not for Good Reason, the Executive or his beneficiaries or
estate shall have the right to receive the following:
(1) the
unpaid portion of the Base Salary, computed on a pro rata basis to the
Termination Date; and
(2) reimbursement
for any expenses incurred prior to the Termination Date for which the Executive
shall not have been previously reimbursed in accordance with the provisions
of
Section 3(g) above.
(c) Upon
any
termination, neither the Executive nor his beneficiaries or estate shall have
any further rights under this Agreement or any rights arising out of this
Agreement other than as provided in Section 5(a) and (b) above. The rights
of the Executive set forth in this Section 5 are intended to be the
Executive’s exclusive remedy for termination and to the greatest extent
permitted by applicable law, the Executive waives all other
remedies.
(d) Following
any termination, Executive shall fully cooperate with Company in all matters
relating to the winding up of the Executive’s work on behalf of Company and the
orderly transfer of any such pending work and of Executive’s duties and
responsibilities for Company to such other person or persons as may be
designated by Company in its sole discretion. Executive shall not be entitled
to
any additional pay or severance in connection with such
cooperation.
(e) Notwithstanding
anything to the contrary contained in this Agreement, in the event Executive
is
terminated with Cause or resigns without Good Reason prior to the first
anniversary of the Effective Date, Executive shall, upon demand by the Company,
immediately return the Signing Bonus in full and without deduction or
offset.
6. NONDISCLOSURE
AND NONUSE OF CONFIDENTIAL INFORMATION.
The
Executive will not disclose, disseminate or use at any time, either during
the
Employment Term or thereafter, any Confidential Information of which the
Executive is or becomes aware, whether or not such information is developed
by
him, except to the extent that such disclosure or use is directly related to
and
required by the Executive’s performance of duties assigned to the Executive by
the Company. For purposes of this Agreement, the term “Confidential Information”
shall mean: information that is not generally known to the public and that
is
used, developed or obtained by the Company in connection with the Business,
including, without limitation, (a) information, observations, procedures and
data obtained by the Executive while employed by the Company concerning the
business or affairs of the Company, (b) planned or actual products or services,
(c) costs and pricing structures, customer, supplier or employee lists, (d)
analyses, drawings, photographs and reports, (d) computer software and hardware,
including operating systems, applications and program listings, (e) data bases,
(f) accounting and business methods, and (g) research and development, (h)
inventions, devices, new developments, method and processes, technology and
trade secrets (including, without limitation all Work Product). Confidential
Information will not include (i) any information that has been published,
through no direct or indirect effort or action by the Executive, in a form
generally available to the public prior to the date the Executive proposes
to
disclose such information, and (ii) any general expertise, contacts or know-how
reflective of Executive’s experience as an executive in the sports management
and event field.
7. INVENTIONS
AND PATENTS.
The
Executive agrees that all Work Product belongs to the Company (including any
and
all Work Product developed by the Company prior to the date of this Agreement).
The Executive will promptly disclose such Work Product to the Board of Directors
and perform all actions reasonably requested by the Board (whether during or
after the Employment Term) to establish and confirm such ownership (including,
without limitation, the execution and delivery of assignments, consents, powers
of attorney and other instruments) and to provide reasonable assistance to
the
Company in connection with the prosecution of any application for patents,
trademarks, trade names, service marks or reissues thereof or in the prosecution
or defense of any claims by or against the Company relating in any way to Work
Product. For purposes of this Agreement, the term “Work Product” shall mean all
inventions, innovations, improvements, technical information, systems, software
or equipment developments, methods, designs, analyses, drawings, reports,
service marks, trademarks, trade names, logos and all similar or related
information (whether patentable or unpatentable) which relates to the Company’s
actual or anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by the Executive
(whether or not during usual business hours and whether or not alone or in
conjunction with any other person, group or entity) while employed by the
Company, together with all patent applications, letters patent, trademark,
trade
name and service mark applications or registrations, copyrights and reissues
thereof that may be granted for or upon the foregoing.
8. NON-COMPETE.
NON-SOLICITATION, NON-DISPARAGEMENT.
The
Executive acknowledges and agrees with the Company that during the course of
the
Executive’s employment with the Company, the Executive will have the opportunity
to develop relationships with existing employees, customers and other business
associates of the Company which relationships constitute goodwill of the
Company, and the Company would be irreparably damaged if the Executive were
to
take actions that would damage or misappropriate such goodwill. Accordingly,
the
Executive agrees as follows:
(a) The
Executive acknowledges that the Business is operated in and markets for the
Company’s products and services are located throughout the world, including each
county or jurisdiction in each state of the United States and Canada
(collectively, the “Territory”). Accordingly, during the Employment Term and
until the (i) three month anniversary of the Termination Date if
termination is for Good Reason or without Cause, (ii) the one year anniversary
of the Termination Date if termination is the result of a resignation not for
Good Reason, and (iii) six month anniversary of the Termination Date if
termination is with Cause (in each case, the “Non-Compete Period”), the
Executive shall not, directly or indirectly, enter into, engage in, assist,
give
or lend funds to or otherwise finance, be employed by or consult with, or have
a
financial or other interest in, any business which is similar to or competitive
with the Business, whether for himself or as an independent contractor, agent,
stockholder, partner or joint venturer for any other person, group or entity.
To
the extent that the covenant provided for in this Section 8(a) may later be
deemed by a court to be too broad to be enforced with respect to its duration
or
with respect to any particular activity or geographic area, the court making
such determination shall have the power to reduce the duration or scope of
the
provision, and to add or delete specific words or phrases to or from the
provision. The provision, as modified, shall then be enforced.
(b) Notwithstanding
the foregoing, the aggregate ownership by the Executive of no more than two
percent (on a fully-diluted basis) of the outstanding equity securities of
any
person, group or entity, which securities are traded on a national securities
exchange, quoted on the NASDAQ Stock Market or other automated quotation system,
and which person, group or entity competes with the Company within the Territory
shall not be deemed to be a violation of Section 8(a).
(c) The
Executive covenants and agrees that during the term of his employment and for
six months following the Termination Date (one year in the event of a
termination for Cause or a resignation without Good Reason), the Executive
will
not, directly or indirectly, either for himself or for any other person, group
or entity (1) solicit any employee, independent contractor or service provider
of the Company to terminate or modify his, her or its employment or other
relationship with the Company or employ or retain any person or entity, (2)
solicit any customer, licensee or licensor, of the Company or any service
provider to the Company to purchase or provide products or services on behalf
of
the Executive or such other person, group or entity that are competitive with
the products or services provided by the Company, or (3) disparage the business
reputation of the Company or its management team.
(d) Executive
acknowledges that the restrictions placed upon Executive by this Section 8
are reasonable given the Executive’s position with the Company, the geographic
area in which the Company markets its products and services, and the
consideration furnished in this Agreement. Further, executive also agrees that
the provisions of this section are fair and necessary to protect the Company
and
its business interests and that such provisions do not preclude Executive from
utilizing unprotected information or from engaging in occupations in unrelated
fields or in a manner consistent with the requirements of this Agreement.
Finally, Executive understands that the foregoing restrictions may limit his
ability to earn a livelihood in a business similar to the Business but he
nevertheless believes that he has received and will receive sufficient
consideration and other benefits as an employee of the Company and as otherwise
provided hereunder or as described in the recitals hereto to clearly justify
such restrictions which, in any event (given his education, skills and ability),
the Executive does not believe would prevent him from otherwise earning a
living.
(e) In
addition to any other remedies available to Executive under this Agreement
or
applicable law, in the event that the Company fails to meet any of its ongoing
payment or severance obligations to Executive and such failure continues uncured
for five (5) business days following the delivery of written notice of such
failure to the Company, all of Executive’s post-term obligations under this
Section 8 shall terminate.
9. RETURN
OF COMPANY’S PROPERTY UPON TERMINATION.
The
Executive shall immediately deliver to the Company at the termination of the
Employment Term or at any time the Board of Directors may request, all Company
property (including but not limited to all documents, electronic files/records,
keys, records, computer disks, or other tangible or intangible things that
may
or may not relate to or otherwise constitute Confidential Information, Work
Product, or trade secrets (as defined by applicable law) that Executive created,
used, possessed, or maintained while in the employ of the Company, from whatever
source. This provision does not apply to purely personal documents of Executive,
but does apply to business calendars, Rolodexes, customer lists, contact sheets,
computer programs, disks, and their contents, and like information that may
contain some personal matters of Executive.
10. ENFORCEMENT.
Because
the Executive’s services are unique and because the Executive has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event of a breach or threatened breach of this agreement,
the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violation of, the provisions hereof (without posting a bond
or
other security).
11. MISCELLANEOUS.
(a) This
Agreement shall be binding upon and inure to the benefit of Executive and his
heirs and personal representatives, and the Company and its successors, assigns
and legal representatives. This Agreement and the responsibilities/benefits
hereunder are personal to Executive and are not assignable or transferable
by
Executive.
(b) The
Company shall have the right to offset against amounts due to Executive
hereunder, any amounts owed by Executive to Company, including any
advances.
(c) This
Agreement constitutes the entire agreement between the Company and Executive
with respect to the subject matter hereof and supersedes any and all previous
agreements or understandings between Executive and the Company concerning the
subject matter hereof. This Agreement may not be changed or amended without
the
prior written consent of both of the parties hereto.
(d) All
notices hereunder shall be in writing and shall be deemed given on the third
day
after mailing through the United States mail, certified mail, return receipt
requested, postage prepaid, or by overnight delivery to the persons listed
below
or to such other person(s) and/or addresses as may be designated from time
to
time in writing:
|
if
to the Company:
|
|||
|
Pro
Sports & Entertainment, Inc.
|
|||
|
811
Wilshire Blvd
|
|||
|
Los
Angeles, California 90017
|
|||
|
Attention:
|
|||
|
Fax: (213)689-7789
|
|||
|
if
to Executive:
|
|||
|
Mr.
Paul Feller
|
|||
|
PU
Box 1450
|
|||
|
Summerland,
CA
|
|||
|
Fax: (805)
684-6992
|
(e) This
Agreement shall be governed by and construed in accordance with the laws of
the
State of California.
(f) Any
waiver by either party of any breach of any of the terms of this Agreement
shall
not be considered a waiver of any subsequent breach.
(g) In
the
event that any provision of this Agreement is held to be unenforceable, then
such enforceability shall in no way affect the other terms and provisions of
this Agreement which shall remain in full force and effect.
(h) The
captions herein are for the convenience of the parties and are not to be
construed as part of the terms of this Agreement.
(i) This
Agreement may be amended, modified or supplemented only by written agreement
of
the parties hereto, which agreement shall have been duly authorized and approved
by the Board of Directors of the Company.
(j) The
failure of the Company at any time or from time to time to require performance
of any of Executive’s obligations under this Agreement shall in no manner affect
the Company’s right to enforce any provision of this Agreement at any subsequent
time, and the waiver by the Company of any right arising out of any breach
shall
not be construed as a waiver of any right arising out of any subsequent
breach.
(k) Executive
acknowledges that the consideration furnished by the Company in this Agreement,
the sufficiency and adequacy of which is hereby acknowledged, is in addition
to
anything of value, if any, to which Executive may already be
entitled.
(l) Except
as
otherwise provided herein, in the event of any dispute with respect to the
subject matter of this Agreement, the prevailing party shall be entitled to
all
of its costs and expenses, including reasonable attorneys’ fees and costs,
incurred in resolving or settling the dispute. These costs and expenses shall
be
in addition to any other damages to which the prevailing party may be
entitled.
IN
WITNESS WHEREOF,
the
parties hereto have signed and sealed this Agreement as of the day and year
first above written.
|
COMPANY:
PRO
SPORTS & ENTERTAINMENT,
INC.
|
||
| |
|
|
| /s/ | ||
|
By:
Christopher Mowbray
Chairman
|
||
|
EXECUTIVE:
|
||
| |
|
|
| /s/ | ||
|
By:
Paul Feller
President
& CEO
|
||
EXHIBIT
A
Options
Executive
shall be entitled to receive the following options:
1. An
initial non-qualified stock option to purchase 10% of the fully diluted shares
of capital stock of the Company issued and outstanding on the Effective Date.
The option shall have an exercise price of $.50 per share and shall vest in
full
immediately. The option shall have a term of five years; provided that such
option shall terminate forty-five (45) days after the Executive’s employment
with the Company is terminated if such termination is for Cause or is a the
result of a resignation by Executive for reasons other than Good. Such option
shall not be assignable by Executive.
2. In
addition to the initial option described above:
(a) Executive
shall receive options to purchase the number of shares equal to 20% of the
number of shares issued in connection with any acquisitions made by the Company
within one year of the Effective Date or initiated (as evidenced by the
submission of a terms sheet or other proposal to the proposed target or its
management) during such one year period and completed subsequent thereto;
and
(b) Executive
shall receive options to purchase the number of shares equal to 20% of the
number of shares issued by the Company in connection with any equity financing
or issuable upon conversion of any convertible debt financing completed by
the
Company within one year of the Effective Date or initiated (as evidenced by
submission of a terms sheet, letter of intent or other proposal by the proposed
financing source) by the Company within one year following the Effective Date
and completed subsequent thereto; provided, however, no options shall be issued
with respect to any equity or convertible debt financing in negotiation by
the
Company or Paul Feller prior to the Effective Date. Subject to the foregoing
exception for financings currently in negotiation, Executive shall be entitled
to receive the options described above regardless of whether he initiated or
was
involved in the negotiation of the financing.
The
option exercise
price
for the additional options described in (a) and (b) above shall equal eighty
percent (80%) of the per share value of Company’s common stock at the time of
the applicable acquisition or financing as determined by reference to the
Company’s public trading price, if any, or, if no public trading market exists,
the per share valuation of the Company made in connection with the acquisition
or financing or, if no such valuation exists, the per share value of the Company
as determined in good faith by the Company’s Board of Directors. Each of the
options granted pursuant to paragraphs (a) or (b) above shall have a term of
five years, shall vest in full upon grant; provided that such options shall
terminate forty-five (45) days after the Executive’s employment with the Company
is terminated if such termination is for Cause or is a the result of a
resignation by Executive for reasons other than Good Reason. Such options shall
not be assignable by Executive.
3. Each
option described above shall be subject to customary anti-dilution provision
with respect to any stock splits, mergers, reorganizations or other such
events.