-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wmy62l5AiT7vol8VPGmbCISn9teh20DTtkz79VuCzIA86vi3zE9MFxL/l/g8LKdd O+l2Oc8APZvjgK4UOJFi7g== 0000950117-00-000952.txt : 20000417 0000950117-00-000952.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950117-00-000952 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERTAINMENT INTERNATIONAL LTD CENTRAL INDEX KEY: 0000764587 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 061113228 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14646 FILM NUMBER: 602528 BUSINESS ADDRESS: STREET 1: 7380 SAND LAKE ROAD SUITE 350 CITY: ORLANDO STATE: FL ZIP: 32819 BUSINESS PHONE: 4073510011 MAIL ADDRESS: STREET 1: 7380 SAND LAKE ROAD SUITE 350 CITY: ORLANDO STATE: FL ZIP: 32819 FORMER COMPANY: FORMER CONFORMED NAME: AIRSHIP INTERNATIONAL LTD DATE OF NAME CHANGE: 19920703 10-K405 1 ENTERTAINMENT INTERNATIONAL LTD. 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 001-14646 ----------------------------- ENTERTAINMENT INTERNATIONAL LTD. ------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) New York 06-1113228 - -------------------------------------- ----------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819 - ------------------------------------------------- ------------------------------ (Address of principal executive offices) (Zip Code) (407) 351-0011 - ------------------------------ Registrant's telephone number
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.01 par value per share ------------------------------------------------------------------ (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of April 11, 2000 was $16,845,979 using the closing bid price of $.34 on April 11, 2000. The number of shares of Common Stock outstanding as of April 11, 2000 was 69,597,282. DOCUMENTS INCORPORATED BY REFERENCE: None. A list of Exhibits to this Annual Report on Form 10-K begins on page 15. ENTERTAINMENT INTERNATIONAL LTD. 2000 FORM 10-K REPORT TABLE OF CONTENTS
PART I Page ----- Item 1. Business .............................................................. 1 Item 2. Properties ............................................................ 1 Item 3. Legal Proceedings ..................................................... 1 Item 4. Submission Of Matters To A Vote Of Security Holders ................... 2 PART II Item 5. Market For Registrant's Common Equity And Related Stockholder Matters . 2 Item 6. Selected Financial Data ............................................... 3 Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations ................................... 3 Item 8 Financial Statements And Schedules .................................... 9 Item 9. Changes In And Disagreements With Accountants On Return Accounting And Financial Disclosure .............................................. 9 PART III Item 10. Directors And Executive Officers Of The Registrant .................... 10 Item 11. Executive Compensation ................................................ 11 Item 12. Security Ownership Of Certain Beneficial Owners And Management ........ 13 Item 13. Certain Relationships And Related Transactions ........................ 14 Item 14. Exhibits, Financial Statements And Reports On Form 8-K ................ 15
-------------------- The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Annual Report contains certain forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to management. The statements contained in this Annual Report relating to matters that are not historical facts, are forward-looking statements that involve risks and uncertainties, including, but not limited to, future demand for the Company's products and services, general economic conditions, government regulation, competition and customer strategies, capital deployment, the impact of pricing and reimbursement and other risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. PART I ITEM 1. BUSINESS GENERAL Entertainment International Ltd. (the "Company") operated lighter-than-air airships, which were used to advertise and promote the products and services of the Company's clients through 1995. Since that time, the Company generally has had no operations and no opportunity to commence operations in the airship industry in which it had conducted its business operations. As a result, the Company has experienced significant losses and negative cash flow since 1996 and has been funded by affiliated entities. The Company's strategy for the future is to acquire new business operations or merge (through a direct, indirect, reverse or other form of merger) with an entity that has ongoing business operations. In connection with this strategy, the Company changed its name to "Entertainment International, Ltd." to reflect the new direction for the Company's operations, which the Company currently believes will involve the entertainment industry or an Internet-based business. Except as set forth below, as of the date hereof, the Company has no agreements with any third party to effect any such acquisition or merger, and no assurances can be given that any such acquisition or merger will in fact be effected in the future or that any such transaction will involve an entity in either of these industries. On March 28, 2000, the Company signed a letter of intent to acquire WeBeCD.com, Inc., a private New York software company whose technology transfers regular CD's, DVD's and other electronic media into intelligent e-commerce vehicles. WebeCD enables consumers to effect intelligent interaction with its Web site, allowing consumers to archive their personal media collections and access them over the World Wide Web. This technology, called the personal digital jukebox, or "dj," will revolutionize an individual's media experience by providing consumers with a personal digital jukebox playing potentially thousands of CDs or videos from anywhere on the World Wide Web. The Company has proprietary technology that allows intelligent interaction with a consumer's archived media vault and the WebeCD disks that will replace traditional music CDs in the marketplace. The WebeCD technology will be available for free to the music industry. This provides the Company with a new entertainment operating paradigm for the music, film, and media industries with significant application for the Fortune 1000. With strong backing from members of the music industry, most notably Trans Continental Records, WebeCD is poised to begin shipping on several record labels after the closing. With a disk-based consumer traffic driving model and an intelligent e-commerce center, the Company expects to create an exciting and formidable presence in the software and entertainment industries. Upon the closing of the transaction, as to which there can be no assurance, the Company will work with Trans Continental Records, an affiliate of eNTI, to deploy WebeCD technology on Trans Continental album releases, rebroadcast Trans Continental artists' content via video and audio streaming from the WebeCD Web site, as well as sell CDs, DVDs and other merchandise from the Trans Continental Web sites as available. Although a letter of intent has been signed between the parties, no binding agreement or commitment has yet been executed. Any such agreement or commitment that is reached may be on terms that substantially differ from those set forth in the letter of intent. Consummation of any such agreement or commitment would be subject to the satisfaction of various conditions and there can be no assurance that any transaction will occur. The Company was incorporated in New York on June 9, 1982 and commenced operations in August 1985 following the completion of the Company's initial public offering in June 1985. The Company's principal executive offices are located at 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819 and its telephone number is (407) 351-0011. The Company also maintains a small office in New York, New York. ITEM 2. PROPERTIES Since May 7, 1996, the Company has subleased approximately 500 square feet of office space from Trans Continental Airlines, Inc. on a month-to-month basis for monthly rental payments of approximately $770. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. As of April 14, 2000 the Company was not a party to any legal proceeding which would have a material adverse effect on its financial condition. On April 7, 1999, U.S. Airship Leasing, Inc. f/k/a WDL Airship, Inc. ("US Airship") commenced a suit in the Florida Circuit Court of the Ninth JudicialCircuit, Orange County, entitled U.S. Airship Leasing, Inc. f/k/a WDL Airship,Inc. v. Louis J. Pearlman, Airship International Ltd. Corporation and Trans Continental Airlines Travel Services, Inc. a/k/a Trans Continental Airlines Service, Inc. US Airship sought damages of $1,488,613.90 plus interest, costs and other relief. On April 8, 1999, WDL Luftschiffgesellschaft MBH ("WDL"), an affiliate company, commenced a suit in the same court, entitled WDL Luftschiffgesellschaft MBH v. Airship International Ltd. and Louis J. Pearlman. The suit sought $148,558.49 in damages plus prejudgment interest, costs and other relief. These cases were both settled on July 28, 1999 for $1,030,000. In June 1999, Gulf Oil Limited Partnership f/n/a Catamount Petroleum Limited Partnership ("Gulf Oil"), commenced an action in the United States District Court, District of Massachusetts against the Company, captioned Gulf Oil Limited Partnership f/n/a Catamount Petroleum Limited Partnership, by its General Partner, Catamount Management Corporation vs. Entertainment International Ltd. f/n/a Airship International Ltd. The parties reached a settlement on December 16, 1999, pursuant to which the Company paid to Gulf Oil $100,000 and issued to Gulf Oil 1,500,000 shares of the Company's common stock. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the year ended December 31, 1999, no matters were submitted by the Company to a vote of its stockholders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock currently trades under the symbol "ENTI." Prior to the Company changing its name to "Entertainment International Ltd," the Company's Common Stock and Preferred Stock traded under the symbols "BLMP" and "BLMPP," respectively. Since July 5, 1995 (when the Company's securities were de-listed from the Nasdaq SmallCap Market) the Company's Common Stock (and Preferred Stock, until its conversion into Common Stock in June 1998 pursuant to the vote of the Company's shareholders at the Company's Annual Meeting) have traded on the over-the-counter market. The price ranges presented below represent the highest and lowest quoted bid prices during each quarter for 1998 and 1999 reported by the National Quotation Bureau, Inc. and Nasdaq. The quotes represent prices between dealers and do not reflect mark-ups, markdowns or commissions and therefore may not necessarily represent actual transactions. COMMON STOCK
Year Period Bid Information - ---- ------ ---------------- High Low ---- --- 1998 1st Quarter $ .0475 $.02 2nd Quarter $ .087 $.044 3rd Quarter $ .08 $.06 4th Quarter $0.26 $.0 1999 1st Quarter $ .39 $.09 2nd Quarter $ .455 $.12 3rd Quarter $ .34 $.165 4th Quarter $ .195 $.10 2000 1st Quarter (through March 31, 2000) $ .745 $.12
2 As reported by the Nasdaq OTC Bulletin Board, on April 11, 2000 the closing bid price of the Common Stock was $.34 per share. As of April 11, 2000 there were 1,716 holders of record of the Company's Common Stock. No dividends were declared or paid on the Common Stock during the foregoing periods and the Company does not anticipate paying any dividends on its Common Stock in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the Company's financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operation appearing elsewhere herein. OPERATING STATEMENT DATA:
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Gross Revenues.................. $- $- $- $ - $ 2,620,000 Net loss........................ ($4,569,000) $(996,000) $(2,294,000) $(2,506,000) $(4,867,000) Net earnings (loss) per share $(.07) $.10 $(.09) $(.10) $(0.18)
BALANCE SHEET DATA:
At December 31, --------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Total Assets.......................... $1,952,000 $3,772,000 $ 4,374,000 $ 4,496,000 $ 5,073,000 Long-Term Obligations......... - $ 10,000 $ 4,080,000 $ 3,016,000 $ 3,348,000 Obligations under capital lease. $839,000 $1,692,000 $ 2,477,000 $ 3,158,000 $ 3,689,000 Total Liabilities...................... $4,832,000 $3,911,000 $ 22,057,000 $14,680,000 $14,680,000 Stockholders' deficit................ $(2,880,000) $ (139,000) $(17,683,000) $(9,607,000) $(9,607,000)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION NOTE REGARDING FORWARD-LOOKING INFORMATION Certain statements under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different 3 from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the Company's limited operating history over the past five years, its ability to attract acquisition candidates, general economic and business conditions with respect to the Internet and online commerce, changes in government regulations, competition and the ability of the Company to implement its business strategy and other risks discussed in section entitled "Factors That May Affect Our Business, Financial Condition and Results of Operation" in this Form 10-K. Forward-looking statements speak only as of the date of this Form 10-K. Moreover, whether or not stated in connection with a forward-looking statement, the Company undertakes no obligation to correct or update a forward-looking statement should the Company later become aware that it is not likely to be achieved. If the Company were to update or correct a forward-looking statement, investors and others should not conclude that the Company will make additional updates or corrections thereafter. The following discussion should be read in conjunction with the financial statements contained in Item 8 of Part IV of this Form 10-K. OVERVIEW The Company commenced operations in August 1985 following the completion of the Company's initial public offering in June 1985. Historically, substantially all of the Company's revenues were derived from the operation of the airships pursuant to aerial advertising contracts with its clients. Since 1995, the Company generally has had no operations and no opportunity to commence operations in the airship industry in which it had conducted its business operations. As a result, the Company has experienced significant losses and negative cash flow since 1995 and has been funded by affiliated entities. The Company's strategy for the future is to acquire new business operations or merge (through a direct, indirect, reverse or other form of merger) with an entity that has ongoing business operations. In connection with this strategy, the Company changed its name in October 1998 to "Entertainment International, Ltd." to reflect the new direction for the Company's operations, which the Company currently believes will involve the entertainment industry or a media/Internet-based business. On March 28, 2000, the Company signed a letter of intent to acquire WeBeCD.com, Inc., a private New York software company whose technology transfers regular CD's, DVD's and other electronic media into intelligent e-commerce vehicles. WebeCD enables consumers to effect intelligent interaction with its Web site, allowing consumers to archive their personal media collections and access them over the World Wide Web. This technology, called the personal digital jukebox, or "dj," will revolutionize an individual's media experience by providing consumers with a personal digital jukebox playing potentially thousands of CDs or videos from anywhere on the World Wide Web. The Company has proprietary technology that allows intelligent interaction with a consumer's archived media vault and the WebeCD disks that will replace traditional music CDs in the marketplace. The WebeCD technology will be available for free to the music industry. This provides the Company with a new entertainment operating paradigm for the music, film, and media industries with significant application for the Fortune 1000. With strong backing from members of the music industry, most notably Trans Continental Records, WebeCD is poised to begin shipping on several record labels after the closing. With a disk-based consumer traffic driving model and an intelligent e-commerce center, the Company expects to create an exciting and formidable presence in the software and entertainment industries. Upon the closing of the transaction, as to which there can be no assurance, the Company will work with Trans Continental Records, an affiliate of eNTI, to deploy WebeCD technology on Trans Continental album releases, rebroadcast Trans Continental artists' content via video and audio streaming from the WebeCD Web site, as well as sell CDs, DVDs and other merchandise from the Trans Continental Web sites as available. Although a letter of intent has been signed between the parties, no binding agreement or commitment has yet been executed. Any such agreement or commitment that is reached may be on terms that substantially differ from those set forth in the letter of intent. Consummation of any such agreement or commitment would be subject to the satisfaction of various conditions and there can be no assurance that any transaction will occur. As noted in the auditor's report, there exists substantial doubt that the Company has the ability to continue as a going concern. In addition, during the past several years, the Company has been approached by other entities, which have expressed an interest in effecting an acquisition or merger of the Company primarily due to the fact that the Company is a publicly-held corporation. In addition, the Company has incurred Net Operating Losses ("NOLs") which, to a lessor degree, may make the Company attractive to a prospective suitor. 4 Year Ended December 31, 1999, as compared to Year Ended December 31, 1998 Overall Financial Situation. The Company had a stockholder's deficit at December 31, 1999 in the amount of $2,880,000, an increase of $2,741,000 from the stockholders' deficit at December 31, 1998 of $139,000. This increase is primarily due to the net loss of $4,569,000 offset by the issuance of common stock totaling $1,697,000 in the form of employee compensation, consultant services and for the arrangement of continued financing from related parties. The Company did not have revenues during 1999 or 1998. Operating costs were substantially higher in 1999 than in 1998 by approximately $180,000 or 257%. In addition, selling general and administrative expenses increased significantly from 1998 by $1,182,000 or 221%, resulting in a loss from operations of $1,966,000 for 1999. Interest expense increased by more than $125,000 or 23% for 1999 from 1998 due to the stock issued for the arrangement of continued financing from related parties in 1998. Results of Operations. Revenues: The Company did not have any revenues from operations during 1999 or 1998. Operating costs for 1999 were $250,000, an increase of $180,000 or 257% compared to operating costs of $70,000 for 1998, primarily as a result of a substantial credits that were posted to accounts payable during 1998. Selling, general and administrative costs for 1999 were $1,716,000, an increase of $1,182,000 or 221% compared to costs of $534,000 for 1998. This increase is primarily attributable to common stock issued as employee compensation in the amount $616,375 and as consulting compensation in the amount of $574,000 during 1999. Interest expense: Interest expense for 1999 was $667,000, an increase of $125,000 or 23% from interest expense of $542,000 in 1998. This increase was due to the common stock issued for the arrangement of continued financing during 1998 from Trans Continental Airlines, Inc. ("Trans Continental") and Louis J. Pearlman. Year Ended December 31, 1998, as compared to Year Ended December 31, 1997 Overall Financial Situation. The Company had a stockholder's deficit at December 31, 1998 in the amount of $139,000, a decrease of $17,544,000 from the stockholders' deficit at December 31, 1997 of $17,683,000. This decrease is primarily due to the accrual of dividends on the outstanding shares of preferred stock in the amount of $647,000 and a net loss for 1998 of $996,000, offset by capital contributions of $11,886,000 received from stockholders in the form of an extinguishment of debt and the abolishment of dividends accrued on preferred stock in the amount of $6,508,000 (See Note B in Financial Statements). The Company did not have revenues during 1998 or 1997. As was expected, operating costs were substantially lower in 1998 than in 1997 by approximately $287,000 or 80%. In addition, selling general and administrative expenses decreased significantly from 1997 by $203,000 or 28%, resulting in a loss from operations of $604,000 for 1998. Interest expense decreased by more than $703,000 or 57% for 1998 from 1997 due to the stock issued for the arrangement of continued financing from related parties. Results of Operations. Revenues: The Company did not have any revenues from operations during 1998 or 1997. Operating costs for 1998 were $70,000, a decrease of $287,000 or 81% compared to operating costs of $357,000 for 1997. The primary reason that operating expenses decreased from 1997 is a result of having no 5 airships in operation during any part of 1998. Operating costs primarily relate to usage of the Company's one operational gondola and the utilization of the support vehicles. Selling, general and administrative costs for 1998 were $534,000, a decrease of $203,000 or 28% compared to costs of $737,000 for 1997. The Company incurred an increase of $263,000 in professional fees during 1997 with respect to the Company's filing of its 1994, 1995 and 1996 annual reports with the Securities Exchange Commission. Interest expense: Interest expense for 1998 was $542,000, a decrease of $703,000 or 57% from interest expense of $1,245,000 in 1997. This decrease was due to the decrease in debt during 1998 to Trans Continental Leasing, Inc. ("TC Leasing") and advances from Trans Continental Airlines, Inc. ("Trans Continental") and Louis J. Pearlman. 6 LIQUIDITY AND CAPITAL RESOURCES As shown in the accompanying financial statements, the Company has experienced significant operating losses and negative cash flow from operations in recent years and has an accumulated deficit of $139,000 at December 31, 1998. During the years ended December 31, 1999, 1998 and 1997, the Company did not generate any revenues from airship operations. The Company also reported net losses of $4,149,000, $999,000 and $2,294,000 for the years ended December 31, 1999, 1998 and 1997, respectively and had working capital deficiencies of $4,389,000 and $3,047,000 at 1999 and 1998, respectively. The Company's auditor noted in its report in each year that these conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plan to improve the financial position and operation with the goal of sustaining the Company's operations for the next twelve months and beyond include: Arranging with Trans Continental or other related parties to provide funds on a monthly basis as a loan, and separately, acquiring assets and operations of one or more entities, with which the Company has been in negotiation. At this time, there are no agreements relating to any such acquisition or transaction, and there can be no assurance that any such transactions will be consummated. The expectation is that such a business combination, if completed, would provide additional cash flow and net income to the Company. Though management believes the Company will secure additional capital and/or attain one or more of the above goals, there can be no assurance that any acquisition, financing, or other plan will be effected. Any acquisition or securities offering is subject to the Company's due diligence, the state of the general securities markets, and of the specific market for the Company's securities, and any necessary regulatory review. While the Company believes that its plans for additional funding or for obtaining a possible business combination have a reasonable possibility of improving the Company's financial situation and ensuring the continuation of its business, there can be no assurance that the Company will be successful in carrying out its plans and the failure to achieve them could have a material adverse effect on the Company. On March 28, 2000, the Company signed a letter of intent to acquire WeBeCD.com, Inc., a private New York software company whose technology transfers regular CD's, DVD's and other electronic media into intelligent e-commerce vehicles. Although a letter of intent has been signed between the parties, no binding agreement or commitment has yet been executed. Any such agreement or commitment that is reached may be on terms that substantially differ from those set forth in the letter of intent. Consummation of any such agreement or commitment would be subject to the satisfaction of various conditions and there can be no assurance that any transaction will occur. During 1999, the Company's operations used $1,827,000 compared to using approximately $1,319,000 during 1998. This decrease in cash used by operations was primarily attributable to the net loss during 1999 in the amount of $4,569,000 and a reduction in accounts payable during 1999 in the amount of $818,000. This was offset by noncash transactions during 1999 for impairment of long lived assets in the amount of $1,677,000 and the issuance of common stock as compensation and services in the amount of $1,408,000. During 1998, the Company's operations used $1,319,000 compared to using approximately $2,283,000 during 1997. This decrease in cash used by operations was primarily attributable to the net loss during 1999 and decrease in accounts payable during 1998 in the amount of $491,000. 7 Cash was provided by investing activities in the amount of $261,000 and used by investing activities in the amount of $159,000 in 1998 and 1997, respectively for working capital loans to certain related parties. See "Certain Relationships and Related Transactions." Cash was provided by financing activities in the amount of $1,828,000 and $1,056,000 in 1999 and 1998, respectively. Cash provided by financing activities in 1999 and 1998 was primarily from the working capital financing provided by Trans Continental. Cash was provided by financing activities in the amount of $1,056,000 and $2,442,000 in 1998 and 1997, respectively. Cash provided by financing activities in 1998 and 1997 was primarily from the working capital financing provided by Trans Continental. Also in 1997, the Company obtained additional financing from TC Leasing in the amount of 4,787,000. This financing was obtained by TC Leasing from Norwest Equipment Finance, Inc. The Company used these funds to repay debt owed to Senstar Capital Corporation in the amount of $3,003,000 and for working capital. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires recognition of the fair value of derivatives in the statement of financial position, with changes in the fair value recognized either in earnings or as a component of other comprehensive income dependent upon the nature of the derivative. SFAS No. 133 will be adopted by the Company in 1999 and is not expected to have a material effect on the consolidated financial statements. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). The Company is required to adopt SAB 101 no later than its quarter ended June 30, 2000. The Company does not believe that the adoption of SAB 101 will have a material effect on its financial position or results of operations. YEAR 2000 SYSTEM COSTS For the purposes of Year 2000 compliance, the corporate MIS department has managed the task of verifying that all of the Company's internal transaction processing systems are date compliant. This process was initiated in order to ensure the Company would be able to continue operations without disruption after January 1, 2000. As of the date of this filing, the Company's principal transaction processing software through which nearly all of the Company's business is transacted has not experienced any significant problems associated with Year 2000 date compliance. The Company also utilizes electronic data exchange systems operated by third parties, as well as computers, software, telephone systems and other equipment used internally. None of these systems have experienced any significant Year 2000 compliance problems. Historical and estimated costs in preparation for Year 2000 compliance to this point have not been material. Although future anticipated costs are difficult to estimate with any certainty, the Company does not anticipate any future material expenditures related to Year 2000 compliance. At the current time, the Company's anticipates that all systems and applications will remain Year 2000 compliant. There can be no assurance, however, of complete compliance based on the status to date. It is 8 unlikely that any single system will have an adverse effect on the Company as a whole. If a problem were to occur, contingency plans will involve the procurement of standardized commercial off-the-shelf replacement modules for internal applications and business functions as well as replacing noncompliant third party software with software that is Year 2000 compliant. At present there are no indications that contingency plans will be necessary or that there will be revenue disruptions, however, there can be no assurances that future disruptions will not occur. INFLATION Since the formation of the Company in August 1985, the rate of inflation has remained low and the cost of the Company's operations has not been significantly affected by inflationary trends in the economy. ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES The report of the Company's Independent Auditor, the Company's financial statements and notes to financial statements appear herein commencing on Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL Grant Thornton LLP ("Grant Thornton") had served as the Company's independent accountants from 1993 through June 24, 1997, when Grant Thornton was dismissed as a result of the Company's budgetary concerns. There had been no reports issued by Grant Thornton for the year ended December 31, 1994 and any subsequent interim period prior to the date of such dismissal. Prior to the date of dismissal, the Company did not have any disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, nor had there been a "reportable event" with Grant Thornton, as described in Items 304(a)(1)(iv) and (v) of Regulation S-K. Grant Thornton's report on the financial statements for the year ended December 31, 1993 included a modification paragraph as to uncertainty, including matters giving rise to substantial doubt as to the Company's ability to continue as a going concern. Upon recommendation of the Audit Committee of the Board of Directors, the Board selected Meeks, Dorman & Company, PA as its new independent accountant with respect to the fiscal years ending December 31, 1994 and thereafter. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information, as of December 31, 1999, concerning each director and executive officer of the Company.
Positions with Name Age the Company Position Held Since - ---- --- ----------- ------------------- Louis J. Pearlman 45 Chairman of the Board of June 1982 Directors, President and Chief Executive and Operating Officer and Treasurer Alan A. Siegel 36 Secretary and Director October 1989 James J. Ryan 51 Director July 1986
The following sets forth the business experience of each director, executive officer, including principal occupations, at present and for at least the past five years. Louis J. Pearlman has been Chairman of the Board, President, Chief Executive and Operating Officer and Treasurer of the Company, and a Director of the Company, since June 1982. Since November 1976, Mr. Pearlman has been President and Chief Operating Officer, a director and a 21% shareholder of Trans Continental Airlines, Inc. ("Trans Continental"). Mr. Pearlman currently devotes approximately 50% of his time to the affairs of Trans Continental and the remainder of his time to the affairs of the Company. See "Certain Relationships and Related Transactions." Alan A. Siegel has been Secretary of the Company since October 1989 and a director of the Company since December 1991. From 1985 to 1989, Mr. Siegel was Senior Account Manager of the Company and since 1989 has served as the Company's General Manager. Mr. Siegel has also been Senior Account Manager for Trans Continental since 1986. Mr. Siegel currently devotes approximately 50% of his time to the affairs of Trans Continental and the remainder of his time to the affairs of the Company. See "Certain Relationships and Related Transactions." James J. Ryan has been a director of the Company since July 1986. Mr. Ryan served as Executive Director of Sedgwick Aviation of North America, an international insurance brokerage firm, from 1994 until 1999. Until 1994, for more than 20 years, he had been employed with Alexander and Alexander Inc., an international insurance brokerage firm (and its predecessor firm), where he most recently held the title of Senior Vice President of the Aviation and Aerospace Division. The Company's directors are elected for a period of one year and until their successors are duly elected and qualified. There are currently three members of the Board of Directors who were elected at the Company's Annual Meeting of Shareholders held on June 10, 1998. The Company and its principal shareholders had agreed to use their best efforts to elect two designees of the underwriters of the 1993 offering to the Company's Board of Directors which right expired in April 1998. 10 To the knowledge of management of the Company, except as set forth above, no director of the Company holds any directorship in any other company with a class of securities registered pursuant to Section 12, or subject to the requirements of Section 15(d), of the Securities Exchange Act of 1934 or in any company registered as an investment company under the Investment Company Act of 1940. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers, directors and persons who own more than ten percent of a registered class of the Company's equity securities to file certain reports regarding ownership of, and transactions in, the Company's securities with the Securities and Exchange Commission (the "SEC"). These officers, directors and stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports that are filed with the SEC. Based solely on a review of copies of such forms received by the Company, and written representations received by the Company from certain reporting persons, the Company believes that for the year ended December 31, 1998 all Section 16(a) reports required to be filed by the Company's executive officers, directors and 10% stockholders were filed on a timely basis, other than (i) Trans Continental which failed to timely file a Form 4 with respect to 1,000,000 shares of Common Stock issued in July 1998 for consideration of extending to the Company a line of credit of $150,000; and (ii) Mr. Alan Siegel, who failed to timely file a Form 4 with respect to 1,000,000 shares of Common Stock issued to him in January 1999 in consideration for services rendered and the waiver and deduction of salary payable by the Company to Mr. Siegel during the period from 1985 through 1998. ITEM 11. EXECUTIVE COMPENSATION The following table summarizes all compensation earned by or paid to the Company's Chief Executive Officer for services rendered in all capacities to the Company for the three years ended December 31, 1999 and all officers who earned over $100,000 (the "Named Executive Officers"). No other executive officer's or employee's annual salary and bonus exceeded $100,000 during the Company's past three fiscal years. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------------------ --------------- SECURITIES OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS/SARs(#) --------------------------- ---- ---------- --------- ---------------- --------------- Louis J. Pearlman 1999 -- -- (1) -- Chairman, President, Chief 1998 -- -- -- -- Executive and Operating 1997 -- -- -- -- Officer and Treasurer Alan A. Siegel 1999 $25,000 -- (2) -- Secretary and 1998 -- -- -- -- Director 1997 -- -- -- --
- ---------- 1. Represents 3,000,000 shares of the Company's common stock issued to Mr. Pearlman in consideration of services rendered and the waiver and deduction of salary payable by the Company. 2. Represents 1,000,000 shares of the Company's common stock issued to Mr. Siegel in consideration of services rendered and the waiver and deduction of salary payable by the Company. The Company also issued 1,000,000 shares of common stock to Frank Sicoli, an employee of the Company, in consideration of services rendered. 11 DIRECTOR'S COMPENSATION Directors who are not employees of the Company are compensated at a rate of $500 for each meeting of the full Board of Directors which they attend in person, up to a maximum of $2,000 in any one year, plus expenses for attending such meetings. Officers are appointed annually by the Board of Directors and serve at the discretion of the Board. OPTIONS/SAR GRANTS IN 1999 There were no option grants in 1999. AGGREGATE OPTION EXERCISES IN 1999 AND 1999 FISCAL YEAR-END OPTION VALUES There were no option exercises in 1999. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors of the Company does not have a compensation committee. The Board of Directors determines executive compensation, based on corporate performance and market conditions. Mr. Pearlman and Mr. Siegel are members of the Board of Directors and together represent a majority of the Board. See "Employment Agreements." EMPLOYMENT AGREEMENTS The Company had an employment agreement with Louis J. Pearlman which expired in 1994. The Company and Mr. Pearlman have not entered into a new employment agreement. Mr. Pearlman's compensation is determined by the Company's Board of Directors, of which Mr. Pearlman is the Chairman, and together with Mr. Siegel constitutes a majority of the Board. The Company entered into an employment agreement as of December 31, 1992 with Alan A. Siegel. Mr. Siegel's agreement expired on January 1, 1998. Mr. Siegel's agreement provided for an annual salary of $75,000 for the first year of the agreement and for annual increases thereafter in an amount equal to the greater of 5% of his previous year's salary or the increase, if any, in the Consumer Price Index for All Urban Consumers, Central Florida 1967100. The agreement also provides for an annual bonus payable to Mr. Siegel in an amount equal to 1 1/2% of the Company's net after-tax profits for such fiscal year plus an amount determined in the discretion of the Board. The Company has not entered into a new employment agreement with Mr. Siegel. The Board of Directors determines Mr. Siegel's compensation. Mr. Siegel is a member of the Board of Directors, and together with Mr. Pearlman constitutes a majority of the Board. 1994 EMPLOYEE SHARE PURCHASE PLAN The Company has an employee share purchase plan (the "Plan") for employees of the Company and any present or future "subsidiary corporations." The Company intends for the Plan to be an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan, approved by the Company's shareholders on April 11, 1995, was effective November 1, 1994. All employees are eligible to participate in the Plan, except that the Company's appointed committee may exclude any or all of the following groups of employees from any offering: (i) employees who have been employed for less than 2 years; (ii) employees whose customary 12 employment is 20 hours or less per week; (iii) employees whose customary employment is not more than 5 months in any calendar year; and (iv) highly compensated employees (within the meaning of Code Section 414(q)). The shares issuable under the Plan shall be common shares of the Company subject to certain restrictions up to a maximum of 1,000,000 shares. The committee shall determine the length of each offering but no offering may exceed 27 months. The option price for options granted in each offering may not be less than the lessor of (i) 85% of the fair value of the shares on the day of the offering, or (ii) 85% of the fair market value of the shares at the time the option is exercised. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number and percentage of shares of Common Stock beneficially owned, as of April 11, 2000, by (i) all persons known by the Company to be the beneficial owner of more than 5% of the Company's outstanding Common Stock, (ii) each of the Company's directors, (iii) the Company's Chief Executive Officer and the Named Executive Officers, and (iv) all executive officers and directors of the Company as a group (3 persons).
Name and Address Number of Shares Percent of Class ---------------- ---------------- ---------------- Louis J. Pearlman(1)(2)(4)........... 18,469,153 26.5% Alan A. Siegel(1).................... 1,051,130 1.5% James J. Ryan(1)(3).................. 530,000 * Trans Continental Airlines, Inc.(4).. 7,666,862 11% All officers and directors as a group (3 persons).................... 20,050,283 28.8%
- ---------- * Less than 1%. (1) The business address of each person is c/o Entertainment International Ltd., 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819. (2) Represents: (i) 8,802,291 shares of the Company's common stock; (ii) warrants exercisable for 2,000,000 shares of the Company's Common Stock; and (iii) 7,666,562 shares of the Company's common stock owned of record by Trans Continental Airlines, Inc. ("Trans Continental"). Mr. Pearlman is the President and Chief Operating Officer, a director and an approximately 21% owner of the issued and outstanding shares of Trans Continental. (3) Includes options to purchase 500,000 shares of the Company's common stock. (4) Represents: (i) 3,666,862 shares of common stock issued to Trans Continental in consideration for its guaranty of certain loans to the Company; and (ii) 1,000,000 shares of common stock issued to Trans Continental for entering into a line of credit of $150,000 with the Company in July 1998, and (iii) 3,000,000 shares of the Company's common stock issued to Trans Continental in consideration for continuing to provide lines of credit and funding the ongoing costs and expenses of the Company. The 3,666,862 shares of common stock were granted to Trans Continental in consideration for its guaranty of the Company's obligations under the loans with Allstate Financial Corporation, Phoenixcor., Inc. Senstar Capital Corporation, the Argentina Lease Agreement and the Argentina Operations Agreement with Mastellone Hnos, S.A., and a corporate credit card issued for the Company's benefit. See "Certain Relationships and Related Transactions." 13 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Since May 7, 1996, the Company has subleased approximately 500 square feet of office space from Trans Continental Airlines, Inc. on a month-to-month basis for monthly rental payments of approximately $770. In April 1999, the Company issued to Louis J. Pearlman 3,000,000 shares of the Company's common stock in consideration for services rendered and the waiver and deduction of salary payable by the Company to Mr. Pearlman. In January 2000, the Company granted James J. Ryan the option to purchase 500,000 shares of the Company's common stock at a price of $.01 per share in consideration for services rendered to the Company by Mr. Ryan. In January 1999, the Company issued to Alan Siegel 1,000,000 shares of the Company's common stock in consideration for services rendered and the waiver and deduction of salary payable by the Company to Mr. Siegel during the period from 1985 through 1998. In addition, 1,000,000 shares, 500,000 shares and 250,000 shares of the Company's common stock was issued to Frank Sicoli, Scott Bennett and Francisco Vasquez, respectively, for services rendered to the Company. In April, 1999, the Company issued to Trans Continental 3,000,000 shares of the Company's common stock in consideration for continuing to provide lines of credit and funding the ongoing costs and expenses of the Company. On July 29, 1998, the Company issued to Trans Continental 1,000,000 shares of the Company's common stock in consideration of Trans Continental granting to the Company a $150,000 line of credit. Mr. Louis J. Pearlman owns 21% of Trans Continental and is Trans Continental's Chairman of the Board, President and principal shareholder. On June 10, 1998, a majority of the Company's shareholders voted to approve the conversion of each outstanding share of preferred stock into three shares of common stock. Shareholders also waived their rights to accrued but undeclared dividends, and the authorized but unissued shares of preferred stock were removed from authorization. In connection with the shareholders' approval of such conversion, Louis Pearlman, Trans Continental and Trans Continental Leasing, Inc. each agreed to waive approximately $2 million, $5.5 million and $4.0 million, respectively, for advances to the Company, as well as accrued and unpaid salaries in the case of Mr. Pearlman. On December 24, 1996, Trans Continental Leasing, Inc. obtained a loan with Norwest Equipment Finance, Inc. in the amount of $4,709,000. The proceeds of this refinancing were used to repay the Company's debt to Senstar and to provide working capital to the Company. TC Leasing is a wholly owned subsidiary of Trans Continental. The Company owed to TC Leasing the aggregate amount of approximately $4,090,000, which amount was waived in connection with the June 1998 shareholders' meeting. Trans Continental serves as the Company's travel agent for substantially all of its travel arrangements and the Company is its principal customer. In the opinion of management, the terms and prices received from the corporation are similar to those available from other travel agencies. During 1998, 1997 and 1996, the Company utilized the travel agency services for reservations, while primarily paying certain costs directly to the provider. 14 The Company has purchased hull insurance for the Company's airships through Sedgwick Aviation of North America, an international insurance brokerage firm of which Mr. James J. Ryan is the Executive Director. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K Page ---- (a)(1) The following financial statements of the Company are filed herewith: A. Report of Independent Certified Accountant....................................... F-1 B. Balance Sheets for the years ended December 31, 1999 and 1998.................................... F-2 C. Statements of Operations for the years ended December 31, 1999, 1998 and 1997........... F-3 D. Statements of Changes in Stockholders' Deficit for the years ended December 31, 1999, 1998 and 1997.................................... F-4 E. Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997........... F-5 F. Notes to Financial Statements.................... F-6 to F-15 (2) The following exhibits of the Company are filed herewith, unless otherwise
EXHIBIT INCORPORATED BY NUMBER DESCRIPTION REFERENCE TO - ------ ----------- ------------ 3.1 Certificate of Incorporation of the Company filed June 9, 1992....................................... Exhibit 2(12) 3.2 Amendment to Certificate of Incorporation filed September 18, 1984................................. Exhibit 3(2) 3.3 Amendment to Certificate of Incorporation filed April 8, 1985...................................... Exhibit 4(12) 3.4 Amendment to Certificate of Incorporation filed August 1, 1986..................................... Exhibit 5(12) 3.5 Amendment to Certificate of Incorporation filed January 27, 1989................................... Exhibit 6(12) 3.6 Amendment to Certificate of Incorporation filed August 5, 1992..................................... Exhibit 7(12) 3.7 Certificate of Correction to Amendment of Certificate of Incorporation filed on February 26, 1993.................................. Exhibit 8(12) 3.8 Amendment to Certificate of Incorporation filed February 26, 1993.................................. Exhibit 9(12) 3.9 Certificate of Amendment to Certificate of Incorporation filed on June 18, 1998............... Exhibit 3.1(20) 3.10 Certificate of Amendment to Certificate of Incorporation filed on October 16, 1998............ Exhibit 3.10(21) 3.11 By-laws of the Company............................. Exhibit 3.9(19) 4.1 Warrant Agreement dated February 14, 1991 between the Company and American Securities Transfer, Inc. including form of Class A Warrant and Form of Class B Warrant.................................... Exhibit 4.1(4)
15 4.2 Warrant dated February 7, 1991 issued to Stephen M. Bathgate................................ Exhibit 4.2(4) 4.3 Two warrants dated respectively December 31, 1991 and February 25, 1992 issued to Julian M. Benscher. Exhibit 4.3(4) 4.4 Two warrants dated respectively February 7, 1991 and March 23, 1991 issued to Kenneth S. Bernstein...... Exhibit 4.4(4) 4.5 Two warrants dated respectively February 7, 1991 and May 23, 1991 issued to Chatfield Dean & Co., Inc... Exhibit 4.5(4) 4.6 Warrant dated September 26, 1991 issued to Dr.Joseph C.F. Chow and Cynthia B. Chow............ Exhibit 4.6(4) 4.7 Warrant dated September 26, 1991 issued to Cohig & Associates, Inc.................................... Exhibit 4.7(4) 4.8 Warrant dated May 1, 1991 issued to Daliz Associates......................................... Exhibit 4.8(4) 4.9 Two warrants dated respectively February 8, 1990, and February 21, 1991 issued to Emanuel and Company............................................ Exhibit 4.9(4) 4.10 Warrant dated December 10, 1991 issued to After Falkowitz.......................................... Exhibit 4.10(4) 4.11 Four warrants dated respectively June 5, 1990, December 5, 1990, December 17, 1990, and February 21, 1991 issued to Alfonso Figlioia....... Exhibit 4.11(4) 4.12 Two warrants dated respectively, May 23, 1991 and February 7, 1992 issued to Sanford D. Greenberg.... Exhibit 4.12(4) 4.13 Warrant dated December 7, 1991 issued to Edward C. Larkin............................................. Exhibit 4.13(4) 4.14 Warrant dated December 4, 1991 issued to David Mathis............................................. Exhibit 4.14(4) 4.15 Warrant dated February 7, 1991 issued to Eugene McColley........................................... Exhibit 4.15(4) 4.16 Warrant dated February, 1992 issued to Nour Collection, Inc.................................... Exhibit 4.16(4) 4.17 Warrant dated November 3, 1989 issued to ORIX Commercial Credit Corporation ("ORIX")............. Exhibit 10.29(5) 4.18 Warrant date February, 1992 issued to Chahram Pahlavi............................................ Exhibit 4.18(4) 4.19 Warrant dated April 7, 1992 issued to Jim Ryan............................................... Exhibit 4.19(4) 4.20 Warrant dated May 1, 1992 issued to Sterling Capital Group, Inc......................................... Exhibit 4.20(4) 4.21 Warrant dated May 1, 1991 issued to Jonathan Turk............................................... Exhibit 4.21(4) 4.22 Warrant dated February 7, 1991 issued to Steven R. Hinkle............................................. Exhibit 4.22(4) 4.23 Warrant dated April 1, 1992 issued to Simon Zamet.............................................. Exhibit 4.23(4) 4.24 Warrant dated May 8, 1992 issued to Louis J. Pearlman........................................... Exhibit 4.24(6) 4.25 Two Warrants dated April 17, 1992 issued to Emanuel and Company........................................ Exhibit 4.25(6) 4.26 Representatives' Preferred Stock Warrant issued to Emanuel and Company and Chatfield Dean & Co., Inc.. Exhibit 4.26(6) 4.27 Action by Written Consent of the Board of Directors dated April 15, 1997 extending warrant granted to Louis J. Pearlman.................................. Exhibit 4.27 10.1 Amended and Restated Loan Agreement dated as May 8, 1992 between the Company and Louis J. Pearlman..... Exhibit 10.1(6) 10.2 Form of Subscription Agreement between the Company and certain investors relating to the 1992 Private Placement.................................. Exhibit 10.2(6) 10.3 Letter Agreement dated April 17, 1992 between the Company and Emanuel and Company in connection with the 1992 Private Placement......................... Exhibit 10.3(6) 10.4 Incentive Stock Option Plan as amended, of the Company............................................ Exhibit 10.2(1) 16 10.5 Amendment to Incentive Stock Option Plan dated December 9, 1991................................... Exhibit 10.2(4) 10.6 Aerial Airship Agreement dated October 26, 1987 by and between the Company and the Metropolitan Life Insurance Company ("MetLife")...................... Exhibit 10.29(7) 10.7 Amendment dated as of March 15, 1988 to the Advertising Agreement between the Company and MetLife............................................ Exhibit B.1(3) 10.8 Amendment dated as of March 15, 1988 to the Aerial Advertising Agreement between the Company and MetLife............................................ Exhibit 10.14(5) 10.9 Amendment dated as of March 15, 1988 to the Aerial Advertising Agreement between the Company and MetLife............................................ Exhibit 10.15(5) 10.10 Amendment dated as of March 15, 1988 to the Aerial Advertising Agreement between the Company and MetLife............................................ Exhibit 19.4(8) 10.11 Airship Advertising Agreement dated as to April 27, 1990 between the Company, Airship Industries (USA), Inc. ("AIUSA") and Anheuser Busch Companies, Inc. ("Anheuser")....................................... Exhibit 10.8(4) 10.12 Termination Agreement dated as of January 1, 1991 between the Company, Anheuser, and AIUSA........... Exhibit 19.2(8) 10.13 Airship Advertising Agreement dated as of January 1, 1951 between the Company and Anheuser.............. Exhibit 19.3(8) 10.14 Amendment to Airship Advertising Agreement dated May 31, 1991 between the Company and Anheuser...... Exhibit 10.11(4) 10.15 Passenger Airship Agreement dated May 31, 1991 between the Company and Anheuser................... Exhibit 19.12(4) 10.16 Airship Advertising Agreement dated March 12, 1992 between the Company and Anheuser................... Exhibit 10.13(4) 10.17 Term Loan Agreement dated as of February 27, 1990 between State Bank of South Australia and the Company in the principal amount of $250,000........ Exhibit 10.3(9) 10.18 Airship Lease dated February 27, 1990 between the Company and the State Bank of South Australia together with Lease Supplement No. 1 thereto....... Exhibit 10.23(5) 10.19 Subordination Agreement dated February 27, 1990, between the Company, State Bank of South Australia and Louis J. Pearlman.................... Exhibit 10.16(4) 10.20 Line of Credit Agreement dated December 31, 1991 between Julian Benscher and the Company in the amount of $1,000,000, as amended on February 20, 1992 and Secured and Credit Note dated December 31, 1991 from the Company to Julian Benscher in the principal amount of $1,000,000..................... Exhibit 10.17(4) 10.21 Loan Agreement dated December 8, 1988 between the Company and Louis J. Pearlman relating to a loan of $500,000........................................ Exhibit C.1(3) 10.22 Promissory note dated December 8, 1988 of the Company............................................ Exhibit D.1(3) 10.23 Demand Note dated as of December 31, 1988 of the Company to Louis J. Pearlman, in the principal amount of $324,929.76.............................. Exhibit H.1(3) 10.24 Term Note for the principal amount of $850,000 dated January 31, 1990 from the Company to Louis J. Pearlman........................................... Exhibit 10.21(4) 10.25 Stock Option Agreement dated January 1, 1989 between the Company and Louis J. Pearlman to purchase 1,000,000 shares................................... Exhibit E.1(3) 17 10.26 Amendment to Stock Option Agreement between the Company and Louis J. Pearlman dated as of February 7, 1991................................... Exhibit 10.24(4) 10.27 Exchange Agreement dated January 29, 1992 between Slingsby Aviation Limited and the Company.......... Exhibit 10.28(4) 10.28 Purchase Agreement Assignment dated November 2, 1989 between the Company and ORIX and Consent by Airship UK......................................... Exhibit 10.26(5) 10.29 Letter of Credit dated November 2, 1989 between the Company and ORIX................................... Exhibit 10.309(5) 10.30 Assignment of (MetLife) Aerial Advertising Agreement and Consent dated as of November 2, 1989 between the Company and Airship (UK)....................... Exhibit 10.27(5) 10.31 Guaranty of Louis J. Pearlman in favor of ORIX dated as of November 2, 1989............................. Exhibit 10.28(5) 10.32 Note and Warrant Purchase Agreement dated as of November 2, 1989 between the Company and ORIX...... Exhibit 109.33(5) 10.33 Agreement dated November 12, 1990 among the Company, the Receiver for Airship UK, AIUSA and others...... Exhibit 10.30(10) 10.34 Corporate Financial Consulting Agreement dated February 14, 1991 between the Company and Cohig & Associates................................. Exhibit 10.38(4) 10.35 Engagement Letter dated September 22, 1988 between Emanuel and Company and the Company................ Exhibit K.1(3) 10.36 Agreement dated August 28, 1992 between Seoul Olympic Sports Promotion Foundation and the Company............................................ Exhibit 10.45(11) 10.37 Fifth Amendment to Aerial Advertising Agreement effective as of September 1, 1992 between Metropolitan Life and the Company.................. Exhibit 10.46(11) 10.38 Loan Agreement dated October 14, 1992 between Sequel Capital Corporation and the Company................ Exhibit 10.47(11) 10.39 Agreement dated December 17, 1992 between J&B Enterprises Limited (UK) Corp., Julian Benscher and the Company.................................... Exhibit 10.48(11) 10.40 Airship Mortgage dated December 17, 1992 between the Company and J&B Enterprises Limited (UK) Corp...... Exhibit 10.49(11) 10.41 Employment Agreement dated as of December 31, 1992 between the Company and Seth Bobet................. Exhibit 10.50(11) 10.42 Employment Agreement dated as of December 31, 1992 between the Company and Alan Siegel................ Exhibit 10.51(11) 10.43 Employment Agreement dated as of December 31, 1992 between the Company and Frank Sicoli............... Exhibit 10.52(11) 10.44 Amended Employment Agreement dated as of February 15, 1993 between the Company and Louis J. Pearlman.................................. Exhibit 10.53(11) 10.45 Second Amendment to Stock Option Agreement between the Company and Louis J. Pearlman dated as of February 15, 1993.................................. Exhibit 10.54(11) 10.46 Mast Sale Agreement dated December 30, 1992 between J&B Enterprises Limited (UK) Corp., Julian Benscher and the Company........................... Exhibit 10.55(11) 10.47 Mortgage dated December 30, 1992 between the Company and J&B Enterprises Limited (UK) Corp.............. Exhibit 10.56(11) 10.48 Subscription Agreements between the Company and certain investors relating to the 1992 Private Placement.......................................... Exhibit 10.57(11) 18 10.49 Sublease Agreement between Westinghouse Airships, Inc. and the Company dated November 9, 1992........ Exhibit 10.58(13) 10.50 Amendment to Sublease Agreement between Westinghouse Airships, Inc. and the Company dated November 9, 1992............................................... Exhibit 10.59(13) 10.51 Lease Agreement between Sand Lake IV-A Limited Partnership and the Company dated February 25, 1991............................................... Exhibit 10.60(13) 10.52 Lease Agreement between T&L Leasing and the Company dated January 13, 1992............................. Exhibit 10.61(13) 10.53 Lease Agreement between Westdeutsche Luftwerbung Theodor Wullenkemper GMBH and the Company dated May 16, 1993....................................... Exhibit 10.52(15) 10.54 Manufacturers Agreement between WDL Luftschiffgesellschaft MBH and the Company dated May 16, 1993....................................... Exhibit 10.53(15) 10.55 Escrow Agreement between and among Westdeutsche Lufterbung Theodor Wullenkemper GMBH & Co., WDL Luftschiffgesellschaft MBH, Trans Continental Airlines Inc., and the Company dated May 15, 1993................................. Exhibit 10.54(15) Exhibit 10.55(15) 10.56 Aerial Advertising Agreement between the Company and Catamount Petroleum Limited Partnership dated May 28, 1993....................................... Exhibit 10.56(15) 10.57 Amendment to Aerial Advertising Agreement between the Company and Catamount Petroleum Limited Partnership dated July 27, 1993.................... Exhibit 10.57(15) 10.58 Second Amendment to Aerial Advertising Agreement between the Company and Catamount Petroleum Limited Partnership dated August 9, 1993........... Exhibit 10.58(15) 10.59 Third Amendment to Aerial Advertising Agreement between the Company and Catamount Petroleum Limited Partnership dated October 13, 1993......... Exhibit 10.59(15) 10.60 Fourth Amendment to Aerial Advertising Agreement between the Company and Catamount Petroleum Limited Partnership dated November 9, 1993......... Exhibit 10.60(15) 10.61 Aerial Advertising Agreement between Kingstreet Tours Limited and the Company dated as of January 18, 1994................................... Exhibit 10.61(15) 10.62 Passenger Airship Agreement between Anheuser-Busch Companies, Inc. and the Company dated as of January 2, 1994.................................... Exhibit 10.62(15) 10.63 Amendment to Airship Advertising Agreement dated March 12, 1992, between the Company and Anheuser-Busch Companies, Inc. dated March 4, 1994 and related letter agreement dated February 11, 1994.................................. Exhibit 10.63(15) 10.64 Amendment to note agreement dated as of November 2, 1989 between the Company and ORIX dated January 11, 1994............................................... Exhibit 10.64(15) 10.65 Loan Agreement between Don Golden and the Company dated June 30, 1993................................ Exhibit 10.65(15) 10.66 Guarantee of Louis J. Pearlman in favor of the Company dated as of June 30, 1993.................. Exhibit 10.66(15) 10.67 Loan Agreement between Superboard Limited and the Company dated December 7, 1997..................... Exhibit 10.67(15) 19 10.68 Guarantee of James Stuart Tucker in favor of the Company dated as of December 7, 1993............... Exhibit 10.68(19) 10.69 Kingstreet Tours Limited Aerial Advertising Agreement dated January 18, 1994, by and between the Company and Kingstreet Tours Limited........... Exhibit 10.69(19) 10.70 Amended and Restated Airship Advertising Agreement, dated July 8, 1994, by and between the Company and Anheuser-Busch Companies, Inc.................. Exhibit 10.70(19) 10.71 Aircraft Lease Agreement, dated December 15, 1994, by and between the Company and Mastellone Hnos., S.A......................................... Exhibit 10.71(19) 10.72 Airship Operations Agreement, dated December 15, 1994, by and between Airship Operations (USA), Inc. and Mastellone Hnos, S.A...................... Exhibit 10.72(19) 10.73 Passenger Airship Agreement. Dated as of January 2, 1994, by and between the Company and Anheuser- Busch Companies, Inc............................... Exhibit 10.73(19) 10.74 Letter Agreement Modification, dated January 11, 1994, by and between the Company and ORIX USA Corporation........................................ Exhibit 10.74(19) 10.75 Amendment to Lease, dated May 12, 1994, by and between the Company and ORIX USA Corporation....... Exhibit 10.75(19) 10.76 Collateral and Security Agreement, dated as of May 10, 1994, by and between the Company and ORIX USA Corporation.................................... Exhibit 10.76(19) 10.77 Aircraft Collateral Funding Repayment Agreement, dated as of November 16, 1994, by and between the Company and Allstate Financial Corporation..... Exhibit 10.77(19) 10.78 Guaranty, dated December 6, 1994, of Louis J. Pearlman........................................... Exhibit 10.78(19) 10.79 Guaranty, dated December 6, 1994, of Trans-Continental Airlines. Inc.................... Exhibit 10.79(19) 10.80 Aircraft Lease Agreement, dated as of May 31, 1995, by and between Trans Continental Leasing, Inc., as Lessor and the Company, as Lessee............... Exhibit 10.80(19) 10.81 Full Warranty Bill of Sale, dated as of May 31, 1994, by the Company to Trans Continental Leasing, Inc....................................... Exhibit 10.81(19) 10.82 Credit Agreement, dated November 30, 1995, by and between the Company and Senstar Capital Corporation........................................ Exhibit 10.82(19) 10.83 Term Note, dated November 30, 1995, of the Company to Senstar Capital Corporation..................... Exhibit 10.83(19) 10.84 Aircraft Mortgage and Security Agreement, dated November 30, 1995, by and between the Company and Senstar Capital Corporation............ Exhibit 10.84(19) 10.85 Assignment of Contract Rights, dated November 30, 1995, by and between the Company and Senstar Capital Corporation................................ Exhibit 10.85(19) 10.86 Agreement of Guaranty and Suretyship, dated November 30, 1995, by and between Trans Continental Airlines and Senstar Capital Corporation........... Exhibit 10.86(19) 10.87 Release and Settlement Agreement, dated September 20, 1993, by and between the Company and Sequel Capital Corporation and Louis J. Pearlman... Exhibit 10.87(19) 10.88 Promissory Note, dated October 1994, of Louis J. Pearlman to Airship Airways, Inc................... Exhibit 10.88(19) 20 10.89 Promissory Note, dated October 26, 1994, of Louis J. Pearlman to Airship Airways, Inc................... Exhibit 10.89(19) 10.90 Form of Share Subscription Agreement, dated August 11, 1994, between the Company and........... Exhibit 10.90(19) 10.91 List of Purchasers in the 1994 Private Placement.......................................... Exhibit 10.91(19) 10.92 Secured Promissory Note, dated October 26, 1994, of Airship Airways, Inc. to the Company............... Exhibit 10.92(19) 10.93 Option Agreement, dated as of August 11, 1994, between the Company and Louis J. Pearlman.......... Exhibit 10.93(19) 10.94 Airship International Ltd. Employee Share Purchase Plan............................................... Exhibit 1(18) 10.95 Amended and Restated Lease Agreement, dated June 2, 1995, between Orix USA Corporation and The Company............................................ Exhibit 10.95(21) 10.96 Letter of Intent with WeBeCD.com, Inc. dated March 28, 2000..................................... * 10.97 Settlement Agreement, dated as of July 27, 1999 between the Company and WDL LUFTSCHIFFGESELLSCHAFT, MBH, U.S. Airship Leasing Incorporated, Theodor Wullenkemper, Walter Bohnke................ ** 10.98 Settlement Agreement, dated as of December 16, 1999 between the Company and Gulf Oil Limited Partnership f/n/a Catamount Petroleum Limited Partnership...... * 11.1 Statement re: Computation of Per Share Earnings........................................... * 16.1 Letter of Wiss & Co. dated June 22, 1993............................................... Exhibit 16.1(14) 16.2 Letter of Grant Thornton dated July 7, 1997............................................... Exhibit 16(16) 16.3 Letter of Grant Thornton dated July 22, 1997............................................... Exhibit 16(17) 21.1 List of Subsidiaries............................... Exhibit 21.1(19) 27.1 Financial Data Schedule............................ * - ------- * Filed herewith. ** To be filed by Amendment (1) The Company's Registration Statement on Form S-18 Registration No. 2.96334 NY as filed with the Securities and Exchange Commission (the "SEC") on March 9, 1985. (2) The Company's Registration Statement on Form S-1 Registration No. 33-7830, as filed with the SEC on August 7, 1986. (3) The Company's Annual Report on Form 10-K for fiscal year ended December 31, 1988. (4) The Company's Annual Report on Form 10-K for fiscal year ended December 31, 1991. (5) The Company's Registration Statement on Form S-2, Registration No. 33-32619, as filed with the SEC on December 18, 1989. (6) The Company's Post-effective Amendment No. 1 on Form S-3 to Form S-2, Registration No. 33-38076, as filed with the SEC on May 14, 1992. (7) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987. (8) The Company's Report on Form 8 dated August 14, 1991. (9) The Company's Report on Form 8-K dated February 27, 1990. (10) The Company's Registration Statement on Form S-2, Registration No. 33038076, as filed with the SEC on December 5, 1990. (11) The Company's Registration Statement on Form S-1, Registration No. 33-56382, as filed with the SEC on February 16, 1993. (12) The Company's Registration Statement on Form 8-A. as filed with SEC on March 16, 1993. 21 (13) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. (14) The Company's Report on Form 8-K dated July 9, 1993. (15) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. (16) The Company's Report on Form 8-K, as filed with the SEC on July 11, 1997. (17) The Company's Report on Form 8-K/A, as filed with the SEC on July 22, 1997. (18) The Company's Proxy Statement, as filed with the SEC on March 20, 1995. (19) The Company's Annual Report on Form 10-K for the year ended December 31, 1994. (20) The Company's Quarterly Report on Form 10-Q, as amended, for the quarter ended June 30, 1998. (21) The Company's Annual Report on Form 10-K for the year ended December 31, 1998. (b) The Company did not file any Current Reports on Form 8-K during the last quarter of 1998: SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 14, 2000. ENTERTAINMENT INTERNATIONAL LTD. By: /s/ Louis J. Pearlman --------------------------------------------- Louis J. Pearlman, Chairman, President and Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Louis J. Pearlman - ----------------------- Chairman of the Board and April 14, 2000 Louis J. Pearlman Chief Executive Officer (Principal Executive and /s/ Alan A. Siegel Financial Officer) and Director - ----------------------- Alan A. Siegel Director April 14, 2000 /s/ James J. Ryan - ----------------------- James J. Ryan Director April 14, 2000 22 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- A. Report of Independent Certified Public Accountant .......... F-1 B. Balance Sheets as of December 31, 1999 and 1998 ............ F-2 C. Statements of Operations for the years ended December 31, 1999, 1998, and 1997 .......................... F-3 D. Statements of Changes in Stockholders' Deficit for the years ended December 31, 1999, 1998, and 1997 .............. F-4 E. Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 .......................... F-5 F. Notes to Financial Statements .............................. F-6 to F-15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Entertainment International Ltd. Orlando, Florida We have audited the accompanying balance sheets of Entertainment International Ltd. as of December 31, 1999 and 1998, and the related statement of operations, stockholders' deficit, and cash flows for the years ended December 31, 1999, 1998, and 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audits 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 our audits provide 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 Entertainment International Ltd. at December 31, 1999 and 1998, and the results of its operations and its cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note B to the financial statements, the Company has experienced significant operating losses, an accumulated deficit and negative working capital at December 31, 1999 and 1998. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Meeks, Dorman & Company, P.A. Longwood, Florida February 3, 2000 F-1 ENTERTAINMENT INTERNATIONAL LTD. BALANCE SHEETS DECEMBER 31,
1999 1998 - ----------------------------------------------------------------------------------- ASSETS Airships and Related Equipment: Airships .......................................... $ 963,000 $ 2,294,000 Vehicles .......................................... 529,000 645,000 Parts and equipment ............................... 392,000 828,000 Airship components ................................ 674,000 1,606,000 - ----------------------------------------------------------------------------------- 2,558,000 5,373,000 Less: Accumulated depreciation and amortization .... (629,000) 1,628,000 - ----------------------------------------------------------------------------------- 1,929,000 3,745,000 Cash and cash equivalents ........................... 1,000 -- Prepaid expenses .................................... 16,000 21,000 Other assets ........................................ 6,000 6,000 - ----------------------------------------------------------------------------------- 1,952,000 $ 3,772,000 - ----------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' DEFICIT Liabilities: Accounts payable .................................. 226,000 $ 1,034,000 Customer payment on future services ............... 514,000 514,000 Insurance financing ............................... 3,000 31,000 Accrued expense and other liabilities ............. 29,000 90,000 Obligations under capital leases .................. 839,000 1,692,000 Notes payable ..................................... -- 10,000 Due to related parties ............................ 3,221,000 540,000 - ----------------------------------------------------------------------------------- Total liabilities ............................... 4,832,000 3,911,000 Contingencies and commitments - ----------------------------------------------------------------------------------- Stockholders' Deficit: Common stock, $.01 par value: Authorized-- 110,000,000, issued and outstanding--68,097,000 shares in 1999 and 55,047,000 in 1998 .......... 681,000 550,000 Capital in excess of par value .................... 50,788,000 49,091,000 Accumulated deficit ............................... (54,349,000) (49,780,000) - ----------------------------------------------------------------------------------- Total stockholders' deficit ..................... (2,880,000 (139,000) - ----------------------------------------------------------------------------------- $ 1,952,000 $ 3,772,000 - -----------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. F-2 ENTERTAINMENT INTERNATIONAL LTD. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Airship Revenue -- -- -- - ----------------------------------------------------------------------------------------------------------------- Costs and expenses: Operating costs 250,000 70,000 357,000 Selling, general and administrative expenses 1,716,000 534,000 737,000 - ----------------------------------------------------------------------------------------------------------------- 1,966,000 604,000 1,094,000 Loss from operations (1,966,000) (604,000) (1,094,000) - ----------------------------------------------------------------------------------------------------------------- Other income (expense): Write-down of impaired assets (1,677,000) -- -- Gain (Loss) on sale of airship components to Stockholder -- (22,000) -- Loss on retirement of airship components (2,000) -- -- Loss on settlement (258,000) -- -- Forgiveness of debt by stockholder 88,000 -- Realized gain on sale leaseback 44,000 45,000 Interest expense (677,000) (542,000) (1,245,000) Interest, royalties and other income 11,000 40,000 -- - ----------------------------------------------------------------------------------------------------------------- (2,603,000) (392,000) (1,200,000) - ----------------------------------------------------------------------------------------------------------------- Net loss (4,569,000) $ (996,000) $(2,294,000) - ----------------------------------------------------------------------------------------------------------------- Weighted average number of common shares 62,262,000 46,736,000 42,181,000 - ----------------------------------------------------------------------------------------------------------------- Net loss applicable to common shares: Net loss (4,569,000) $ (996,000) $(2,294,000) Abolishment of accrued preferred dividends -- 6,508,000 Preferred stock dividend -- (647,000) (1,551,000) - ----------------------------------------------------------------------------------------------------------------- Net income (loss) applicable to common shares (4,569,000) $ 4,865,000 $(3,845,000) - ----------------------------------------------------------------------------------------------------------------- Net income (loss) per common share (.07) $.10 $(.09) - ----------------------------------------------------------------------------------------------------------------- SIGNIFICANT AMOUNTS APPLICABLE TO RELATED PARTIES: Selling, general and administrative: Interest expense $574,000 $334,000 $437,000
The accompanying notes are an integral part of these statements. F-3 ENTERTAINMENT INTERNATIONAL LTD. STATEMENTS OF STOCKHOLDERS' DEFICIT
Capital in Excess of Par Value Preferred Stock Common Stock ------------------------- --------------- ------------ Preferred Common Accumulated Shares Par Value Shares Par Value Stock Stock Deficit - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 2,712,000 $27,000 41,002,000 $410,000 $14,444,000 $22,081,000 $(50,800,000) Conversion of preferred stock into Common stock (253,000) (3,000) 1,521,000 15,000 3,000 (15,000) -- Dividends accrued on preferred stock -- -- -- - -- -- (1,551,000) Net loss -- -- -- - -- -- (2,594,000) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 2,459,000 24,000 42,523,000 425,000 14,447,000 22,066,000 (54,645,000) - ----------------------------------------------------------------------------------------------------------------------------------- Conversion of preferred stock into Common stock (2,459,000) (24,000) 11,524,000 115,000 (14,447,000) 14,356,000 -- Reimbursement of 1993 stock Subscriptions -- -- -- -- -- (22,000) Common stock issued to Trans Continental for obtaining line of Credit -- -- 1,000,000 10,000 -- 32,000 -- Write-off of underwriter compensation -- -- -- -- -- 51,000 Capital contributions from Stockholders due to Extinguishment of debt -- -- -- -- -- 11,886,000 -- Dividends accrued on preferred stock -- -- -- -- -- -- (647,000) Abolishment of dividends accrued on Preferred stock -- -- -- -- -- -- 6,508,000 Net loss -- -- -- -- -- -- (996,000) Prior period adjustment -- -- -- -- -- 722,000 -- - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998, as adjusted -- -- 55,047,000 550,000 49,091,000 (49,780,000) - ----------------------------------------------------------------------------------------------------------------------------------- Stock issued for compensation -- -- 5,950,000 60,000 -- 774,000 Stock issued for services -- -- 4,100,000 41,000 533,000 Stock issued for arrangement of additional financing -- -- 3,000,000 30,000 -- 390,000 Net Loss (4,569,000) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 -- -- 68,097,000 681,000 -- 50,788,000 (54,349,000) - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. F-4 ENTERTAINMENT INTERNATIONAL LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
1999 1998 1997 Cash flows from operating activities Net loss (4,569,000) $ (996,000) $(2,294,000) Adjustments to reconcile net loss to net Cash flows used in operating activities: Depreciation and amortization 136,000 143,000 219,000 Realized gain on sale leaseback -- (44,000) (45,000) Proceeds from issuance of common stock 92,000 -- Loss (gain) on disposition of airships and related equipment 3,000 22,000 79,000 Impairment of long lived assets 1,677,000 -- -- Issuance of common stock for services 1,408,000 -- -- Issuance of common stock for interest 420,000 Changes in operating assets and liabilities: Prepaid insurance 5,000 1,000 (22,000) Other assets -- -- 6,000 Accounts payable--trade (818,000) (491,000) (90,000) Customer payments on future services -- -- (39,000) Insurance financing (28,000) (14,000) 7,000 Accrued expenses and other liabilities (61,000) (32,000) (104,000) -------------------------------------------- Net cash flows used in operating activities (1,827,000) (1,319,000) (2,283,000) Cash flows from investing activities: Net change in due from related parties -- 261,000 (159,000) -------------------------------------------- Net cash flows provided by (used in) investing activities -- 261,000 (159,000) Cash flows from financing activities: Proceeds from issuance of notes payable -- -- 4,787,000 Principal payments on capital leases and loans (853,000) (1,101,000) (4,404,000) Reimbursement of 1993 stock subscriptions -- (22,000) -- Changes in loans from stockholders 2,681,000 2,179,000 2,059,000 -------------------------------------------- Net cash flows provided by financing activities 1,828,000 1,056,000 2,442,000 -------------------------------------------- Net changes in cash and equivalents 1,000 (2,000) -- Cash and cash equivalents, beginning of year -- 2,000 2,000 -------------------------------------------- Cash and equivalents, end of year $ 1,000 $ -- $ 2,000 ============================================ Supplemental information: Interest paid $ 263,000 $ 542,000 $ 679,000 -------------------------------------------- Non-cash accrual of dividend on preferred stock $ -- $ 647,000 $ 1,551,000 -------------------------------------------- Non-cash abolishment of accrued preferred dividends $ -- $ 6,508,000 $ -- -------------------------------------------- Non-cash extinguishment of debt due to stockholders $ -- $ 11,886,000 $ -- --------------------------------------------
The accompanying notes are an integral part of these statements. F-5 ENTERTAINMENT INTERNATIONAL LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 NOTE A -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business -- The Company operated lighter-than-air airships also commonly known as blimps, which were used to advertise and promote the products and services of the Company's clients. The Company has not operated any airships since 1995. Cash and Equivalents -- The Company considers unrestricted short-term, highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Airships and Related Equipment -- Property and Equipment are stated at cost. Depreciation is provided by the straight line method over the estimated useful lives of the assets - 10 to 20 years (airships), 4 to 8 years (vehicles), 3 to 5 years (parts and equipment) and 2 to 3 years (improvements). Airship components are not depreciated until placed in service. Depreciation expense for the years ended December 31, 1999, 1998 and 1997 was $136,000, $143,000 and $219,000, respectively. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes -- The Company follows the provisions of Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes", which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect when these differences are expected to reverse. Valuation allowances are established when appropriate, to reduce deferred tax assets to the amount expected to be realized. Fair Market Value of Financial Statements -- Unless otherwise noted, the fair value of financial instruments approximates book value. F-6 NOTE A -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Loss Per Common Share -- The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings per share," ("SFAS 128"). This pronouncement establishes standards for computing and presenting earnings per share ("EPS") for entities with publicly-held common stock or potential common stock. SFAS 128 simplifies the standards for computing EPS and makes them comparable to international EPS standards. The pronouncement requires the presentation of net loss per common share based on the weighted average number of shares outstanding during the periods. SFAS 128 also requires presentation of diluted EPS. When losses have been incurred, warrants and options are not included since the effect would dilute loss per share, however, preferred stock dividends are included in the loss per share calculation. Therefore, diluted EPS is not presented for the Company for the years ended December 31, 1999 and 1998 because there were net losses in both years. When net income applicable to common stock is reported, warrants and options are included using the treasury stock method, provided exercise prices are less than the average market price, and when such inclusion results in further dilution. The options and warrants outstanding at December 31, 1999 all provided for exercise prices higher than the average market price. New Accounting Standards -- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133"). This statement establishes accounting and reporting guidelines for derivatives and requires an establishment to record all derivatives as assets or liabilities on the balance sheet at fair value. Additionally, this statement establishes accounting treatment for four types of hedges: hedges of changes in the fair value of assets or liabilities, firm commitments, forecasted transactions and hedges of foreign currency exposures of net investments in foreign operations. Any derivative that qualifies as a hedge, depending upon the nature of that hedge, will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. SFAS No. 133 is effective for years beginning after June 15, 2000. The Company does not currently participate in these types of financing activities and does not anticipate that the adoption of this statement will have a material impact on its consolidated balance sheets, statements of operations, or cash flows. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). The Company is required to adopt SAB 101 no later than its quarter ended June 30, 2000. The Company does not believe that the adoption of SAB 101 will have a material effect on its financial position or results of operations. F-7 NOTE B -- SIGNIFICANT UNCERTAINTIES AND MANAGEMENT'S PLANS TO OVERCOME OPERATING DIFFICULTIES AND MEET CASH REQUIREMENTS As shown in the accompanying financial statements, the Company has experienced significant operating losses and negative cash flow from operations in recent years and has an accumulated deficit of $53,929,000 at December 31, 1999. During the years ended December 31, 1999, 1998 and 1997, the Company did not generate any revenues from airship operations and it reported net operating losses and negative cash flows from operating activities for each of the three years. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has relied on loans, cash advances, and guarantees from Louis Pearlman, the Company's Chairman, President and principal stockholder, and Trans Continental Airlines, Inc. ("Trans Continental") an affiliated company of which Mr. Pearlman is the Chairman, President and 21% stockholder. There can be no assurance that Mr. Pearlman and Trans Continental will make additional loans, cash advances, and guarantees on an ongoing basis. At December 31, 1999, the Company owed Trans Continental $2,821,000 (see Note C). Trans Continental has deferred repayment of such amounts for an indefinite period. Management's plans to improve the financial position of the Company, with the goal of sustaining the Company's operations for the current year and beyond include: (1) establishing continued arrangements with Trans Continental, a company related through common directorship and ownership, to provide funding on a monthly basis, and (2) establishing goals for the acquisition of assets and operations of one or more entities, with the expectation that such business combinations, if completed, would provide additional cash flow and net income. The Company is continuing to seek candidates engaged in the entertainment industry or a media/Internet-based business for an acquisition or merger. While the Company believes that its plans to secure additional funding or enter into a possible business combination have the reasonable capability of improving the Company's financial situation and ensuring the continuation of its business, there can be no assurance that the Company will be successful in carrying out its plans and the failure to achieve them could have a material adverse effect on the Company. F-8 NOTE C -- RELATED PARTY TRANSACTIONS The Company has the following net liabilities for expenses paid by related entities on behalf of the Company:
1999 1998 ---------- -------- Due to TransContinental Airlines $3,241,000 $713,000 Due to TransContinental Leasing 30,000 -- Due to Shape CD 22,000 25,000 Due from TransContinental Records (69,000) (190,000) Due from Chippendales Properties LLC (3,000) (45,000) Due from Chippendales USA -- 37,000 ---------- -------- Total $3,221,000 $540,000 ========== ========
Office Lease -- Since May 7, 1996, the Company has subleased approximately 500 square feet of office space from Trans Continental Records, Inc. on a month-to-month basis for monthly rental payments of approximately $770. Rent plus operating expenses totaled $12,000 and $9,240 for the years ended December 31, 1999 and 1998, respectively. Airship Storage Lease -- The Company leases space for the storage of the airships and related equipment from Mr. Julian Benscher ("Mr. Benscher"). Mr. Benscher beneficially owns less than 5.0% of the common stock of the Company at December 31, 1999. The Company has agreed to allow Mr. Benscher to use an airship, along with certain related components and equipment, in exchange for storage space at his facility. Rent expense is estimated at $4,000 per month and is offset by estimated rent income of the same amount. Line of Credit -- On July 29, 1998, the Company issued 1,000,000 shares of common stock to Trans Continental in exchange for extending the Company a $150,000 line of credit. On April 19, 1999, the Company issued 3,000,000 shares of common stock to Trans Continental in consideration for continuing to provide lines of credit and funding the operating costs of the Company. As of December 31, 1999 and 1998, the Company had $3,241,000 and $713,000 outstanding debt with Trans Continental, respectively. The balances included interest accrued at 8.3% for each year. The Company has paid interest expense on related party debt in the amount of $574,000, $334,000 and $437,000 for the years ended December 31, 1999, 1998 and 1997, respectively. F-9 NOTE C -- RELATED PARTY TRANSACTIONS (CONTINUED) Extinguishment of Debt -- On September 30, 1998, the Company signed agreements with Trans Continental Airlines, Inc., Transcontinental Leasing, Inc. ("TC Leasing") and Louis Pearlman, to waive certain amounts owed by the Company as of June 10, 1998. TC Leasing, Inc. is a wholly owned subsidiary of Trans Continental. In these agreements, Mr. Pearlman agreed to waive $1,265,000, consisting of advances to the Company for working capital, deferred salary, bonuses and interest. Trans Continental waived $6,868,000 advanced to the Company for lease payments, working capital, and interest. TC Leasing, Inc. waived $3,753,000, consisting of principal and interest. The extinguishment of debt by the three related parties was recorded as an addition to capital in excess of par value because all are direct or indirect shareholders. Employee Salaries -- The Company and certain affiliates employ common employees. A portion of such employees' salaries and related benefits are allocated to the Company and such affiliated entities based on the approximate amount of time such employees devote to the Company and its affiliates. As of December 31, 1999 and 1998, the Company's allocated portion of such costs amounted to $284,000 and $228,000, respectively. Rental Arrangement and Travel Agency Service -- Trans Continental serves as the Company's travel agent for substantially all of its travel arrangements and the Company is its principal customer. In the opinion of management, the terms and prices received from the corporation are similar to those available from other travel agencies. During 1998, the Company utilized the travel agency services for reservations, while primarily paying certain costs directly to the provider. F-10 NOTE D -- INCOME TAXES At December 31, 1999, the Company had net operating loss carryforwards for income tax purposes of approximately $47,428,000 available as offsets against future taxable income. During 1991, the Company experienced changes in the Company's ownership as defined in Section 382 of the Internal Revenue Code. The effect of these changes in ownership is to limit the utilization of certain existing net operating loss carryforwards for income tax purposes. Operating losses incurred after the ownership change are not limited. As a result, approximately $31,773,000 of the operating losses, which occurred after the ownership change are not limited. The operating losses incurred prior to the ownership change are limited to a specified dollar amount each year. The net operating loss carryforwards expire during the years 2000 to 2015. The company also has unused investment tax credits of $140,000 which expire principally in the year 2000. The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities, consist of the following at December 31:
1999 1998 - ------------------------------------------------------------------------ Deferred tax assets Net operating loss $18,734,000 $14,980,000 Investment tax creditd 140,000 140,000 - ------------------------------------------------------------------------ 18,874,000 15,120,000 Less: Valuation allowance 18,188,000 14,723,000 - ------------------------------------------------------------------------ 686,000 397,000 Deferred tax liabilities: Airships and related equipment (686,000) (397,000) (686,000) (397,000) - ------------------------------------------------------------------------ Net deferred tax asset $ -- $ -- - ------------------------------------------------------------------------
The net change in the valuation allowance was approximately $4,837,000 relating to net operating losses from 1999. F-11 NOTE E -- CAPITAL LEASE In 1989, the Company purchased a new Skyship 600 Series airship (the "MetLife airship") from Airship UK. The airship and related equipment were financed primarily by net proceeds of $6,200,000 from a capital lease obtained through ORIX Commercial Credit Corp. ("ORIX"). In 1995, the ORIX lease was renegotiated calling for payments of principal only of $20,000 for twelve months. At the end of the initial twelve-month period, the Company began to make principal and interest payments at the rate of prime plus 1% of $40,000 for the next six months, followed by payments of $60,000 for the next six months and finally payments equaling the higher of $80,000 or 50% of the annual cash flows for the fiscal year immediately prior to the commencement of each applicable twelve-month period for the remaining term of the lease until the lease is fully amortized or a larger payment is made based upon the annual cash flow of the year. The balance under this capital lease amounted to $839,000 and $1,692,000 at December 31, 1999 and 1998, respectively. During 1994, the leased airship was damaged and taken out of service. The remaining net book value was analyzed, written down in accordance with SFAS 121 as described in Note A, and transferred to spare parts and airship components valued at $964,000 and $2,152,000 at December 31, 1999 and 1998. The capital lease is guaranteed by Mr. Pearlman and Trans Continental. At December 31, 1999, future minimum lease payments of $874,000 were due in 2000 with $35,000 representing interest. NOTE F -- OPERATING LEASE AND SETTLEMENT Pursuant to an agreement effective May 16, 1993 (the "WDL Lease"), the Company leased a used type WDL airship to fulfill its obligations under a Gulf Oil Contract. The Company began operating this airship as the Gulf Oil Airship on June 25, 1993. On September 11, 1994, the Gulf Oil Airship was damaged in an accident and its operations ended. On April 7, 1999, U.S. Airship Leasing, Inc. f/k/a WDL Airship, Inc. ("US Airship") commenced a suit in the Florida Circuit Court of the Ninth Judicial Circuit, Orange County, alleging that the Company entered into a lease agreement with US Airship and breached the lease by failing to make all payments due under the lease. US Airship was seeking damages of $1,488,614 plus interest, costs and other relief. F-12 NOTE F -- OPERATING LEASE AND SETTLEMENT (CONTINUED) On April 8, 1999, WDL Luftschiffgesellschaft MBH ("WDL"), an affiliate of US Airship also commenced a suit alleging that the Company entered into a lease agreement pursuant to which the Company leased an airship from WDL. The suit sought $148,558 in damages plus prejudgement interest, costs and other relief. These cases were settled on July 28, 1999 for $1,033,000. This amount was paid by Trans Continental on behalf of the Company. NOTE G -- STOCKHOLDERS' EQUITY Preferred Stock -- On June 10, 1998, the Company's common and preferred stockholders approved the conversion of each share of the Company's outstanding Class A 8% Cumulative Convertible Voting preferred stock, par value $.01 per share, into three shares of the Company's Common Stock, par value $.01 per share, and all outstanding preferred shares were converted to common shares. In addition, the stockholders waived their rights to the accrued but undeclared preferred dividends. The authorized but unissued shares of preferred stock were cancelled, and the number of authorized shares of common stock was increased to 110,000,000. The Company accrued $647,000 in dividends from January 1, 1998 through June 10, 1998 which brought the total dividends waived to $6,508,000. Common Stock -- In January 1999, the Company issued to Alan Siegel 1,000,000 shares of the Company's common stock in consideration for services rendered and the waiver and deduction of salary payable by the Company to Mr. Siegel during the period from 1995 through 1998. In addition, the Company issued to other employees of the Company 1,750,000 shares of stock as compensation in connection with services rendered to the Company. The Company also issued to Louis J. Pearlman 3,000,000 shares of the Company's common stock in consideration of services rendered and the waiver of salary payable to Mr. Pearlman during the period from 1995 through 1998. (See Directors and Executive Officers of the Registrant) and 4,000,000 shares of common stock were issued to TSI Global Consultants, Ltd., a non-affiliate of the Company, in consideration of financial consulting services rendered during 1997 though March 1999. Trans Continental, an affiliate of the Company, was also issued 3,000,000 shares of common stock in consideration for continuing to provide lines of credit and funding the operating costs of the Company. F-13 NOTE G -- STOCKHOLDERS' EQUITY (CONTINUED) Employee Share Purchase Plan -- The Company has an employee share purchase plan (the "Plan") for employees of the Company and any present or future "subsidiary corporations." The Company intends the Plan to be an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code. The Plan was effective November 1, 1994. All employees are eligible to participate in the Plan, except that the Company may exclude any or all of the following groups of employees from any offering: (i) employees who have been employed for less than 2 years; (ii) employees whose customary employment is 20 hours or less per week; (iii) employees whose customary employment is not more that 5 months in any calendar year; and (iv) highly compensated employees. The shares issuable under the Plan shall be common shares of the Company subject to certain restrictions up to a maximum of 1,000,000 shares. The committee shall determine the length of each offering but no offering may exceed 27 months. The option price for options granted in each offering may not be less than the lesser of (i) 85% of the fair value of the shares on the day of the offering, or (ii) 85% of the fair market value of the shares at the time the option is exercised. Options -- Outstanding options at December 31, 1999, all of which are currently exercisable, after giving effect to adjustments through such date for anti-dilution provisions and exercisable price reductions are as follows:
Exercise Shares Price Expiration Issuable Per Share Date --------------------------------------------------------------------------------------------- Warrants: Issued to Company President in May 1992 in consideration of restructuring Terms of loans due, extended through May 2001. 2,000,000 $ .10 Through May 2001 Options: Issued to officers and others in 1989 and 1991 through the Company's Through Employee Share Purchase Plan 165,000 $0.01 to $1.28 October 2001
F-14 NOTE H -- PRIOR PERIOD ADJUSTMENTS Stockholders' equity has been adjusted by $763,000 for two errors in the December 31, 1998 financial statements. In 1998, the Company extinguished $11,886,000 of debt, which was treated as a capital contribution to the Company. This extinguishment of debt should also have included the recapture of deferred gain on a sale leaseback transaction from prior years. This resulted in a $722,000 gain, which should have offset the loss on the extingushment of debt. Also included in prior period adjustments is a payable of $41,000 that was discovered during the 1999 audit that related to a prior year liability. NOTE I -- SUBSEQUENT EVENTS In January 2000, the Company paid $100,000 and issued 1,500,000 shares of common stock to settle liabilities under an agreement with Gulf Oil Limited Partnership. The 1,500,000 shares of par value $.01 common stock were valued at $.14 per share on the date of grant or $213,872. In January 2000, the Company granted to James J. Ryan, a director of the Company, the option to purchase 500,000 shares of the Company's $.01 par value common stock for a period of five years at a price of $.01 per share, in consideration of services rendered to the Company. On March 28, 2000, the Company announced its letter of intent to acquire WeBeCD.com, Inc. WeBeCD.com, Inc. is a private New York software company whose technology transforms regular CD's, DVD's and other electronic media into intelligent e-commerce vehicles. The transaction is subject to, but not limited to, satisfactory due diligence, receipt of necessary approvals, and the execution of a stock purchase agreement. F-15 EX-10 2 EXHIBIT 10.96 EXHIBIT 10.96 ENTERTAINMENT INTERNATIONAL LTD. 7380 SAND LAKE ROAD SUITE 350 ORLANDO, FLORIDA 32819 (407) 351-0011 Privileged & Confidential March 28, 2000 WeBeCD.com, Inc. 25 West 36th Street 10th Floor New York, New York 10019 Attention: Robert L. Kelly Gentlemen: This letter of intent ("Letter of Intent") will confirm the discussions that we have had relating to the contemplated transaction between WeBeCD.com, Inc., a Nevada corporation ("WeBeCD"), and Entertainment International, Limited, a New York corporation ("ENTI"), pursuant to which ENTI shall acquire all of the capital stock of WeBeCD in exchange for shares of the common stock of ENTI (the "Transaction"). This letter embodies our proposal for the Transaction and outlines certain of the terms and conditions upon which the Transaction would be effected. 1. Structure of Transaction. The Transaction will be structured as a purchase by ENTI of all of the issued and outstanding shares of WeBeCD pursuant to which all of the holders of the shares of WeBeCD's capital stock (and securities convertible into WeBeCD capital stock, including options and warrants issued and to be issued) will receive a to be negotiated number of unregistered shares of the common stock of ENTI, par value $.01 per share (the "ENTI Common Stock") for every one share of WeBeCD common stock owned on the effective date of the Transaction. ENTI represents and warrants that as of the date of this Letter of Intent, the issued and outstanding shares of capital stock of ENTI consists of 69,597,282 shares of ENTI Common Stock and warrants and options to purchase 2,500,000 shares of ENTI Common Stock. In addition, WeBeCD.com, Inc. March 28, 2000 Page 2 WeBeCD represents and warrants that as of the date of this Letter of Intent, the issued and outstanding shares of capital stock of WeBeCD consists of ____ shares of Common Stock, par value $____ per share, and warrants and options to purchase ____ shares of WeBeCD common stock. 2. Conditions to Closing. The closing of the Transaction is subject to the satisfaction or waiver of customary conditions including, but not limited to, the following: (a) the negotiation and execution of a definitive stock purchase agreement (the "Stock Purchase Agreement") and related agreements acceptable in form and substance to ENTI and WeBeCD, (b) the completion by ENTI and WeBeCD of a due diligence investigation and the satisfactory results of such investigation to ENTI and WeBeCD in all respects, (c) the receipt of all necessary approvals, consents, waivers and clearances, if any, from governmental authorities and others, (d) the delivery to ENTI of the balance sheet of WeBeCD as of December 31, 1999 and the income statement of WeBeCD for the fiscal year ended December 31, 1999 (the "Financial Statement Date") and the receipt of a "cold comfort letter" confirming the absence of any material adverse change in the respective conditions of ENTI and WeBeCD for the period between the Financial Statement Date and the closing of the Transaction, (e) the approval of the Stock Purchase Agreement and the Transaction by the Board of Directors and stockholders of ENTI and WeBeCD to the extent required by applicable law or regulation, (f) the execution of a voting agreement among Louis J. Pearlman, TransContinental Airlines, Inc. and the management and directors of ENTI (together, the "ENTI Group"), the existing shareholders of WeBeCD (the "WeBeCD Group") and the WeBeCD outside investors (the "Outside Investors"), pursuant to which the Outside Investors, for a period of three years, will agree to vote the shares of ENTI Common Stock they acquire pursuant to the Transaction proportionate to the manner in which the ENTI Group and the WeBeCD Group vote their shares of ENTI Common Stock, and (g) the execution of a registration rights agreement among ENTI, the WeBeCD Group and the WeBeCD Outside Investors, pursuant to which the WeBeCD Group and the WeBeCD Outside Investors shall be granted customary demand and piggyback registration rights with respect to the ENTI Common Stock. In addition, the ENTI Group, the WeBeCd Group and the WeBeCD Outside Investors shall agree to restrict their rights to dispose of their shares of ENTI Common Stock for a period to be mutually agreed upon. The Stock Purchase Agreement shall also contain customary representations and warranties as to ENTI and WeBeCD and the businesses of ENTI and WeBeCD prior to the Closing. The Stock Purchase Agreement shall also contain customary indemnification provisions pursuant to which each of ENTI and WeBeCD will agree to indemnify and hold harmless the other and each of their respective directors, officers, employees and agents from any loss resulting from the breach of any representation, warranty, covenant or agreement contained in the Stock Purchase Agreement WeBeCD.com, Inc. March 28, 2000 Page 3 3. Licensing and Distribution Agreements. (a) Upon the consummation of the Transaction, the existing business of WeBeCD will be operated as a wholly owned subsidiary of ENTI. WEBeCD will have a working relationship with Trans Continental Records, Inc. ("Trans Continental") and other affiliated music and film labels ("Affiliated Labels") and Louis J. Pearlman will personally use his best efforts to facilitate the remastering of all CD's and/or DVD's of the Affiliated Labels with the technology acquired a result of the Transaction which includes the logo and hyperlink described in Section 3(b), below, including both new releases and existing titles. The remastering costs and design costs would be the responsibility of WeBeCD, while all packaging, replication and normal distribution expenses of the Affiliated Labels shall continue to be the responsibility of the Affiliated Labels. (b) Upon the consummation of the Transaction, Trans Continental and Louis J. Pearlman will use their best efforts to establish WeBeCD as the exclusive merchandise e-tailer on Trans Continental and affiliated artist web sites of CD's, DVD's, hats, t-shirts and accessories at the Affiliated Label Web sites with a "WeBeCD" logo and hyperlink prominently placed at the Affiliated Label Web sites. In addition, ENTI will use its best efforts to enable WeBeCD to have a prominent link and graphic on all CD and DVD releases from the Affiliated Labels. ENTI will also use its best efforts to obtain a nonexclusive right to promote the Affiliated Label's artists and releases on its Web site via the use of the streaming of video, audio and the likeness and images of the Affiliated Labels' artists. 4. Appointment of Louis J. Pearlman. Upon the consummation of the Transaction, Louis J. Pearlman will remain the Chairman of the Board of Directors of ENTI (the "Board"). The Board shall consist of three (3) nominees from ENTI and three (3) nominees from WeBeCD. 5. Management of ENTI; Employment Agreements. Upon the consummation of the Transaction, the Management of ENTI shall consist of the following: Louis J. Pearlman Chairman of the Board of Directors Alan Siegel President and Chief Operating Officer Scott Bennett Vice President and Secretary Frank Sicoli Vice President Michael Stewart Vice President -- Sales and Marketing
In addition, ENTI will enter into employment agreements with each of the above individuals, such agreements to be substantially in the form of Exhibit 1 hereto. WeBeCD.com, Inc. March 28, 2000 Page 4 6. ENTI Counsel. Upon the consummation of the Transaction, Baer Marks & Upham LLP shall remain as corporate counsel to ENTI for three years. 7. Conduct of Business. (a) During the period from the date hereof through the expiration of this Letter of Intent by its terms as provided in paragraph 12 hereof, WeBeCD and its board of directors agree that: (a) WeBeCD's business will be conducted in the ordinary course of business and in accordance with all applicable laws, rules and regulations (the violation of which would have a material adverse effect on WeBeCD or any significant portion of its business), (b) WeBeCD will not enter into any transaction other than in the ordinary course of business without the prior written approval of ENTI (which approval shall not be unreasonably withheld), (c) pursuant to its current capital raising activities, WeBeCD will not, without the prior written approval of ENTI (which approval shall not be unreasonably withheld), sell any of its common stock at a price below $3 per share (and any such new shares issued by WeBeCD prior to the consummation of the Transaction will have a pari pasu dilutive effect on the post-Transaction capitalization of ENTI); (d) WeBeCD will not pay any dividend or make any similar distribution or redeem, purchase or otherwise acquire, directly or indirectly, any of WeBeCD's outstanding stock; and (e) neither WeBeCD nor its board of directors will take, or permit any of its subsidiaries to take, any action which would, or which might reasonably be expected to, hinder the Transaction or render it less desirable to ENTI. (b) During the period from the date hereof through the expiration of this Letter of Intent by its terms as provided in paragraph 12 hereof, ENTI and its board of directors agree that: (a) ENTI's business will be conducted in the ordinary course of business and in accordance with all applicable laws, rules and regulations (the violation of which would have a material adverse effect on ENTI or any significant portion of its business), (b) ENTI will not enter into any transaction other than in the ordinary course of business without the prior written approval of ENTI (which approval shall not be unreasonably withheld), (c) ENTI will not pay any dividend or make any similar distribution or redeem, purchase or otherwise acquire, directly or indirectly, any of ENTI's outstanding stock; and (d) neither ENTI nor its board of directors will take, or permit any of its subsidiaries to take, any action which would, or which might reasonably be expected to, hinder the Transaction or render it less desirable to WeBeCD. 8. Due Diligence. (a) Immediately following the execution of this Letter of Intent, and for a period of thirty (30) days thereafter (the "Due Diligence Period"), ENTI and its officers, directors, employees, affiliates, attorneys, accountants, financial advisers, consultants, representatives and agents (collectively, "ENTI Agents") shall be provided reasonable access to undertake a complete investigation of the business, affairs, operations, properties, assets and liabilities of WeBeCD including, but not limited to, a complete examination of all books and records, contractual commitments, obligations and WeBeCD.com, Inc. March 28, 2000 Page 5 assets. The Due Diligence Period can be extended upon the mutual agreement of ENTI and WeBeCD. (b) During the Due Diligence Period, WeBeCD and its officers, directors, employees, affiliates, attorneys, accountants, financial advisers, consultants, representatives and agents (collectively, "WeBeCD Agents") shall be provided reasonable access to undertake a complete investigation of the business, affairs, operations, properties, assets and liabilities of ENTI including, but not limited to, a complete examination of all books and records, contractual commitments, obligations and assets. (c) Either party may, in its discretion, require the execution of a confidentiality agreement between ENTI and WeBeCD, in form and substance mutually satisfactory to ENTI and WeBeCD. 9. Announcements/Disclosure. No public announcements or disclosure to third parties concerning this Letter of Intent or the Transaction shall be made without the prior written approval of ENTI and WeBeCD; provided, however, that ENTI may make public announcements or disclosure to third parties without the prior written approval of WeBeCD to the extent ENTI has concluded in its reasonable discretion after consultation with counsel for WeBeCD that disclosure is required under applicable law or regulation. 10. Negotiations with Others. Each of ENTI and WeBeCD and their respective boards of directors agree that (with the exception of the capital-raising activities presently contemplated by WeBeCD and disclosed in paragraph 8, above) during the Due Diligence Period, neither they nor any of their respective affiliates, directors, representatives, employees or agents will (i) solicit, encourage or discuss a sale of all or any substantial part of the assets of their respective companies or a sale of any equity or debt security of their respective companies or any subsidiary, or any merger, consolidation, liquidation, dissolution, recapitalization, reorganization, or similar transaction involving their respective companies or any subsidiary with any other party (all of the foregoing are collectively referred to as "Transaction Proposals") or (ii) provide any information regarding their respective companies to any third party (other than information which is traditionally provided in the regular course of its business operations to third parties where such persons have no reason to believe that such information may be used to evaluate a Transaction Proposal). ENTI, WeBeCD and their respective boards of directors (and their respective affiliates, directors, representatives, employees and agents) will immediately cease and cause to be terminated any and all contacts, discussions and negotiations with third parties regarding any Transaction Proposal and will promptly notify the other party hereto if any Transaction Proposal, or any inquiry or contact with any person or any entity with respect thereto, is made. WeBeCD.com, Inc. March 28, 2000 Page 6 11. Authority. Each of ENTI and WeBeCD hereby represents and warrants that it has the full power, legal right and authority to execute and deliver this Letter of Intent and to enter into the transactions contemplated herein. 12. Expenses. Each party hereto shall be responsible for their own costs and expenses related relating to this Letter of Intent, the Stock Purchase Agreement and the transactions contemplated herein and therein. 13. Termination. This Letter of Intent shall terminate (a) at the option of either ENTI or WeBeCD, upon written notice given to the other if the Stock Purchase Agreement shall not have been executed by WeBeCD and ENTI by the end of the Due Diligence Period, or (b) automatically upon the execution of the Stock Purchase Agreement. Notwithstanding the foregoing, it is specifically understood and agreed that (i) this Letter of Intent may be extended by mutual agreement of the parties hereto and (ii) if so extended, the provisions of paragraphs 7, 9, 10, and 11 shall remain in full force and effect. 14. Amendments. This Letter of Intent may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by each of the parties hereto. No party to this letter may assign any of its rights or obligations under this Letter of Intent without the prior written consent of the other party hereto. 15. Counterparts. This Letter of Intent may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same document. 16. Entire Agreement. This Letter of Intent constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. 17. Scope of Letter. Upon execution and delivery of Letter of Intent, counsel for ENTI will prepare a formal and definitive Stock Purchase Agreement for the parties hereto containing appropriate terms and conditions as the parties may mutually agree upon. It is understood that: (i) this Letter of Intent is intended, and will be construed only, as a letter of intent summarizing and evidencing our discussions to the date hereof; (ii) this letter does not constitute a binding agreement nor does it constitute a binding agreement to enter into an agreement; provided however, that the terms and provisions set forth in paragraphs 7, 9, 10, and 11 hereof shall be binding as of the date hereof when this letter is executed and delivered by each party; (iii) the terms and provisions of this letter shall be governed by and construed in accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable New York principles of conflicts of law); and (iv) the respective rights and obligations of the parties hereto which remain to be defined shall be defined in the executed Stock Purchase WeBeCD.com, Inc. March 28, 2000 Page 7 Agreement into which this Letter of Intent and all discussions prior to the date of such Stock Purchase Agreement will merge. Please indicate your agreement and acceptance of the terms and conditions of this letter by executing this letter in the designated space below whereupon this letter shall constitute a letter of intent between the parties in accordance with the terms and provisions set forth herein. This offer will expire at 5:00 p.m. (EDST) on March __, 2000 unless earlier accepted as evidenced by your delivery to us of a fully executed copy of this Letter of Intent prior to such time. Very truly yours, ENTERTAINMENT INTERNATIONAL, LIMITED By: /s/ Louis J. Pearlman ------------------------ Name: Louis J. Pearlman Title: President ACCEPTED AND AGREED: WEBECD, INC. By: /s/ Robert Kelly ------------------- Name: Robert Kelly Title: President EX-10 3 EXHIBIT 10.98 EXHIBIT 10.98 SETTLEMENT AGREEMENT Settlement Agreement, dated as of December 16, 1999 (the "Settlement Agreement"), by and between Gulf Oil Limited Partnership f/n/a Catamount Petroleum Limited Partnership, a Delaware limited partnership with a usual place of business at 90 Everett Avenue, Chelsea, Massachusetts 02150, by its General Partner, Catamount Management Corporation ("Gulf"), and Entertainment International Ltd. f/n/a Airship International Ltd., a New York corporation with a usual place of business at 7380 Sand Lake Road, Orlando, Florida 32819 ("Entertainment International"). WHEREAS, in or about June 1999, Gulf commenced an action in the United States District Court, District of Massachusetts against Entertainment International, captioned Gulf Oil Limited Partnership f/n/a Catamount Petroleum Limited Partnership, by its General Partner, Catamount Management Corporation vs. Entertainment International Ltd. f/n/a Airship International Ltd., Civil Action No. 99-11227-GAO (the "Action"); and WHEREAS, Gulf and Entertainment International are entering into this Settlement Agreement to settle all Claims (as such term is defined herein) that have been asserted or might have been asserted in the Action. NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows: 1. Definition of Claims Being Settled. For purposes of this Settlement Agreement, "Claims" shall be defined as, in the case of any person or entity, any and all actions, causes of action, suits, debts, liabilities, losses, obligations, expenses, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, liens, executions, claims, counterclaims and demands of every kind and nature whatsoever, in law, admiralty or equity, whether known or unknown, suspected or unsuspected, fixed or contingent, whether or not asserted, threatened, alleged or litigated, which such person or entity has, owns or holds, or might have had or owned or held or hereafter might have, own, or hold, individually, representatively, derivatively or in any other capacity, for, upon, or by reason of, any matter, cause or thing whatsoever from the beginning of the world to the date of this Settlement Agreement, including, without limitation, any claims that are asserted in the Action, or which arise out of, relate to, or are in any way respecting any of the acts, facts, events, circumstances, matters, claims, transactions or occurrences alleged in the Action or in any discovery or other proceedings in connection therewith. 2. Settlement Terms and Amount. The parties agree that any and all Claims by Gulf against Entertainment International and all Claims by Entertainment International against Gulf shall be fully, finally and forever settled, satisfied, released and discharged upon the execution and delivery of this Settlement Agreement. In that regard, concurrently with the execution and delivery, and as a condition, of this Settlement Agreement: (a) Entertainment International shall pay the sum of One Hundred Thousand ($100,000) Dollars (the "Settlement Payment") to Gulf by wire transfer of immediately available funds to such account as Gulf shall direct; (b) Entertainment International shall deliver to Gulf a certificate representing One Million Five Hundred Thousand (1,500,000) shares of the common stock, par value $.01 per share, of Entertainment International (the "EI Stock"); 2 (c) Entertainment International and Gulf shall execute and deliver to each other releases in the forms annexed hereto as Exhibits A&B, respectively (the "Releases"); and (d) Counsel for Gulf shall execute a Voluntary Dismissal with Prejudice (the "Stipulation") in the form annexed hereto as Exhibit C. Upon payment of the Settlement Payment, delivery of the EI Shares and execution and delivery of the Releases, Gulf shall cause the Stipulation to be filed with the Court. 3. Repurchase of EI Shares by Entertainment International. Entertainment International shall have the option to repurchase from Gulf the number of EI Shares indicated below for a purchase price of $250,000, in accordance with the following schedule: (a) One Million Two Hundred Fifty Thousand (1,250,000) EI Shares for a period of up to One Hundred Fifty (150) days after the date hereof; or (b) If not exercised pursuant to Paragraph (a), above, One Million (1,000,000) EI Shares for a period starting One Hundred Fifty One (151) days after the date hereof and ending Two Hundred Seventy (270) days after the date hereof; or (c) If not exercised pursuant to paragraph (a) or (b), above, Seven Hundred Fifty Thousand (750,000) EI Shares for a period starting Two Hundred Seventy One (271) days after the date hereof and ending one (1) year after the date hereof. 4. Representations and Warranties of Authorization. Each party and signatory to this Settlement Agreement hereby represents and warrants to the other party hereto that it has full power, authority and legal right, on its own behalf and on behalf of its heirs, executors, administrators, successors and assigns heretofore and hereafter, to execute, deliver 3 and perform all actions required under this Settlement Agreement. Entertainment International and the signatory executing this document on its behalf further represent and warrant that the issuance of the EI Shares to Gulf was done in accordance all applicable laws, regulations and by-laws and that the required action of the directors and/or shareholders of Entertainment International authorizing such issuance has taken place. Entertainment International shall deliver a certified copy of such authorization to Gulf with this Agreement. 5. Representations and Warranties of Legal Representation. Each party and signatory to this Settlement Agreement hereby represents and warrants to the other party hereto that, in entering into this Settlement Agreement, it has relied upon the legal advice of their respective attorneys, who are the attorneys of its own choice, and that the terms of this Settlement Agreement have been completely read and explained to it by its attorneys and that those terms are fully understood and voluntarily accepted by it. 6. Heirs and Successors Bound. Except as otherwise specifically provided herein, this Settlement Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, estates, successors, assigns and legal representatives. 7. Use of This Settlement Agreement. The parties hereto acknowledge that this Settlement Agreement is a compromise resolution of disputed claims and that neither the Releases contained herein nor the settlement in respect to which the Releases are executed constitutes an acknowledgement or admission of liability in any way on the part of any party hereto, all of whom expressly deny any liability for any and all claims of whatsoever nature. Nor shall this Settlement Agreement be construed, offered or received in evidence as an admission or concession of any liability or wrongdoing by any party hereto. 8. Continuing Jurisdiction; Choice of Law. The parties hereto submit 4 themselves to the continuing jurisdiction of the United States District Court, District of Massachusetts for the purposes of the enforcement of this Settlement Agreement. This Settlement Agreement shall be governed and shall be construed, interpreted and enforced in accordance with the laws of the State of New York without regard to its conflict of laws provisions. 9. Entire Agreement. This Settlement Agreement, including all exhibits hereto, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any prior and contemporaneous oral or written agreements, negotiations and discussions with respect to the subject matter hereof. This Settlement Agreement may not be altered, modified or amended, unless by writing executed by counsel for all parties hereto and/or their representatives, nor any of its provisions waived, unless in writing by the party granting such waiver. 10. Execution In Counterparts. This Settlement Agreement may be executed in two or more counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Settlement Agreement by signing any such counterpart. [REMAINDER OF PAGE INTENIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, this Settlement Agreement is executed by the undersigned parties as of the date first set forth above. GULF OIL LIMITED PARTNERSHIP F/N/A CATAMOUNT PETROLEUM LIMITED PARTNERSHIP By: Catamount Management Corporation, General Partner By: /s/ Gary Kaneb ------------- Name: Gary Kaneb Title: President ENTERTAINMENT INTERNATIONAL, LTD. F/N/A AIRSHIP INTERNATIONAL, LTD. By: /s/ Louis J. Pearlman --------------------- Name: Louis J. Pearlman Title: President 6 EX-11 4 EXHIBIT 11.1 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
A. Years Ended December 31, ---------------------------------------------------- 1999 1998 1997 ---------------------------------------------------- Average shares outstanding 62,262,000 46,736,000 42,181,000 Average common and common equivalent shares outstanding 62,262,000 46,736,000 42,181,000 Net loss $(4,569,000) $ (996,000) $(2,294,000) Abolishment of accrued preferred dividends -- $ 6,508,000 -- Preferred stock dividend $ (647,000) $(1,551,000) Computation of Earnings Per Share = Net Income (Loss)/Average common equivalent shares $(4,569,000) $ 4,865,000 $(3,845,000) 62,262,000 46,736,000 42,181,000 Earnings (Loss) Per Share $(.07) $0.10 $(0.09)
EX-27 5 EXHIBIT 27.1
5 1,000 DEC-31-1999 DEC-31-1999 12-MOS 0 0 0 0 0 17,000 2,558,000 629,000 1,952,000 4,832,000 0 681,000 0 0 50,788,000 1,952,000 0 0 250,000 1,966,000 1,937,000 0 677,000 4,569,000 0 4,569,000 0 0 0 4,569,000 .07 .07
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