<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998
REGISTRATION NO. 333-56023
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------
JENKON INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
7600 N.E. 41ST STREET, SUITE 350
VANCOUVER, WASHINGTON 98662
(360) 256-4400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
<TABLE>
<S> <C> <C>
DELAWARE 7371 91-1890338
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
DAVID EDWARDS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JENKON INTERNATIONAL, INC.
7600 N.E. 41ST STREET, SUITE 350
VANCOUVER, WASHINGTON 98662
(360) 256-4400
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------------
COPIES TO:
Robert M. Steinberg, Esq. Yvonne Chester, Esq.
Jeffer, Mangels, Butler & Marmaro LLP Troy & Gould Professional Corporation
2121 Avenue of the Stars, 10th Floor 1801 Century Park East, 16th Floor
Los Angeles, California 90067 Los Angeles, California 90067
(310) 203-8080 (310) 553-4441
Fax: (310) 203-0567 Fax: (310) 201-4746
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value ("Common
Stock")(2)................................ 2,554,296 shs. $6.00 $15,325,776
Representatives' Warrants(3)................ 140,000 wts. $140.00 $140.00
Common Stock issuable upon exercise of
Representatives' Warrants................. 140,000 shs. $7.20 $1,008,000
TOTAL REGISTRATION FEE...................... $16,333,916 $4,818.51(4)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes: (i) 1,100,000 shares of Common Stock registered for the account of
the Registrant, (ii) 1,244,296 shares of Common Stock registered for the
account of certain stockholders issuable upon conversion of shares of Series
A Preferred Stock, and (iii) 210,000 shares of Common Stock which the
Underwriters have the option to purchase from the Registrant and certain
stockholders of the Registrant to cover over-allotments, if any.
(3) To be issued to the Representatives of the Underwriters.
(4) A filing fee of $5,717.64 was paid simultaneously with the original filing
of the registration statement. No fee is currently due.
Pursuant to Rule 416 under the Securities Act of 1933, there are also being
registered hereby such additional indeterminate number of shares of Common Stock
as may become issuable by reason of stock splits, stock dividends and similar
anti-dilutive adjustments as set forth in the Representatives' Warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 15, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,400,000 SHARES
[LOGO]
JENKON
INTERNATIONAL, INC.
COMMON STOCK
---------------------
Of the 1,400,000 shares of common stock, par value $0.001 per share (the
"Common Stock"), offered hereby (the "Offering"), 1,100,000 shares are being
offered by Jenkon International, Inc. ("Jenkon" or the "Company") and 300,000
shares are being offered by certain unaffiliated stockholders of the Company
(the "Selling
Stockholders"). See "Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders.
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that such a market will develop or, if a market
develops, that it will be sustained. It is currently estimated that the initial
public offering price of the Common Stock will be between $5.00 and $6.00 per
share. See "Underwriting" for information relating to the factors considered in
determining the initial offering price to the public. Application has been made
for quotation of the Common Stock on the Nasdaq SmallCap Market under the
proposed symbol "JNKN."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION" COMMENCING ON PAGES 7
AND 16, RESPECTIVELY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
<CAPTION>
PROCEEDS TO
SELLING STOCKHOLDERS
<S> <C>
Per Share................................. $
Total(3).................................. $
</TABLE>
(1) Excludes a non-accountable expense allowance payable to Meridian Capital
Group, Inc., Trautman, Kramer & Company Incorporated, and W.J. Nolan &
Company Inc. (collectively, the "Representatives") and the value of warrants
to be issued to the Representatives or their designees to purchase up to
140,000 shares of Common Stock at 120% of the initial public offering price
per share of Common Stock (the "Representatives' Warrants"). The Company and
the Selling Stockholders have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses, other than underwriting discounts and
commissions, payable by the Company, estimated at approximately $
including the Representatives' non-accountable expense allowance.
(3) The Company and two stockholders of the Company have granted to the
Underwriters a 45-day option to purchase up to 170,000 additional shares
from such stockholders and 40,000 additional shares from the Company, solely
to cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ , Proceeds to the Company will be
$ , and Proceeds to the Selling Stockholders will be $ .
------------------------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to reject any order in whole or in part and to withdraw, cancel or
modify the Offering without notice. It is expected that delivery of the shares
will be made on or about , 1998.
---------------------
MERIDIAN CAPITAL GROUP, INC.
TRAUTMAN, KRAMER & COMPANY
INCORPORATED
W.J. NOLAN & COMPANY INC.
The date of this Prospectus is , 1998
<PAGE>
[ARTWORK -- INSIDE FRONT COVER]
LOGO Jenkon International...Leading developer of software
solutions for the direct sales industry.
SAMPLE COMPUTER SCREEN DISPLAYS:
SAMPLE MAIN PAGE FROM "NOW!" PROGRAM
SAMPLE PERSONAL SALES CHART FROM "NOW!" PROGRAM
SAMPLE PRODUCT ORDER PAGE FROM "NOW!" PROGRAM
SAMPLE ORDER TRACKING PAGE FROM "NOW!" PROGRAM
Utilizing the power of the Internet, "NOW!"
enables home-based entrepeneurs to:
PICTURE OF FAMILY VIEWING COMPUTER
View the monthly activity of their entire downline organizations.
Place orders online without assistance from corporate personnel.
Review status of various orders.
View inventory information.
View or listen to corporate announcements and training.
View commissions earned to date.
[FOLDED INSERT TO INSIDE FRONT COVER]
http://www.Jenkon.com
PICTURE OF CONFERENCE ROOM MEETING
BACKGROUND REPRESENTATION OF GLOBE
Internet
PICTURE OF COMPUTER PROCESSOR AT COMPUTER
Summit V Technology
Back Office Corporate Software
<TABLE>
<S> <C>
Standard Modules: Add-on Modules:
Accounts Receivable Module AutoFax System
Commission and Bonus Module Autoship Order System
Customer Service System Credit Card Automation
Executive Information System (EIS) Electronic Funds Transfer (EFI)
Financial Reporting System Incentives and Promotions
Inventory and Warehousing Control Order International Business
Fulfillment System Laser Checks
Regional Information System (RIS) Party Plan
Representative Tracking System Product Returns
Sales Tax Management Sales Tax Database Interface
Security Management TouchTalk
Warehouse Shipping
</TABLE>
[FOLDED INSERT TO INSIDE FRONT COVER -- CONTINUED]
<TABLE>
<S> <C>
GRAPHICAL SYMBOL "@" Now! Online
Real time online interactive web site for your
sales organization.
GRAPHICAL SYMBOL OF CD Now! CD
The ultimate software package specifically
tailored for the independent direct seller.
GRAPHICAL SYMBOL OF PHONE Now! Communications
Delivers the latest in telecommunication
technologies to your sales organization via
touch talk, long distance usage and Internet
access programs.
GRAPHICAL SYMBOL OF LIGHTBULB Now! Vision
We are committed to finding exciting ways to
make your sales force more dynamic and
successful.
GRAPHICAL SYMBOL OF "e" Now! E-commerce
Taking advantage of the Internet to provide
real-time secured credit card processing 24
hours a day!
</TABLE>
Now! Technology
Home Sales Force Automation
SAMPLE COMPUTER SCREEN DISPLAYS:
SAMPLE MAIN PAGE FROM PICTURES OF FAMILY USING COMPUTER
"NOW!" PROGRAM
SAMPLE PERSONAL SALES CHART FROM "NOW!" PROGRAM
SAMPLE PRODUCT ORDER PAGE FROM "NOW!" PROGRAM
SAMPLE ORDER TRACKING PAGE FROM "NOW!" PROGRAM
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The Company is not currently a reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Upon consummation of the
Offering, the Company will become subject to the information requirements of the
Exchange Act. The Company intends to furnish its security holders annual reports
containing audited consolidated financial statements with a report thereon by
independent certified public accountants, and such other periodic reports as the
Company may determine to be appropriate or as required by law.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS OF THE
COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE STATEMENTS WHICH ARE NOT HISTORICAL FACTS CONTAINED IN THIS PROSPECTUS ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THOSE
DESCRIBED UNDER "RISK FACTORS." EXCEPT AS OTHERWISE INDICATED, THE INFORMATION
PRESENTED IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION OR THE REPRESENTATIVES' WARRANTS, (II) NO EXERCISE OF
OUTSTANDING WARRANTS AND OPTIONS TO PURCHASE AN AGGREGATE OF 876,315 SHARES OF
COMMON STOCK, AND (III) THE CONVERSION OF THE SERIES A PREFERRED STOCK INTO
1,244,296 SHARES OF COMMON STOCK UPON THE CONSUMMATION OF THE OFFERING. UNLESS
THE CONTEXT OTHERWISE REQUIRES, ALL SHARE AND PER-SHARE INFORMATION IN THIS
PROSPECTUS GIVES EFFECT TO A .782271-FOR-ONE REVERSE STOCK SPLIT EFFECTED IN
JUNE 1998. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS "JENKON" OR THE
"COMPANY" REFER TO JENKON INTERNATIONAL, INC., A DELAWARE CORPORATION ("JENKON
DELAWARE"), AND EACH OF ITS SUBSIDIARIES, INCLUDING JENKON INTERNATIONAL LTD., A
UNITED KINGDOM CORPORATION, SUMMIT V, INC., A WASHINGTON CORPORATION, AND JENKON
INTERNATIONAL, INC., A WASHINGTON CORPORATION.
THE COMPANY
Jenkon International, Inc. ("Jenkon" or the "Company") is a leading
developer of specialized software solutions for network marketing and other
companies involved in the direct sales industry. The Company's products are
designed to provide direct sales organizations, which are characterized by a
large number of small transactions, intricate compensation programs, and complex
distributor genealogy trails, with a rapid, accurate and efficient means to
collect, process, transmit and record sales, commissions and other data. The
Company was the recipient of the 1997 DSA Partnership Award, granted by Direct
Selling Association ("DSA"), the direct sales industry's largest trade group, in
recognition of the Company's leadership position as a supplier to the industry.
To date, the Company has focused its development and marketing efforts on
its proprietary management information system software package known as SUMMIT
V. The Company's management information systems, including its SUMMIT V
software, have been installed with over 150 direct sales companies in over 25
countries throughout the world. The Company's clients include many of the direct
sales industry's leading companies such as Shaklee, Avon Products (China and
India), USANA, Nature's Sunshine and Watkins. In addition to SUMMIT V, the
Company has developed and markets a compatible software-based voice response
system known as TOUCHTALK that offers individual home-based direct sales
personnel the ability to access a wide variety of product, sales, commission and
other information regarding the company they represent.
In recognition of the increasing importance of Internet commerce in the
direct sales industry and throughout the economy, the Company has developed and
has recently begun the initial marketing of a scalable Internet-based product,
known as NOW!. NOW! is designed for use by home-based direct sales personnel and
allows such personnel direct access to and communication with the companies that
they represent through the use of personal computers, Web TV and other
Internet-based platforms. NOW! enables home-based direct sales personnel to
quickly obtain current inventory information, directly place orders online,
obtain order status information and view and analyze personal and group sales,
commissions and other information. In addition to the benefits afforded to the
home-based direct sales personnel, the Company believes that the NOW! product
will enable its direct sales company clients to reduce the costs associated with
processing telephonic or fax orders and the labor-intensive paperwork associated
with such processing. The Company believes that NOW! enhances the attractiveness
of SUMMIT V to its direct sales company clients while expanding Jenkon's
potential client base to include the large number of home-based direct sales
personnel affiliated with such companies.
The direct sales industry consists of companies who market their products
through networks of home-based direct sales personnel whose selling activity
most commonly takes place in home offices or in the homes of customers rather
than traditional retail stores or outlets. The network marketing portion of the
3
<PAGE>
industry utilizes a team building approach pursuant to which home-based direct
sales personnel can build a sales group and derive income from the cumulative
sales of the group in addition to commission earned by sales to their own
customers. The Direct Selling Association estimates that since 1991, total
worldwide sales by direct sales companies have grown from approximately $48
billion to approximately $78 billion in 1996 while the worldwide sales force
increased from approximately 11 million people in 1991 to over 22 million people
in 1996. According to an industry analysis compiled by J.P. Morgan Securities
Inc., the worldwide direct sales market is expected to grow at an annual rate of
10% through the year 2000 while the number of worldwide direct sales
representatives is expected to grow at an annual rate of 13% during the same
period.
The Company's business objective is to expand its position as a leading
provider of specialized software to the rapidly growing direct sales industry.
In order to achieve this goal, the Company's growth strategy includes the
following elements:
- DIRECTLY ACCESS HOME-BASED DIRECT SALES PERSONNEL THROUGH THE INTRODUCTION
OF INTERNET-BASED PRODUCTS. While direct sales companies will remain the
Company's core customer base, the Company believes that the large number
of home-based direct sales personnel of these direct sales companies
present a large and growing potential market for direct sales software
products such as the Company's NOW! product.
- INCREASE MARKET PENETRATION OF CORE PRODUCTS. The Company believes that
its current base of direct sales company clients represents only a small
portion of the total number of direct sales companies that are potential
users of SUMMIT V and the Company's other core products. Upon completion
of this Offering, the Company will attempt to increase the market
penetration of SUMMIT V through more aggressive marketing and promotional
efforts and by continuing to modify and improve SUMMIT V and other
products to meet the changing needs of direct sales company clients. The
Company expects that future generations of SUMMIT V will include
multi-platform database support, an e-commerce enabled server, support for
existing communications standards, and other advanced features. In
addition, the Company intends to create an application program interface
that would enable the NOW! product to be used by direct sales companies
and their home-based personnel regardless of whether the company in
question utilizes the SUMMIT V system or any other software products of
the Company.
- LEVERAGE EXISTING CUSTOMER BASE TO INCREASE REVENUES. The Company believes
that its relationships with its corporate direct sales clients provides a
unique opportunity for the Company to generate revenues from the
cross-selling and marketing of additional products and services by the
Company and others to the home-based personnel of its direct sales
clients. For example, the Company has recently entered into a contract
with EarthLink Network, Inc. pursuant to which the Company will receive a
referral fee for NOW! users that subscribe for Internet access with such
providers through the NOW! product. In addition, given the large number of
credit card transactions handled by the Company's direct sales clients, an
opportunity may exist for the Company to offer credit card processing
services for which the Company would receive processing fees.
- EXPAND GEOGRAPHIC MARKET PENETRATION. To date, most of the Company's
software installations have been for the U.S. operations of its direct
sales company clients. Given the rapid growth of the direct sales industry
throughout the world, and especially in the countries of Latin America,
the Pacific Rim and Southeast Asia, the Company intends to expand its
geographic presence by expanding the focus of its sales efforts to these
rapidly-growing international markets as well as the U.S. market.
Jenkon International, Inc. is a Delaware corporation that is a holding
company for the business of the Company. The founders of the Company began
operations in 1982 as Jenkon Data Systems, Inc. (now Redwood Technology, Inc.)
and incorporated Jenkon International, Inc., a Washington corporation ("Jenkon
Washington"), on December 23, 1988. The Company subsequently reincorporated in
the State of Delaware effective July 1, 1996 and Jenkon Washington became a
wholly-owned subsidiary of Jenkon
4
<PAGE>
Delaware. The Company intends to merge Jenkon Washington into Jenkon Delaware
following completion of this Offering. The Company's executive offices are
located at 7600 NE 41st St., Suite 350, Vancouver, Washington, 98662 and its
telephone number is (360) 256-4400.
All of the Company's product names referred to herein are trademarks owned
or licensed by the Company, some of which are the subject of pending trademark
registration applications by the Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock outstanding prior to 3,043,515 shares(1)
the Offering.....................
Common Stock Offered.............. 1,400,000 shares(1)
Common Stock offered by the 1,100,000 shares
Company..........................
Common Stock offered by the 300,000 shares
Selling Stockholders.............
Common Stock outstanding after the 4,143,515 shares(1)
Offering.........................
Use of Proceeds................... For product development, repayment of indebtedness,
expansion of sales and marketing and working capital.
See "Use of Proceeds."
Risk Factors...................... An investment in the Common Stock involves a high degree
of risk and immediate substantial dilution. See "Risk
Factors" and "Dilution."
Proposed Nasdaq SmallCap Market JNKN
Symbol (2):
</TABLE>
- ------------------------------
(1) Includes 1,244,296 shares of Common Stock issuable upon conversion of all
outstanding Series A Preferred Stock simultaneously with the consummation of
the Offering. Excludes (i) 140,000 shares of Common Stock which may be
issued and sold by the Company upon the exercise in full of the
Representatives' Warrants, (ii) 1,000,000 shares of Common Stock reserved
for issuance pursuant to the Company's stock option plan under which options
to purchase 597,234 shares have been granted, and (iii) 279,081 shares of
Common Stock issuable upon exercise of outstanding warrants See
"Management--Stock Option Plan" and "Certain Transactions."
(2) There is no assurance that the Common Stock will be approved for listing in
the Nasdaq SmallCap Market or that a trading public market will develop, or,
if developed, will be sustained. See "Risk Factors--Absence of Public
Market."
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data in the table are derived from the consolidated
financial statements and related notes thereto of the Company. The data should
be read in conjunction with the consolidated financial statements and the
related notes contained elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.................................................... $6,899,233 $8,480,072 $6,244,697 $7,047,634
Cost of goods sold.............................................. 3,337,298 4,230,705 3,404,729 2,384,718
---------- ---------- ---------- ----------
Gross profit.................................................... 3,561,935 4,249,367 2,839,968 4,662,916
Operating expenses.............................................. 3,640,963 5,723,142 4,268,394 4,120,627
---------- ---------- ---------- ----------
Income (loss) from operations................................... (79,028) (1,473,775) (1,428,426) 542,289
Other expense................................................... (97,897) (160,521) (155,633) (115,162)
---------- ---------- ---------- ----------
Income (loss) before income taxes............................... (176,925) (1,634,296) (1,584,059) 427,127
Provision (benefit) for income taxes............................ 88,000 (88,000) -- 15,577
---------- ---------- ---------- ----------
Net income (loss)............................................... (264,925) (1,546,296) (1,584,059) 411,550
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per common share..............................
Basic....................................................... $ (.14) $ (.84) $ (.86) $ .23
Diluted..................................................... $ (.14) $ (.84) $ (.86) $ .12
Weighted average common shares outstanding......................
Basic....................................................... 1,938,915 1,838,338 1,851,376 1,799,224
Diluted..................................................... 1,938,915 1,838,338 1,851,376 3,358,221
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------
(UNAUDITED)
AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
----------- ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................................................... $ 83,486 $ 663,486 $4,226,986
Working capital (deficit)................................................. (892,752) (87,752) 3,675,748
Total assets.............................................................. 2,849,199 3,624,198 7,067,698
Long-term debt (including current portions)............................... 596,626 955,070 394,870
Total liabilities......................................................... 2,707,233 3,042,452 2,282,232
Redeemable convertible preferred stock.................................... 2,310,174 -- --
Stockholders' equity...................................................... (2,168,208) 581,766 4,785,466
</TABLE>
- ------------------------------
(1) Pro forma balance sheet data gives effect to the $1,000,000 bridge financing
transaction completed in June 1998, warrants to purchase up to 117,321
shares of Common Stock issued in connection with such bridge financing, and
the conversion of Series A Preferred Stock into Common Stock upon closing of
the Offering. Valuation of the warrants resulted in original issue discount
of $439,800 and was included in the pro forma balance sheet data.
(2) As adjusted also gives effect to the sale of 1,100,000 shares of Common
Stock by the Company at an assumed initial public offering price of $5.50
per share in the Offering.
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends,"
"anticipates," "plans," "projects" and "estimates," and analogous or similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. For a discussion of
certain of such risks, see "Risk Factors." These forward-looking statements
speak only as of the date of this Prospectus. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS WHEN EVALUATING AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE
COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
HISTORY OF LOSSES; ACCUMULATED DEFICIT. The Company and its predecessors
Summit V, Inc., a Washington corporation and wholly-owned subsidiary of the
Company, as well as Redwood Technology, Inc., a Washington corporation formerly
known as Jenkon Data Systems, Inc. ( "Redwood Technology" ), which operated
certain assets of the Company prior to selling them to Summit V, Inc. in 1995,
have a history of losses. The Company sustained net losses of approximately
$265,000 and $1,546,000 for the fiscal years ended June 30, 1996 and 1997,
respectively, and had an accumulated deficit as of March 31, 1998 of $2,168,208.
Although the Company operated profitably in the first nine months of fiscal
1998, there can be no assurance that the Company will be able to operate
profitably in the future. See generally "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NEED FOR ADDITIONAL WORKING CAPITAL. The Company's business involves the
continued investment of funds towards the development of new products and
modifications of existing products. To the extent that the Company is not
successful in generating significant cash flow from operations in order to fund
such development expenses and other operating costs, the Company will need to
rely on outside financing sources for working capital. The Company currently has
negative working capital of $892,752 and no bank line of credit and there can be
no assurance that the Company will be able to obtain sources of outside
financing in the event that such financing is required in the future. To the
extent that the Company's operations do not generate positive working capital or
enable it to secure adequate outside financing, the Company's business could be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISK OF CREDITORS CLAIMS AND SUCCESSOR LIABILITY. In July 1995, Summit V,
Inc. purchased and/or licensed substantially all of the assets, and Summit V,
Inc. assumed certain contractual obligations and indebtedness from Redwood
Technology, the developer of a substantial portion of the Company's SUMMIT V
software technology. See "Certain Transactions." Because Redwood Technology may
be deemed to have been rendered insolvent by the sale and license of certain of
its assets to Summit V, Inc. and because of the commonality of ownership and
management of Redwood Technology and Summit V, Inc. and/or because Summit V
continued operating the business of Redwood Technology, the Company is or may be
subject to claims by unsatisfied creditors of Redwood Technology challenging the
rights of the Company to the SUMMIT V software technology or other assets
acquired from Redwood Technology or alleging successor liability or other
similar bases for liability. The Company believes that such claims could total
as much as $200,000. There can be no assurance that claims for successor
liability will not be made or that the Company's rights to the assets acquired
from Redwood Technology, including the SUMMIT V software technology, will not be
challenged. If any such claims or challenges are made and are successful, the
Company's business and results of operations would be materially and adversely
affected. Any payments made by the Company with respect to claims against
Redwood Technology may benefit certain officers and directors of the Company who
may be secondarily liable for such claims. See "Certain Transactions" and
"Business--Legal Proceedings."
RISK OF ACCEPTANCE OF NEW PRODUCT. The future success and growth of the
Company, if any, will depend in large part upon the success and acceptance of
the Company's Internet-based product, NOW!. Although the Company has completed
initial testing of the product, there can be no assurance that the NOW! product
will be without defects. In addition, the Company has generated only limited
sales from NOW! and there can be no assurance that the Company will be able to
successfully market such product to its existing client base or to new
customers. The failure of the Company to generate significant sales of the NOW!
product would have a material adverse effect on the Company's prospects for
future growth.
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NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE. The markets for the Company's
products are characterized by rapid technological advances, evolving industry
standards, changes in end-user requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards could render the
Company's existing products and products currently under development obsolete
and unmarketable. The Company's future success will depend upon its ability to
enhance its current products and develop and successfully introduce and sell new
products that keep pace with technological developments and respond to evolving
end-user requirements. Any failure by the Company to anticipate or respond
adequately to technological developments or end-user requirements, or any
significant delays in product development or introduction, could damage the
Company's competitive position in the marketplace and reduce revenues. The
Company may need to increase the size of its product development staff in the
near term to meet these challenges. There can be no assurance that the Company
will be successful in hiring and training adequate product development personnel
to meet its needs. In the past, the Company has occasionally experienced delays
in the introduction of new products and product enhancements. There can be no
assurance that the Company will be successful in developing and marketing new
products or product enhancements on a timely basis or that the Company will not
experience significant delays in the future. Any failure to successfully develop
and market new products and product enhancements would have a material adverse
effect on the Company's results of operations.
COMPETITION. The software industry is highly competitive and is
characterized by rapid technological change, rapidly changing customer
preferences and little or no barriers to entry. There are several businesses,
some of which may be better capitalized than the Company, currently offering
software similar in type or scope to the Company's. The Company believes that
the primary competitive factors for the provision of its software are price,
technical expertise and quality, ease of use, variety of value-added services,
reliability and security, customer support and geographic coverage. The
Company's success will depend heavily upon its ability to provide high quality
software and value-added services. Other factors that will affect the Company's
success in this market include the Company's continued ability to attract
additional experienced marketing, sales, and management talent, and the
expansion of worldwide support, training and service capabilities. The Company's
current and prospective competitors generally consist of other independent
software providers such as Globenet and 20/21 Interactive. The Company believes
that additional competitors, which may include consumer software or other
companies, may potentially enter the direct sales market. In addition, the
Company may face potential competition from some of the larger direct sales
companies that have developed their own in-house systems that could be adapted
for sale to other direct sales companies. Some or all of the Company's actual
and potential competitors may have greater market presence, engineering,
customer support and marketing capabilities, and financial, technological and
personnel resources than those available to the Company. As a result, they may
be able to adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products than can the Company.
Because price is a major competitive factor in the market for the Company's
products, if any of the Company's present or future competitors elect to
initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.
RISKS OF SOFTWARE DEVELOPMENT IN GENERAL. The success of the Company is
dependent upon its ability to deliver reliable, easy-to-use and technologically
up-to-date software products. Any failure of the Company's existing or new
products to meet client specifications or expectations will have a material
adverse effect on the Company's reputation and the demand for the Company's
products. There can be no assurance that the software will consistently meet
such specifications or expectations. In addition, continued demand for the
Company's products and services will depend on its ability to successfully
anticipate customer demand and to integrate new and emerging technologies,
features and standards into its software on a timely basis. Any failure by the
Company to anticipate customer demand and to successfully integrate
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new features and standards into its software on a timely basis could adversely
affect the Company's reputation, demand for its products and, as a result, its
financial condition and results of operations.
DEPENDENCE ON SALES OF EXISTING SOFTWARE PRODUCTS. Substantially all of the
Company's revenues have been derived from sales of its SUMMIT V and TOUCHTALK
information systems and software and related support services. In addition, the
initial demand for the Company's NOW! product will be highly dependent on
customers and companies who utilize such information systems and software.
Accordingly, any event that adversely affects fees derived from the sale of such
systems, such as competition from other products, significant flaws in the
Company's software products or incompatibility with third party hardware or
software products, negative publicity or evaluation, or obsolescence of the
hardware platforms or software environments in which the systems run, would have
a material adverse effect on the Company's results of operations. The Company's
future financial performance will depend, in substantial part, on the continued
development and introduction of new and enhanced versions of it's management
information systems and customer acceptance of such new and enhanced products.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Products and Services."
CONCENTRATION OF CUSTOMERS; LIMITED CUSTOMER BASE. Although no customer
accounted for more than 10% of the Company's net sales during the nine months
ended March 31, 1998, for the fiscal year ended June 30, 1997, Shaklee and
Morinda accounted for approximately 23% and 11%, respectively, of the Company's
net sales. Similar or greater concentration of its net sales among a limited
number of customers may occur in the future. In such event, any material
decrease in net sales to any one of the Company's largest customers that is not
matched by corresponding increases in net sales to new or existing customers
could have a material adverse effect on the Company's financial condition and
results of operations and could affect its economic viability. There can be no
assurance that the Company will receive orders from any existing customers or
from new customers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISK OF EXPANSION INTO NEW BUSINESSES. Part of the Company's business plan
involves the possible acquisition or development of complementary but
alternative sources of revenues such as credit card processing. There can be no
assurance that the Company will be successful in identifying and acquiring or
developing any alternate sources of revenues. Moreover, to the extent that the
Company acquires or begins operations of a business other than the development
of software products, the Company's lack of experience and track record in such
business may result in an inability of the Company to effectively compete,
potential operating losses and loss of standing in the direct sales industry,
any of which would have a material adverse effect on the Company, its operations
and financial condition.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS. The Company has experienced
and expects to continue to experience significant fluctuations in its quarterly
results. Such fluctuations may be caused by many factors, including, but not
limited to: the size and timing of individual orders; seasonality of revenues;
lengthy sales cycle; delays in introduction of products or product enhancements
by the Company or other providers of hardware, software and components for the
Company's systems; competition and pricing in the software industry; market
acceptance of new products; reduction in demand for existing products and
shortening of product life cycles as a result of new product introductions by
competitors; foreign currency exchange rates; mix of products sold; conditions
or events in the direct sales industry; and general economic conditions. The
Company does not typically maintain a significant backlog and therefore the
revenue results for each quarter depend substantially on orders received and
delivered in that quarter. The average price of the Company's information
systems sold in fiscal 1997 to new customers was approximately $100,000. As a
result of the relatively high revenue amount per order and relatively low unit
volume, any lost or delayed sales will have a disproportionately greater effect
on the Company's revenues and quarterly results relative to companies that have
higher unit sales volumes and less revenue associated with each sale. The
Company's sales cycle is typically three to six months from the time initial
sales contact is made with a qualified prospect, making the timing of the
Company's license fees difficult to predict and the Company's quarterly results
difficult to forecast. The Company's expense levels are based in part on its
forecasts of future revenues. Accordingly, since the majority of the Company's
expenses are fixed in nature, the Company would not be able to quickly curtail
expenses in response to a decline in revenues, and
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operating results for a given quarter would be adversely affected. As a result,
revenues for any quarter are subject to significant variation and the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. To the extent that the Company's Common Stock is publicly traded,
fluctuations in operating results may also result in volatility in the market
price of the Company's Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
BROAD DISCRETION IN USE OF PROCEEDS. The net proceeds to the Company from
the sale of the Common Stock offered hereby, at an assumed initial public
offering price of $5.50 per share, after deducting underwriting discounts and
commissions, the Representatives' non-accountable expense allowance and the
estimated other expenses of the Offering of $500,000, are estimated to be
approximately $4,763,500. The Company estimates that $1,063,500 of such net
proceeds will be allocated to working capital. The Company will have broad
discretion in the use of funds allocated to working capital. In addition,
approximately $1,200,000 of the net proceeds of the Offering will be used to
repay approximately $1,000,000 of loans incurred in connection with a 1998
private placement of debt and warrants and approximately $200,000 of Company
indebtedness to various parties. As result, only approximately $3,563,500 of the
net proceeds of the Offering will be available for the Company to meet its
ongoing needs for capital. See "Use of Proceeds."
DEPENDENCE ON DIRECT SALES INDUSTRY; LEGISLATIVE RISKS. The Company's
business depends substantially upon the capital expenditures of direct sales
companies, which in part depends upon the demand for such companies products. A
recession, new laws or regulations of the activities of direct sales companies,
or other adverse event affecting the direct sales industry in the United States,
the United Kingdom, Asia or other markets served by the Company could affect
such demand, forcing companies in the Company's targeted markets to curtail or
postpone capital expenditures on business information systems. Any such change
in the amount or timing of capital expenditures in its targeted markets would
have a material adverse effect on the Company's financial condition and results
of operations. The Peoples Republic of China recently announced laws restricting
the ability of multi-level marketing companies to operate in China. To date, the
Company has not derived significant revenues from The Peoples Republic of China.
Accordingly, the Company does not believe that such laws will adversely affect
the Company's current operations or financial condition. However, similar
restrictions, if adopted by other countries, could have a materially adverse
effect on the Company's business, results of operations and prospects.
KEY EMPLOYEES. The Company believes that its future success will depend in
large part on its ability to attract and retain highly skilled technical,
managerial, and marketing personnel who are familiar with and experienced in the
direct sales industry. The Company does not maintain key man life insurance
policies with respect to any of its employees. The Company has entered into
employment agreements with each of its key executives having terms ranging from
one to four years. See "Management--Employment and Consulting Agreements."
Competition for such personnel, in particular for product development and
product implementation personnel, is intense, and the Company competes in the
market for such personnel against numerous companies, including larger, more
established companies with significantly greater financial resources than the
Company. The Company has at times experienced difficulty in recruiting qualified
personnel, and there can be no assurance that the Company will be successful in
attracting and retaining skilled personnel. The inability of the Company to
attract and retain other qualified employees could have a material adverse
effect on the Company's business.
MANAGEMENT OF GROWTH. Management believes that the Company's existing
internal controls are sufficient for the current size and level of operations;
however, to manage its growth effectively, the Company will be required to
continue to implement and improve its operating and financial systems and to
expand, train and manage its employee base. There can be no assurance that the
management skills and systems currently in place will be adequate if the Company
continues to grow. In addition, although no acquisitions of companies or
products are currently being negotiated, the Company may make acquisitions in
the future. The Company's management has only limited experience with
acquisitions, which involve numerous risks, including difficulties in the
assimilation of acquired operations and products, the diversion of
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management's attention from other business concerns and the potential loss of
key employees of the acquired companies.
INTERNATIONAL OPERATIONS AND RISK OF INTERNATIONAL SALES. The Company
derived approximately 3.8% and 6.8% of its total revenues from its United
Kingdom operations in fiscal 1996 and 1997, respectively and 6.5% and 7.3% in
the nine month periods ended March 31, 1997 and 1998. International business is
subject to various risks common to international activities, including exposure
to currency fluctuations, political and economic instability, the greater
difficulty of administering business abroad, and the need to comply with a wide
variety of foreign import and United States export laws and regulatory
requirements. The Company does not currently engage in foreign currency hedging
transactions. Any significant adverse change in the international business
climate could have a material adverse effect on the Company, its financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON THIRD PARTY SOFTWARE AND HARDWARE. The Company's products
incorporate and use software products and computer hardware and equipment
developed by other entities. The fourth generation language ("4GL") set of
development tools used by the Company as well as the relational database
management system used in the Company's products are provided by Ardent
Software, Inc. (a successor to Unidata, Inc.) or its affiliates. The operating
systems on which the Company's products can function (UNIX, NT) have been
developed or are owned by Novell Corporation and Microsoft Corporation. The
computer hardware and equipment sold as part of the Company's turnkey system are
manufactured by Hewlett-Packard Company, International Business Machines
Corporation, and others. There can be no assurance that all of these entities
will remain in business, that their product lines will remain viable or that
these products will otherwise continue to be available to the Company. If any of
these entities ceases to do business, or abandons or fails to enhance a
particular product line, the Company may need to seek other suppliers. This
could have a material adverse effect on the Company's results of operations. In
addition, there also can be no assurance that the Company's current suppliers
will not significantly alter their pricing in a manner adverse to the Company.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company attempts to
protect ownership of its software with a combination of copyright, trademark and
trade secret laws, employee and third-party nondisclosure agreements, and other
methods of protection common in the industry. The Company has not historically
required trade secrecy and confidentiality agreements to be executed by its
employees or, in some instances, independent software developers, in order to
protect its rights in its proprietary technology. Despite any precautions that
may be taken by the Company, it may be possible for an unauthorized third party
to copy or reverse-engineer certain portions of the Company's products or to
obtain and use information that the Company regards as proprietary. The Company
does not currently have any registered patents, trademarks or copyrights, but is
in the process of registering certain trademarks. The Company licenses the
source code for its software to some customers to enable them to customize the
software to meet particular requirements. Although the Company's source code
license contains confidentiality and nondisclosure provisions, there can be no
assurance that such customers will take adequate precautions to protect the
source code. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the mechanisms used by the Company to
protect its software will be adequate or that the Company's competition will not
independently develop software products that are substantially equivalent or
superior to the Company's software products. As the number of software products
in the industry increases and the functionality of these products further
overlaps, the Company believes that software programs could become increasingly
the subject of infringement claims. See "Business--Intellectual Property."
Although the Company's products have never been the subject of infringement
claims, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such assertion
will not require the Company to enter into royalty arrangements or result in
costly litigation and liability.
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RISK OF FIXED PRICE CONTRACTS. The Company has and expects to derive
significant revenues pursuant to software maintenance contracts that provide for
fixed annual fees in exchange for the Company's commitment to provide technical
assistance and customer support. Because the total compensation payable to the
Company pursuant to such contracts is fixed in the event of cost over-runs,
price increases, unanticipated problems, inefficient management, inaccurate
estimates of customer needs or disputes over the terms and specifications of
contracted performance, the Company's business and financial condition could be
materially adversely affected.
LIMITED CONTROL AND INFLUENCE ON THE COMPANY BY INVESTORS IN THE
OFFERING. Upon the consummation of the Offering, the officers and directors of
the Company will, in the aggregate, beneficially own approximately 46% of the
Common Stock assuming exercise of all outstanding options and warrants currently
owned by such persons. As a result, it is anticipated that these individuals
will be in a position to materially influence, if not control, the outcome of
all matters requiring stockholder or board approval, including the election of
directors. See "Management," "Principal Stockholders" and "Description of
Securities." Such influence and control is likely to continue for the
foreseeable future and significantly diminishes control and influence which
future stockholders may have on the Company.
YEAR 2000 COMPLIANCE RISK. The Company believes that its principal software
products (SUMMIT V and NOW!) are Year 2000 compliant. However, because the
Company's products are designed to work with relational database and other
software products developed and sold by third parties, any failure of these
third party software products to be Year 2000 compliant could result in the
failure of the Company's software products to effectively operate. Any such
failure could harm the Company's reputation in the market and could have an
adverse effect on sales of the Company's products and its financial performance.
ABSENCE OF PUBLIC MARKET. Prior to the Offering, there has been no public
market for the Common Stock. While the Company has applied for approval for
listing the Common Stock on the Nasdaq SmallCap Market, there is no assurance
that a regular public market for the Common Stock will develop as a result of
the Offering or, if a regular public market does develop, that it will continue.
In the absence of such a market, investors may be unable to readily liquidate
their investment in the Common Stock.
DETERMINATION OF OFFERING PRICE. The initial public offering price of the
shares of Common Stock will be determined by negotiation between the Company and
the Representatives, as representatives of the Underwriters, and does not
necessarily bear any relationship to the Company's book value, assets, past
operating results, financial condition or any other established criteria of
value. There is no assurance that the Common Stock will trade at market prices
in excess of the initial public offering price as prices for the Common Stock in
any public market which may develop will be determined in the marketplace and
may be influenced by many factors, including the depth and liquidity of the
market for the Common Stock, investor perception of the Company and general
economic and market conditions. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
REPRESENTATIVES' POTENTIAL INFLUENCE ON THE MARKET. It is anticipated that
a significant portion of the Common Stock being offered hereby will be sold to
clients of the Representatives. Although the Representatives have advised the
Company that they currently intend to make a market in the Common Stock
following the Offering, they have no legal obligation, contractual or otherwise,
to do so. The Representatives, if they become market makers, could be dominating
influences in the market for the Common Stock, if one develops. The prices and
the liquidity of the Common Stock may be significantly affected by the degree,
if any, of the Representatives' participation in such market. There is no
assurance that any market activities of the Representatives, if commenced, will
be continued.
POSSIBLE ADVERSE IMPACT ON MARKET PRICE OF FUTURE SALES OF RESTRICTED
SHARES. Sales of a substantial number of shares of Common Stock into the public
market following the Offering could materially adversely affect the prevailing
market price for the Common Stock. After the completion of the Offering, the
Company will have outstanding an aggregate of 4,143,515 shares of Common Stock.
The 1,400,000 shares of Common Stock offered hereby will be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), by persons other than "affiliates." The
remaining 2,743,515 outstanding shares of Common Stock will be "restricted
securities" (the
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"Restricted Shares") pursuant to Rule 144 promulgated under the Securities Act.
All but 55,875 of the Restricted Shares are subject to lock-up agreements which
prohibit the transfer or assignment of such shares for a period of 12 months
following the effective date of the registration statement of which this
Prospectus is a part. Beginning 12 months after such effective date, all of the
Restricted Shares subject to lock-up agreements will become eligible for sale in
the public market pursuant to Rule 144, some of which will be not be subject to
the volume limitations and other restrictions under Rule 144. The
Representatives may, in their sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements. See
"Shares Eligible for Future Sale."
POSSIBLE ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF DELAWARE
LAW. The Board of Directors of the Company has authority to issue up to
5,000,000 shares of preferred stock of the Company (the "Preferred Stock") and
to fix the rights, preferences, privileges and restrictions of such shares
without any further vote or action by the shareholders. The Preferred Stock may
be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by the
Company's stockholders, and may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, and sinking fund
provisions as determined by the Board of Directors. Although the Company has no
present plans to issue any shares of Preferred Stock following consummation of
the Offering, the issuance of any additional shares of Preferred Stock in the
future could affect the rights of the holders of Common Stock and thereby reduce
the value of the Common Stock. In particular, specific rights granted to future
holders of Preferred Stock could be used to restrict the Company's ability to
merge with or sell its assets to a third party, thereby preserving control of
the Company by its present owners. These provisions, together with certain
provisions of Delaware law, may also have the effect of delaying or preventing
changes in control or management of the Company which could adversely affect the
market price of the Company's Common Stock. See "Description of
Securities--Common Stock."
IMMEDIATE SUBSTANTIAL DILUTION. The initial public offering price per share
will exceed the net tangible book value per share of the Common Stock.
Accordingly, the purchasers of the Shares will experience immediate substantial
dilution of $4.42 per share or 80.4% of their investment based upon the net
tangible book value of the Company at March 31, 1998. In addition, the
purchasers of the Common Stock offered hereby will bear a disproportionate part
of the financial risk associated with the Company's business while effective
control will remain with the existing shareholders and Management. See
"Dilution."
NO DIVIDENDS. The Company has never declared or paid any cash dividends on
its capital stock. The Company currently intends to retain any future earnings
to finance the growth and development of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future. No cash
dividends may be paid on Common Stock until all shares of Series A Preferred
Stock have been either redeemed or converted into Common Stock.
NET OPERATING LOSS LIMITATIONS. The Company has net operating losses which
have been utilized to reduce taxable income in fiscal 1998. However, the
Internal Revenue Code of 1986, as amended, (IRC), reduces the extent to which
net operation loss carryforwards may be utilized in the event there has been an
"ownership change" of a company as defined by applicable IRC provisions. The
Company will be subject to net operating loss carryforward limitations as a
result of the ownership change resulting from the Offering. Limitations on the
use of net operating loss carryforward may adversely affect the Company's net
income as compared to prior periods.
LIMITED EXPERIENCE OF REPRESENTATIVES. The Representatives do not have
substantial experience in acting as managing underwriters in public offerings.
Meridian Capital Group, Inc. has previously participated in three public
offerings as lead manager, Trautman, Kramer & Company Incorporated has
participated as a co-manager in one public offering and W.J. Nolan & Company
Inc. has participated in two public offerings. There can be no assurance that
the Representatives' lack of experience will not adversely affect the Offering
or the market for the Company's Common Stock upon completion of the Offering.
See "Underwriting."
MAINTENANCE CRITERIA FOR NASDAQ; RISK OF LOW-PRICED SECURITIES. The Company
has applied to have the Common Stock approved for quotation on the Nasdaq
SmallCap Market, commencing upon the effective
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date of the Offering. To maintain inclusion on the Nasdaq SmallCap Market, the
Company's Common Stock must continue to be registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company must continue to have net tangible assets of at least $2,000,000, a
public float of at least 500,000 shares with a market value of at least
$1,000,000, at least 300 stockholders, a minimum bid price of $1.00 per share
and at least two market makers. While the Company expects that it will initially
meet these maintenance standards, there is no assurance that the Company will be
able to maintain the standards for Nasdaq SmallCap Market inclusion with respect
to its Common Stock. If the Company fails to maintain Nasdaq SmallCap Market
listing, the market value of the Common Stock likely would decline and
purchasers in the Offering likely would find it more difficult to dispose of, or
to obtain accurate quotations as to the market value of, the Common Stock.
If the Common Stock ceases to be included on the Nasdaq SmallCap Market, the
Common Stock could become subject to Rule 15a-9 under the Exchange Act, which
imposes additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (primarily individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses).
Commission regulations define penny stocks generally as equity securities with a
price of less than $5.00 or with an exercise price of less than $5.00 per share,
subject to certain exceptions. The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure in a form prepared by the Commission
which provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to these penny stock rules. If the
Common Stock becomes subject to the penny stock rules, the ability of
broker-dealers to make a market in or sell the Company's securities may be
adversely affected and investors in the Offering may be unable to readily sell
their Common Stock.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, the Company would remain subject to Section 15(b)(6) of the
Exchange Act, which gives the Commission the authority to prohibit any person
that is engaged in unlawful conduct while participating in a distribution of a
penny stock from associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that such a restriction
would be in the public interest. If the Company's securities were subject to the
rules on penny stocks, the market liquidity for the Company's securities could
be severely adversely affected.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, at an assumed initial
public offering price of $5.50 per share, after deducting underwriting discounts
and commissions, the representatives' non-accountable expense allowance, and the
other estimated expenses of the Offering of $500,000, are estimated to be
approximately $4,763,500. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholders. The Company
anticipates that the estimated net proceeds of the Offering will be allocated
substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE OF
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------------------------------------------------ -------------- ---------------
<S> <C> <C>
Product development (1)............................................................. $ 2,000,000 42%
Repayment of indebtedness (2)....................................................... $ 1,200,000 25%
Sales and marketing expenses (3).................................................... $ 500,000 11%
Working capital (4)................................................................. $ 1,063,500 22%
</TABLE>
- ------------------------------
(1) Represents amounts expected to be expended for the development of new
products and upgrades of existing products.
(2) Represents repayment of outstanding indebtedness consisting of (i) $200,000
of Company indebtedness to various parties, including creditors of a
predecessor of the Company (See "Certain Transactions--Transactions With
Redwood Technologies"), and (ii) approximately $1,000,000 of loans incurred
in connection with a 1998 private placement of debt and warrants, which
loans bear interest, payable quarterly in arrears, at an annual rate of
seven percent and are due and payable in full on the earlier to occur of
three business days following the completion of the Offering or May 31,
1999. The proceeds of the 1998 private placement were used primarily to
repay indebtedness of the Company and its predecessor, to fund increased
sales and marketing efforts, including attendance at direct sales industry
trade shows, and for general working capital.
(3) Represents amounts expected to be expended in connection with the expansion
of the Company's sales and marketing efforts, including an increase in sales
personnel and marketing budgets for the Company's products.
(4) The remainder of the net proceeds (approximately $1,254,900 if the
over-allotment option is exercised in full) will be used to fund the
Company's general working capital requirements, including customer support,
corporate overhead, payroll and other such expenses of the Company.
The foregoing represents the Company's best estimates of its application of
the net proceeds of the Offering based upon present plans and current business
conditions. The net proceeds from the exercise of the Representatives' Warrants,
if any, will be added to the general funds of the Company and used for working
capital and other general corporate purposes. Unforseen events, changed business
conditions and a number of other factors that are beyond the control of the
Company, could necessitate changes in the application of net proceeds. The
Company reserves the right to reallocate the net proceeds of the Offering among
the various uses described above or for such other purposes as it, in its sole
discretion, deems necessary or desirable. In the event that the Company changes
the use of proceeds of the Offering, the Company may require immediate
additional debt or equity financing to meet its business plan. If the need
should arise, there can be no assurance that any such financing would be
available on terms that are favorable to the Company, if at all.
The Company may use a portion of the net proceeds to acquire businesses,
products or technologies complementary to the Company's current business. The
Company has no present commitments or agreements and is not currently involved
in any negotiations with respect to any such acquisitions. The Company has not
determined the amounts it plans to expend on each of such uses or the timing of
such expenditures. The amounts actually expended for each such use, if any, are
at the discretion of the Company and may vary significantly depending upon a
number of factors, including future revenue growth and the amount of cash
generated by the Company's operations.
Pending their application, the net proceeds of the Offering will be invested
principally in U.S. government securities, short-term certificates of deposit,
money market funds or other similar short-term interest bearing investments.
15
<PAGE>
DIVIDEND POLICY
The Company has not paid any dividends since its inception and has no
current plans to pay dividends on the Common Stock in the foreseeable future.
The Company intends to reinvest future earnings, if any, in the development and
expansion of its business. Any future determination to pay dividends will depend
upon the Company's results of operations, financial condition and capital
requirements and such other factors deemed relevant by the Company's Board of
Directors.
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was $59,249, or $.02 per share of Common Stock, based upon 3,043,515 shares of
Common Stock outstanding. Pro forma net tangible book value per share represents
the amount of total tangible assets of the Company less total liabilities,
divided by the number of shares of Common Stock outstanding, after giving effect
to the conversion of all outstanding shares of Series A Preferred Stock into
Common Stock upon the consummation of the Offering. The outstanding shares
excludes (i) 140,000 shares of Common Stock which may be issued by the Company
upon exercise in full of the Representatives' Warrants, (ii) 597,234 shares of
Common Stock which may be issued by the Company under options currently
outstanding under the Company's Stock Option Plan, and (iii) 279,081 shares of
Common Stock which may be issued by the Company upon exercise of outstanding
warrants. After giving effect to the sale of the 1,100,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $5.50 per share (after deducting underwriting discounts and commissions, the
Representatives' non-accountable expense allowance, and the other estimated
expenses of the Offering of $500,000 payable by the Company), the pro forma net
tangible book value of the Company as of March 31, 1998 would have been
$4,455,669, or $1.08 per share. This represents an immediate increase in pro
forma net tangible book value of $1.06 per share to existing stockholders and an
immediate dilution of $4.42 per share, or 80.4%, to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock......................... $ 5.50
Pro forma net tangible book value per share before the Offering....................... $ .02
Increase attributable to new investors................................................ 1.06
---------
Pro forma net tangible book value per share after the Offering.......................... 1.08
---------
Dilution per share to new investors (80.4%)............................................. $ 4.42
---------
---------
</TABLE>
The following table summarizes, at March 31, 1998, the number of shares of
Common Stock purchased from the Company, percentage ownership of such shares,
the total consideration paid, the percentage of total consideration paid, and
the average price per share paid by existing stockholders and to be paid by
purchasers of shares offered hereby at an assumed initial public offering price
of $5.50 per share (before deducting underwriting discounts and commissions, the
Representatives' non-accountable expense allowance, and the other estimated
expenses of the Offering of $500,000 payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............... 3,043,515 73% $ 3,008,750 33% $ .99
New investors.......................... 1,100,000 27% $ 6,050,000 67% $ 5.50
---------- --------- ------------- ---------- ------
Total(1)............................... 4,143,515 100.0% $ 9,058,750 100.0% 2.19
---------- --------- ------------- ---------- ------
---------- --------- ------------- ---------- ------
</TABLE>
- ------------------------------
(1) Does not include outstanding options or warrants issued by the Company for
the purchase of up to 876,315 shares of Common Stock. Includes 1,244,296
shares of Common Stock issuable upon conversion of all outstanding Series A
Preferred Stock and gives effect to the .782271-to-one reverse stock split
effected in June 1998.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, (i) on an actual basis including the effect of the .782271-for-one
reverse stock split effected in June 1998, (ii) on a pro forma basis giving
effect to the conversion of Series A Preferred Stock into Common Stock upon
closing of the Offering and completion of a $1,000,000 bridge loan financing
transaction in June 1998, and (iii) on a pro forma as adjusted basis giving
effect to the sale of the 1,100,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $5.50 per share,
after deducting underwriting discounts and commissions and the estimated
offering expenses payable by the Company, and the application of the net
proceeds thereof as set forth in "Use of Proceeds." The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated financial
statements and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------------
AS
ACTUAL PRO FORMA(1) ADJUSTED(1)
------------- -------------- -------------
<S> <C> <C> <C>
Long-term debt (including current portion)......................... $ 596,626 $ 955,070 $ 394,870
------------- -------------- -------------
Series A Preferred Stock, $.001 par value:
1,725,000 shares authorized; 1,500,000 issued and
outstanding; none issued and outstanding, pro forma and
as adjusted...................................................... 2,310,174 -- --
Stockholders' equity (deficit)
Common Stock, $.001 par value; 20,000,000 shares authorized;
1,955,673 shares issued, 1,799,219 shares outstanding;
3,199,969 shares issued, 3,043,515 shares outstanding, pro
forma; 4,299,969 shares issued, 4,143,515 shares outstanding,
as adjusted.................................................... 1,956 3,200 4,300
Additional paid-in capital....................................... 6,794 2,755,524 7,517,924
Stock subscriptions receivable................................... (8,500) (8,500) (8,500)
Foreign currency translation adjustment.......................... (28,537) (28,537) (28,537)
Accumulated deficit.............................................. (1,799,921) (1,799,921) (2,359,721)
Treasury stock, at cost: 156,454 shares actual................... (340,000) (340,000) (340,000)
------------- -------------- -------------
Total stockholders' equity (deficit)............................... (2,168,208) 581,766 4,785,466
------------- -------------- -------------
Total capitalization............................................... $ 738,592 $ 1,536,836 $ 5,180,336
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
- ------------------------------
(1) Pro forma capitalization gives effect to the $1,000,000 bridge financing
transaction completed in June 1998, warrants to purchase up to 117,321
shares of Common Stock issued in connection with such bridge financing, and
conversion of Series A Preferred Stock into Common Stock upon closing of the
Offering. Valuation of the warrants resulted in original issue discount of
$439,800 and was included in the pro forma capitalization. As adjusted also
gives effect to the sale of 1,100,000 shares of Common Stock by the Company
at an assumed initial public offering price of $5.50 per share in the
Offering.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth on the following page for each of the
fiscal years in the two-year period ended June 30, 1997, have been derived from
the Company's consolidated financial statements and the related notes thereto
that have been audited by BDO Seidman LLP, independent certified public
accountants. The selected financial data for the nine month periods ended March
31, 1997 and 1998 are derived from unaudited financial statements of the Company
and in the opinion of management include all necessary adjustments to present
fairly the results of operations and financial position for those periods. The
consolidated financial statements for each of the fiscal years in the two-year
period ended June 30, 1997, and the report thereon are included elsewhere in
this Prospectus. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------- -------------------------
1996 1997 1997 1998
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software license fees................................................... $ 1,685,208 $ 2,761,995 $ 2,016,493 $ 3,090,640
Equipment, software and supplies sales.................................. 1,571,516 1,029,314 814,525 638,783
Support and operations revenue.......................................... 3,642,509 4,688,763 3,413,679 3,318,211
----------- ------------ ------------ -----------
Net revenues.............................................................. 6,899,233 8,480,072 6,244,697 7,047,634
----------- ------------ ------------ -----------
Cost of goods sold
Cost of software license fees........................................... 163,233 292,831 192,754 195,720
Cost of equipment, software and supplies sold........................... 1,025,934 781,562 682,934 372,830
Cost of support and operations.......................................... 2,148,131 3,156,312 2,529,041 1,816,168
----------- ------------ ------------ -----------
Total cost of goods sold................................................ 3,337,298 4,230,705 3,404,729 2,384,718
Gross profit.............................................................. 3,561,935 4,249,367 2,839,968 4,662,916
Selling and marketing................................................... 764,711 1,024,716 726,380 673,711
Product research, development and enhancements.......................... 433,061 1,375,452 921,302 1,175,088
General and administrative.............................................. 2,443,191 3,322,974 2,620,712 2,271,828
----------- ------------ ------------ -----------
Total operating expenses.................................................. 3,640,963 5,723,142 4,268,394 4,120,627
----------- ------------ ------------ -----------
Income (loss) from operations............................................. (79,028) (1,473,775) (1,428,426) 542,289
Other income (expense)
Interest, net........................................................... (23,645) (97,433) (35,715) (87,044)
Other................................................................... (74,252) (63,088) (119,917) (28,118)
----------- ------------ ------------ -----------
Income (loss) before provision for income tax............................. (176,925) (1,634,296) (1,584,059) 427,127
Provision (benefit) for income tax........................................ 88,000 (88,000) -- 15,577
----------- ------------ ------------ -----------
Net income (loss)......................................................... $ (264,925) $ (1,546,296) $ (1,584,059) $ 411,550
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Net income (loss) per common share
Basic................................................................. 1,938,915 1,838,338 1,851,376 1,799,224
Diluted............................................................... 1,938,915 1,838,338 1,851,376 3,358,221
Weighted average common shares outstanding
Basic................................................................. $ (.14) $ (.84) $ (.86) $ .23
Diluted............................................................... $ (.14) $ (.84) $ (.86) $ .12
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------------ ------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................................................. $ 83,486 $ 663,486 $ 4,226,986
Working capital (deficit)......................................................... (892,752) (87,752) 3,675,748
Total assets...................................................................... 2,849,199 3,624,198 7,067,698
Total long-term debt (including current portion).................................. 596,626 955,070 394,870
Total liabilities................................................................. 2,707,233 3,042,432 2,282,232
Redeemable convertible preferred stock............................................ 2,310,174 -- --
Stockholders' equity.............................................................. (2,168,208) 581,766 4,785,466
</TABLE>
- ------------------------------
(1) Pro forma balance sheet data gives effect to the $1,000,000 bridge financing
transaction completed in June 1998, warrants to purchase up to 117,321
shares of Common Stock issued in connection with such bridge financing, and
conversion of Series A Preferred Stock into Common Stock upon closing of the
Offering. Valuation of the warrants resulted in original issue discount of
$439,800 and was included in the pro forma balance sheet data.
(2) As adjusted also gives effect to the sale of 1,100,000 shares of Common
Stock by the Company at an assumed initial public offering price of $5.50
per share in the Offering.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. WHEN USED IN THE
FOLLOWING DISCUSSIONS, THE WORDS "BELIEVES", "ANTICIPATES", "INTENDS", "EXPECTS"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED, INCLUDING, BUT
NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF.
GENERAL
The Company develops, markets, implements and supports specialized software
solutions for network marketing and other companies involved in the direct sales
industry. The Company primarily sells and implements its business information
systems directly. The Company services its clients from offices in both the
United States and United Kingdom. Substantially all of the Company's revenues
are generated from the sale of its systems, which usually consist of proprietary
and third-party software licenses, implementation and software support services,
third-party hardware and maintenance contracts. The Company's proprietary
software licenses are sold on a packaged or individual module basis, and the
license fee is determined in part by the number of modules and concurrent system
users. Maintenance fees are based on a percentage of software license fees and
are billed on a monthly basis.
Revenues from software licenses are recognized upon delivery, provided that
no significant obligations of the Company remain and collection of the related
receivable is deemed probable. Revenues from hardware sales are recognized upon
shipment of the product. Software support service revenues are recognized in the
period in which the services are performed. Revenues from maintenance contracts
are recognized ratably over the period of the contract.
Research and development expenses consist primarily of compensation and
consulting expenses and related equipment and licenses. To date, the Company has
not capitalized any such development costs under Statement of Financial
Accounting Standards ("SFAS") No. 86. All research and development expenses have
been expensed as incurred.
The Company believes future growth is largely dependent on the ability to
increase sales of its core management information system product (SUMMIT V and
related modules) and to develop a market for the NOW! product.
The Company and its predecessors, Summit V, Inc., a Washington corporation
and wholly-owned subsidiary of the Company, as well as Redwood Technology, which
operated certain assets of the Company prior to selling them to Summit V, Inc.
in 1995, have a history of losses. The Company sustained net losses of $265,000
and $1,546,000 for the fiscal years ended June 30, 1996 and 1997, respectively.
Although the Company operated profitably in the first nine months of fiscal
1998, there can be no assurance that the Company will be able to operate
profitably in the future.
The Company's results of operations during fiscal 1997 were greatly affected
by a significant increase in personnel and related personnel costs during the
first half of fiscal 1997. Many of the new personnel were hired in anticipation
of a large increase in sales and related support services which did not
materialize during fiscal 1997. In November 1996, management hired a new Chief
Financial Officer and implemented a significant restructuring of the Company,
including a consolidation of the Company's workforce. As a result of this
restructuring, the Company incurred substantial losses during the first half of
fiscal 1997 and terminated approximately 30 employees in December 1996.
Although no customer accounted for more than 10% of the Company's net sales
during the nine months ended March 31, 1998, for the fiscal year ended June 30,
1997, Shaklee and Morinda accounted for approximately 23% and 11%, respectively,
of the Company's net sales. Similar or greater concentration of
19
<PAGE>
its net sales among a limited number of customers may continue in the future.
Any material decrease in net sales to any one of the Company's largest customers
that is not matched by corresponding increases in net sales to new or existing
customers could have a material adverse effect on the Company's financial
condition and results of operations and could threaten its economic viability.
There can be no assurance that the Company will receive orders from any existing
customers or from new customers.
The Company derived approximately 3.8% and 6.8% of its total revenue from
its United Kingdom operations in 1996 and 1997, respectively. For the nine month
periods ended March 31, 1997 and 1998, the Company derived approximately 6.5%
and 7.3% of its total revenue from its United Kingdom operations. The Company's
international business is subject to various risks common to international
activities, including currency fluctuations. Revenues and expenses of the
Company's United Kingdom operations are translated at the average exchange rate
in effect during the period. Translation adjustments are reported as a separate
component of stockholders' equity. The Company does not currently engage in
currency hedging transactions.
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. Such fluctuations may be
caused by many factors, including, but not limited to the size and timing of
individual orders; seasonality of revenues; lengthy sales cycle; delays in
introduction of products or product enhancements by the Company or other
providers of hardware, software and components for the Company's systems;
competition and pricing in the software industry; market acceptance of new
products; foreign currency exchange rates; mix of products sold; and general
economic conditions. See "Risk Factors--Significant Fluctuations in Quarterly
Results."
The Company is or may be subject to claims of unsatisfied creditors of
Redwood Technologies, Inc. alleging successor liability or other similar basis
for liability. As of March 31, 1998 the Company estimated that such claims could
total $350,000 of which the Company had recorded a liability of approximately
$350,000 at March 31, 1998. In July 1998, the Company settled certain claims by
the Internal Revenue Service against Redwood Technology for $135,000. See "Risk
Factors--Risk of Creditors Claims and Successor Liability."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data shown as a percentage of net sales.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1996 1997
--------- --------- NINE MONTHS ENDED
------------------------
MARCH 31,
------------------------
1998
1997 -----------
----------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Software license fees............................................. 24.4% 32.6% 32.3% 43.9 %
Equipment, software and supplies sales............................ 22.8% 12.1% 13.0% 9.1 %
Support and operations revenue.................................... 52.8% 55.3% 54.7% 47.0 %
Net revenues........................................................ 100.0% 100.0% 100.0% 100.0 %
Cost of revenues
Cost of software license fees..................................... 2.4% 3.5% 3.1% 2.8 %
Cost of equipment, software and supplies sold..................... 14.9% 9.2% 10.9% 5.3 %
Cost of support and operations.................................... 31.1% 37.2% 40.5% 25.8 %
Total cost of revenues.............................................. 48.4% 49.9% 54.5% 33.8 %
Gross profit........................................................ 51.6% 50.1% 45.5% 66.2 %
Operating expenses
Selling and marketing............................................. 11.1% 12.1% 11.6% 9.6 %
Product research, development and enhancements.................... 6.3% 16.2% 14.8% 16.7 %
General and administrative........................................ 35.4% 39.2% 42.0% 32.2 %
Total operating expenses............................................ 52.8% 67.5% 68.4% 58.5 %
Operating income (loss)............................................. -1.1% -17.4% -22.9% 7.7 %
Other income (expense)
Interest, net..................................................... -0.3% -1.1% 0.6% -1.2%
Other............................................................. -1.1% -0.8% 1.9% -0.4%
Income (loss) before provision for income tax....................... -2.6% -19.3% -25.4% 6.1%
Provision (benefit) for income tax.................................. 1.2% -1.0% 0.0% -0.3%
Net income (loss)................................................... -3.8% -18.2% -25.4% 5.8%
</TABLE>
20
<PAGE>
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1998 TO AND MARCH 31, 1997
REVENUES. Total revenues increased 12.9% to $7,048,000 for the nine months
ended March 31, 1998 from $6,245,000 million for the same period in 1997. The
increase was primarily attributable to increases in revenues from software
licenses. Simultaneously with this increase in total revenues, the Company
experienced a significant decrease in customer concentration as sales to Shaklee
Products decreased from approximately 23% for all of fiscal 1997 to less than
10% in the nine months ended March 31, 1998.
SOFTWARE LICENSE REVENUES. Software license revenues increased 53.3% to
$3,091,000 for the nine months ended March 31, 1998 from $2,016,000 for the same
period in 1997. The increase in software license revenues was due to an increase
in system sales and additional modules sold to new and existing clients.
EQUIPMENT, SOFTWARE AND SUPPLIES REVENUES. Equipment, software and supplies
revenues decreased 21.6% to $639,000 for the nine months ended March 31, 1998
from $815,000 for the same period in 1997. The Company has reduced its emphasis
on selling turnkey systems which typically had included low margin computer
hardware equipment. As a result, equipment purchases have decreased.
SUPPORT AND OPERATIONS REVENUE . Support and operations revenue decreased
2.8% to $3,318,000 for the nine months ended March 31, 1998 from $3,414,000 for
the same period in 1997. The decrease relates to reduced services required for
the Company's largest customer, Shaklee Products. In the prior year Shaklee
Products was converting to a version of the Company's software and significant
services were required. The conversion was completed in February 1997. This
decrease is partially offset by increased maintenance contract revenues
resulting primarily from an increase in the number of customers paying
maintenance for new and upgraded systems and enhanced administration of existing
contracts. In the previous period, many customers were not charged additional
maintenance fees when additional user licenses or modules were purchased as
outlined in the original purchase contract. As a result, the Company was able to
increase its maintenance contract revenues.
COST OF REVENUES. Total cost of revenues decreased 30.0% to $2,385,000 for
the nine months ended March 31, 1998 from $3,405,000 for the same period in
1997. Such decrease was primarily due to an increase in higher margin software
sales and a decrease in lower margin service revenues and equipment sales. Total
cost of revenues as a percentage of net revenues decreased from 54.5% in the
nine months ended March 31, 1997 to 33.8% for the period ended March 31, 1998
primarily as a result of the decreased size of support staff in the later period
along with a change in product mix away from sales of turnkey systems which
typically had included low-margin computer equipment.
COST OF SOFTWARE LICENSES. The cost of software licenses consists primarily
of the cost of supplies that are included with the Company's systems that are
provided by third-party suppliers. The cost of software licenses increased 1.6%
to $196,000 for the nine months ended March 31, 1998 from $193,000 for the same
period in 1997 as a result of the increase in software license revenues.
COST OF EQUIPMENT, SOFTWARE AND SUPPLIES. The cost of equipment, software
and supplies consists primarily of the cost of computer hardware and third-party
software and related peripheral equipment purchased by the Company from various
suppliers for resale as part of the Company's turnkey systems. These costs
decreased by 45.4% to $373,000 for the nine months ended March 31, 1998 from
$683,000 for the same period in 1997.
COST OF SUPPORT AND OPERATIONS. The cost of support and operations consists
primarily of personnel costs, travel and materials associated with providing
implementation, education and training, consulting and technical services. These
costs decreased 28.2% to $1,816,000 for the nine months ended March 31, 1998
from $2,529,000 for the same period in 1997. During the first five months of
fiscal 1997 the Company hired numerous support personnel which proved to be
unproductive and the positions were ultimately
21
<PAGE>
eliminated in December 1996. As a result the cost of support and operations were
lower for the nine months ended March 31, 1998.
GROSS PROFIT. Gross profit increased by 64.2% to $4,663,000 for the nine
months ended March 31, 1998 from $2,840,000 for the same period in 1997. Overall
gross profit as a percentage of total revenues increased to 66.2% for the nine
months ended March 31, 1998 from 45.5% for the same period in 1997, mainly as a
result of the increase in higher-margin software license revenues as a
percentage of total sales. Gross profit on the Company's software license
revenues is significantly higher than on revenues from equipment, services and
maintenance. Gross profit on software licenses remained relatively constant from
March 31, 1998 to March 31, 1997 at 93.7% and 90.4%, respectively. Gross profit
on software support services and maintenance increased to 45.3% for the nine
months ended March 31, 1998 from 25.9% for the same period in 1997 due mainly to
the elimination of many support personnel. The increase in equipment gross
profit to 41.6% for the nine months ended March 31, 1998 from 16.2% for the same
period in 1997 was primarily due to sales of more third party software and less
hardware.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses decreased
7.2% to $674,000 for the nine months ended March 31, 1998 from $726,000 for the
same period in 1997. The decrease primarily relates to the elimination of a
highly compensated sales professional in March 1997 and more efficient
management of marketing expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 27.6% to $1,175,000 for the nine months ended March 31, 1998 from
$921,000 for the same period in 1997. The increase in research and development
expenses relates primarily to the continued development of the NOW! suite of
products which began in December 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 13.3% to $2,272,000 for the nine months ended March 31, 1998 from
$2,621,000 for the same period in 1997. Such decrease was due primarily to a
significant decrease in personnel resulting from a restructuring of the Company
that began in December 1996.
INTEREST EXPENSE. Interest expense increased 141.7% to $87,000 for the nine
months ended March 31, 1998 from $36,000 for the same period in 1997. The
increase relates primarily to the equipment lease entered into in December 1996
and the interest due on a note payable to a stockholder which accrues interest
at 18% annually and provides for monthly payments equal to 1% of the Company's
gross margin until fully paid.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
REVENUES. Total revenues increased 22.9% to $8,480,000 for fiscal 1997 from
$6,899,000 for fiscal 1996. The increase was primarily attributable to increases
in revenues from software licenses, software services and maintenance contracts.
SOFTWARE LICENSE REVENUES. Software license revenues increased 63.9% to
$2,762,000 for fiscal 1997 from $1,685,000 for fiscal 1996. The increase in
software license revenues was due to an increase in system sales and additional
software modules sold to new and existing clients. This increase was the direct
result of an increased sales effort to sell high margin products particularly
during the last six months of fiscal 1997.
EQUIPMENT, SOFTWARE AND SUPPLIES REVENUES. Equipment, software and supplies
revenues decreased 34.5% to $1,029,000 for fiscal 1997 from $1,572,000 for
fiscal 1996. During the last half of fiscal 1997, the Company decreased its
emphasis on selling turnkey systems which typically had included low margin
equipment. As a result, equipment purchases have decreased.
SUPPORT AND OPERATIONS REVENUE. Support and operations revenue increased
28.7% to $4,689,000 for fiscal 1997 from $3,643,000 for fiscal 1996. The
increase in service revenues was principally due to
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additional purchases of the Company's systems and system upgrades by existing
customers which required implementation assistance and the increase in
maintenance contract revenues, primarily due to an increase in the number of
customers paying maintenance fees for new and upgraded systems and enhanced
administration of existing contracts. In previous years, many customers were not
charged additional maintenance fees as additional user licenses or modules were
purchased as outlined in the original purchase contract. As a result, the
Company was able to increase its maintenance contract revenues.
COST OF REVENUES. Total cost of revenues increased 26.8% to $4,231,000 for
fiscal 1997 from $3,337,000 for fiscal 1996. Total cost of revenues as a
percentage of net revenues increased from 48.4% in fiscal 1996 to 49.9% in
fiscal 1997.
COST OF SOFTWARE LICENSES. The cost of software licenses consists primarily
of the cost of supplies that are included with the Company's systems that are
provided by third-party suppliers. The cost of software licenses increased 79.8%
to $293,000 for fiscal 1997 from $163,000 for fiscal 1996. The increase is a
direct result of the increase in software sales.
COST OF EQUIPMENT, SOFTWARE AND SUPPLIES. The cost of equipment, software
and supplies consists primarily of the cost of computer hardware and third-party
software and related peripheral equipment purchased by the Company from various
suppliers for resale as part of the Company's turnkey systems. These costs
decreased by 23.8% to $782,000 for fiscal 1997 from $1,026,000 for fiscal 1996
primarily as a result of the Company's decision to decrease its emphasis on
sales of turnkey systems which typically had included low margin computer
equipment.
COST OF SUPPORT AND OPERATIONS. The cost of support and operations consists
primarily of personnel costs, travel and materials associated with providing
implementation, education and training, consulting and technical services. These
costs increased 46.9% to $3,156,000 for fiscal 1997 from $2,148,000 for fiscal
1996. The increased support and operations expense relates primarily to a 43%
increase in personnel during the first half of fiscal 1997. Many of the new
hires were unnecessary and therefore unproductive. As a result, the Company
terminated approximately 30 employees in December 1996.
GROSS PROFIT. Gross profit increased by 19.3% to $4,249,000 for fiscal 1997
from $3,562,000 for fiscal 1996 primarily due to the increase in total revenues
from fiscal 1996 to fiscal 1997. Overall gross profit as a percentage of total
revenues decreased slightly to 50.1% for fiscal 1997 from 51.6% in fiscal 1996,
mainly as a result of the decrease in margin on equipment sales which was offset
somewhat by the increase in higher-margin software license revenue as a
percentage of total revenues. Gross margin on the Company's software license
revenues is significantly higher than on revenues from equipment, services and
maintenance. Gross margins on software licenses remained relatively constant
from fiscal 1996 to fiscal 1997 at 90.3% and 89.4%, respectively. Gross margins
on software support services and maintenance decreased to 32.7% in fiscal 1997
from 41.0% in fiscal 1996 due mainly to the addition of new support personnel
described above. The decrease in equipment gross margins to 24.1% in fiscal 1997
from 34.7% in fiscal 1996 was due to price competition in the computer hardware
industry and discounting required in response to volume purchase agreements
being offered by the computer manufacturers and computer resellers.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
34.0% to $1,025,000 for fiscal 1997 from $765,000 for fiscal 1996. The increase
in sales and marketing expenses relate primarily to higher sales commission
associated with increased revenue and higher travel costs to support increased
sales activity.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 217.6% to $1,375,000 for fiscal 1997 from $433,000 for fiscal 1996.
The increase in research and development expenses relates primarily to the
development during the last half of fiscal 1997 of the NOW! suite of products.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 36.0% to $3,323,000 for fiscal 1997 from $2,443,000 for fiscal 1996.
The general and administrative expenses as a percentage of revenue increased to
39.2% in fiscal 1997 compared to 35.4% in fiscal 1996. The increase in general
and administrative expense relates primarily to the addition of new office space
and additional personnel.
INTEREST EXPENSE, NET. Interest expense increased 304.2% to $97,000 for
fiscal 1997 from $24,000 for fiscal 1996. The increase related primarily to a
$600,000 equipment lease the Company entered into in December 1996 which bears
interest at approximately 9.0% per year.
BACKLOG
The Company does not typically maintain a significant backlog and therefore
revenues for each quarter depend substantially on orders received and delivered
in that quarter. The average price of the Company's systems sold during the
fiscal year ended June 30, 1997 was approximately $100,000. As a result of the
relatively high revenue amount per order and relatively low unit volume, any
lost or delayed sales will have a disproportionately greater effect on the
Company's revenues and quarterly results relative to companies that have higher
unit sales volumes and less revenue associated with each sale. The Company's
sales cycle is typically three to six months from the time initial sales contact
is made with a qualified prospect, making the timing of the Company's license
fees difficult to predict and the Company's quarterly results difficult to
forecast. The Company's expense levels are based in part on its forecast of
future revenues. Accordingly, since the majority of the Company's expenses are
fixed in nature, the Company would not be able to quickly curtail expenses in
response to a decline in revenues, and operating results for a given quarter
would be adversely affected. As a result, revenues for any quarter are subject
to significant variation and the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. There can be no
assurance that the Company will be profitable on a quarter-to-quarter basis.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Offering the Company has financed its operations primarily
through cash flow from operations, private sales of the Company's equity and
long-term equipment financing. The Company does not have access to a line of
credit. The Company's $600,000 equipment lease requires the Company to maintain
cash on deposit with a bank affiliated with the lessor. The required cash
balance was initially $300,000 and reduces incrementally in proportion to the
reduction in the lease balance. At September 30, 1997 the principal balance of
the lease was $448,000 and the required cash balance was $250,000.
The Company has a note payable to a stockholder with interest payable at 18%
per annum. The note is payable in monthly installments of the greater of $10,000
or the individual monthly compensation of the two major stockholders ($14,000
per month at March 31, 1998), and is secured by their shares in the Company. The
Company has established an agreement with the note-holder allowing for a
variance from regularly scheduled payments. At March 31, 1998 the outstanding
principal balance was $202,000.
The Company has entered into employment agreements with four of its
executive officers as well as a Consulting and Non-Competition Agreement with a
director and former officer of the Company, the terms of which are described in
"Management--Employment and Consulting Agreements" below. In general, assuming
none of the agreements are terminated and that each one year contract is renewed
annually, such agreements provide for total payments of not less than $2.9
million through the end of the fiscal year ending June 30, 2002, including
approximately $86,000 per month during the fiscal year ending June 30, 1999. See
"Management--Employment and Consulting Agreements" for details regarding the
terms of such agreements.
In fiscal 1996, operating activities provided net cash of approximately
$317,000 primarily from an increase in accounts payable and accrued expenses of
approximately $730,000 which were offset by an
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increase in accounts receivable of approximately $423,000. In fiscal year 1996
the Company used net cash of approximately $335,000 in financing activities to
repay notes payable, and net cash of approximately $145,000 in investing
activities primarily to purchase property and equipment.
In fiscal 1997, operating activities used net cash of approximately
$1,192,000 primarily from a net loss from operations of approximately $1,546,000
and a decrease in accounts payable of approximately $500,000 which were offset
by a combined increase in customer deposits and accrued liabilities of
approximately $914,000. In fiscal 1997 financing activities provided net cash of
approximately $2,200,000 primarily from net proceeds from the sale of the
Company's preferred stock (approximately $2,300,000) and proceeds from equipment
notes payable (approximately $660,000) which were offset by a redemption of a
portion of the Company's common stock ($340,000), repayment of notes payable
(approximately $134,000), and increase in restricted cash ($300,000). In fiscal
1997 the Company's investing activities used net cash of approximately
$1,000,000 primarily to purchase property and equipment.
At March 31, 1998, the Company had approximately $283,000 in cash. The
Company believes that the net proceeds from the sale of the Common Stock offered
hereby, together with its current cash balance and cash flow from operations,
will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 12 months. The Company believes that its
anticipated cash flow from operations, current cash and cash equivalent balances
and the net proceeds of the sale of Common Stock in this Offering will provide
sufficient cash resources to finance its operations and associated marketing and
customer support activities for at least 12 months. Thereafter, the Company's
continued operations will depend upon cash flow from operations and the
availability of further financing.
The Company's accounts receivable balances at June 30, 1996, and 1997 and
March 31, 1998 were $900,759, $947,509 and $1,278,353, respectively. Accounts
receivable in the over 90-day category at June 30, 1997 was $485,233, or 52.86%
of accounts receivable, compared to $140,956, or 11.62% of accounts receivable,
at March 31, 1998. The number of days sales in accounts receivable was 48 days,
40 days and 62 days, respectively, for the years ended June 30, 1996 and 1997
and for the nine month period ended March 31, 1998. The increase in accounts
receivable and days sales in accounts receivable from June 30, 1997 to March 31,
1998 was due to granting additional credit terms to larger customers that have a
strong payment history. Bad debt expense as a percentage of sales for the period
ended June 30, 1996, and 1997 and the nine months ended March 31, 1998 was 3.5%,
1.2% and 1.2%, respectively. As a result, the allowance for doubtful accounts
decreased from $200,000 at June 30, 1997 to $97,600 at March 31, 1998, a
decrease of $102,400.
At March 31, 1998, the Company had four customers which accounted for
approximately 60% of the accounts receivable at March 31, 1998.
YEAR 2000
The Company believes that its principal software products (SUMMIT V and
NOW!) are Year 2000 compliant. However, because the Company's products are
designed to work with relational database and other software products developed
and sold by third parties, any failure of these third party software products to
be Year 2000 compliant could result in the failure of the Company's software
products to effectively operate. Although the Company does not expect any
significant disruption in operations or any significant expenditures as a result
of computer software issues related to the Year 2000, any failure of third party
software used by the Company could have the effect of harming the Company's
reputation in the market and could have an adverse effect on sales of the
Company's products and its financial performance.
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NEW ACCOUNTING STANDARDS
Statements of Financial Accounting Standards No. 129 "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 129. The Company does not expect adoption of SFAS No. 129
to have a material effect, if any, on its financial position or results of
operations.
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company has not determined the
effect on its financial position or results of operations, if any, from the
adoption of this statement.
Statements of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company does not expect
adoption of SFAS No. 131 to have a material effect, if any, on its results of
operations.
Statement Position 97-2, "Software Revenue Recognition", ("SOP 97-2") issued
by the AICPA is effective for transactions entered into in fiscal years
beginning after December 15, 1997. SOP 97-2 supersedes SOP 91-1 regarding
software revenue recognition. SOP 97-2 establishes standards which require a
company to recognize revenue when (1) persuasive evidence of an arrangement
exists, (ii) delivery has occurred, (iii) the vendor's fee is fixed or
determinable, and (iv) collectability is probable. SOP 97-2 also discusses the
revenue recognition criteria for multiple element contracts and allocation of
the fee to various elements based on vendor-specific objective evidence of fair
value. The Company does not expect adoption of SOP 97-2 to have a material
effect on the financial statements.
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BUSINESS
Jenkon International, Inc. ("Jenkon" or the "Company") is a leading
developer of specialized software solutions for network marketing and other
companies involved in the direct sales industry. The Company's products are
designed to provide direct sales organizations, which are characterized by a
large number of small transactions, intricate compensation programs, and complex
distributor genealogy trails, with a rapid, accurate and efficient means to
collect, process, transmit and record sales, commissions and other data. The
Company was the recipient of the 1997 DSA Partnership Award granted by the
Direct Selling Association ("DSA"), the direct sales industry's largest trade
group. The award was in recognition of the Company's leadership position as a
supplier to the industry.
To date, the Company has focused its development and marketing efforts on
its proprietary management information system software package known as SUMMIT
V. The Company's management information systems, including its SUMMIT V
software, have been installed with over 150 direct sales companies in over 25
countries throughout the world. The Company's clients include many of the direct
sales industry's leading companies such as Shaklee, Avon Products (China and
India), USANA, Nature's Sunshine and Watkins. In addition to SUMMIT V, the
Company has developed and markets a compatible software-based voice response
system known as TOUCHTALK that offers individual home-based direct sales
personnel the ability to access a wide variety of product, sales, commission and
other information regarding the company they represent.
In recognition of the increasing importance of Internet commerce in the
direct sales industry and throughout the economy, the Company has developed and
has recently begun the initial marketing of a scalable Internet-based product,
known as NOW!. NOW! is designed for use by home-based direct sales personnel and
allows such personnel direct access to and communication with the companies that
they represent through the use of personal computers, Web TV and other
Internet-based platforms. NOW! enables home-based direct sales personnel to
quickly obtain current inventory information, directly place orders online,
obtain order status information and view and analyze personal and group sales,
commissions and other information. In addition to the benefits afforded to the
home-based direct sales personnel, the Company believes that the NOW! product
will enable its direct sales company clients to significantly reduce order
processing and other labor-intensive operating costs which the Company believes
account for a substantial portion of the total operating costs of a typical
direct sales company client. The Company believes that NOW! enhances the
attractiveness of SUMMIT V to its direct sales company clients while expanding
the Company's potential client base to include the large number of home-based
direct sales personnel affiliated with such companies.
Jenkon International, Inc., is a Delaware corporation that is a holding
company for the business of the Company. The founders of the Company began
operations in 1982 and incorporated Jenkon International, Inc., a Washington
corporation ("Jenkon Washington"), on December 23, 1988. The Company
subsequently reincorporated in the State of Delaware effective July 1, 1996 and
Jenkon Washington became a wholly-owned subsdiary of Jenkon Delaware. The
Company's primary focus over the past three years has been in the development
and sale of its SUMMIT V management information system software package, sales
of which have been the primary source of the Company's business over the past
three years. However, the Company has recently completed the development of NOW!
and has begun initial marketing of such product. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DIRECT SALES INDUSTRY BACKGROUND
The direct sales industry markets its products through networks of
home-based direct sales personnel whose selling activities most commonly take
place in customers' homes. This industry thrives on a team building approach
whereby home-based direct sales personnel can build a sales group and derive
income from the cumulative sales of the group in addition to their individual
earnings from retail sales. In 1996,
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total world wide sales in the industry were estimated to be in excess of
approximately $78 billion and were generated by a sales force of approximately
22 million distributors.
The industry is built on a "direct to the customer" approach to the
marketing of consumer-oriented products. Eliminating national wholesalers,
regional distribution centers, retail stores and other middlemen, direct sales
companies instead utilize the entrepreneurial spirit of independent home-based
distributors to reach customers. Home-based direct sales personnel buy direct
from the direct sales company or other direct sales personnel at wholesale, sell
at retail and keep the profit for their efforts. Further earnings are available
through team-building activities whereby home-based direct sales personnel can
gain a percentage on all the sales made by team members under a pre-defined
compensation program.
Direct sales companies benefit by being able to operate a low overhead, high
sales volume business with less staff, premises and marketing costs. Home-based
direct sales personnel benefit by being able to build an ongoing business with
little or no inventory, minimal start-up costs and expanded income through team
building. Although many home-based direct sales personnel are able to generate a
full-time income from their marketing activities, the vast majority are
part-time marketers who use their energy and contacts to build a second income
to supplement their primary source of income.
The Company markets its products to three broad categories of companies in
the direct sales industry:
TRADITIONAL DIRECT SALES COMPANIES. Their prime focus is to make retail
sales on a one-to-one basis. Avon Products is an example of a traditional direct
sales company.
PARTY PLAN COMPANIES. These companies depend on sales "parties" where
guests are invited to a home setting by a "host" or "hostess." The "host" or
"hostess" is then given an opportunity to demonstrate the Company's products and
take orders from customers. Companies in this group, such as Tupperware,
accounted for over 26% of direct sales industry sales in the U.S. in 1994.
NETWORK MARKETING COMPANIES. This industry sector thrives on the
team-building element of sales whereby each home-based direct sales person can
build his/her own sales group and derive income from the cumulative sales of the
group in addition to their individual earnings from retail sales. Herbalife and
Amway are examples of network marketing companies.
The Company believes that there is a large potential for future growth in
the direct sales industry in continental Europe, Latin America, and Pacific Rim
and that due to the dramatic growth, many companies are experiencing dramatic
growth overseas. The Direct Selling Association estimates that since 1991, total
worldwide sales by direct sales companies have grown from approximately $48
billion to approximately $78 billion in 1996 while the worldwide sales force
increased from approximately 11 million people in 1991 to over 22 million people
in 1996. According to an industry analysis compiled by J.P. Morgan Securities
Inc., the worldwide direct sales market is expected to grow at an annual rate of
10% through the year 2000 while the number of worldwide direct sales
representatives is expected to grow at an annual rate of 13% during the same
period.
BUSINESS STRATEGY
The Company's business objective is to take advantage of the rapid growth in
the direct sales industry and expand its position as a leading provider of
specialized software to such industry. In order to achieve this goal, the
Company's growth strategy includes the following elements:
- DIRECTLY ACCESS HOME-BASED DIRECT SALES PERSONNEL THROUGH THE INTRODUCTION
OF INTERNET-BASED PRODUCTS. While direct sales companies will remain the
Company's core customer base, the Company believes that the large number
of individual home-based direct sales personnel of these direct sales
companies present a large and growing potential market for direct sales
software products such as the Company's NOW! product.
- INCREASE MARKET PENETRATION OF CORE PRODUCTS. The Company believes that
its current base of direct sales company clients represents only a small
portion of the total number of direct sales companies
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that are potential users of SUMMIT V and the Company's other core
products. Upon completion of this Offering, the Company will attempt to
increase the market penetration of SUMMIT V through more aggressive
marketing and promotional efforts and by continuing to modify and improve
SUMMIT V and other products to meet the changing needs of direct sales
company clients. The Company expects that future generations of SUMMIT V
will include multi-platform database support, an e-commerce enabled
server, support for existing communications standards, and other advanced
features. In addition, the Company is in the process of creating an
application program interface that would enable the NOW! product to be
used by direct sales companies and their home-based personnel regardless
of whether the company in question utilizes the SUMMIT V system or any
other software products of the Company.
- LEVERAGE EXISTING CUSTOMER BASE TO INCREASE REVENUES. The Company
believes that its relationships with its corporate direct sales clients
provides a unique opportunity for the Company to generate revenues from
the cross-selling and marketing of additional products and services by the
Company and others to the home-based personnel of its direct sales
clients. For example, the Company has entered into a contract with
EarthLink Network, Inc. pursuant to which the Company will receive a
referral fee for NOW! users that subscribe for Internet access with such
providers through the NOW! product. In addition, given the large number of
credit card transactions handled by the Company's direct sales clients, an
opportunity may exist for the Company to offer credit card processing
services for which the Company would receive processing fees.
- EXPAND GEOGRAPHIC MARKET PENETRATION. The Company believes that
international markets provide significant opportunity for the Company to
increase sales of its products and the Company is making a concerted
effort to expand its international operations. Given the rapid growth of
the direct sales industry throughout the world, and especially in the
countries of the Pacific Rim, Southeast Asia and Latin America, the
Company intends to expand its geographic presence by expanding the focus
of its sales efforts to these expanding international markets as well as
the U.S. market. The Company currently operates a European office in the
United Kingdom and intends to open an office in the Far East to serve the
Pacific Rim market. See "Risk Factors--International Operations and Risk
of International Sales." The Company expects to be able to meet much of
its staffing needs for these branch offices through a combination of
existing personnel and locally hired professionals.
PRODUCTS AND SERVICES
NOW! The Company has recently completed the development and testing and has
begun the marketing of NOW!, a Windows-based software program that together with
Jenkon's SUMMIT V management information system provides home-based direct sales
personnel with immediate access to the real-time sales information they need to
manage their business over the Internet.
Utilizing the power of the Internet NOW! provides home-based direct sales
personnel with the ability to:
- View their entire downline organizations and analyze critical downline
performance information such as personal sales volumes, group sales
volumes, and new recruits
- Place orders online without assistance from corporate personnel
- Obtain the status of various orders
- View current inventory information
- View or listen to corporate announcements and training video/audio
broadcasts from the home office
- View a detailed explanation of their commissions earned to date
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In addition to the benefits afforded to home-based direct sales personnel,
the Company believes that NOW! can serve to increase the efficiency of its
corporate customers' order processing while reducing transaction costs by
reducing the volume of labor-intensive paperwork and related costs associated
with distributor inquiries and processing of fax and telephonic orders.
Moreover, the NOW! product is scalable and can be added to a client's system on
a modular basis so that the software system can grow as the needs and size of
the client's business expand.
NOW! has been developed to address the varying information needs and levels
of sophistication among computer users. For novice computer users NOW! Online is
simply an interactive Internet WEB system that allows access to all necessary
sales information online using standard WEB browser software. NOW! Online is
also compatible with Microsoft's WEB TV to provide easy Internet access to
valuable sales information using the home television. For the more technically
proficient home-based direct sales personnel the NOW! CD-ROM is available which
includes a Personal Information Manger (PIM) and the ability to download
information from the Internet onto a personal computer to assist in the creation
of a personalized management reports.
SUMMIT V. SUMMIT V is a management information system for direct sales
companies that is designed to provide such companies easy access to the
information necessary for the successful operation and management of their
business.
The range of information SUMMIT V can generate for clients includes:
- Operational information such as sales order processing, sales organization
tracking and maintenance, commission processing, credit card checking,
inventory control
- Management information such as activity analysis and growth analysis
- Financial information such as daily statistics, event analysis and sales
volume
To maximize client loyalty and retention, and to establish and maintain a
reputation that will attract new clients, Jenkon offers annual support and
maintenance contracts whereby purchasers of the service can obtain technical
customer support service. Jenkon technical personnel are available 24 hours a
day, 7 days a week, to assist clients in solving problems with the system at any
time (which in the vast majority of cases can be provided on the spot by voice
or, if necessary, via a telephone modem). In addition, the Company offers
training on an ongoing basis to maintain quality control with respect to the
operation of the system, particularly in the case of customized systems.
TOUCHTALK. TOUCHTALK is a stand-alone software product that operates with
SUMMIT V. Once connected to both a phone system (or lines) and a computer,
TOUCHTALK works 24 hours each day to handle phone calls by home-based direct
sales personnel. By selecting a menu option with a touch tone key, each
home-based sales person can place orders, make inquiries, hear training
messages, or leave messages for their downline direct sales personnel.
The Company believes that the key attractions of the TOUCHTALK software are
that it facilitates around-the-clock operation and helps reduce operating
overhead for direct sales companies.
OTHER SERVICES
CUSTOM PROGRAMMING. The unique compensation programs of direct sales
companies of various kinds have established the need for the Company to
customize SUMMIT V for its customers, which provides an additional source of
potential revenue for the Company. In addition, due to the changing nature of
compensation plans, the international and organization-by-organization
differences between direct sales companies are expected to increase the need for
customization. Moreover, because it is customary in the direct sales industry
for clients to regularly revise their compensation plans and structures in order
to provide incentives to sale personnel, the Company generates additional
revenue for customizations and modifications even after the initial installation
of the product has been completed.
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ANNUAL SUPPORT AGREEMENTS. In order for clients to have access to Jenkon's
support services, it is necessary for the client to purchase an Annual Support
Agreement. Such support agreements typically provide for annual fees equal to
15% of the cost of the system. There are many benefits for the customer to do
this, including 24 hour-7 days a week support, and reduced rate for services.
TECHNOLOGY
Similar to many other business packages, SUMMIT V utilizes various
technologies provided by other suppliers. These include operating systems,
relational database software, and PC/Client software. In addition, SUMMIT V was
built using advanced engineering tools, some of which are required to be
installed on each client computer for SUMMIT V to operate. See "Risk
Factors--Dependence on Third Party Software and Hardware."
OPERATING SYSTEMS. SUMMIT V currently operates within the UNIX and
Microsoft Windows/NT operating systems. UNIX is the current platform of choice
due to its ability to support large companies and the massive volumes of data
they must process. Jenkon installs all small systems (under 20 workstations)
using Windows NT. SUMMIT V is currently compatible with Windows NT running the
Ardent Software, Inc. (formerly Unidata) relational database software.
RELATIONAL DATABASE SOFTWARE. Like other software, relational database
technology has also evolved considerably in recent years and now imposes
"standards" which, if followed, allow business software programs to exchange
data and even "talk" to each other. SUMMIT V utilizes relational database
software products of Ardent Software, Inc. Ardent products comply with industry
standards (ANSI) and are capable of seamlessly communicating with many other
commonly used database systems such as Oracle, Informix, Sybase, and Microsoft
Access. This provides Jenkon with the ability to interface products written in
these other environments into SUMMIT V, if desired. It also allows customers to
use SUMMIT V in similar fashion to other database software they are accustomed
to using for reports and inquiries.
The Company has entered into a reseller agreement with a predecessor to
Ardent Software, Inc. granting the Company the right to utilize Ardent software
in its SUMMIT V software. The Company is in the process of negotiating a renewal
of the reseller agreement. To the extent that Ardent elects to terminate or not
renew the Company's license or change its pricing structures in a manner that is
unfavorable to the Company, the Company may be materially adversely affected.
FOURTH GENERATION LANGUAGE. Today, software engineers often use computers
to design and build programs much like a word processor creates a publication
quality document. Programmers now show the computer what they want by "painting"
input screens and reports on their workstations, then ask the computer to create
the actual programs. This method of software development creates a much more
reliable and consistently coded package which is later easier and less expensive
to support. The Fourth Generation Language which does this is called System
Builder Plus ( "SB+"). SUMMIT V was created with SB+, which is owned by Ardent
Software, Inc.
SB+ has recently provided the capabilities to provide graphically designed
screens to better comply with Windows standards. Jenkon has developed a version
of SUMMIT V which takes advantage of this new capability. The Company believes
this newer look and feel could result in relatively greater market demand for
SUMMIT V.
PC/CLIENT SOFTWARE. Connecting a PC computer to a UNIX server requires a
software program which runs on the PC to manage the connection, the data, and
the software interface. SUMMIT V utilizes a PC software package called SBClient
which is designed to work in harmony with SB+ based applications. SBClient
allows PC networks to access SUMMIT V at high speed. It also provides the GUI
(graphical user interface) capabilities.
SUMMIT V can also be accessed by Macintosh computer workstations using one
of several terminal emulation programs available. In addition, for computer
users who would prefer to avoid the expense of PC workstations, SUMMIT V can
also be accessed by "dumb" workstations costing as little as $300 each.
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INTERNET TECHNOLOGY. The NOW! technology provides for multiple
heterogeneous devices to connect simultaneously and in parallel via the
Internet. Utilizing the industry standard Internet TCP/IP (Transmission Control
Protocol/Internet Protocol) through an extended HTML (HyperText Markup
Language), a connection by browsers, web pages, CD-ROMS, or any other 'Internet
aware' device can be achieved.
The NOW! system is completely proprietary as it requires an interface with
SUMMIT V to be fully functional with real-time information. This interface is an
Application Programming Interface (API) which provides significant time and cost
savings by enabling the reuse of a reliable software interface each time a new
customer or product is connected to SUMMIT V. The API technology is used both
internally, to interface new features developed by Jenkon, as well as being
positioned as a development kit which may be purchased by customers for their
own integration into the otherwise proprietary environment.
CUSTOMERS
Jenkon currently has software systems installed in over 25 countries
including the United States and Canada. The smallest of these are "3-User"
systems, mainly for the new start up customer with a limited budget. Other than
size constraints imposed by the client's hardware systems, the Company does not
believe there is an upper limit to the number of users on a Jenkon software
system, with large companies like Shaklee having a large number of ports on
their mainframe.
The profile of a Jenkon customer ranges from the household names like Avon
Products or Shaklee to the individual starting his or her own direct sales
company.
Although no customer accounted for more than 10% of the Company's net sales
during the nine months exceed March 31, 1998, for the fiscal year ended June 30,
1997, Shaklee and Morinda accounted for approximately 23% and 11%, respectively,
of the Company's net sales. Similar or greater concentration of its net sales
among a limited number of customers may occur in the future. In such event, any
material decrease in net sales to any one of the Company's largest customers
that is not matched by corresponding increases in net sales to new or existing
customers could have a material adverse effect on the Company's financial
condition and results of operations and could affect its economic viability.
There can be no assurance that the Company will receive orders from any existing
customers or from new customers.
SALES AND MARKETING
SALES. Industry sources estimate that there are in excess of 5,000 direct
sales companies globally. Moreover, there is a constant turnover of such
companies as existing companies leave the market and new direct sales companies
are formed. The profiles of these companies range between well known names, such
as Amway and Avon Products to new start-up operations. In most cases, a
prospective client will be "qualified" prior to any selling activity to ensure
that the correct range of products and services are offered to meet the clients
requirements, both in terms of functionality and budget. This process will
typically be carried out on the telephone by a salesperson, with the assistance
of a technician, if necessary, to advise on operational issues and marketing
plan requirements.
The Company sells its products and services to the customer by its direct
sales force based in the United States and Europe. Due to the global nature of
the Company's clients, extensive travel is often necessary in order to negotiate
and conclude sales. On-site visits will often entail a preliminary "site-study"
to clearly identify the type of system needed for the prospect, and a technician
will accompany the salesperson if required.
It is expected that Jenkon will supply NOW! software to the home-based
direct sales personnel of the Company's corporate customers. Such sales are
expected to be made to home-based direct sales personnel in cooperation with
corporate customers. Pricing of the NOW! product will vary depending on whether
corporate customers elect to receive a percentage of the sales price as a fee.
The Company will attempt to contract with its corporate customers to include a
copy of NOW! in each kit provided to home-based direct sales personnel and
promote the package to their downline organization. The Company expects each
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NOW! product package will be private labeled with the customer's logo and name.
The software will be personalized to each customer with a corporate "splash"
screen (welcome).
MARKETING. While traditionally pricing its products so as to target larger
companies, the Company has recently begun to target a broader spectrum of
smaller companies in the belief that, given the rate of industry growth, this
strategy may help the Company retain its position as an industry leader and to
develop profitable long-term relationships with these companies.
The Company's marketing operations include production of DIRECT SELLING
TODAY, a quarterly
Newsletter distributed to over 1,000 industry leaders and contacts; organizing
trade shows; working with consulting companies and individual consultants to
consolidate working relationships and pave the way for the sales process to
begin; and advertisements in trade publications together with other public
relations activity.
Market research is also carried out to assess the relative strengths and
weaknesses of Jenkon's products and services compared to its competition. The
Company's marketing group is responsible for identifying new opportunities
within Jenkon's existing target market and works closely with the Company's
research and development group.
COMPETITION
The software industry is highly competitive and is characterized by rapid
technological change, rapidly changing customer preferences and little or no
barriers to entry. There are several businesses, some of which may be better
capitalized than the Company, currently offering software similar in type or
scope to the Company's. The Company believes that the primary competitive
factors for the provision of its software are price, technical expertise and
quality, ease of use, variety of value-added services, reliability and security,
customer support and geographic coverage. The Company's success will depend
heavily upon its ability to provide high quality software and value-added
services. Other factors that will affect the Company's success in this market
include the Company's continued ability to attract additional experienced
marketing, sales, and management talent, and the expansion of worldwide support,
training and service capabilities.
The Company's current and prospective competitors generally consist of other
independent software providers such as Globenet and 20/21 Interactive. The
Company believes that additional competitors, which may include consumer
software or other companies, may potentially enter the direct sales market. In
addition, the Company may face potential competition from some of the larger
direct sales companies that have developed their own in-house systems that could
be adapted for sale to other direct sales companies. Some or all of the
Company's actual and potential competitors may have greater market presence,
engineering, customer support and marketing capabilities, and financial,
technological and personnel resources than those available to the Company. As a
result, they may be able to adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than can the Company.
Because price is a major competitive factor in the market for the Company's
products, if any of the Company's present or future competitors elect to
initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.
PROPERTIES
The Company leases approximately 17,000 square feet of space in the
Vancouver, Washington area and approximately 800 square feet of office space in
Redditch, England.
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EMPLOYEES
As of June 30, 1998, the Company has approximately 77 employees in
Vancouver, Washington, all of which were full-time employees, and four in
Redditch, England, all of which were full-time employees. None of the employees
are represented by a labor union, and the Company considers its relations with
employees to be good.
RESEARCH AND DEVELOPMENT
Since the beginning of the fiscal year ended June 30, 1996, the Company's
research and development activities have primarily focused on the development of
its SUMMIT V, TOUCHTALK, and NOW! products. The Company's research and
development expenses for particular periods consist of all costs incurred on
projects for which technological feasibility has not yet been attained. In
accordance with Statement of Financial Accounting Standards No. 86, the Company
determines technological feasibility based upon the completion of a detailed
program design or working model, after which time all software production
expenses for a particular project are capitalized. For the years ended June 30,
1996 and 1997 and the nine month periods ended March 31, 1997 and 1998, the
product research, development and enhancement expenses were $433,061,
$1,375,452, $921,302, and $1,175,088, respectively.
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secrets laws and contractual
restrictions to establish and protect its technology. Although the Company is in
the processing of registering certain trademarks, the Company does not currently
have any registered patents, copyrights or trademarks. There can be no assurance
that the steps taken by the Company will be adequate to prevent misappropriation
of its technology that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, there can be no assurance that licenses for any
intellectual property that may be required for the Company to provide services
or develop products would be available on reasonable terms, if at all.
The Company has not historically required trade secrecy and confidentiality
agreements to be executed by its employees or, in some instances, independent
software developers in order to protect its rights in its proprietary
technology. The Company is in the process of requiring employees and contractors
to execute such agreements. No assurance can be given that such measures will be
effective in protecting the Company's rights in its present or future
technology. See "Risk Factors--Intellectual Property and Proprietary Rights."
The Company has filed federal trademark registrations for the product names
"Summit V," "TouchTalk" and NOW! as well as for "Jenkon." There can be no
assurance that tradename protection can be obtained for such names. Although the
Company does not believe that its products or tradenames infringe upon the
proprietary rights of any third parties and no third parties have asserted
trademark, patent, or copyright infringement or other similar claims against the
Company, there can be no assurance that third parties will not assert such
claims against the Company in the future or that such claims will not be
successful. The Company could incur substantial costs and diversion of
management resources with respect to the defense of any claims relating to
proprietary rights which could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, parties
making such claims could secure a judgment awarding substantial damages, as well
as injunctive or other equitable relief which could effectively block the
Company's ability to sell product in the United States or abroad. Such a
judgment could have a material adverse effect on the Company's business,
financial condition or results of operations.
The laws of certain foreign countries where the Company distributes or
intends to distribute its products do not effectively protect technology,
trademarks or tradenames that the Company uses in its business and considers
proprietary. The Company has not undertaken to investigate such laws or to
assure that available protection is obtained.
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LEGAL PROCEEDINGS
The Company has acquired from Redwood Technology a license to utilize
certain Ardent Software, Inc. products incorporated into the SUMMIT V software
in connection with sales in certain portions of Asia, including China. The grant
of the license by Unidata, Inc., a predecessor of Ardent Software, Inc., to
Redwood Technology and the sublicense by Redwood Technology to Avon Products, a
New York corporation, have been challenged in a lawsuit (the "U.S. Claim") filed
in the United States District Court for the Western District of Washington at
Tacoma (Case No. C96-5459FDB) by Pacific Unidata, Ltd., the Asia licensee of
Unidata, Inc., as violating the terms of such licensee's agreement with Unidata.
In addition, Pacific Unidata, Ltd. brought an action (the "China Claim") against
Guangzhou Avon Co., Ltd., a Chinese subsidiary of Avon Products ("Avon China"),
in the Guangdong Province Supreme People's Court (the "Chinese Court") seeking
damages against Avon China for infringement of Pacific Unidata, Ltd.'s copyright
and exclusive rights to certain Unidata software in China. In June 1998, the
Chinese Court awarded damages in favor of Pacific Unidata, Ltd. in an amount of
approximately
US$12 million plus costs. Avon China has informed the Company that it intends to
appeal the ruling. Although the Company is not a party to the China Claim or the
U.S. Claim, if Unidata, Inc. does not indemnify Redwood Technology from damages
resulting from the China Claim and the U.S. Claim and the Company is required to
(i) devote significant resources to protect its interests and the interests of
its sublicensees in Asia or (ii) if any sublicensee successfully seeks
indemnification against Redwood Technology for damages suffered as a result of
claims made by Pacific Unidata, Ltd. and the Company is required to pay such
indemnification as a successor to Redwood Technology, the Company's financial
condition and results of operations could be materially adversely affected.
Moreover, in the event that a court rules that the Company's license of the
Unidata, Inc. software is invalid, the Company's ability to expand its sales
into China will be materially adversely affected.
In July 1995, Summit V, Inc. purchased and/or licensed substantially all of
the assets and assumed certain liabilities of Redwood Technology, the developer
of certain of the Company's software technology. See "Certain Transactions."
Because Redwood Technology may be deemed to have been rendered insolvent by the
sale and license of certain of its assets to Summit V, Inc. and because of the
commonality of ownership and management of Redwood Technology and Summit V,
Inc., the Company is or may be subject to claims by unsatisfied creditors of
Redwood Technology challenging the Company's rights to the acquired assets
(including the SUMMIT V software technology) or alleging successor liability or
other similar claims. Whether or not litigation ensues, such claims could result
in a disruption of the Company's business which would have material adverse
effect on the Company and its financial performance. The Company recently
settled a claim for the unpaid portion of payroll taxes of Redwood Technology in
exchange for a payment by the Company of $135,000. See "Risk Factors--Risk of
Creditors Claims and Successor Liability." The Company may use a portion of the
proceeds of this Offering to settle other obligations of Redwood Technology. See
"Use of Proceeds." In the event that the Company were required to pay all or a
significant portion of the claims of creditors of Redwood Technology, the
Company's business and financial conditions and its ability to achieve its
business plan could be materially and adversely affected. See "Certain
Transactions" and "Risk Factors."
On April 24, 1998, Jenkon was notified of the initiation of an avoidance
action in a Chapter 7 bankruptcy proceeding in the U.S. Bankruptcy Court for the
District of Utah (Central Division). The action was brought by the bankruptcy
trustee of a former customer to recover an alleged preferential transfer of
$25,384.70 made to Jenkon within 90 days prior to the commencement of the
Chapter 7 bankruptcy proceedings. The bankruptcy trustee is seeking recovery of
the complete amount of the alleged preferential transfer plus interest and costs
of the proceeding. The Company does not believe that this action will have a
material adverse effect on the Company, its business or financial condition,
results of operations or cash flow.
In the ordinary course of business, the Company is subject to various legal
proceedings and claims. In the opinion of management, the amount of ultimate
liability with respect to these proceedings will not materially affect the
financial position, results of operations or cash flow of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- ------------------------------------------------
<S> <C> <C>
David Edwards......................... 46 President, Chief Executive Officer and Chairman
of the Board
Jim Thompson.......................... 35 Chief Technology Officer
Steve McKeag.......................... 34 Chief Financial Officer
Robert Cavitt(1)...................... 35 Executive Vice President of Sales and Marketing
and Director
Greg Fink............................. 35 Senior Vice President of Sales
Dan Jensen............................ 45 Director
</TABLE>
- ------------------------
(1) Not currently a director of the Company but is expected to be appointed as a
director of the Company upon completion of the Offering.
Within 90 days of the completion of the Offering, the Company intends to
identify and elect two independent directors.
DAVID EDWARDS is a founder of the Company and has served as the President,
Chief Executive Officer and a director of the Company since its inception and as
Chairman of the Board of Directors since November 1997. Prior to founding the
Company, Mr. Edwards served as the Chief Executive Officer of Redwood
Technology, the previous owner of certain of the Company's current assets, from
1991 through 1995.
JIM THOMPSON joined the Company in November 1996 as the director of product
development and has served as the Chief Technology Officer since April 1997.
From April 1995 to November 1996, Mr. Thompson served as Manager of Data and
Messaging Services Business Development for TMI Communications, a leader in
geostationary satellite and terrestrially integrated telephony services. From
August 1992 to April 1995, Mr. Thompson served as a senior software manager for
Orbital Sciences Corporation. Mr. Thompson received a B.S. in Computer Sciences
from the University of Ottawa.
STEVE MCKEAG joined the Company in November 1996 as Chief Financial Officer.
From September 1995 until November 1996, he worked as an investment banker for
The Boston Group, L.P. and from January 1993 to September 1995 Mr. McKeag worked
as an investment banker for Cruttenden Roth, Inc. From January 1987 to January
1993 Mr. McKeag worked as a licensed certified public accountant in California.
Mr. McKeag received a B.A. in business administration from California State
University at Fullerton and a J.D. from Loyola Law School.
ROBERT CAVITT has worked for the Company since it commenced operations in
July 1995 and has served as Executive Vice President of Sales since September
1997. From 1988 to 1995, Mr. Cavitt worked for Redwood Technology in sales and
operations. Mr. Cavitt has over 11 years of industry experience in sales and
implementation of corporate operating and information systems.
GREG FINK has worked for the Company since it commenced operations in July
1995 and has served as Senior Vice President of Sales since September 1997.
Previously, Mr. Fink worked for Redwood Technology in sales and operations for
13 years.
DAN JENSEN is a founder of the Company, has served as a director of the
Company since its inception and served as the Company's Chairman of the Board
until November 1997. Prior to founding the Company, Mr. Jensen was one of the
founders of Redwood Technology where he served as Chairman of the Board from
inception through June 1995 and as its President and Chief Executive Officer
from inception to November 1991.
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BOARD OF DIRECTORS AND COMMITTEES
Members of the Company's Board of Directors serve until the next annual
meeting of stockholders and the election and qualification of their successors.
The business of the Company's Board of Directors is conducted through full
meetings of the Board, as well as through meetings of its committees. Within 90
days of completion of the Offering, the Company will establish an audit
committee, a majority of the members of which shall be independent directors.
The Audit Committee will make recommendations to the Board of Directors
regarding the selection of the Company's independent auditors, review the
results and scope of the audit and other services provided by the Company's
independent auditors, and reviews and evaluates the Company's audit and control
functions.
COMPENSATION OF BOARD OF DIRECTORS
Directors previously have received no cash compensation for serving on the
Board of Directors. Beginning upon completion of the Offering, the Company will
began paying fees to its non-employee directors for serving on the Board of
Directors and for their attendance at Board and committee meetings. The Company
will pay each non-employee director a fee of $1,000 per board meeting attended,
plus expenses of attending such meetings.
In addition, the Company intends to grant each independent non-employee
director an option to purchase an aggregate of 15,000 shares of Common Stock
upon appointment of such director. The exercise price of such options shall be
the fair market value of a share of Common Stock on the date of grant. Each such
option shall become exercisable as to one-third of the shares on the third
monthly anniversary of the grant date, one-third on the first yearly anniversary
of the grant date, and the remaining one-third on the second yearly anniversary
of the grant date. The options will expire on the earlier of ten years from the
date of grant or three months after the optionee ceases to be a director of the
Company.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of the
Chief Executive Officer and each other executive officer who received annual
compensation in excess of $100,000 for the fiscal year ended June 30, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
COMPENSATION
----------------------- -------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS
- ------------------------------------------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
David Edwards ................................... 1997 $ 165,000(1) -0- -0-
President, Chief Executive Officer, and
Chairman
Dan Jensen ...................................... 1997 $ 165,000(1) -0- $ 2,138(3)
Director(2)
</TABLE>
- ------------------------
(1) Perquisites and other personal benefits did not in the aggregate reach the
lesser of $50,000 or 10% of the total annual salary and bonus reported in
this table for any named executive officer.
(2) Mr. Jensen served as the Company's Chairman of the Board during the fiscal
year ended June 30, 1997 and served as an officer of the Company in such
capacity. As described in "Management--Employment and Consulting Agreements"
below, Mr. Jensen resigned as the Company's Chairman of the Board in
November 1997.
(3) Consists of premiums on a term life insurance policy paid for by the Company
of which Mr. Jensen or his designees are beneficiaries.
EMPLOYMENT AND CONSULTING AGREEMENTS
Effective on the date of this Prospectus, the Company entered into four-year
employment agreements with each of Messrs. Edwards and Cavitt and one-year
renewable employment agreements with
37
<PAGE>
Messrs. McKeag and Thompson, which provide for annual base salaries of $200,000,
$90,000, $150,000 and $150,000, respectively, subject to a 5% cost of living
increases. Mr. Cavitt's employment agreement provides for a performance bonus
based on the volume of sales generated by Mr. Cavitt. In addition, each of
Messrs. Edwards, McKeag, Thompson and Cavitt will be entitled to discretionary
bonuses at the election of the Board of Directors as well as other benefits and
perquisites, including a minimum of four weeks annual vacation, and health,
group life and disability insurance. In the event the Company terminates the
employment of any of these executive officers without "cause" as defined in
their respective employment agreements, the Company will be required to make a
severance payment equal to one year's base salary with respect to Messrs.
Edwards, McKeag and Thompson, and $200,000 with respect to Mr. Cavitt. Each of
these employment agreements contains non-competition covenants.
In November 1997, Dan Jensen resigned as Chairman of the Board of the
Company but agreed to remain as a director of the Company. Effective July 1,
1998 Mr. Jensen and the Company entered into a Consulting and Non-Competition
Agreement pursuant to which Mr. Jensen agreed to provide certain consulting
services to the Company and agreed to certain three year covenants regarding
future competition with the Company in exchange for the following payments and
benefits: (i) $30,000 on signing, (ii) $50,000 within three business days
following completion of this Offering, (iii) $75,000 at the end of the three
year term, (iv) $12,000 per month from August 1, 1998 through January 31, 1999,
(v) $8,000 per month from February 1, 1999 through January 31, 2000, (vi) $4,000
per month from February 1, 2000 through July 31, 2001, and (vii) reimbursement
and payment of certain automobile, insurance, phone, and other expenses as well
as an agreement by Jenkon to assume certain personal guarantees of Mr. Jensen.
With respect to any covenants not to compete contained in the agreements
described above, there can be no assurance that, if challenged, a state court
would elect to enforce such provisions in full, if at all.
STOCK OPTION PLAN
In October 1996 the Company adopted the Jenkon International, Inc. Stock
Option Plan (the "Plan"). The following summary of the Plan is qualified in its
entirety by the actual Plan filed, a copy of which can be obtained from the
Company upon request. See "Additional Information."
The Plan empowers the Company to award or grant to officers, directors,
outside consultants and employees of the Company and its subsidiaries, Incentive
and Non-Qualified Stock Options ("Options") authorized by the Board of Directors
or a committee of the Board of Directors (the "Committee") formed for purposes
of administering the Plan.
ADMINISTRATION. The Plan will be administered by the Board of Directors or,
in the discretion of the Board of Directors, the Committee (either one being
referred to herein as the "Administrator"). The Plan provides that any Committee
must consist of at least two directors of the Company who are "outside
directors" as defined in Treasury Regs. Section 1.162-27(e)(3) and "non-employee
directors" as defined in Rule 16b-3(b)(3)(i) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Committee has the
sole authority to construe and interpret the Plan, to make rules and procedures
relating to the implementation of the Plan, to select participants, to establish
the terms and conditions of Options and to grant Options, with broad authority
to delegate its responsibilities to others, except with respect to the selection
for participation of, and the granting of Options to, persons subject to
Sections 16(a) and 16(b) of the Exchange Act.
ELIGIBILITY CONDITIONS. All employees (including officers) and directors of
the Company and its subsidiaries and outside consultants selected by the
Administrator will be eligible to receive Options under the Plan. Outside
consultants and non-employee directors are only eligible to receive
Non-Qualified Stock Options under the Plan. The selection of recipients of, and
the nature and size of, Options granted under the Plan will be solely within the
discretion of the Administrator. Except with respect to the exercisability of
Incentive Stock Options and as provided in the following paragraph, there is no
limit on the number of shares of Common Stock or type of option in respect of
which Options may be granted to or exercised by any person.
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<PAGE>
SHARES SUBJECT TO PLAN. The maximum number of shares of Common Stock in
respect of which Options may be granted under the Plan (the "Plan Maximum") is
1,000,000. However, options for no more than 250,000 shares may be issued to any
optionee in any calendar year. For the purpose of computing the total number of
shares of Common Stock available for Options under the Plan, the above
limitations shall be reduced by the number of shares of Common Stock subject to
issuance upon exercise or settlement of Options previously granted, determined
at the date of grant of such Options. However, if any Options previously granted
are forfeited, terminated, settled in cash or exchanged for other Options or
expire unexercised, the shares of Common Stock previously subject to such
Options shall again be available for further grants under the Plan. The shares
of Common Stock which may be issued to participants in the Plan upon exercise of
an Option may be either authorized and unissued Common Stock or issued Common
Stock reacquired by the Company. No fractional shares may be issued under the
Plan.
The maximum number of shares of Common Stock issuable upon the exercise of
Options granted under the Plan is subject to appropriate equitable adjustment in
the event of reorganization, stock split, stock dividend, combination of shares,
merger, consolidation or other recapitalization of the Company.
TRANSFERABILITY. No Option granted under the Plan, and no right or interest
therein shall be assignable or transferable by a participant except by will or
the laws of descent and distribution.
TERM, AMENDMENT AND TERMINATION. The Plan will terminate on October 6,
2006, except with respect to Options then outstanding. The Board of Directors of
the Company may amend or terminate the Plan at any time, except that the Board
of Directors may not, without approval of the stockholders of the Company, make
any amendments that would (1) increase the total number of shares available for
issuance (except as permitted by the Plan to reflect changes in capital
structure), (2) materially change the eligibility requirements, or (3)
materially increase the benefits accruing to participants under the Plan
INCENTIVE STOCK OPTIONS. Options designated as Incentive Stock Options,
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), in an amount up to the Plan Maximum may be granted under
the Plan. The number of shares of Common Stock in respect of which Incentive
Stock Options are first exercisable by any participant in the Plan during any
calendar year shall not have a fair market value (determined at the date of
grant) in excess of $100,000 (or such other limit as may be imposed by the
Code). To the extent the fair market value of the shares for which options are
designated as Incentive Stock Options that are first exercisable by any optionee
during any calendar year exceed $100,000, the excess amount shall be treated as
Non-Qualified Stock Options. Incentive Stock Options shall be exercisable for
such period or periods, not in excess of ten years after the date of grant, as
shall be determined by the Administrator.
NON-QUALIFIED STOCK OPTIONS. Non-Qualified Stock Options may be granted for
such number of shares of Common Stock and will be exercisable for such period or
periods as the Administrator shall determine.
OPTIONS EXERCISE PRICES. The exercise price of any Option granted under the
Plan shall be at least 85% of the fair market value of the Common Stock on the
date of grant. The exercise price of any Incentive Stock Options shall be at
least 100% of the fair market value on the date of grant, except that the
exercise price of any Incentive Stock Option granted to any participant in the
Plan who owns in excess of 10% of the outstanding voting stock of the Company
shall be 110% of the fair market value of the Common Stock on the date of grant.
Fair market value per share of Common Stock shall be determined as the closing
price per share on the last trading day if the Common Stock is listed on an
established stock exchange or the Nasdaq National market, or as the average of
the closing bid and asked prices per share if the Common Stock is quoted by the
Nasdaq SmallCap Market, the Nasdaq Electronic Bulletin Board or the National
Quotation Bureau pink sheets, or as the amount determined in good faith by the
Administrator if the Common Stock is neither listed for trading on an exchange
or quoted by the Nasdaq National Market, Nasdaq Small Cap Market, Nasdaq
Electronic Bulletin Board or National Quotation Bureau pink sheets.
39
<PAGE>
EXERCISE OF OPTIONS. Each Option shall become exercisable according to the
terms specified in the option agreement governing such Option. Except as
provided below, no Option may be exercised unless the holder thereof remains in
the continuous employ or service of the Company. No Option shall be exercisable
after the earlier of ten years from the date of grant or three months after
employment or service as a director or consultant of the Company or its
subsidiary terminates (one year if such termination is due to the participant's
death or disability). Options shall be exercisable upon the payment in full of
the applicable option exercise price in cash or, if approved by the
Administrator, by instruction to a broker directing the broker to sell the
Common stock for which such Option is exercised and remit to the Company the
aggregate exercise price of the Option or, in the discretion of the
Administrator, upon such terms as the Administrator shall approve, in shares of
the Common Stock then owned or purchasable by the optionee (at the fair market
value thereof at exercise date). The Administrator also has discretion to extend
or arrange for the extension of credit to the optionee to finance the purchase
of shares on exercise.
GRANT OF OPTION. The Company has granted Options to acquire a total of
597,234 shares of Common Stock to certain employees of the Company, including
executive officers of the Company, at an exercise price equal to the fair market
value per share of the Company's Common Stock at the time of grant.
The following executive officers of the Company have received Incentive
Stock Options for the number of shares of Common Stock and exercise prices per
share set forth below: Jim Thompson--97,783 shares at $2.1732 per share; Steve
McKeag--156,454 shares at $0.0128 per share; Robert Cavitt--156,454 shares at
$2.1732 per share and 39,113 shares at $2.5567 per share; Greg Fink--78,227
shares at $2.1732 per share.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
include provisions that eliminate the directors' personal liability for monetary
damages to the fullest extent possible under Delaware Law or other applicable
law (the "Director Liability Provision"). The Director Liability Provision
eliminates the liability of directors to the Company and its stockholders for
monetary damages arising out of any violation by a director of his fiduciary
duty of due care. Under Delaware Law, however, the Director Liability Provision
does not eliminate the personal liability of a director for (i) breach of the
director's duty of loyalty, (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violation of law, (iii) payment of
dividends or repurchases or redemptions of stock other than from lawfully
available funds, or any transaction from which the director derived an improper
benefit. Furthermore, pursuant to Delaware Law, the limitation on liability
afforded by the Director Liability Provision does not eliminate a director's
personal liability for breach of the director's duty of due care. Although the
directors would not be liable for monetary damages to the corporation or its
stockholders for negligent acts or omissions in exercising their duty of due
care, the directors remain subject to equitable remedies, such as actions for
injunction or rescission, although these remedies, whether as a result of
timeliness or otherwise, may not be effective in all situations. With regard to
directors who also are officers of the Company, these persons would be insulated
from liability only with respect to their conduct as directors and would not be
insulated from liability for acts or omissions in their capacity as officers.
Delaware Law provides a detailed statutory framework covering
indemnification of directors, officers, employees or agents of the Company
against liabilities and expenses arising out of legal proceedings brought
against them by reason of their status or service as directors, officers,
employees or agents. Section 145 of the Delaware General Corporation Law
("Section 145") provides that a director, officer, employee or agent of a
corporation (i) shall be indemnified by the corporation for expenses actually
and reasonably incurred in defense of any action or proceeding if such person is
sued by reason of his service to the corporation, to the extent that such person
has been successful in defense of such action or proceeding, or in defense of
any claim, issue or matter raised in such litigation, (ii) may, in actions other
than actions by or in the right of the corporation (such as derivative actions),
be indemnified for expenses actually and reasonably incurred, judgments, fines
and amounts paid in settlement of such litigation, even if he is not successful
on the merits, if he acted in good faith and in a manner he reasonably believed
to be in or not
40
<PAGE>
opposed to the best interests of the corporation (and in a criminal proceeding,
if he did not have reasonable cause to believe his conduct was unlawful), and
(iii) may be indemnified by the corporation for expenses actually and reasonably
incurred (but not judgments or settlements) of any action by the corporation or
of a derivative action (such as a suit by a stockholder alleging a breach by the
director or officer of a duty owed to the corporation), even if he is not
successful, provided that he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that no indemnification is permitted without court approval if the
director has been adjudged liable to the corporation.
Delaware Law also permits a corporation to elect to indemnify its officers,
directors, employees and agents under a broader range of circumstances than that
provided under Section 145. The Certificate contains a provision that takes full
advantage of the permissive Delaware indemnification laws (the "Indemnification
Provision") and provides that the Company is required to indemnify its officers,
directors, employees and agents to the fullest extent permitted by law,
including those circumstances in which indemnification would otherwise be
discretionary, provided, however, that prior to making such discretionary
indemnification, the Company must determine that the person acted in good faith
and in a manner he or she believed to be in the best interests of the Company
and, in the case of any criminal action or proceeding, the person had no reason
to believe his or her conduct was unlawful.
In furtherance of the objectives of the Indemnification Provision, the
Company has also entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Certificate and Bylaws (the "Indemnification Agreements"). The Company
believes that the Indemnification Agreements are necessary to attract and retain
qualified directors and executive officers. Pursuant to the Indemnification
Agreements, an indemnitee will be entitled to indemnification to the extent
permitted by Section 145 or other applicable law. In addition, to the maximum
extent permitted by applicable law, an indemnitee will be entitled to
indemnification for any amount or expense which the indemnitee actually and
reasonably incurs as a result of or in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, preparing to be a witness, or
otherwise participating in any threatened, pending or completed claim, suit,
arbitration, inquiry or other proceeding (a "Proceeding") in which the
indemnitee is threatened to be made or is made a party or participant as a
result of his or her position with the Company, provided that the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company and had no reasonable cause to
believe his or her conduct was unlawful. If the Proceeding is brought by or in
the right of the Company and applicable law so provides, the Indemnification
Agreements provide that no indemnification against expenses shall be made in
respect of any claim, issue or matter in the Proceeding as to which the
indemnitee shall have been adjudged liable to the Company.
The inclusion of provisions limiting liability of the Company's officers and
directors may have the effect of reducing the likelihood of derivative
litigation against the officers and directors and may discourage or deter
stockholders or management from bringing a lawsuit against the officers and
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Company intends to purchase a directors' and officers' liability policy
insuring directors and officers of the Company effective upon the closing of the
Offering.
41
<PAGE>
CERTAIN TRANSACTIONS
1998 PRIVATE PLACEMENT
In June 1998, the Company completed a private placement (the "1998 Private
Placement") of $1,000,000 of unsecured promissory notes (the "1998 Notes") and
warrants (the "1998 Warrants") to purchase an aggregate of 117,321 shares at an
exercise price of $.6392 per share. Meridian Capital Group, Inc. and Trautman
Kramer & Company Incorporated acted as placement agents with respect to the 1998
Private Placement and, as a result, received (i) commissions equal to 10% of the
gross proceeds sold by them, plus (ii) a non-accountable expense allowance equal
to 2% of the gross proceeds sold by them.
The 1998 Notes bear interest at an annual rate of 7% and are due and payable
in full on the earlier to occur of (i) three business days following the funding
date of an initial public offering by the Company, or (ii) May 31, 1999. Accrued
interest is payable in arrears on the last day of each calendar quarter.
The 1998 Warrants are not exercisable until one year from the date of grant
and have a term of five years from the date of grant. Such warrants have a
provision for cashless exercise pursuant to which the holder will receive upon
exercise the number of shares of Common Stock otherwise issuable upon such
exercise, less the number of shares of Common Stock having an aggregate current
market price on the date of exercise equal to the exercise price per share
multiplied by the number of shares of Common Stock for which such warrants are
being exercised.
1996 PRIVATE PLACEMENT
In September 1996, the Company completed a private placement of 1,500,000
shares of its Series A Preferred Stock which resulted in gross proceeds to the
Company of $3 million and net proceeds of approximately $2.3 million (the "1996
Private Placement"). Approximately $400,000 of the proceeds of the 1996 Private
Placement were used to redeem a total of 156,454 shares of Common Stock held by
David Edwards and Dan Jensen at a price of $2.17 per share.
In connection with the 1996 Private Placement, The Boston Group, L.P.
("TBG") received warrants to purchase shares of Series A Preferred Stock (the
"1996 Warrants") which, upon consummation of the Offering, will convert into
warrants to purchase an aggregate of 161,760 shares of Common Stock at an
exercise price of $2.6845 per share. The 1996 Warrants have a provision for
cashless exercise pursuant to which the holder will receive upon exercise the
number of shares of Common Stock otherwise issuable upon such exercise, less the
number of shares of Common Stock having an aggregate current market price on the
date of exercise equal to the exercise price per share multiplied by the number
of shares of Common Stock for which the 1996 Warrants are being exercised.
Subsequent to the issuance of the 1996 Warrants, TBG transferred 1996
Warrants to certain of its current and former affiliates, including transfers of
warrants to purchase an aggregate of 40,439 shares of Common Stock to Anthony
Soich and Steve McKeag, each of whom were employed by TBG at the time of the
1996 Private Placement. As a result of such transfers, Mr Soich currently holds
1996 Warrants to purchase 23,849 shares of Common Stock, Mr. McKeag, the
Company's Chief Financial Officer, currently holds 1996 Warrants to purchase
16,590 shares of Common Stock, and TBG holds 1996 Warrants to purchase 121,321
shares of Common Stock.
TRANSACTION WITH REDWOOD TECHNOLOGIES
Konson Gee, one of the founding stockholders of Redwood Technology, left
Redwood Technology in 1994. At such time Mr. Gee held promissory notes
evidencing outstanding loans to Redwood Technology that aggregated approximately
$47,000 and held a note of the Company in the original principal amount of
$362,914 incurred in connection with the redemption of Mr. Gee's shares in
Redwood Technology. Mr. Gee demanded payment in full of amounts due and payable
under one of these notes representing loans to Redwood Technology. In January
1995, Mr. Gee notified Redwood Technology of his foreclosure.
42
<PAGE>
The collateral that had been granted to Mr. Gee as security for such loans
included substantially all of the assets of Redwood Technology. Although Mr. Gee
had rights to foreclose against substantially all of the assets of Redwood
Technology, including software programs, Mr. Gee only foreclosed on the fixed
assets and permitted Redwood Technology to retain all other assets, and to
continue to supply product to new and existing customers, generally operate, and
produce revenue (which was applied by Redwood Technology to outstanding debts
and operating expenses) through June 30, 1995. Mr. Gee acquired the fixed assets
from Redwood Technology by means of Redwood Technology voluntarily assembling
and surrendering collateral to Mr. Gee in satisfaction of the $47,000 note.
Following Mr. Gee's departure, Dan Jensen and David Edwards formed Jenkon
International, Inc., a Washington corporation, whose wholly-owned subsidiary,
Summit V, Inc. purchased from Mr. Gee all of the fixed assets that had belonged
to Redwood Technology for approximately $47,000. The Company (through Summit V,
Inc.) licensed from Redwood Technology, on a perpetual basis, including an
exclusive seven-year period, all of its software programs and rights therein,
including the SUMMIT V software, and Redwood Technology granted the Company the
right to purchase such software. The Company exercised its purchase rights in
July 1998.
Mr. Gee had personally guaranteed $320,000 of Redwood Technology's debts and
was individually liable as an officer for $280,000 of withholdings from payroll
that were required to be placed in Redwood Technology's payroll tax trust
account. Pursuant to the terms of the license of the SUMMIT V software, the
Company agreed to assume approximately $1.4 million of liabilities of Redwood
Technology as payment of the royalties due under such license. Such liabilities
included loan obligations to Daniel Jensen in the amount of $18,800, and
obligations to Konson Gee in the amount of $362,914 which were incurred in
connection with the redemption by Redwood Technology of Mr. Gee's shares in
Redwood Technology. In addition, a significant portion of the obligations
assumed by the Company were personally guaranteed by Daniel Jensen and/or Mr.
Gee.
In addition, Mr. Gee was granted an option by Jenkon International, Inc., a
Washington corporation, to acquire 22,351 shares of Common Stock of the Company
for an aggregate price of $1,000, and exercised such option in early 1996.
Redwood Technology's former assets comprised substantially all of the
initial operating assets of the Company. Many or all of the initial management
personnel of the Company had been the management personnel of Redwood
Technology. Because Redwood Technology may be deemed to have been rendered
insolvent by the sale and license of certain assets to Summit V, Inc., the
Company is or may be subject to claims by unsatisfied creditors of Redwood
Technology alleging successor liability or other similar claims. The Company
believes that such claims could total as much as $200,000 plus interest and
charges thereon which continue to accrue. In exchange for payment of $135,000,
the Company recently settled certain claims arising from tax liens recorded
against the assets of Redwood Technology with respect to the unpaid employer
portion of payroll taxes. The Company intends to use a portion of the proceeds
of the Offering to settle certain other obligations of Redwood Technology.
However, there can be no assurance against claims being made that might result
in the Company's rights to such assets being challenged.
Daniel O. Jensen was a significant stockholder, director and executive
officer of Redwood Technology. David A. Edwards was an executive officer of
Redwood Technology. Payment to or for the benefit of Redwood Technology may also
further the individual interests of certain members of the Company's present
management by limiting or eliminating their liability, or claims asserting their
liability, arising from their having served Redwood Technology, in such
capacities or otherwise. See "Risk Factors--Risk of Creditor Claims and
Successor Liabilities."
OTHER TRANSACTIONS
In the ordinary course of the Company's business, the Company has had
purchase arrangements with Jentronix, an entity wholly-owned by a brother of Dan
Jensen, a principal stockholder, director and former
43
<PAGE>
officer of the Company. Purchases from Jentronix amounted to $7,322 and $46,799
for the fiscal years ended June 30, 1997 and 1996, respectively. Purchases from
Jentronix amounted to $8,138 and zero for the nine month periods ended March 31,
1997 and 1998, respectively. In addition, in July 1998, the Company agreed to
acquire two software products developed by Jenetec LLC, an affiliate of Dan
Jensen, for an aggregate purchase price of $50,000.
See "Management--Employment and Consulting Agreements" for a discussion of
the terms of a Consulting and Non-Competition Agreement between the Company and
Dan Jensen, a director and former officer of the Company.
The Company has entered into an agreement with Anthony Soich pursuant to
which the Company will pay Mr. Soich a fee of $100,000 upon completion of the
Offering and an additional $25,000 in the event the Underwriters' over-allotment
option is exercised, for advisory and consulting services rendered to the
Company in connection with the Offering and advice regarding negotiations with
and the selection of underwriters for the Offering.
The Company intends that future transactions between the Company and its
officers, directors and 5% (or greater) stockholders will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of the disinterested directors or by the Company's
stockholders in accordance with Delaware law.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1998, and as adjusted to
reflect the sale of 1,100,000 shares of Common Stock offered by the Company and
the sale of 300,000 shares of Common Stock by the Selling Stockholders offered
by this Prospectus, for (i) each of the Company's directors (and director
nominees), (ii) by each of the executive officers identified in the Summary
Compensation Table or who have granted the Underwriters an option to acquire
shares of Common Stock in order to cover over-allotments, if any, (iii) all
executive officers and directors of the Company as a group and (iv) each person
who beneficially owns 5% or more of the outstanding shares of Common Stock. The
Company believes that the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
----------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES OWNED PERCENT OWNED SHARES TO BE PERCENT OWNED
PRIOR TO PRIOR TO SOLD IN AFTER THE
NAME AND ADDRESS(2) OFFERING(1) OFFERING(3) OFFERING OFFERING(3)
- ----------------------------------------------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
David Edwards........................................ 815,796 26.80 -- (1) 19.69(1)
Dan Jensen........................................... 815,796 26.80 -- 19.69
Robert Cavitt........................................ 195,567(4) 6.04 -- 4.51
Steve McKeag......................................... 173,044(5) 5.38 -- (1) 4.01(1)
All directors and executive officers as a group
(6 persons)........................................ 2,176,213(6) 60.65 -- (1) 46.42(1)
</TABLE>
- ------------------------------
(1) Number of shares is exclusive of Common Stock issuable upon exercise of the
Representatives' Warrants to be issued in connection with the Offering.
Assumes no exercise of the Underwriters' over-allotment option. If such
option is exercised in full, the Company will sell an additional 40,000
shares of Common Stock and David Edwards and Steve McKeag will sell 150,000
shares of Common Stock and 20,000 shares of Common Stock, respectively. In
such event, upon the closing of the Offering (i) David Edwards will
beneficially own 665,796 shares, or 15.91% of the Company's outstanding
Common Stock, (ii) Steve McKeag will beneficially own 153,044 shares, or
3.55% of the Company's outstanding Common Stock, and (iii) all directors and
executive officers as a group will beneficially own 2,006,213 shares, or
42.43% of the Company's outstanding Common Stock.
(2) Unless otherwise indicated, the business address of each of the stockholders
named in this table is c/o the Company at 7600 N.E. 41st Street, Suite 350,
Vancouver, Washington 98662.
(3) Percentages based on (i) 3,043,515 shares of Common Stock outstanding prior
to the Offering (which total includes shares of Common Stock issuable upon
conversion of the Series A Preferred Stock into Common Stock) and (ii)
4,143,515 shares of Common Stock outstanding upon completion of the
Offering. Shares of Common Stock which the person has the right to acquire
within 60 days of the date of this Prospectus are deemed outstanding in
calculating the percentage of ownership of the persons, but not deemed
outstanding as to any other person.
(4) Consists of shares issuable upon currently exercisable options to purchase
an aggregate of 195,567 shares of Common Stock.
(5) Consists of (i) shares issuable upon exercise of an option to purchase up to
156,454 shares of Common Stock which option may be exercised in full prior
to or simultaneously with the completion of the Offering, and (ii) 16,590
shares of Common Stock that are issuable upon exercise of an outstanding
warrant.
(6) Includes currently exercisable options and warrants to acquire an aggregate
of 544,621 shares of Common Stock.
SELLING STOCKHOLDERS
Of the shares of Common Stock offered hereby, 1,100,000 shares are being
sold by the Company and 300,000 shares are being sold by the Selling
Stockholders, all of which are being underwritten by the Underwriters. The
Company will not receive any of the proceeds from the sale of the Selling
Stockholders' shares. In addition, David Edwards, an executive officer, director
and principal stockholder of the Company, and Steve McKeag, an executive officer
of the Company (collectively, the "Over-Allotment Stockholders"), have granted
to the Underwriters a 45-day option to purchase an aggregate of 170,000
additional shares of Common Stock on the same terms as the shares sold by the
Company in the Offering,
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<PAGE>
solely to cover over-allotments, if any. The Company has granted to the
Underwriters a 45-day option to purchase up to an aggregate of 40,000 additional
shares of Common Stock on the same terms described above, solely to cover
over-allotments, if any. The over-allotment option granted by the Over-Allotment
Stockholders, if exercised, will be exercised on a pro rata basis and must be
exercised in full before the over-allotment option granted by the Company may be
exercised. See "Underwriting."
In addition to the foregoing, an aggregate of 944,296 shares of Common Stock
are being registered in this offering for the account of Selling Stockholders
which are not being underwritten by the Underwriters (the "Lock-up Shares").
These Lock-up Shares may be sold by the Selling Stockholders or their respective
transferees commencing on the date of this Prospectus. However, all of the
Lock-up Shares are subject to a lock-up agreement under which the shares may not
be sold or transferred without the prior written consent of the Representatives.
See "Shares Eligible for Future Sale" and "Underwriting." Any sale of such Lock-
up Shares by the Selling Stockholders or their respective transferees may
depress the price of the Common Stock in any market that may develop.
Upon expiration or termination of any applicable lock-up periods, the sale
of the Lock-up Shares may be effected by the Selling Stockholders from time to
time in transactions (which may include block transactions by or for the account
of the Selling Stockholders) in the over-the-counter market or in negotiated
transactions, through a combination of such methods of sale, or otherwise. Sales
may be made at fixed prices which may be changed, at market prices prevailing at
the time of sale, or at negotiated prices.
If any Selling Stockholder sells, his, her or its Lock-up Shares pursuant to
this Prospectus at a fixed price or at a negotiated price which is, in either
case, other than the prevailing market price or in a block transaction to a
purchaser who resells, or if any Selling Stockholder pays compensation to a
broker-dealer that is other than the usual and customary discounts, concessions
or commissions, or if there are any arrangements either individually or in the
aggregate that would constitute a distribution of the Lock-up Shares, a post-
effective amendment to the Registration Statement of which this Prospectus is a
part may need to be filed and declared effective before such Selling Stockholder
could make such sale, pay such compensation, or make such a distribution. The
Company is under no obligation to file a post-effective amendment to the
Registration Statement of which this Prospectus is a part under such
circumstances.
The Selling Stockholders may effect transactions in their Lock-up Shares by
selling such securities directly to purchasers, through broker-dealers acting as
agents for the Selling Stockholders, or to broker-dealers who may purchase the
Lock-up Shares as principals and thereafter sell such securities from time to
time in the over-the-counter market, in negotiated transactions, or otherwise.
Such broker-dealers, if any, may receive compensation in the form of discounts,
concessions, or commissions from the Selling Stockholders and/or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or both.
The Selling Stockholders and broker-dealers, if any, acting in connection
with such sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commission received by them and any
profit on the resale of such securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
The following table sets forth certain information with respect to the
Selling Stockholders for whom the Company is registering shares of Common Stock
for resale to the public. The Company will not receive any of the proceeds from
the sales of such shares of Common Stock. Each of the Selling Stockholders was a
purchaser of Series A Preferred Stock in connection with the 1996 Private
Placement and none of the Selling Stockholders listed below has had a material
relationship with the Company or its predecessors or affiliates in the last
three fiscal years. Other than the 300,000 Selling Stockholder shares described
above,
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<PAGE>
none of the Selling Stockholder shares are being underwritten by the
Underwriters in connection with the Offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES OWNED NUMBER OF SHARES TO BE SHARES OWNED
PRIOR TO SHARES SOLD IN AFTER THE
NAME OF SELLING STOCKHOLDER OFFERING(1) REGISTERED(2) OFFERING OFFERING(3)
- ------------------------------------------------------ ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Robert and Antoinette Ahr, JTWROS..................... 20,738 20,738 5,000 15,738
Stanley S. Arkin...................................... 20,738 20,738 5,000 15,738
The Jonathan Stanton Co., Inc......................... 82,954 82,954 20,000 62,954
Charles R. Buckridge, Trustee of the
Charles R. Buckridge Revocable Trust................ 41,477 41,477 10,000 31,477
Mulkey Limited Partnership............................ 20,738 20,738 5,000 15,738
Robert and Thelma Gault, JTWROS....................... 41,477 41,477 10,000 31,477
Larry R. Gordon....................................... 82,954 82,954 20,000 62,954
Edward W. Jones....................................... 20,738 20,738 5,000 15,738
Gabriel Kaplan........................................ 82,954 82,954 20,000 62,954
Joseph Esformes....................................... 20,738 20,738 5,000 15,738
Hazen Peter Kelley and Valerie Kelley as JTWROS....... 20,738 20,738 5,000 15,738
David B. Coward and Linda J. Coward, Trustees of the
Coward Family Trust................................. 20,738 20,738 5,000 15,738
Leonard Makowka....................................... 41,477 41,477 10,000 31,477
Steve Natale.......................................... 41,477 41,477 10,000 31,477
Isaac Starkman........................................ 20,738 20,738 5,000 15,738
Harvey Bibicoff....................................... 41,477 41,477 10,000 31,477
Lester C. Aroh........................................ 41,477 41,477 10,000 31,477
Laura M. Durso........................................ 20,738 20,738 5,000 15,738
Rudiger Dahle......................................... 41,477 41,477 10,000 31,477
Scott Barsotti, Trustee of the Scott Barsotti Family
Trust U/A dated December 1, 1995.................... 20,738 20,738 5,000 15,738
Triventures........................................... 20,738 20,738 5,000 15,738
City National Bank C/F Rotunda Productions, Inc.
MPPP................................................ 41,477 41,477 10,000 31,477
Fred Martell and Barbara Martell JTWROS............... 20,738 20,738 5,000 15,738
Robert L. La Clair.................................... 20,738 20,738 5,000 15,738
Marvin H. Bluman...................................... 20,738 20,738 5,000 15,738
Richard E. Eichhorn................................... 20,738 20,738 5,000 15,738
Ranjan V. Dhaduk...................................... 20,738 20,738 5,000 15,738
Robert Burkhardt...................................... 10,369 10,369 2,500 7,869
Peter Jessel Levay Lawrence........................... 51,846 51,846 12,500 39,346
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES OWNED NUMBER OF SHARES TO BE SHARES OWNED
PRIOR TO SHARES SOLD IN AFTER THE
NAME OF SELLING STOCKHOLDER OFFERING(1) REGISTERED(2) OFFERING OFFERING(3)
- ------------------------------------------------------ ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Linda Wallace Pate.................................... 20,738 20,738 5,000 15,738
Patrick J. Riley...................................... 20,738 20,738 5,000 15,738
Vidal and Rhonda Sassoon, as Community Property....... 41,477 41,477 10,000 31,477
Leslie D. Jones....................................... 20,738 20,738 5,000 15,738
Michael Kesselbrenner................................. 10,369 10,369 2,500 7,869
Jason E. Starkman..................................... 20,738 20,738 5,000 15,738
Richard Houlihan...................................... 20,738 20,738 5,000 15,738
Jeffrey C. Brenner.................................... 20,738 20,738 5,000 15,738
Ronald A. Litz........................................ 20,738 20,738 5,000 15,738
Chelsea Associates.................................... 10,369 10,369 2,500 7,869
Robert P. Bain........................................ 20,738 20,738 5,000 15,738
Vitaloon, Inc......................................... 20,738 20,738 5,000 15,738
Barbara Goldstein..................................... 20,738 20,738 5,000 15,738
</TABLE>
- ------------------------------
(1) The listed shares of Common Stock are issuable upon the automatic conversion
of 1,500,000 shares of Series A Preferred Stock into an aggregate of
1,244,296 shares of Common Stock simultaneously with the closing of the
Offering.
(2) Investors in the Company's 1996 Private Placement of Series A Preferred
Stock were granted piggy-back registration rights in connection with an
initial public offering by the Company. However, other than the 300,000
Selling Stockholder shares being sold in the Offering, none of the listed
shares may be sold, transferred or assigned during the 12-month period
following the effective date of the registration statement of which this
Prospectus is a part without the prior written consent of the
Representatives.
(3) Shares may be resold by the Selling Stockholders upon expiration of 12
months from the effective date of the registration statement of which this
Prospectus is a part. The Representatives may, in their discretion, release
some or all of the shares from this 12-month lock-up period.
Each of the Selling Stockholders has agreed not to sell, transfer, assign or
otherwise hypothecate any of the shares of Common Stock owned by them, other
than the 300,000 Selling Stockholder shares being underwritten in the Offering,
for a period of 12 months following the effective date of the registration
statement of which this Prospectus is a part unless such sale has been consented
to in writing by the Representatives. The Company has been informed by the
Representatives that neither of them has any present intention to waive or
shorten such lock-ups.
48
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value, 1,725,000 of which have been designated Series A Preferred Stock.
As of May 28, 1998, there were 1,799,219 shares of Common Stock outstanding
held of record by eight stockholders and 1,500,000 shares of Series A Preferred
Stock outstanding and held of record by 42 stockholders. Such shares of Series A
Preferred Stock were originally convertible into an aggregate of 1,500,000
shares of Common Stock. However, due to the application of the anti-dilution and
other adjustment provisions of the Series A Preferred Stock, the number of
shares of Common Stock issuable upon conversion of all outstanding shares of
Series A Preferred Stock has been decreased from 1,500,000 shares to 1,244,296
shares of Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Subject to preferences that may be applicable
to the holders of outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, and subject to the prior distribution
rights of the holders of outstanding shares of Preferred Stock, if any, the
holders of shares of Common Stock shall be entitled to receive pro rata all of
the remaining assets of the Company available for distribution to its
stockholders. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and shares of Common Stock to be issued pursuant to the
Offering shall be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by the laws of the State of Delaware, but without further action by the
Company's stockholders, to provide for the issuance of up to 5,000,000 shares of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the designations, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding) without any further vote or action by the stockholders. The
Board of Directors may authorize and issue Preferred Stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of Shares.
Simultaneously with the consummation of the Offering, all 1,500,000 shares
of the Company's outstanding Series A Preferred Stock will be converted into
1,244,296 shares of Common Stock and no shares of Preferred Stock of the Company
remain outstanding.
WARRANTS
See "Certain Transactions--1998 Private Placement" for a description of the
1998 Warrants.
See "Certain Transactions--1996 Private Placement" for a description of the
1996 Warrants.
ANTI-TAKEOVER PROVISIONS
The Company may become subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law. In general, the statute prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the
49
<PAGE>
date of the transaction in which the person became an interested stockholder,
unless either (i) prior to the date at which the person becomes an interested
stockholder, the Board of Directors approves such transaction or business
combination, (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of such
transaction, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to such
interested stockholder. For purposes of Section 203, "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT
U.S. Stock Transfer & Trust is the transfer agent and registrar for the
shares of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of 4,543,515 shares of Common Stock. The 1,400,000 shares of Common
Stock offered hereby will be freely tradeable without restriction or further
registration under the Securities Act by persons other than "affiliates." The
remaining 2,743,515 outstanding shares of Common Stock will be "restricted
securities" (the "Restricted Shares") pursuant to Rule 144 promulgated under the
Securities Act. Of these Restricted Shares, 944,296 shares have been registered
on the account of Selling Stockholders and may be sold without restriction or
further registration upon termination of any applicable lock-up arrangements
described below. Upon termination of such lock-up agreements, all of the
remaining Restricted Shares subject to lock-up agreements will become eligible
for sale in the public market pursuant to Rule 144. In general, under Rule 144,
a person (or persons whose shares are aggregated) holding restricted securities
who has satisfied a one-year holding period may, commencing 90 days after the
date hereof under certain circumstances, sell within any three-month period that
number of shares which does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly reported trading volume during the
four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity limitation by a person
who has satisfied a two-year holding period and who is not, and has not been for
the preceding three months, an affiliate of the Company. Future sales under Rule
144 or by the holders of shares registered on the account of the Selling
Stockholders may have an adverse effect on the market price of the shares of
Common Stock should a public market develop for such shares.
With the exception of the 300,000 shares of Common Stock of the Selling
Stockholders underwritten in the Offering, and 55,875 shares owned by
non-affiliated stockholders of the Company, each officer, director and
stockholder of the Company has agreed not to directly or indirectly offer, offer
to sell, sell, grant an option to purchase or sell, transfer, assign, pledge,
hypothecate or otherwise encumber any shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock (other than
shares acquired in the public market) for a period of 12 months from the
effective date of the registration statement of which this Prospectus is a part
without the prior written consent of the Representatives. The Representatives
may, in their sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements.
50
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Meridian
Capital Group, Inc., Trautman, Kramer & Company Incorporated, and W.J. Nolan &
Company Inc. (collectively, the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company and the Selling Stockholders the respective number of shares of
Common Stock indicated below opposite their respective names at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the several Underwriters thereunder are subject to certain
conditions and that the Underwriters are committed to purchase all of such
shares (other than the Common Stock covered by the over-allotment option as
described below) of Common Stock if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Meridian Capital Group, Inc................................................
Trautman, Kramer & Company Incorporated....................................
W.J. Nolan & Company Inc...................................................
Total.............................................................. 1,400,000
-----------------
-----------------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares to the public at the public offering price set forth
on the cover page of this Prospectus and to certain securities dealers at such
price less a concession of not more than $ per share and that the Underwriters
and such dealers may reallow to other dealers, including the Underwriters, a
discount not in excess of $ per share. After completion of the initial public
offering, the public offering price, concessions and discounts may be changed by
the Representatives. No change in such terms shall change the amount of proceeds
to be received by the Company as set forth on the cover page of this Prospectus.
David Edwards and Steve McKeag (collectively, the "Over-Allotment
Stockholders") and the Company have granted the Underwriters an option,
exercisable in the discretion of the Representatives for a period of 45-days
after the date of this Prospectus, to purchase an aggregate of up to an
additional 170,000 shares and 40,000 shares, respectively, at the public
offering price set forth on the cover page of this Prospectus. Of the
over-allotment shares owned by the Over-Allotment Stockholders, Mr. Edwards owns
150,000 shares and Mr. McKeag owns the remaining 20,000 shares. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase first, pro rata from the Over-Allotment
Stockholders, and then from the Company, an aggregate percentage of such
additional shares approximately equal to the percentage of shares it was
obligated to purchase from the Company and the Selling Stockholders pursuant to
the Underwriting Agreement.
The Company has agreed to pay the Representatives a non-accountable expense
allowance of 3% of the gross proceeds of the Offering, including any proceeds
from the sale of shares subject to the Underwriters' over-allotment option if
exercised. The Company has paid $15,000 to be applied to the non-accountable
expense allowance. The Representatives' expenses in excess of the
non-accountable expense allowance, including their legal expenses, will be borne
by the Representatives. To the extent that the expenses of the Representatives
are less than the non-accountable expense allowance, the excess may be deemed to
be compensation to the Representatives.
The Company has agreed to issue to the Representatives warrants (the
"Representatives' Warrants") to purchase an aggregate of up to 140,000 shares of
Common Stock, at an exercise price per share equal to 120% of the initial public
offering price per share. The Representatives' Warrants are exercisable for a
period of four years, beginning one year from the effective date of the
registration statement of which this
51
<PAGE>
Prospectus is a part and will not be transferrable for a period of one year
except to certain officers of the Representatives and members of the selling
group and their officers, and partners. In addition, the Company has granted
certain rights to the holders of the Representatives' Warrants to register under
the Securities Act, the Common Stock underlying the Representatives' Warrants.
The Representatives have informed the Company that the Underwriters
anticipate selling up to 5% of the shares offered hereby to accounts over which
they exercise discretionary authority.
See "Certain Transactions" for a description of the 1998 Private Placement
in which Trautman Kramer & Company Incorporated and Meridian Capital Group, Inc.
acted as placement agents. See also "Certain Transactions" for a description of
certain compensation payable to Anthony Soich for services rendered in
connection with the Offering.
Meridian Capital Group, Inc. was registered as a broker/dealer and became a
member of the National Association of Securities Dealers, Inc. in October 1994.
Meridian Capital Group, Inc. has previously participated in three public
offerings as a managing underwriter. Trautman, Kramer & Company Incorporated was
registered as a broker/dealer and became a member of the National Association of
Securities Dealers, Inc. in 1993. Trautman, Kramer & Company Incorporated has
participated as a co-manager in one public offering. W.J. Nolan & Company Inc.
was registered as a broker-dealer and became a member of the National
Association of Securities Dealers, Inc. in 1985. W.J. Nolan & Company Inc. has
participated in two public offerings. See "Risk Factors--Limited Experience of
Representatives."
All the Company's officers and directors and substantially all of the other
stockholders, who in the aggregate hold approximately 98.2% of the shares of the
Common Stock of the Company outstanding immediately prior to the completion of
the Offering, have agreed not to sell any shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock (other than
shares underwritten in the Offering or acquired in the public market) for 12
months after the date of this Prospectus (other than shares sold in the public
market) without the prior written consent of the Representatives.
The Underwriting Agreement provides that the Company and the Selling
Stockholders (and the Over-Allotment Stockholders with respect to the
over-allotment option) will indemnify the Underwriters and their controlling
persons against certain liabilities under the Securities Act or will contribute
to payments the Underwriters and their controlling persons may be required to
make in respect thereof. The Company, the Selling Stockholders and the
Over-Allotment Stockholders have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
Prior to the Offering, there has been no trading market for the Common
Stock. Accordingly, the initial public offering price has been determined among
the Company and the Representatives. Among the factors considered in determining
the initial public offering price were the Company's results of operations,
current financial condition and products, the markets addressed by the Company's
products, the Company's future prospects, the experience of its management, the
general condition of the equity securities market and the demand for similar
securities of companies considered comparable to the Company.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of the
Company and the Securities and Exchange Commission, Washington, D.C. See
"Additional Information."
52
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Jeffer, Mangels, Butler & Marmaro LLP, Los
Angeles, California. Certain legal matters will be passed upon for the
Underwriters by Troy & Gould Professional Corporation, Los Angeles, California.
EXPERTS
The consolidated balance sheets of the Company as of June 30, 1996 and June
30, 1997, and the statements of operations, stockholders' equity (deficit) and
cash flows for each of the two years in the period ended June 30, 1997, included
in this Prospectus and Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, as set forth on their report
thereon given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a registration statement under the Securities
Act with respect to the Common Stock being offered hereby and the shares
registered on behalf of the holders of Converted Shares and certain other
investors in the Company. This Prospectus omits certain information contained in
said registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to such registration statement, including the exhibits
and schedules thereto. Statements contained herein concerning the contents of
any contract or any other document are not necessarily complete, and in each
instance, reference is made to such contract or other document filed with the
Commission as an exhibit to the registration statement, or otherwise, each such
statement being qualified in all respects by such reference. The registration
statement, including exhibits and schedules thereto, may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at the New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
registration statement may be accessed at the Commission's site on the World
Wide Web located at http://www.sec.gov.
53
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and as of March 31, 1998
(Unaudited)......................................................................... F-3
Consolidated Statements of Operations for the years ended June 30, 1996 and 1997 and
for the nine month periods ended March 31, 1997 and 1998 (Unaudited)................ F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended June 30,
1996 and 1997 and for the nine month period ended March 31, 1998 (Unaudited)........ F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1996 and 1997 and
for the Nine Month Periods ended March 31, 1997 and 1998 (Unaudited)................ F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Jenkon International Inc. and Subsidiaries
Vancouver, Washington
We have audited the accompanying consolidated balance sheets of Jenkon
International, Inc. and Subsidiaries as of June 30, 1996 and 1997, and the
related consolidated statements of operations, statements of stockholders'
deficit and cash flows for the years ended June 30, 1996 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Jenkon International, Inc. and Subsidiaries as of June 30, 1996 and 1997, and
the results of its consolidated operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Los Angeles, CA
October 22, 1997, except for the reverse
stock split described in Note 13 as to
which the date is June 8, 1998.
F-2
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 3)..................... $ 124,504 $ 132,736 $ 83,486
Restricted cash (Note 1)............................... -- 300,000 200,000
Trade receivables, net of allowance for doubtful
accounts of $176,500, $200,000 and $97,600........... 724,259 747,509 1,180,753
Prepaid and other assets............................... 132,153 83,521 145,673
Refundable income taxes................................ -- 155,653 24,308
--------- --------- ---------
Total current assets..................................... 980,916 1,419,419 1,634,220
PROPERTY AND EQUIPMENT, net (Notes 2 and 3).............. 222,963 1,017,056 897,016
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $215,777, $329,024 and $413,967........ 452,987 339,740 254,797
OTHER ASSETS............................................. 57,355 63,156 63,166
--------- --------- ---------
Total assets............................................. $1,714,221 $2,839,371 $2,849,199
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-3
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable....................................... $1,190,953 $ 692,299 $ 466,460
Accrued wages and related taxes........................ 208,450 -- --
Accrued vacation....................................... 83,683 116,172 116,172
Customer deposits...................................... 412,954 920,925 789,075
Other accrued liabilities.............................. 224,678 598,018 738,900
Note payable--current portion (Note 3)................. 77,220 338,512 416,365
--------- --------- ---------
Total current liabilities................................ 2,197,938 2,665,926 2,526,972
Note payable, net of current portion (Note 3)............ 177,920 442,584 180,261
--------- --------- ---------
Total liabilities........................................ 2,375,858 3,108,510 2,707,233
COMMITMENTS AND CONTINGENCIES (Notes 3, 7, 8, 11 and 14)
SERIES A, REDEEMABLE CONVERTIBLE PREFERRED STOCK, $0.001
par value; 1,725,000 shares authorized; 1,500,000
shares issued and outstanding.......................... -- 2,310,174 2,310,174
STOCKHOLDERS' DEFICIT (Note 5)
Common stock, $.001 par value; 20,000,000 shares
authorized; 1,955,673 shares issued 1,799,219
outstanding.......................................... 1,956 1,956 1,956
Additional paid-in capital............................. 6,794 6,794 6,794
Stock subscriptions receivable (Note 6)................ (8,500) (8,500) (8,500)
Foreign currency translation adjustment................ 3,288 (28,092) (28,537)
Accumulated deficit.................................... (665,175) (2,211,471) (1,799,921)
Treasury stock, at cost, 156,454 shares................ -- (340,000) (340,000)
--------- --------- ---------
Total stockholders' deficit.............................. (661,637) (2,579,313) (2,168,208)
--------- --------- ---------
Total liabilities and stockholders' deficit.............. $1,714,221 $2,839,371 $2,849,199
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------- -----------------------
1996 1997 1997 1998
---------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES (Note 9)
Software license fees.............................. $1,685,208 $2,761,995 $2,016,493 $3,090,640
Equipment, software and supplies sales............. 1,571,516 1,029,314 814,525 638,783
Support and operations revenue..................... 3,642,509 4,688,763 3,413,679 3,318,211
---------- ---------- ---------- -----------
Total net sales...................................... 6,899,233 8,480,072 6,244,697 7,047,634
---------- ---------- ---------- -----------
COST OF GOODS SOLD
Cost of software license fees...................... 163,233 292,831 192,754 195,720
Cost of equipment, software and supplies sold (Note
10).............................................. 1,025,934 781,562 682,934 372,830
Cost of support and operations..................... 2,148,131 3,156,312 2,529,041 1,816,168
---------- ---------- ---------- -----------
Total cost of goods sold............................. 3,337,298 4,230,705 3,404,729 2,384,718
---------- ---------- ---------- -----------
GROSS PROFIT......................................... 3,561,935 4,249,367 2,839,968 4,662,916
OPERATING EXPENSES
Selling and marketing.............................. 764,711 1,024,716 726,380 673,711
Product research, development and enhancements..... 433,061 1,375,452 921,302 1,175,088
General and administration......................... 2,443,191 3,322,974 2,620,712 2,271,828
---------- ---------- ---------- -----------
Total operating expenses............................. 3,640,963 5,723,142 4,268,394 4,120,627
---------- ---------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS........................ (79,028) (1,473,775) (1,428,426) 542,289
OTHER EXPENSE
Interest, net...................................... (23,645) (97,433) (35,715) (87,044)
Other expense...................................... (74,252) (63,088) (119,918) (28,118)
---------- ---------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAX...................... (176,925) (1,634,296) (1,584,059) 427,127
PROVISION (BENEFIT) FOR INCOME TAX (Note 4).......... 88,000 (88,000) -- 15,577
---------- ---------- ---------- -----------
NET INCOME (LOSS).................................... $ (264,925) $(1,546,296) $(1,584,059) $ 411,550
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
NET INCOME (LOSS) PER SHARE (Note 12)
Basic.............................................. $ (.14) $ (.84) $ (.86) $ 0.23
Diluted............................................ $ (.14) $ (.84) $ (.86) $ 0.12
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Note
12)
Basic.............................................. 1,938,915 1,838,338 1,851,376 1,799,220
Diluted............................................ 1,938,915 1,838,338 1,851,376 3,358,221
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1996 AND 1997, AND FOR THE NINE MONTH PERIOD ENDED MARCH
31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL STOCK CURRENCY TREASURY STOCK
---------------------- PAID-IN SUBSCRIPTIONS TRANSLATION ACCUMULATED --------------------
SHARES AMOUNT CAPITAL RECEIVABLE ADJUSTMENT DEFICIT SHARES AMOUNT
--------- ----------- ----------- ------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995.... 6,845 $ 6,845 $ 1,905 $ (8,500) $ -- $ (400,250) -- $ --
Stock for stock
reorganization (Note
5)..................... (6,845) (6,845) (1,905) -- -- -- -- --
1,955,674 1,956 6,794 -- -- -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- 3,288 -- -- --
Net loss................. -- -- -- -- -- (264,925) -- --
--------- ----------- ----------- ------------- ----------- ------------ --------- ---------
BALANCE, June 30, 1996... 1,955,674 1,956 6,794 (8,500) 3,288 (665,175) -- --
Stock redemption......... -- -- -- -- -- -- 156,454 (340,000)
Increase in foreign
currency translation
adjustment............. -- -- -- -- (31,380) -- -- --
Net loss................. -- -- -- -- -- (1,546,296) -- --
--------- ----------- ----------- ------------- ----------- ------------ --------- ---------
BALANCE, June 30, 1997... 1,955,674 1,956 6,794 (8,500) (28,092) (2,211,471) 156,454 (340,000)
Foreign currency
translation adjustment
(unaudited)............ -- -- -- -- (445) -- -- --
Net income (unaudited)... -- -- -- -- -- 411,550 -- --
--------- ----------- ----------- ------------- ----------- ------------ --------- ---------
BALANCE, March 31, 1998
(unaudited)............ 1,955,674 $ 1,956 $ 6,794 $ (8,500) $ (28,537) $(1,799,921) 156,454 $(340,000)
--------- ----------- ----------- ------------- ----------- ------------ --------- ---------
--------- ----------- ----------- ------------- ----------- ------------ --------- ---------
<CAPTION>
TOTAL
----------
<S> <C>
BALANCE, July 1, 1995.... $ (400,000)
Stock for stock
reorganization (Note
5)..................... (8,750)
(8,750)
Foreign currency
translation
adjustment............. 3,288
Net loss................. (264,925)
----------
BALANCE, June 30, 1996... (661,637)
Stock redemption......... (340,000)
Increase in foreign
currency translation
adjustment............. (31,380)
Net loss................. (1,546,296)
----------
BALANCE, June 30, 1997... (2,579,313)
Foreign currency
translation adjustment
(unaudited)............ (445)
Net income (unaudited)... 411,550
----------
BALANCE, March 31, 1998
(unaudited)............ $(2,168,208)
----------
----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
INCREASE (DECREASE) IN CASH AND CASH --------------------- ------------------------
EQUIVALENTS 1996 1997 1997 1998
- ------------------------------------------- --------- ---------- ---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................ $(264,925) $(1,546,296) $(1,584,059) $ 411,550
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........ 166,989 314,890 244,934 288,494
Provision for doubtful accounts...... 240,908 102,142 103,081 81,328
Foreign currency translation
adjustment......................... 3,288 (31,380) (7,756) (444)
Increase (decrease) from changes in
operating assets and liabilities:
Trade receivables.................. (422,227) (125,392) (427,215) (514,573)
Prepaid and other assets........... (78,546) 48,632 47,523 (62,152)
Refundable income taxes............ -- (155,653) (67,653) 131,345
Other assets....................... (57,355) (5,801) (2,082) --
Accounts payable................... 202,522 (498,654) (354,191) (225,839)
Accrued wages and related taxes.... 105,558 (208,450) (208,450) --
Accrued vacation................... 66,361 32,489 32,489 --
Customer deposits.................. 130,236 507,971 602,289 (131,850)
Other accrued liabilities.......... 224,678 373,339 338,417 140,882
--------- ---------- ---------- ------------
Net cash provided by (used in) operating
activities............................... 317,487 (1,192,163) (1,282,673) 118,741
--------- ---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment....... (144,561) (995,736) (1,009,732) (83,521)
CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash.......................... -- (300,000) -- 100,000
Borrowings on notes payable.............. -- 659,996 588,922 --
Payments on notes payable................ (334,978) (134,039) -- (184,470)
Net proceeds from private placement...... -- 2,310,174 2,310,174 --
Redemption of common stock............... -- (340,000) (340,000) --
--------- ---------- ---------- ------------
Net cash provided by (used in) financing
activities............................... (334,978) 2,196,131 2,559,096 (84,470)
--------- ---------- ---------- ------------
Net increase (decrease) in cash and cash
equivalents.............................. (162,052) 8,232 266,691 (49,250)
--------- ---------- ---------- ------------
Cash and cash equivalents, beginning of
year..................................... 286,556 124,504 124,504 132,736
--------- ---------- ---------- ------------
Cash and cash equivalents, end of year..... $ 124,504 $ 132,736 $ 391,195 $ 83,486
--------- ---------- ---------- ------------
--------- ---------- ---------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
(a) Cash paid during the year for:
Interest........................... $ 64,372 $ 70,526 $ 52,895 $ 82,573
Income taxes....................... $ -- $ 155,653 $ 155,653 $ --
(b) Other (See Note 5).
--------- ---------- ---------- ------------
--------- ---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. COMPANY ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Jenkon International, Inc. (a Delaware corporation) (Parent), through its
wholly-owned subsidiaries, Jenkon International, Inc. (a Washington
Corporation), Summit V, Inc. (the United States operating entity) and Jenkon
Europe Limited (the United Kingdom operating entity), supplies software
solutions to the Direct/Network Marketing industry. Jenkon International, Inc.
and Subsidiaries (the "Company") has developed and markets a management
information system software package called Summit V, as well as a compatible
fully integrated software based voice response system called Touchtalk, that
offers independent direct sales personnel the ability to access an information
base of the company they represent via touch-tone telephone. In addition, the
Company has developed a PC-based software package called NOW! which allows
direct two-way communication between Distributors and the companies that they
represent via the Internet.
In July 1995, the Company through Summit V, Inc. purchased and/or licensed
substantially all of the assets and assumed certain contractual obligations and
indebtedness from Redwood Technology, Inc. (formerly known as Jenkon Data
Systems, Inc.), the developer of a substantial portion of the Company's Summit V
software technology. This transaction was accounted for under the concept of
"entities under common control" and accordingly the historical basis of the
assets acquired and liabilities assumed were recorded.
On January 27, 1997 Jenkon Europe Limited changed its name to Jenkon
International Limited.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Parent and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
All liquid assets with an initial maturity of three months or less are
considered to be cash equivalents for purposes of the statements of cash flows.
At June 30, 1997 and March 31, 1998, the Company had restricted cash held as
collateral for certain capital leases of $300,000 and $200,000, respectively.
CONCENTRATION OF CREDIT RISK
The Company places its cash and temporary cash investments with high credit
worthy institutions. At June 30, 1997, the Company had a $300,000 certificate of
deposit at a bank, which served as collateral for certain capital leases. At
March 31, 1998, the Company had a $200,000 certificate of deposit at the same
bank which served as collateral for the same capital leases.
The Company sells its products and services primarily to customers in the
Direct/Network Marketing Industry throughout the world. Credit is extended based
on an evaluation of the customer's financial condition and collateral is
generally not required. The allowance for doubtful accounts receivable is based
upon the expected collectibility of all accounts receivable.
At March 31, 1998, the Company had four customers which represented
approximately 60% of accounts receivable.
F-8
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. COMPANY ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of the related asset, which range from 3-7 years.
Amortization of leasehold improvements is computed using the straight-line
method over the lesser of the estimated life of the asset or the remaining term
of the lease.
CAPITALIZED SOFTWARE COSTS
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred (and
recorded as "Product research, development and enhancements expense" in the
consolidated statements of operations) until technological feasibility has been
established. Technological feasibility is established upon completion of a
detail program design or working model. Thereafter, all software production
costs are capitalized and reported at the lower of unamortized cost or net
realizable value until the product is available for general release to
customers. Capitalized software costs are amortized based on current and future
expected revenue for each product subject to an annual minimum based on
straight-line amortization over the remaining estimated life of the product, not
to exceed 5 years.
For the years ended June 30, 1997 and 1996, amortization of capitalized
software development costs amounted to $113,247 for both periods and are
included in "Cost of software license fees" in the consolidated statements of
operations. For the nine months ended March 31, 1998 and 1997, amortization of
capitalized software development costs amounted to $84,935 for both periods.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of Jenkon Europe Limited, where the functional
currency is the British pound, are translated at the current exchange rate at
the balance sheet date. Income and expenses are translated at the average
exchange rate in effect during the year or period. Resulting translation
adjustments are accumulated as a separate component of stockholders' equity
(deficit).
Realized gains and losses related to other foreign currency transactions are
reported as income or expense in the current year. Such gains or losses were not
material for the years ended June 30, 1997 and 1996, and for the nine months
ended March 31, 1998 and 1997.
REVENUE RECOGNITION
SOFTWARE LICENSE FEES
The Company has established its revenue recognition policy in accordance
with the provisions of the American Institute of Certified Public Accountants'
Statement of Position 91-1 "Software Revenue Recognition." Revenue from the sale
of internally-developed software and turnkey systems are recognized upon
delivery, provided that no significant obligations remain and collection of the
related receivable is deemed probable.
F-9
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. COMPANY ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT, SOFTWARE AND SUPPLIES SALES
Revenues from third-party hardware, software and supplies are separately
stated in contracts for the license of the Company's software products, and are
recognized when the related hardware, software and supplies are delivered to the
customer.
SUPPORT AND OPERATIONS REVENUE
Support and operations revenue includes software and hardware maintenance
contracts and service revenues.
Maintenance contracts for hardware outside of the original manufacturer's
warranty are written between the customer and the Company and are priced at
market rates. The Company then sub-contracts with a third-party vendor
specializing in on-site hardware maintenance for the same coverage as the
Company has contracted with its customers. Revenues and the corresponding
third-party contract expenses are recognized ratably over the contractual period
(usually one year). Revenues resulting from Company personnel providing
installation, training, custom modification programming, and network consulting
services are recorded as "Service revenue" and are recognized as the services
are provided. These services are not essential to the functionality of any other
element of the transaction.
DISCOUNTS, RETURNS AND EXCHANGES
Discounts are determined at the time the contract is signed. Any cost
associated with returns and exchanges are insignificant and are recorded as
incurred. The Company provides no warranties which are not supported by
third-party contracts or software support contracts. Discounts are applied
against the appropriate revenue account.
DEFERRED REVENUE
Customer deposits received for software license fees, equipment or services
in advance are considered deferred revenue and are included in the consolidated
balance sheets under the caption "Customer deposits." The deferred revenue is
recognized as revenue upon delivery or as services are provided.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the temporary differences are expected to reverse.
State income taxes are not significant as the Company operates primarily in
the State of Washington, where corporate income tax is not assessed.
ACCOUNTING 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
F-10
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. COMPANY ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements for the nine months ended March 31, 1997
and 1998 are unaudited. In the opinion of management, such statements reflect
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the results of the interim period. The results of
operations for the nine months ended March 31, 1998 are not necessarily
indicative of the results for the entire year.
EMPLOYEE STOCK COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), as of January 1, 1996,
which establishes a fair value method of accounting for stock-based compensation
plans. In accordance with SFAS No. 123, the Company has chosen to continue to
account for stock-based compensation utilizing the intrinsic value method
prescribed in APB 25. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market price of the Company's stock
at the date of grant over the amount an employee must pay to acquire the stock.
Also, in accordance with SFAS No. 123, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The cost of
stock-based employee compensation is measured at the grant date on the value of
the award and is recognized over the service period. The value of the stock-
based award is determined using a pricing model whereby compensation cost is the
excess of the fair value of the stock as determined by the model at grant date
or other measurement date over the amount an employee must pay to acquire the
stock.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128) during 1998. SFAS No. 128 provides for the
calculation of Basic and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, such as stock options,
warrants or convertible debentures. All prior period weighted average and per
share information had no effect on the amounts presented in accordance with SFAS
No. 128.
NEW ACCOUNTING PRONOUNCEMENTS
DISCLOSURE ABOUT CAPITAL STRUCTURE
Statement of Financial Accounting Standards No. 129 "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 129. The Company adopted SFAS No. 129 on December 15,
1997 and it had no effect on its financial position or results of operations.
F-11
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. COMPANY ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company has not determined the
effect on its financial position or results of operations, if any, from the
adoption of this statement.
SEGMENT INFORMATION
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company does not expect
adoption of SFAS No. 131 to have a material effect, if any, on its results of
operations.
SOFTWARE REVENUE RECOGNITION
Statement of Position 97-2, "Software Revenue Recognition", ("SOP 97-2")
issued by the AICPA is effective for transactions entered into in fiscal years
beginning after December 15, 1997. SOP 97-2 supersedes SOP 91-1 regarding
software revenue recognition. SOP 97-2 establishes standards which require a
company to recognize revenue when (i) persuasive evidence of an arrangement
exits, (ii) delivery has occurred, (iii) the vendor's fee is fixed or
determinable, and (iv) collectability is probable. The SOP also discusses the
revenue recognition criteria for multiple element contracts and allocation of
the fee to various elements based on vendor-specific objective evidence of fair
value. The Company does not expect adoption of this SOP to have a material
effect on its financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures.................... $ 8,943 $ 100,904 $ 100,890
Computer systems and related equipment.... 269,988 1,059,522 1,143,176
Vehicles.................................. 48,809 127,900 127,781
Leasehold improvements.................... 31,574 92,317 92,317
--------- --------- ---------
359,314 1,380,643 1,464,164
Accumulated depreciation.................. (136,351) (363,587) (567,148)
--------- --------- ---------
Property and equipment, net............... $ 222,963 $1,017,056 $ 897,016
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense for the years ended June 30, 1996 and 1997, and for the
nine month periods ended March 31, 1997 and 1998 were $53,742, $201,643,
$159,999 and $203,561.
3. NOTE PAYABLE
A summary of notes payable is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to an individual with interest
payable at 18% per year, in monthly
installments of the greater of $10,000 or
the individual monthly compensation of the
two major shareholders and secured by their
shares in the Company. The noteholder also
receives monthly payments equal to 1% of
the Company's gross margin until fully
paid....................................... $ 255,140 $ 235,494 $ 201,756
Note payable to a company for purchase of
fixed assets, payable in monthly
installments of $768, including interest at
8.9%, collateralized by the related
asset...................................... -- 31,950 26,268
Note payable to a company for purchase of
fixed assets, payable in monthly
installments of $491, including interest at
11.3%, collateralized by the related
asset...................................... -- 19,538 16,660
Note payable to a company for purchase of
fixed assets, payable in monthly
installments of $16,747, including interest
at 7.98%, collateralized by the fixed
assets and a Certificate of Deposit in the
amount of $300,000 at June 30, 1997 and
$200,000 at March 31, 1998................. -- 440,361 312,644
Note payable to a company for purchase of
fixed assets, payable in monthly
installments of $1,930, including interest
at 8.20%, collateralized by the fixed
assets and the same Certificate of Deposit
in the amount of $300,000 at June 30, 1997
and $200,000 at March 31, 1998............. -- 53,753 39,298
--------- --------- -----------
255,140 781,096 596,626
Less current portion......................... 77,220 338,512 416,365
--------- --------- -----------
$ 177,920 $ 442,584 $ 180,261
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-13
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. NOTE PAYABLE (CONTINUED)
Aggregate maturities of long-term debt in the next five years at June 30,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 319,994
2000.............................................................................. 106,063
2001.............................................................................. 14,054
2002.............................................................................. 2,473
----------
$ 442,584
----------
----------
</TABLE>
4. INCOME TAXES
The provision for income taxes in the consolidated statement of operations
represents current U.S. federal income tax. State income taxes are not included
as the Company operates primarily in the State of Washington, where corporate
income tax is not assessed.
The provision for income taxes differs from the expected statutory federal
income taxes as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
-------------------- ------------------------
1996 1997 1997 1998
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Provision (benefit) at the
federal statutory rate......... $ (51,000) $(508,000) $(520,000) $ 180,000
Permanent differences............ 26,000 25,000 19,000 1,577
Valuation allowance on net
deferred tax assets............ 113,000 395,000 501,000 (166,000)
--------- --------- ----------- -----------
Provision (benefit) for income
tax............................ $ 88,000 $ (88,000) $ -- $ 15,577
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
F-14
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. INCOME TAXES (CONTINUED)
Temporary differences which give rise to deferred tax assets and
(liabilities) were as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Allowance for doubtful accounts......... $ 60,000 $ 8,000 $ 35,000
Accrued vacation........................ 28,000 11,000 --
Valuation allowance..................... (88,000) (19,000) (35,000)
--------- --------- ---------
$ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
Non-current:
Property, and equipment................. $ (1,000) $ (16,000) $ 18,000
Amortization of intangibles............. 26,000 26,000 26,000
Net operating loss...................... -- 366,000 200,000
Valuation allowance..................... (25,000) (376,000) (244,000)
--------- --------- ---------
$ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company has recorded a 100% valuation allowance on the net deferred tax
asset since management can not determine if it is more likely than not that the
deferred tax assets will be realized.
The Company's ability to utilize the net operating loss carryforwards is
dependent upon its ability to generate taxable income in future periods which
may be limited due to ownership changes as defined under Section 382 of the
Internal Revenue Code of 1986. Any unused annual limitation may be carried over
to future years until the net operating losses expire. Utilization of net
operating losses may also be limited in any one year by alternative minimum tax
rules.
During the year ended June 30, 1997 the Company utilized its net operating
loss carryback, which resulted in an income tax benefit of $88,000.
At June 30, 1997, the Company has net loss operating carryforwards of
approximately $1,077,000 which will expire in 2017.
F-15
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY
On June 27, 1996, Jenkon International, Inc. (a Delaware corporation)
acquired by way of a stock-for-stock reorganization, the 8,750 issued and
outstanding common stock shares of Jenkon International, Inc. (a Washington
corporation) and in exchange issued 1,955,678 shares of common stock to the
stockholders of Jenkon International, Inc. (a Delaware corporation) in
proportion to their shareholdings.
PRIVATE PLACEMENT
In September 1996, the Company completed a private placement of 1,500,000
shares of Series A Preferred Stock and simultaneously purchased 78,227 shares of
common stock from each of Dan Jensen, the Company's Chairman of the Board of
Directors and David Edwards, the Company's President and Chief Executive
Officer.
The sale of Series A Preferred Stock and the purchase of common stock were
executed at $2.56 per share. The net proceeds to the Company from these
transactions was approximately $2,310,000 (net of offering costs) and was
utilized as working capital.
In the event that the Company fails to complete an initial public offering
of its Common Stock which results in (1) gross proceeds to the Company of at
least $5,000,000, and (2) the Common Stock being listed or quoted on a
recognized national securities exchange such as the New York Stock Exchange
(NYSE), the American Stock Exchange (AMEX), or the National Association of
Securities Dealers Automated Quotation system (NASDAQ), within 30 months from
the date of the initial closing of the private placement offering, the Series A
Preferred Stock shall be redeemable at the election of holders of the majority
of the outstanding preferred shares. In such circumstances, the redemption is at
the election of holders of the majority of these outstanding preferred shares
and the redemption price shall equal either the greater of (1) $2.00 per
preferred share plus an annual return of 10% compounded interest from the date
of issuance, or (2) the value of the Common Stock into which the preferred
shares are convertible as established by a nationally recognized valuation firm
selected by the Company.
In the original Certificate of Designation, Preferences and Rights of Series
A Preferred Stock, there is a criterion which states that if the Company issues
or sells additional shares of Common Stock for less than the greater of the then
existing conversion price for the Series A Preferred Stock or the market price,
then in each such case the then existing conversion price for the Series A
Preferred Stock shall be reduced.
STOCK OPTION PLANS
The Company has a stock option plan for the granting of options to purchase
common shares to certain executives and key employees. In each case, the
option's maximum term is five years. Options granted vest immediately upon the
first anniversary of such grant.
WARRANTS
In connection with the Company's private placement, the Company issued
152,542 warrants to purchase Series A Preferred Stock to the Dealer Manager. The
exercise price of these warrants is $2.10 per share, which is subject to
adjustment in certain circumstances.
F-16
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
The following summarizes stock option and warrant activity during the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1998 as
follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
AND EXERCISE
WARRANTS PRICE
--------- -----------
<S> <C> <C>
Outstanding at July 1, 1996............................................. -- $ --
Granted................................................................. 650,678 1.78
--------- -----
Outstanding at June 30, 1997............................................ 650,678 $ 1.78
Granted (unaudited)..................................................... 225,656 $ 1.95
--------- -----
Outstanding at March 31, 1998 (unaudited)............................... 876,334 $ 1.82
--------- -----
--------- -----
</TABLE>
Information relating to options and warrants at June 30, 1997 summarized by
exercise price are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- --------------------
WEIGHTED-AVERAGE WEIGHTED
---------------------- AVERAGE
LIFE EXERCISE EXERCISE
EXERCISE PRICE PER SHARE SHARES (MONTH) PRICE SHARES PRICE
- ---------------------------------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.0128................................. 156,454 53 $ 0.0128 156,454 $ 0.0128
$2.1732................................. 332,464 34.5 $ 2.1732 332,465 $ 2.1732
$2.6845................................. 161,760 18 $ 2.6845 161,760 $ 2.6845
--------- --- --------- --------- ---------
$0.0128-$2.6845......................... 650,678 35 $ 1.78 650,678 $ 1.78
--------- --- --------- --------- ---------
--------- --- --------- --------- ---------
</TABLE>
Information relating to stock options and warrants at March 31, 1998
summarized by exercise price are as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------- --------------------
WEIGHTED-AVERAGE WEIGHTED
---------------------- AVERAGE
LIFE EXERCISE EXERCISE
EXERCISE PRICE PER SHARE SHARES (MONTH) PRICE SHARES PRICE
- ---------------------------------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.0128................................. 156,454 44 $ 0.0128 156,454 $ 0.0128
$2.1732................................. 332,464 25.5 $ 2.1732 332,465 $ 2.1732
$2.5567................................. 39,113 $ 2.5567 39,113 $ 2.5567
$2.6845................................. 161,760 9 $ 2.6845 161,760 $ 2.6845
$3.8350................................. 69,203 58 $ 3.8350 69,203 $ 3.8350
--------- --- --------- --------- ---------
$0.0128-$3.8350......................... 758,994 $ 2.01 758,994 $ 2.01
--------- --- --------- --------- ---------
--------- --- --------- --------- ---------
</TABLE>
In accordance with the provisions of SFAS No. 123, the Company applied APB
Opinion 25 and related interpretations in accounting for its stock option plans
and, accordingly, does not recognize
F-17
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
compensation cost. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net income would have been reduced to the pro forma amounts
indicated in the table below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------- -----------------------
1996 1997 1997 1998
--------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net loss
As reported................. $(264,925) $(1,546,296) $(1,584,059) $ 411,550
Pro forma................... (264,925) (1,593,046) (1,584,059) 374,636
Earnings (loss) per share
Basic:
As reported................. $ (0.14) $ (0.84) $ (0.86) $ 0.23
Pro forma................... (0.14) (0.87) (0.86) 0.21
Diluted:
As reported................. $ (0.14) $ (0.84) $ (0.86) $ 0.12
Pro forma................... (0.14) (0.87) (0.86) 0.12
</TABLE>
The fair value of the option and warrant grants is estimated on the date of
grant using the minimum value method in accordance with SFAS 123, with the
following weighted average assumptions for grants in 1997 and 1998; expected
life of options and warrants of 3-5 years and 5 years, respectively, expected
volatility of 0%, risk free interest rate of 6.4% and 6.0%, respectively, and 0%
dividend yield.
The weighted average fair value at date of grants for options granted during
fiscal 1997 and the nine months ended March 31, 1998 approximated $1.04 and .68.
The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. Additional awards in future years are anticipated.
6. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has purchase arrangements
with Jentronix, an entity wholly-owned by a relative of a major stockholder.
Purchases from Jentronix amounted to $46,799 and $7,322 for the years ended June
30, 1996 and 1997 and $8,138 and $0 for the nine months ended March 31, 1997 and
1998.
Stock subscription receivable represents amounts due from officers of the
Company.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under noncancellable operating leases
which expire at various dates through September 2001.
The Company leases certain equipment under agreements which are classified
as capital leases. Equipment leases have purchase options at the end of the
original lease term.
F-18
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments, by year and in the aggregate, under noncancellable
capital and operating leases with initial or remaining terms of one year or more
consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
1998............................................................... $ 239,239 $ 395,857
1999............................................................... 239,239 389,048
2000............................................................... 112,259 124,344
2001............................................................... 15,114 109,740
2002............................................................... 2,519 23,694
----------- ------------
Total minimum lease payments....................................... 608,370 $ 1,042,683
------------
------------
Less amount representing interest.................................. (62,768)
-----------
Present value of net minimum lease payments........................ 545,602
Less current portion............................................... (202,002)
-----------
$ 343,600
-----------
-----------
</TABLE>
The Company's rental expense for operating leases aggregated $279,077 and
$308,209 for the years ended June 30, 1996 and 1997, and $275,943 and $230,967
for the nine months ended March 31, 1997 and 1998.
The Company may be required to devote significant resources to protect its
interests and the interests of its sublicensees in Asia. This could materially
adversely affect the Company's financial condition and results of operations.
In the ordinary course of business, the Company is subject to various legal
proceedings and claims. In the opinion of management, the amount of ultimate
liability with respect to these proceedings will not materially affect the
financial position, results of operations or cash flows of the Company.
The Company is obligated to make monthly payments to a note-holder equal to
1% of the Company's gross margin until the note is fully repaid (Note 3).
POTENTIAL LIABILITY
In July 1995, the Company through Summit V, Inc. purchased and/or licensed
substantially all of the assets and assumed certain contractual obligations and
indebtedness from Redwood Technology, Inc. the developer of a substantial
portion of the Company's Summit V software technology.
As Redwood Technology may be deemed to have been rendered insolvent by the
sale and license of certain of its assets to the Company, and because of the
commonality of ownership and management of Redwood Technology and the Company,
the Company may be subject to claims by unsatisfied creditors of Redwood
Technology.
At June 30, 1996, the Company recorded $400,000 as a liability based on
management's estimate. At June 30, 1997 and March 31, 1998 the amount was
reduced to approximately $375,000 and $350,000, respectively due to settlements
with some unsatisfied creditors.
See Note 5.
F-19
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
8. EMPLOYEE BENEFIT PLAN
The Company's employees are covered by a 401(k) defined contribution benefit
plan. The plan provides for employee tax-deferred contributions up to the
maximum percentage of eligible compensation allowable not to exceed the limit of
code section 401(k). The Company may make matching contributions equal to a
discretionary percentage. For the years ended June 30, 1996 and 1997 and the
nine months ended March 31, 1998, the Company did not elect to make matching
contributions to the plan.
9. MAJOR CUSTOMERS
The Company had two customers which accounted for 23% and 11% of the
Company's sales during the year ended June 30, 1997, and three customers which
accounted for 25%, 12% and 11% of the Company's sales for the year ended June
30, 1996. The Company also had two customers which accounted for 22%, 11% and
10% of the Company's sales during the nine months ended March 31, 1997 and no
customers during the nine months ended March 31, 1998 represented more than 10%
of the Company's sales.
10. CONCENTRATION OF SUPPLIERS
The Company is dependent on third-party equipment manufacturers and
distributors for all its supply of computer equipment and some of its software
accessories. Purchases from individual suppliers that exceed 10% of total
purchases in each period were as follows: three suppliers at 37%, 31% and 12% of
total purchases, for the year ended June 30, 1996; two suppliers at 13% and 10%
of total purchases for the nine months ended March 31, 1997; and one supplier at
10% of total purchases, and for the nine months ended March 31, 1998.
11. LIQUIDITY
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. At June 30, 1997 the Company has
negative working capital of approximately $1,348,000, and a stockholders'
deficit of approximately $269,000. At March 31, 1998, the Company had a negative
working capital of approximately $893,000 and stockholders' deficit of
approximately $2,168,000.
The funding of the Company's operations and servicing of existing debt is
dependent upon continued sales of its core products, and extending payment terms
on various current liabilities. During December 1996, the Company implemented
changes to reduce its fixed costs which included eliminating approximately 25
nonproductive positions and terminating a month-to-month office lease. In
addition, the Company has established an agreement with its noteholder to vary
from regularly scheduled payments when necessary. Based on the continuing sales
activity and the above actions, the Company has returned to profitable
operations during the nine months ended March 31, 1998 and met its obligations
on a timely basis. See Note 14.
F-20
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
12. EARNINGS PER SHARE
The following is a reconciliation of the weighted average number of shares
used to compute basic and diluted earnings per share:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Basic weighted average shares
outstanding................. 1,938,915 1,838,338 1,851,376 1,799,224
Diluted effect of stock
options..................... -- -- -- --
--------- --------- --------- ---------
Diluted weighted average
shares outstanding.......... 1,938,915 1,838,338 1,851,376 1,799,224
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Options to purchase 936,378 shares were outstanding during the years ended
June 30, 1996 and 1997 but were not included in the computation of diluted loss
per common share because the effect would be antidilutive.
13. STOCK SPLIT
In June 1998, the Board of Directors declared a .782271-to-one reverse stock
split. All stock related data in the consolidated financial statements reflect
the stock split for all periods presented.
14. SUBSEQUENT EVENTS (UNAUDITED)
BRIDGE LOANS
In June 1998, the Company completed a bridge loan for $1,000,000, of which
net proceeds were $1,000,000 less placement fees of $120,000, or $880,000. In
connection with the bridge loans, the Company issued 11,732 warrants per each
$100,000 of bridge loans, for a total of 117,321 warrants, at an exercise price
of $.6392. The bridge loan is due the earlier of May 31, 1999 or three business
days following the completion of the initial public offering. The Company valued
the warrants at fair value. The original issue discount was determined based on
the fair value of the warrants to total fair value of warrants and debt. The
original issue discount is being amortized over the twelve month term of the
bridge loans as interest expense.
EMPLOYMENT AGREEMENTS
Effective with the completion of the initial public offering, the Company
will enter into two four-year employment agreements and two one-year renewable
employment agreements with employees of the Company. The annual base salaries
for the four-year and one-year renewable employment agreements will be $200,000,
$150,000, $150,000 and $90,000. These agreements will be subject to a 5% cost of
living increase and other benefits. In the event the Company terminates any of
the employment agreements without cause, the Company will be required to make a
severance payment equal to one year's base salary. One of the employment
agreements with an annual base salary of $90,000 has a severance payment of
$200,000 instead of $90,000.
F-21
<PAGE>
JENKON INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1998 IS UNAUDITED)
14. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
CONSULTING AND NON-COMPETITION AGREEMENT
Effective July 1, 1998, Mr. Jensen and the Company entered into a Consulting
and Non-Competition Agreement pursuant to which Mr. Jensen agreed to provide
certain consulting services to the Company in exchange for the following
payments and benefits: (i) $30,000 on signing, (ii) $50,000 within three
business days following completion of this Offering, (iii) $75,000 at the end of
the three year term, (iv) $12,000 per month from August 1, 1998 through January
31, 1999, (v) $8,000 per month from February 1, 1999 through January 31, 2000,
(vi) $4,000 per month from February 1, 2000 through July 31, 2001, and (vii)
reimbursement and payment of certain automobile, insurance, phone, and other
expenses as well as an agreement by Jenkon to assume certain personal guarantees
of Mr. Jensen.
F-22
<PAGE>
[ARTWORK]
<TABLE>
<S> <C>
LOGO Jenkon's management information systems are installed throughout the world.
UK
Germany
France
Netherlands
Belgium
Spain
Sweden
South Korea
Finland CHART SHOWING ACTUAL AND ESTIMATED INCREASE IN WORLDWIDE HOME-BASED DIRECT
Norway SALES PERSONNEL FROM 11.3 MILLION IN 1991 TO AN ESTIMATED 37 MILLION IN
Portugal 2000
Italy
Columbia
Venezuela
Brazil
Singapore
Malaysia
New Zealand
Phillipines
Argentina
Russia
China
India
Japan
Mexico
Canada
USA CHART SHOWING ACTUAL AND ESTIMATED INCREASE IN WORLDWIDE DIRECT SALES FROM
$48.3 BILLION IN 1991 TO 113.7 BILLION IN 2000
Source: World Federation of Direct Selling Associations and J.P. Morgan
Securities projections
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
include provisions that eliminate the directors' personal liability for monetary
damages to the fullest extent possible under Delaware Law or other applicable
law (the "Director Liability Provision"). The Director Liability Provision
eliminates the liability of directors to the Company and its stockholders for
monetary damages arising out of any violation by a director of his fiduciary
duty of due care. Under Delaware Law, however, the Director Liability Provision
does not eliminate the personal liability of a director for (i) breach of the
director's duty of loyalty, (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violation of law, (iii) payment of
dividends or repurchases or redemptions of stock other than from lawfully
available funds, or any transaction from which the director derived an improper
benefit. Furthermore, pursuant to Delaware Law, the limitation on liability
afforded by the Director Liability Provision does not eliminate a director's
personal liability for breach of the director's duty of due care. Although the
directors would not be liable for monetary damages to the corporation or its
stockholders for negligent acts or omissions in exercising their duty of due
care, the directors remain subject to equitable remedies, such as actions for
injunction or rescission, although these remedies, whether as a result of
timeliness or otherwise, may not be effective in all situations. With regard to
directors who also are officers of the Company, these persons would be insulated
from liability only with respect to their conduct as directors and would not be
insulated from liability for acts or omissions in their capacity as officers.
Delaware Law provides a detailed statutory framework covering
indemnification of directors, officers, employees or agents of the Company
against liabilities and expenses arising out of legal proceedings brought
against them by reason of their status or service as directors, officers,
employees or agents. Section 145 of the Delaware General Corporation Law
("Section 145") provides that a director, officer, employee or agent of a
corporation (i) shall be indemnified by the corporation for expenses actually
and reasonably incurred in defense of any action or proceeding if such person is
sued by reason of his service to the corporation, to the extent that such person
has been successful in defense of such action or proceeding, or in defense of
any claim, issue or matter raised in such litigation, (ii) may, in actions other
than actions by or in the right of the corporation (such as derivative actions),
be indemnified for expenses actually and reasonably incurred, judgments, fines
and amounts paid in settlement of such litigation, even if he is not successful
on the merits, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation (and in a
criminal proceeding, if he did not have reasonable cause to believe his conduct
was unlawful), and (iii) may be indemnified by the corporation for expenses
actually and reasonably incurred (but not judgments or settlements) of any
action by the corporation or of a derivative action (such as a suit by a
stockholder alleging a breach by the director or officer of a duty owed to the
corporation), even if he is not successful, provided that he acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, provided that no indemnification is permitted
without court approval if the director has been adjudged liable to the
corporation.
Delaware Law also permits a corporation to elect to indemnify its officers,
directors, employees and agents under a broader range of circumstances than that
provided under Section 145. The Certificate contains a provision that takes full
advantage of the permissive Delaware indemnification laws (the "Indemnification
Provision") and provides that the Company is required to indemnify its officers,
directors, employees and agents to the fullest extent permitted by law,
including those circumstances in which indemnification would otherwise be
discretionary, provided, however, that prior to making such discretionary
indemnification, the Company must determine that the person acted in good faith
and in a manner he or she believed to be in the best interests of the Company
and, in the case of any criminal action or proceeding, the person had no reason
to believe his or her conduct was unlawful.
II-1
<PAGE>
In furtherance of the objectives of the Indemnification Provision, the
Company has also entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Certificate and Bylaws (the "Indemnification Agreements"). The Company
believes that the Indemnification Agreements are necessary to attract and retain
qualified directors and executive officers. Pursuant to the Indemnification
Agreements, an indemnitee will be entitled to indemnification to the extent
permitted by Section 145 or other applicable law. In addition, to the maximum
extent permitted by applicable law, an indemnitee will be entitled to
indemnification for any amount or expense which the indemnitee actually and
reasonably incurs as a result of or in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, preparing to be a witness, or
otherwise participating in any threatened, pending or completed claim, suit,
arbitration, inquiry or other proceeding (a "Proceeding") in which the
indemnitee is threatened to be made or is made a party or participant as a
result of his or her position with the Company, provided that the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company and had no reasonable cause to
believe his or her conduct was unlawful. If the Proceeding is brought by or in
the right of the Company and applicable law so provides, the Indemnification
Agreements provide that no indemnification against expenses shall be made in
respect of any claim, issue or matter in the Proceeding as to which the
indemnitee shall have been adjudged liable to the Company.
The Company intends to purchase a directors' and officers' liability policy
insuring directors and officers of the Company effective upon the closing of
this Offering.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions and non-accountable expense allowance.
All of the amounts shown are estimates, except the Securities and Exchange
Commission registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 5,718
NASD fees......................................................... $ 1,872
---------
Nasdaq listing fee................................................ $ 9,544
---------
Accounting fees and expenses...................................... $ 100,000
---------
Printing and engraving expenses................................... $ 75,000
---------
Transfer agent and registrar (fees and expenses).................. $ 10,000
---------
Blue sky fees and expenses (including counsel fees)............... $ 25,000
---------
Other legal fees and legal expenses............................... $ 125,000
---------
Miscellaneous expenses............................................ $ 147,866
---------
---------
Total............................................................. $ 500,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1995 the Company issued 111,752 shares of Common Stock to a
former officer of the Company for nominal consideration. The issuance of such
shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
In December 1995, A.M. Razo Securities Corp. received 33,524 shares of
Common Stock in exchange for consulting services rendered to the Company. The
issuance of such shares was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof.
II-2
<PAGE>
In November 1995, 22,351 shares of Common Stock were issued to Konsen Gee, a
founder and officer of the Company's predecessor corporation, as a result of the
exercise of an option to acquire shares of Common Stock of the Company for an
aggregate exercise price of $1,000. See "Certain Transactions." The issuance of
such shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
In September 1996, the Company completed a private placement of 1,500,000
shares of its Series A Preferred Stock to 42 accredited investors which resulted
in gross proceeds to the Company of $3 million and net proceeds of approximately
$2.3 million (the "1996 Private Placement"). Approximately $400,000 of the
proceeds of the 1996 Private Placement were used to redeem a total of 156,454
shares of Common Stock held by David Edwards and Dan Jensen at a price of $2.17
per share. In connection with the 1996 Private Placement, The Boston Group, L.P.
("TBG") received warrants to purchase shares of Series A Preferred Stock (the
"1996 Warrants") which, upon consummation of this Offering, will convert into
warrants to purchase an aggregate of 161,760 shares of Common Stock at an
exercise price of $2.6845 per share. The issuance of the shares of Series A
Preferred Stock and the 1996 Warrants in connection with the 1996 Private
Placement was exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D promulgated thereunder. See "Certain
Transactions."
In November 1996 the Company issued to one executive officer an option to
purchase 156,454 shares of Common Stock at an exercise price of $0.0128 per
share. Such option was issued under the Company's Stock Option Plan and in
reliance on the exemption afforded by Section 4(2) of the Securities Act.
In April 1997, the Company issued options to purchase an aggregate of
332,464 shares of Common Stock at an exercise price of $2.1732 per share to
three executive officers of the Company in accordance with the Company's Stock
Option Plan. Such options were issued in reliance on the exemption afforded by
Section 4(2) under the Securities Act.
In late 1997, the Company issued to one executive officer an option to
purchase 39,113 shares of Common Stock at an exercise price of $2.1732 per
share. Such option was issued under the Company's Stock Option Plan and in
reliance on the exemption afforded by Section 4(2) of the Securities Act.
In January 1998, the Company issued options to purchase an aggregate of
69,203 shares of Common Stock at an exercise price of $3.835 per share to a
total of 77 employees in accordance with the Company's Stock Option Plan. Such
options were issued in reliance on the exemption afforded by Rule 701 of the
Securities Act.
On June 3, 1998, the Company completed a private placement of $1,000,000 of
unsecured promissory notes (the "1998 Notes") and warrants (the "1998 Warrants")
to purchase an aggregate of 117,321 shares (the "1998 Private Placement") at an
exercise price of $.6392 per share to 40 accredited investors. Meridian Capital
Group, Inc. and Trautman Kramer & Company Incorporated acted as placement agents
with respect to the 1998 Private Placement and, as a result, received (i)
commissions equal to 10% of the gross proceeds of the 1998 Notes sold by them,
plus (ii) a non-accountable expense allowance equal to 2% of the gross proceeds
of the 1998 Notes sold by them. The issuance of the 1998 Notes and 1998 Warrants
was exempt from the registration requirements of the Securities Act pursuant to
Rule 506 of Regulation D promulgated thereunder. See "Certain Transactions."
II-3
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company, as amended
3.2 Bylaws of the Company, as amended
3.3 Certificate of Designation, Preferences and Rights of Series A Preferred
Stock, as amended**
4.1 Specimen Stock Certificate of the Company*
4.2 Form of Representatives' Warrant Agreement, including form of
Representatives' Warrant.
4.3 Dealer Manager's Warrant Agreement, dated as of July 1, 1996 between the
Company and The Boston Group, L.P.**
4.4 Form of unsecured Promissory Note of the Company issued in connection with
the 1998 Private Placement**
4.5 Form of Warrant to purchase Common Stock issued in connection with the
1998 Private Placement**
4.6 Subscription Supplement and Registration Rights Agreement with respect to
1996 private placement**
5.1 Opinion of Jeffer, Mangels, Butler & Marmaro LLP*
10.1 Form of Employment Agreement of David Edwards
10.2 Form of Employment Agreement of Steve McKeag
10.3 Form of Employment Agreement of Jim Thompson
10.4 Form of Employment Agreement of Robert Cavitt
10.5 Consulting and Non-Competition Agreement of Dan Jensen
10.6 Form of Indemnification Agreement with Officers and Directors
10.7 Jenkon International, Inc. Stock Option Plan
10.8 Lease Agreement--Corporate Headquarters, Vancouver, Washington
10.9 Form of Software Service Agreement
10.10 Value Aded Reseller Agreement, dated January 17, 1997, between the Company
and Unidata, Inc.
10.11 Earthlink Network TotalAccess Distribution Agreement, dated November 27,
1997, between the Company and EarthLink Network, Inc.
10.12 Sublease Agreement, dated April 1, 1998, between the Company and S&P
Company
10.13 Lease Intended as Security No. 960171, dated November 26, 1998, between BA
Leasing & Capital Corporation and Summit V, Inc.
11.1 Statement re: Computation of Per Share Earnings*
21.1 List of Subsidiaries*
23.1 Consent of BDO Seidman, L.L.P.
23.2 Consent of Jeffer, Mangels, Butler & Marmaro LLP* (included in Exhibit
5.1)*
23.3 Consent of Robert Cavitt*
24 Power of Attorney (incorporated by reference to page II-4 of the
Registration Statement on Form SB-2)**
27 Financial Data Schedule
</TABLE>
- --------------------------
* To be filed by Amendment.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) (Section
230.424(b) of this Chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein,
and the Offering of such securities at that time shall be deemed to be
the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the Offering.
Insofar as indemnification for liabilities arising from the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide Offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Vancouver, State of Washington on the
14th day of July, 1998.
JENKON INTERNATIONAL, INC.
By: /s/ STEVE MCKEAG
-----------------------------------------
Steve McKeag,
CHIEF FINANCIAL OFFICER
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed below by the following
persons on behalf of the Company in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
Director, President and
* Chief Executive Officer
- ------------------------------ (principal executive July 14, 1998
David Edwards officer)
*
- ------------------------------ Director July 14, 1998
Dan Jensen
Chief Financial Officer,
/s/ STEVE MCKEAG Treasurer (principal
- ------------------------------ financial and accounting July 14, 1998
Steve McKeag officer)
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEVE MCKEAG
-------------------------
Steve McKeag
HIS ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
JENKON INTERNATIONAL, INC.
1,400,000 Shares (*)
Common Stock
UNDERWRITING AGREEMENT
_____________, 1998
MERIDIAN CAPITAL GROUP, INC.
TRAUTMAN, KRAMER & COMPANY INCORPORATED
W.J. NOLAN & COMPANY INC.
As Representatives of the several Underwriters
c/o Meridian Capital Group, Inc.
4675 MacArthur Court, Suite 1250
Newport Beach, California 92660
Ladies and Gentlemen:
Jenkon International, Inc., a Delaware corporation (the "COMPANY"), hereby
confirms its agreement, with the several underwriters named in Schedule I hereto
for whom you have been duly authorized to act as representative, as set forth
below. If you are the only Underwriters (as such term is hereinafter defined),
all references herein to the Representative (as such term is hereinafter
defined) shall be deemed to be to the Underwriters.
1. SECURITIES. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters named in
Schedule 1 hereto (the "UNDERWRITERS") 1,100,000 shares (the "COMPANY
SECURITIES") of the Company's Common Stock, par value $0.001 per share (the
"COMMON SHARES"), and certain unaffiliated stockholders (the "FIRM SELLING
STOCKHOLDERS") propose to issue and sell to the several Underwriters an
aggregate of 300,000 Common Shares (the "FIRM SELLING STOCKHOLDER
SECURITIES"). The Company Securities and the Firm Selling Stockholder
Securities are hereinafter collectively referred to as the "FIRM SECURITIES".
Meridian Capital Group, Inc. and Trautman, Kramer & Company Incorporated and
W.J. Nolan & Company Inc. shall act as the representatives (the
"REPRESENTATIVES") of the several Underwriters.
The Company and two stockholders of the Company (the "OVER-ALLOTMENT
STOCKHOLDERS") also propose to issue and sell to the several Underwriters an
aggregate of not more than 40,000 and 170,000, respectively, additional Common
Shares (the "OPTION SECURITIES"), if and to the extent that the Representatives
shall have determined to exercise, on behalf of the Underwriters, the rights to
purchase such Common Shares granted to the Underwriters pursuant to Section 4 of
this Agreement.
The Firm Securities and any Option Securities are hereinafter collectively
referred to as the "SECURITIES." The Company, the Firm Selling Stockholders and
the Over-Allotment Stockholders are hereinafter
- -------------------------
(*) Plus an option to purchase from each of the Company and two stockholders of
the Company an aggregate of up to 40,000 and 170,000, respectively,
additional shares to cover over-allotments.
1.
<PAGE>
sometimes referred to individually as a "SELLER" and collectively as the
"SELLERS." The Firm Selling Stockholders and the Over-Allotment Stockholders
are hereinafter sometimes referred to collectively as the "SELLING
STOCKHOLDERS."
In addition, the Company proposed to sell to you, individually and not in
your capacity as the Representatives, five-year warrants (the "REPRESENTATIVES'
WARRANTS") to purchase an aggregate of up to 140,000 Common Shares (the
"REPRESENTATIVES' WARRANT SHARES"), which sale will be consummated in accordance
with the terms and conditions of the Representatives' Warrant Agreement filed as
an exhibit to the Registration Statement described below.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, each Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-56023) with
respect to the Securities, including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission (the
"COMMISSION") under the Securities Act of 1933, as amended (the "ACT"), and one
or more amendments to such registration statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by the Representatives prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representatives prior to the execution of this
Agreement. As used in this Agreement, the term "REGISTRATION STATEMENT" means
such registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "PRELIMINARY
PROSPECTUS" means the prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"PROSPECTUS" means the prospectus in the form first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is required to be
filed pursuant to said Rule 424(b), the form of prospectus included in the
Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When any Preliminary Prospectus dated
July __, 1998 or any date thereafter was filed with the Commission it (i)
complied in all material respects with the requirements of the Act and the rules
and regulations of the Commission thereunder and (ii) did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (i) contained or will contain
all statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder and (ii) did not or will not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading. When the
Prospectus or any amendment or supplement thereto is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or such amendment or supplement
is not required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
2.
<PAGE>
declared effective) and on the Firm Closing Date and any Option Closing Date
(both as hereinafter defined), the Prospectus, as amended or supplemented at any
such time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
commission thereunder and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein.
(c) The Company and its subsidiaries have been duly organized and are
validly existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation and are duly qualified to transact
business as foreign corporations and are in good standing under the laws of all
other jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company and
its subsidiaries taken as a whole.
(d) The Company and its subsidiaries have full power (corporate and
other) to own or lease their respective properties and conduct their respective
businesses as described in the Registration Statement and the Prospectus or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus; and
the Company has full power (corporate and other) to enter into this Agreement
and the Representatives' Warrant Agreement and to carry out all the terms and
provisions hereof and thereof to be carried out by it.
(e) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus. All of the issued shares of
capital stock of the Company (including the Securities to be sold by the Selling
Stockholders) have been duly authorized and validly issued and are fully paid
and nonassessable and have been issued in compliance with federal and state
securities laws. Except as disclosed in the Registration Statement and the
Prospectus (or if the Prospectus is not in existence, the most recent
Preliminary Prospectus), there is no outstanding option, warrant or other right
calling for the issuance of, and no commitment, plan or arrangement to issue,
any share of capital stock or other ownership interest in the Company or any of
its subsidiaries. The Securities have been duly authorized and at the Firm
Closing Date or the related Option Closing Date (as the case may be), after
payment therefor in accordance herewith, will be validly issued, fully paid and
nonassessable. No holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or other rights to subscribe for any of
the Securities, and except as described in the Prospectus, or if the Prospectus
is not in existence, the most recent Preliminary Prospectus, no holder of
securities of the Company has any right which has not been fully exercised or
waived to require the Company to register the offer or sale of any securities
owned by such holder under the Registration Statement or to otherwise register
any securities owned by such holder under the Act by reason of the filing of the
Registration Statement.
(f) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(g) The combined financial statements and schedules of the Company
and its consolidated subsidiaries included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company and
its consolidated subsidiaries and the results of operations and changes in
financial condition as of the dates and for the periods
3.
<PAGE>
therein specified. Such financial statements and schedules have been prepared
in accordance with generally accepted accounting principles, consistently
applied throughout the periods involved (except as otherwise noted therein).
The financial data set forth under the captions "Prospectus Summary - Summary
Financial Data," "Capitalization," "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein and have been
compiled on a basis consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus. No other financial
statements or schedules of the Company or its subsidiaries are required by the
Act or the applicable rules and regulations thereunder to be included in the
Registration Statement or the Prospectus.
(h) BDO Seidman LLP, who have audited certain combined financial
statements of the Company and delivered their report with respect to the audited
consolidated financial statements and schedules included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), are independent public accountants as
required by the Act and the applicable rules and regulations thereunder.
(i) The execution and delivery of this Agreement has been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(j) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject that are
required to be described in the Registration Statement or the Prospectus and are
not described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and to the best of the Company's knowledge, no
such proceedings have been threatened against the Company or with respect to any
of its properties; and no contract or other document is required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement that is not described therein (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) or filed as
required.
(k) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated (i) do not require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except (1) such as have been obtained, (2) such as may be required
under state securities or blue sky laws, and (3) if the registration statement
filed with respect to the Securities (as amended) is not effective under the Act
as of the time of execution hereof, such as may be required (and shall be
obtained as provided in this Agreement) under the Act, and (ii) do not conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, lease,
franchise contract or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties are bound, or the charter
documents or by-laws of the Company, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator applicable to the Company.
(l) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) except as described in the Prospectus, paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company.
4.
<PAGE>
(m) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (1) there has not
been any material adverse change in the assets or properties, business, results
of operations, prospects or condition (financial or otherwise) of the Company,
whether or not arising from transactions in the ordinary course of business; (2)
the Company has not sustained any material loss or interference with its assets,
businesses or properties (whether owned or leased) from fire, explosion,
earthquake, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental action,
order or decree; (3) the Company has not incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction not
in the ordinary course of business; (4) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (5) there has not been any
change in the capital stock (including outstanding options, warrants or other
rights calling for the issuance of, and commitments, plans or arrangements to
issue, any share of capital stock), and no material change in the short-term
debt or long-term debt, of the Company, except in each case as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(n) The Company has good and marketable title to all personal
property owned by it, in each case free and clear of any security interests,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not interfere
with the use made or proposed to be made of such property by the Company, and
any real property and buildings held under lease by the Company are held under
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made or proposed to be made of such
property and buildings by the Company, in each case except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(o) No labor dispute with the employees of the Company exists or, to
the best of the Company's knowledge, is threatened or imminent that could result
in a material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(p) The Company owns or possesses all patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed or planned to be employed by
it in connection with its business and its prospective business as described in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(q) The Company's principal software products (including, without
limitation, Summit V and NOW!) are year 2,000 compliant.
(r) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which they are engaged; the Company has not
been refused any insurance coverage sought or applied for; and the Company does
not have any reason to believe that it will not be able to renew its existing
insurance coverage as and when such
5.
<PAGE>
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely effect the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). The Company has no reason to believe that
it will not be able to obtain insurance from insurers of recognized financial
responsibility, of the type described in, and for the premiums described in, the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(r) Except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company and each of its subsidiaries possesses all certificates, authorizations,
permits and licenses issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization, permit or license which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries taken as a whole.
(s) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, and the consummation of the transactions
contemplated herein and the operation of the business of the Company as
described in the Registration Statement and Prospectus will not cause the
Company to become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(t) The Company has filed all foreign, federal, state, local and
franchise tax returns that are required to be filed or has requested extensions
thereof and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). The Company has established on its books
and records reserves that are adequate for the payment of all taxes not yet due
and payable. There are no liens for taxes on the assets of the Company, except
for taxes not yet due. There are no audits known by the Company's management to
be pending of the tax returns of the Company (whether federal, state, local or
foreign) and there are no claims which have been or may be asserted relating to
any such tax returns, which audits and claims, if determined adversely, could
result in the assertion by any governmental agency of any deficiency that would
have a material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company.
Neither the Internal Revenue Service nor any state or local tax authority has
asserted or, to the best of the Company's knowledge, threatened to assert any
assessment, claim or liability for taxes due or to become due in connection with
any review or examination of the tax returns of the Company or its predecessors
filed for any year which would have a material adverse effect on the assets or
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company.
(u) The Company is not in violation of any federal or state or
foreign law or regulation relating to occupational safety and health, to the
storage, handling or transportation of hazardous or toxic materials, and the
Company has received all permits, licenses or other approvals required of it
under applicable federal, state, or foreign occupational safety and health,
environmental laws and regulations to conduct its business, and the Company is
in compliance with all terms and conditions of any such permit, license or
approval, except (i) for any such violation of law or regulation, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals which
6.
<PAGE>
would not, singly or in the aggregate, result in a material adverse change in
the condition (financial or otherwise), business prospects, net worth or results
of operations of the Company or (ii) as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(v) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specific authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) Each agreement listed in the exhibits to the Registration
Statement is in full force and effect and is valid and enforceable by and
against the Company and where applicable to its subsidiaries in accordance with
its terms (assuming the due authorization, execution and delivery thereof by
each of the other parties thereto). Neither the Company, nor to the best of the
Company's knowledge, any other party (i) is in default in the observance or
performance of any term or obligation to be performed by it under any such
agreement and (ii) no event has occurred which with notice or a lapse of time or
both would constitute such a default, in any such case which default or event
could have a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of the
Company. No default exists, and no event has occurred which with notice or
lapse of time or both would constitute a default, in the due performance and
observance of any term, covenant or condition, by the Company or any of its
subsidiaries of any other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the properties or business of the
Company or any of its subsidiaries may be bound or affected which default or
event could have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company and its subsidiaries taken as a whole.
(y) The Company is not in violation of any term or provision of its
charter and by-laws, or of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation, where the consequences of such violation
could have a material adverse effect on the assets or properties, results of
operations, prospects or condition (financial or otherwise) of the Company.
(z) No transaction has occurred between or among the Company on the
one hand, and any officer, director or principal stockholder of the Company or
any affiliate or affiliates (including family members) of any such officer,
director or principal stockholder on the other hand, that is required to be
described in and is not described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(aa) Neither the Commission nor the Blue Sky or securities authorities
of any jurisdiction has issued an order suspending the effectiveness of the
Registration Statement, preventing or suspending the use of any preliminary
prospectus, the Prospectus, or the Registration Statement or suspending the
registration or qualification of the Securities, nor has the Commission or any
of such authorities instituted or, to the knowledge of the Company, threatened
to institute any proceedings with respect to such an order in any jurisdiction
in which the Securities are to be sold.
7.
<PAGE>
(bb) Neither the Company nor any officer or director purporting to act
on behalf of the Company or any of its subsidiaries has at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contributions, in violation of law; or (ii) made any payment to any
federal, state, local or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or allowed by applicable law; or (iii) made any payment outside the
ordinary course of business to any purchasing or selling agent or person charged
with similar duties of any entity to which the Company sells or from which the
Company buys products, for the purpose of influencing such agent or person to
buy products from or sell products to the Company; or (iv) engaged in any
transaction, maintained any bank account or used any corporate funds except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the Company.
(cc) The Company does not control, directly or indirectly, any
corporation, partnership, joint venture, association or other business
organization other than Summit V, Inc., a Washington corporation and Jenkon
Europe, Ltd., a United Kingdom corporation.
(dd) Except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company has not incurred any liability for finders, brokers or consulting fees
or agents' commissions in connection with the execution and delivery of this
Agreement, the offer and sale of the Securities or the transactions hereby
contemplated.
(ee) The Securities have been approved for quotation on the Nasdaq
SmallCap Market upon official notice of issuance.
(ff) The Representatives' Warrants and the Representatives' Warrant
Agreement have been duly and validly authorized by the Company and upon delivery
to you in accordance therewith will be duly issued and will constitute legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with the terms thereof.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder severally and not jointly, represents and warrants to and
agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date and on
any later date on which Option Securities are purchased will have valid
marketable title to the Securities to be sold by such Selling Stockholder, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than pursuant to this Agreement; and upon delivery of
such Securities hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Securities purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Stockholder or such
Selling Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claim of any creditor, devisee, legatee or beneficiary of such Selling
Stockholder.
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an Irrevocable Custody Agreement and Power of Attorney (the "Power of Attorney")
appointing David Edwards and Steve McKeag as attorneys-in-fact (collectively,
the "Attorneys" and individually, an "Attorney") and custodians (collectively,
the "Custodians" and individually, a "Custodian"); the Power of Attorney
constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Stockholder's
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Attorneys, acting alone, is authorized to execute and deliver this Agreement and
the certificate referred to in Section 4(b) hereof on behalf of such Selling
Stockholder, to determine the purchase price to be paid by the several
Underwriters to such Selling Stockholder as provided in Section 4 hereof, to
authorize the delivery of the Option Securities and Firm Selling Stockholder
Securities to be sold by such Selling Stockholder under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Securities or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such Selling
Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Stockholder of the Power of Attorney,
the execution and delivery by or on behalf of such Selling Stockholder of this
Agreement and the sale and delivery of the Firm Selling Stockholder Securities
and the Option Securities to be sold by such Selling Stockholder under this
Agreement (other than, at the time of the execution hereof (if the Registration
Statement has not yet been declared effective by the Commission), the issuance
of the order of the Commission declaring the Registration Statement effective
and such consents, approvals, authorizations or orders as may be necessary under
state or other securities or Blue Sky laws) have been obtained and are in full
force and effect; and such Selling Stockholder has full legal right, power and
authority to enter into and perform its obligations under this Agreement and
such Power of Attorney, and to sell, assign, transfer and deliver the Securities
to be sold by such Selling Stockholder under this Agreement.
(d) Certificates in negotiable form for all Securities to be sold by
such Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been placed in
custody with the Custodians for the purpose of effecting delivery hereunder.
(e) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Securities.
(f) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities.
(g) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Firm Selling
Stockholder Securities and Option Securities that is contained in the
representations and warranties of such Selling Stockholder in such Selling
Stockholder's Power of Attorney or set forth in the Registration Statement and
the Prospectus is, and at the time the Registration Statement became or becomes,
as the case may be, effective and at all times subsequent thereto up to and on
the Option Closing Date, was or will be, true, correct and complete, and does
not and at the time the Registration Statement became or becomes, as the case
may be, effective and at all times subsequent thereto up to and on the Option
Closing Date, will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make such
information not misleading.
(h) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Option Closing
Date.
(i) Such Selling Stockholder does not have any preemptive right,
co-sale right or right of first refusal or other similar right to purchase any
of the Securities that are to be sold by the Company or any of the other Selling
Stockholders to the Underwriters pursuant to this Agreement; such Selling
Stockholder does not have any registration right or other similar right to
participate in the offering made by the Prospectus, other than such rights of
participation as have been satisfied by the participation of such Selling
Stockholder in the
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transactions to which this Agreement relates in accordance with the term of this
Agreement; and such Selling Stockholder does not own any warrants, options or
similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(j) Such Selling Stockholder is not aware that any of the
representations and warranties of the Company set forth in Section 2 above is
untrue or inaccurate in any material respect.
(k) Such Selling Stockholder will pay or cause to be paid the
underwriting discount and nonaccountable expense allowance payable hereunder
with respect to his Securities.
(l) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, the Selling Stockholder agrees
to deliver to the Underwriters prior to or at the Firm Closing Date and any
Option Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
(m) David Edwards and Steve McKeag, severally and not jointly,
further represent and warrant to and agree with the Underwriters and the Company
that the Registration Statement and any amendments thereto, at the time such
Registration Statement or such amendment becomes effective, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading and
the Prospectus and any amendments or supplements thereto will not at any such
time contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each of the Underwriters, and
each of the Underwriters, severally and not jointly, agrees to purchase from the
Company at a purchase price of $________ per share, the number of Firm
Securities set forth opposite the name of such Underwriter in Schedule 1 hereto.
One or more certificates in definitive form for the Firm Securities that the
several Underwriters have agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as the Representatives
request upon notice to the Company at least 48 hours prior to the Firm Closing
Date, shall be delivered by or on behalf of the Company to Meridian Capital
Group, Inc. for the respective accounts of the Underwriters, against payment to
the Company by or on behalf of the Underwriters of the purchase price therefor
by certified or official bank check or checks drawn upon or by a New York
Clearing House bank and payable in next-day funds to the order of the Company.
Such delivery of and payment for the Firm Securities shall be made at the
offices of Troy & Gould Professional Corporation, 1801 Century Park East, 16th
Floor, Los Angeles, California 90067, at 8:30 A.M. Los Angeles time, on
_______________, 1998, or at such other place, time or date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 10 hereof, such time and date of delivery against
payment being herein referred to as the "FIRM CLOSING DATE." The Company will
make such certificate or certificates for the Firm Securities available for
checking and packaging by the Representatives at least 24 hours prior to the
Firm Closing Date at such location as may be designated by the Representatives.
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(b) Solely for the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as contemplated
by the Prospectus, each Over-Allotment Stockholder hereby grants to the several
Underwriters an option to purchase, severally and not jointly, the number of
Option Securities set forth in Schedule 3 hereto opposite such Over-Allotment
Stockholder's name on such Schedule. The purchase price to be paid for any
Option Securities shall be the same price per share as the price per share for
the Firm Securities set forth above in paragraph (a) of this Section 4. The
options granted hereby may be exercised as to all or any part of the Option
Securities one time within 45 days after the date of the Prospectus (or if such
45th day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading). The foregoing
option granted by the Company shall not be exercisable unless and until the
foregoing options granted by the Over-Allotment Stockholders shall have first
been expired in full. If the foregoing options granted by the Over-Allotment
Stockholders are exercised with respect to less than all the Option Securities
purchasable from the Over-Allotment Stockholders, such Option Securities shall
be purchased from each Over-Allotment Stockholder pro rata in proportion to the
number of Option Securities set forth opposite such Over-Allotment Stockholder's
name on Schedule 3 hereto bears to the aggregate number of Option Securities.
The Underwriters shall not be under any obligation to purchase any of the Option
Securities prior to the exercise of such options. The Representatives may
exercise the options granted hereby by giving notice in writing or by telephone
(confirmed in writing) to the Company and the Over-Allotment Stockholder setting
forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than three business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representatives, the Company and the Over-Allotment Stockholders may agree upon
or as the Representatives may determine pursuant to Section 10 hereof, is herein
called the "OPTION CLOSING DATE" with respect to such Option Securities. Upon
exercise of the options as provided herein, the Company and each Over-Allotment
Stockholder, as the case may be, shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set forth,
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company and the Over-Allotment Stockholders, the same
percentage of the total number of the Option Securities as to which the several
Underwriters are then exercising the option as such Underwriter is obligated to
purchase of the aggregate number of Firm Securities, as adjusted by the
Representatives in such manner as they deem advisable to avoid fractional
shares. If the options are exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 4, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) It is understood that you, individually and not as the
Representatives may (but shall not be obligated to) make payment on behalf of
any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations hereunder.
5. OFFERING BY THE UNDERWRITERS. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters that:
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(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required,
the Company will file the Prospectus and any amendment or supplement thereto
with the Commission in the manner and within the time period required by Rule
424(b) under the Act. During any time when a prospectus relating to the
Securities is required to be delivered under the Act, the Company (i) will
comply with all requirements imposed upon it by the Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented and
(ii) will not file with the Commission the prospectus or the amendment referred
to in the second sentence of Section 2(a) hereof, any amendment or supplement to
such prospectus or any amendment to the Registration Statement of which the
Representatives shall not previously have been advised and furnished with a copy
for a reasonable period of time prior to the proposed filing and as to which
filing the Representatives shall not have given their consent, which shall not
be unreasonably withheld. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Representatives or counsel for the Underwriters,
any amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the several Underwriters, and will use its
best efforts to cause any such amendment to the Registration Statement to be
declared effective by the Commission as promptly as possible. The Company will
advise the Representatives, promptly after receiving notice thereof, of the time
when the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto has
been filed and will provide evidence satisfactory to the Representatives of each
such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any amendment thereto or any order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (ii) the suspension of the qualification of the Securities for offering
or sale in any jurisdiction, (iii) the institution, threat or contemplation of
any proceeding for any such purpose or (iv) any request made by the Commission
for amending the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best efforts
to prevent the issuance of any such stop order and, if any such stop order is
issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the Securities
for offering and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representatives thereof and, subject to Section 6(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance. The Company
will provide as many copies of such amendment or supplement to the
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Prospectus as the Representatives may reasonably request and will pay all
expenses incurred in connection with preparing any such amendment or supplement
to the Prospectus.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto), (ii) conformed
copies of such registration statement and each amendment thereto (in each case
without exhibits thereto) in such quantities as the Representatives shall
reasonably request and (iii) so long as a prospectus relating to the Securities
is required to be delivered under the Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request.
(f) For a period of five years after the date of this Agreement, the
Company shall supply to the Representatives, and to each other Underwriter who
may so request in writing, copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock and to furnish the
Representatives a copy of each annual or other report it shall be required to
file with the Commission (including the Report on Form SR required by Rule 463
under the Act).
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Representatives an earnings
statement of the Company and any consolidated subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(h) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will timely take all actions necessary to obtain all
trademarks, licenses, permits, approvals and authorizations necessary to engage
in its prospective businesses as described in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(j) The Company will not, from the date hereof until one year after
the Firm Closing Date, offer for sale, sell, distribute, issue, grant any option
for the sale of or otherwise dispose of, directly or indirectly, any Common
Shares or other equity securities of the Company (or any securities convertible
into, exercisable for, or exchangeable for Common Shares or other equity
securities of the Company), without the prior written consent of Meridian
Capital Group, Inc. except that the following shall not require any consent of
Meridian Capital Group, Inc.: (A) the issuance and sale of Common Shares
pursuant to this Agreement, (B) the issuance of Common Shares upon the exercise
or conversion of options, warrants and convertible securities outstanding on the
date hereof, and (C) the issuance of options under the Company's stock option
plans that are in effect on the date hereof.
(k) The Company will not for 180 days after the date hereof, directly
or indirectly, (i) take any action designed to cause or to result in, or that
will constitute or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (ii) sell, bid for, purchase,
or pay anyone any compensation for soliciting purchases of, the Securities or
(iii) pay or agree to pay to any person any compensation for soliciting another
to purchase any other outstanding securities of the Company.
(l) The Company will cause the Securities to be duly included for
quotation on the Nasdaq Stock Market's SmallCap Market (the "NASDAQ SMALLCAP
MARKET") prior to the Firm Closing Date. The
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Company will use its best efforts to ensure that the Securities remain included
for quotation on the Nasdaq SmallCap Market following the Firm Closing Date.
(m) The Company shall use its best efforts to obtain from each person
who is a director or officer of the Company and from each person who owns
outstanding Common Shares or other equity securities of the Company (or any
securities convertible into, exercisable for, or exchangeable for Common Shares
or other equity securities of the Company), an agreement to the effect that such
person will not, from the date of such agreement until the date twelve months
after the effective date of the offering of the Securities, offer for sale,
sell, distribute, grant any option for the sale of, otherwise dispose of,
directly or indirectly, or exercise any registration rights with respect to, any
Common Shares or other equity securities of the Company (or any securities
convertible into, exercisable for, or exchangeable for Common Shares or other
equity securities of the Company) then or thereafter owned by such person,
without the prior written consent of Meridian Capital Group, Inc.
(n) Prior to the Firm Closing Date, or if any Option Securities are
purchased, the Option Closing Date, if later, the Company will not issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or this offering
(other than trade releases issued in the ordinary course of the Company's
business with respect to the Company's operations) without the Representatives'
prior written consent which shall not be unreasonably withheld or, if such
consent is not granted after request by the Company, unless otherwise required
by law as determined in the good faith judgment of the Company.
(o) The Company will conduct its operations in a manner that will not
subject it to registration as an investment company under the Investment Company
Act of 1940, as amended, and at no time will the Company acquire or own
"investment securities" having a value exceeding 40% of the value of the
Company's total assets (exclusive of government securities and cash items) in
the absence of an exclusion from the definition of "investment company" under
the Investment Company Act of 1940.
(p) The Company will not grant options to purchase any of the
Company's securities for a period of two years following the effective date of
the Registration Statement to Jim Thompson, Steve McKeag, Robert Cavitt and Greg
Fink, current holders of the Company's securities; provided, however, that the
Company may grant to Robert Cavitt options to purchase no more than 39,113
Common Shares exercisable at a price equal to the fair market value on the date
of grant of such options.
7. EXPENSES. The Company will pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 12 hereof, including all costs and expenses incident to (i)
the printing or other production of documents with respect to the transactions,
including any costs of printing the registration statement originally filed with
respect to the Securities and any amendment or supplement thereto, any
Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement and any blue sky memoranda, (ii) all arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, (iii) the
fees and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Securities, including transfer
agent's and registrar's fees, (v) all necessary issue, transfer and other stamp
taxes in connection with the issuance and delivery of the Securities to the
Underwriters, (vi) the qualification of the Securities under state securities
and Blue Sky laws, including filing fees and fees and disbursements of counsel
for the Underwriters relating thereto, (vii) the filing fees of the Commission
and the National Association of Securities Dealers, Inc. relating to the
Securities and (viii) any quotation of the Securities on the Nasdaq
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SmallCap Market. In addition, on the First Closing Date and any Option Closing
Date, the Company and the Selling Stockholders, severally and not jointly, will
also pay to you, individually and not in your capacity as the Representatives, a
non-accountable expense allowance equal to three percent (3%) of the initial
public offering price of the Securities sold by the Company or the Stockholders,
as the case may be, on the First Closing Date or such Option Closing Date. If
the sale of the Securities provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth in Section 8 of this
Agreement is not satisfied, because this Agreement is terminated pursuant to
Section 12(a)(i) and (a)(ii) or because of any failure, refusal or inability on
the part of the Company to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Securities. You acknowledge that $15,000 has
previously been paid to you by the Company to be applied against such
non-accountable expense allowance or such reasonable out-of-pocket expenses if
the sale of Shares is not consummated as provided in the preceding sentences, as
the case may be. You agree that any portion of such $15,000 that is not
necessary to pay the Underwriters for their reasonable out-of-pocket expenses
actually incurred if the sale of Shares if not consummated for any reason shall
be returned to the Company. The Company shall not in any event be liable to any
of the Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement. Except as provided in this Section 7 and Section 9
hereof, the Underwriters shall pay all of their own expenses, including the fees
and disbursements of their counsel (excluding those relating to the
qualification of the Securities under state securities and Blue Sky laws
referred to above) and all concessions to dealers who participate in the public
offering.
8. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to (i) the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, (ii) the accuracy of the statements of the Company's officers in any
certificate delivered pursuant to the provisions hereof or in any other document
expressly delivered pursuant to this Section 8, (iii) the performance by the
Company of its covenants and agreements hereunder and (iv) the following
additional conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Registration Statement or such amendment shall have been
declared effective not later than 8:00 A.M., Los Angeles time, on the date on
which the amendment to the registration statement originally filed with respect
to the Securities or to the Registration Statement, as the case may be,
containing information regarding the initial public offering price of the
Securities has been filed with the Commission, or such later time and date as
shall have been consented to by the Representative; if required, the Prospectus
and any amendment or supplement thereto shall have been filed with the
commission in the manner and within the time periods required by Rule 424(b) or
Rule 434, if applicable, under the Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representative, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Jeffer, Mangels, Butler & Marmaro LLP, counsel for the
Company, in the form attached hereto as Exhibit A.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials.
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References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Troy & Gould Professional Corporation, counsel for the
Underwriters, with respect to the issuance and sale of the Securities, the
Registration Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(d) The Representative shall have received from BDO Seidman LLP a
letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) they are independent accountants with respect to
the Company within the meaning of the Act and the applicable rules and
regulations thereunder;
(ii) in their opinion, the audited consolidated
financial statements and schedules audited by them and included in the
Registration Statement and the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations;
(iii) on the basis of a reading of the minute books of
the stockholders, the board of directors and any committees thereof of the
Company and each of its consolidated subsidiaries, and inquiries of certain
officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters, they will state that
management of the Company has advised them that at a specific date not more than
five business days prior to the date of such letter, there were no changes in
the capital stock or long-term debt of the Company and its consolidated
subsidiaries or any decreases in net current assets or stockholders' equity of
the Company and its consolidated subsidiaries, in each case compared with
amounts shown on the consolidated balance sheet included in the Registration
Statement and the Prospectus, except in all instances for changes, decreases or
increases set forth in such letter; and
(iv) they have carried out certain specified
procedures, not constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the general
accounting records of the Company and its consolidated subsidiaries and are
included in the Registration Statement and the Prospectus, and have compared
such amounts, percentages and financial information with such records of the
Company and with information derived from such records and have found them to be
in agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriters that (A) such letters shall be accompanied by a written
explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (h) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(e) The Representatives shall have received a certificate, dated the
Firm Closing Date, of the chief executive officer and the principal financial or
accounting officer of the Company to the effect that:
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(i) the representations and warranties of the Company
in this Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date, does
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company has
performed all covenants and agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and to the best
of the Company's knowledge no proceedings for that purpose have been instituted
or threatened or are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition
(financial or otherwise), management, business prospects, net worth or results
of operations of the Company and its subsidiaries taken as a whole, except in
each case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(f) The Representatives shall have received from each person who is a
director or officer of the Company and from each person who owns outstanding
Common Shares or other equity securities of the Company (or any securities
convertible into, exercisable for, or exchangeable for Common Shares or other
equity securities of the Company) an agreement to the effect that such person
will not, from the date of such agreement until the date twelve months from the
effective date of the offering of the Securities, offer for sale, sell,
distribute, grant any option for the sale of, otherwise dispose of, directly or
indirectly, or exercise any registration rights with respect to, any Common
Shares or other equity securities of the Company (or any securities convertible
into, exercisable for, or exchangeable for Common Shares or other equity
securities of the Company) then or thereafter owned by such person, without the
prior written consent of the Representatives.
(g) The Company shall have duly exercised its rights to purchase, and
shall have duly purchased, the software program and rights therein, including
the Summit V software, as contemplated by the Prospectus.
(h) At or prior to the First Closing Date, the Representatives'
Warrant Agreement shall have been entered into by you and the Company, and the
Representatives' Warrants shall have been issued and sold to you pursuant
thereto.
(i) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
(j) Prior to the commencement of the offering of the Securities, the
Securities shall have been approved for quotation on the Nasdaq SmallCap Market.
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(k) The Company shall have engaged and contracted for the services of
a financial public relations firm that the Company and the Representatives have
mutually agreed upon. The Company shall retain the services of said firm for
twelve months after the date hereof.
(l) The Company shall have entered into an agreement with the
Representatives, satisfactory in form and substance to the Representatives,
providing the Representatives with a right of first refusal to place all
future private and public equity offerings of the Company and its
subsidiaries and successors for the one-year period commencing on April 25,
1998 and ending on April 24, 1999.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Option Securities shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(i) any untrue statement made by the Company in
Section 2 of this Agreement or any certificate provided by the Company to the
Representatives or Underwriters pursuant to the terms of this Agreement;
(ii) any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the securities or Blue Sky laws thereof or filed
with the Commission or any securities association or securities exchange (each a
"COMPANY APPLICATION"); or
(iii) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Company
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse, as incurred, each
Underwriter and each such controlling person for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Company Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein; and PROVIDED, FURTHER, that the Company will not
be liable to any Underwriter or any person controlling such Underwriter with
respect to any
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such untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented), at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the Prospectus
(as amended or supplemented) is required by the Act, unless such failure to
deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 6(d) or (e) of this Agreement. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Firm Selling Stockholder and each Over-Allotment
Stockholder, severally and not jointly, agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement made by such Firm Selling
Stockholder or Over-Allotment Stockholder in Section 3 of this Agreement;
(ii) any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto based upon written information furnished by or on behalf
of such Firm Selling Stockholder or Over-Allotment Stockholder or (B) any
application or other document, or any amendment or supplement thereto, executed
by such Firm Selling Stockholder or Over-Allotment Stockholder or based upon
written information furnished by or on behalf of such Firm Selling Stockholder
or Over-Allotment Stockholder filed in any jurisdiction in order to qualify the
Securities under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each a
"STOCKHOLDER APPLICATION" and collectively with the Company Applications, each
an "Application"); or
(iii) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Stockholder
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse, as incurred, each
Underwriter and each such controlling person for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by or on behalf of such
Firm Selling Stockholder or Over-Allotment Stockholder, directly or through such
Firm Selling Stockholder's or Over-Allotment Stockholder's representatives,
specially for use therein or in the preparation thereof; PROVIDED, HOWEVER, that
such Firm Selling Stockholder or Over-Allotment Stockholder will not be liable
to any Underwriter or any person controlling such Underwriter with respect to
any such untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented), at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the Prospectus
(as amended or supplemented) is required by the Act, unless such failure to
deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 6(d) or (e) of this Agreement. This
indemnity agreement will be in addition to any liability which such Firm Selling
Stockholder or Over-Allotment Stockholder may
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otherwise have. In no event shall a Firm Selling Stockholder or Over-Allotment
Stockholder's be liable to the Underwriters under this subsection 9(b) for an
amount greater than the gross proceeds received by such Firm Selling Stockholder
or such Over-Allotment Stockholder from the Underwriters of this offering.
(c) Each Underwriter will, severally and not jointly, indemnify and
hold harmless the Company, the Firm Selling Stockholders and the Over-Allotment
Stockholders, each of the Company's directors, each of the Company's officers
who signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person of the Company, may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company, or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or any action in respect thereof.
(d) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 9, notify the indemnifying party of the commencement thereof. No
indemnification provided for in Section 9(a), 9(b) or 9(c) shall be available to
any party who shall fail to give notice as provided in this Section 9(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution or otherwise than under this
Section 9. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 9 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the preceding sentence (it being understood,
however, that in connection with such action the indemnifying party shall not be
liable for the expenses of more than one separate counsel (in addition to local
counsel), in any one action or separate but substantially similar actions in the
same
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jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) or (b) of this
Section 9, representing the indemnified parties under such paragraph (a) or (b)
who are parties to such action or actions), (ii) the indemnifying party does not
promptly retain counsel satisfactory to the indemnified party or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 9 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company, the Firm Selling Stockholders, the Over-Allotment Stockholders and the
Underwriters shall be deemed to be in the same proportion as the total proceeds
from the offering (before deducting expenses) received by the Company and each
of the Firm Selling Stockholders and the Over-Allotment Stockholders bear to the
total underwriting discounts and commissions received by the Underwriters. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Sellers or the Underwriters, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances. The Sellers and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (e).
Notwithstanding any other provision of this paragraph (e), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Agreement Among Underwriters. For purposes of this paragraph (e), each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, shall have the same rights to contribution as the
Company.
10. DEFAULT OF UNDERWRITERS. If one or more Underwriters default in their
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other
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Underwriters may make arrangements satisfactory to the Representative for the
purchase of such Securities by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representative), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Securities or Option Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase. If one or more Underwriters so default with
respect to an aggregate number of Securities that is more than ten percent of
the aggregate number of Firm Securities or Option Securities, as the case may
be, to be purchased by all of the Underwriters at such time hereunder, and if
arrangements satisfactory to the Representatives are not made within 36 hours
after such default for the purchase by other persons (who may include one or
more of the non-defaulting Underwriters, including the Representatives) of the
Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company other than as provided in Section 11 hereof. In the event of any
default by one or more Underwriters as described in this Section 10, the
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 4
hereof for not more than seven business days in order that any necessary changes
may be made in the arrangements or documents for the purchase and delivery of
the Firm Securities or Option Securities, as the case may be. As used in this
Agreement, the term "UNDERWRITER" includes any person substituted for an
Underwriter under this Section 10. Nothing herein shall relieve any defaulting
Underwriter from liability for its default.
11. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company and the several
Underwriters set forth in this Agreement or made by or on behalf of them,
respectively, in any certificate delivered pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, any Underwriter or
any controlling person referred to in Section 9 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 7 and 9 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
12. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or such Option Closing Date,
respectively:
(i) The Company shall have, in the sole judgment of the
Representatives, sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding or there shall have been any material
adverse change, or any development involving a prospective material adverse
change (including without limitation, a change in management or control of the
Company), in the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company, except in each case as described
in or contemplated by the Prospectus (exclusive of any amendment or supplement
thereto);
(ii) trading in the Common Shares shall have been suspended by
the Commission or the Nasdaq SmallCap Market;
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(iii) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market or the
Nasdaq SmallCap Market shall have been suspended or minimum or maximum prices
shall have been established on any of such exchanges or market system;
(iv) a banking moratorium shall have been declared by New York,
Washington, California, or United States authorities; or
(v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (C) any other calamity or crisis or material adverse change in general
economic, political or financial conditions having an effect on the financial
markets that, in the sole judgment of the Representative, makes it impractical
or inadvisable to proceed with the public offering or the delivery of the
securities as contemplated by the Registration Statement, as amended as of the
date hereof.
(b) Termination of this Agreement pursuant to this Section 12 shall
be without liability of any party to any other party except as provided in
Section 11 hereof.
13. INFORMATION SUPPLIED BY UNDERWRITERS. The statements set forth in the
last paragraph on the front cover page and under the heading "Underwriting"
(other than the final paragraph under such heading) in any Preliminary
Prospectus or the Prospectus (to the extent such statements relate to the
Underwriters) constitute the only information furnished by any Underwriter
through the Representatives to the Sellers for the purposes of Sections 2(b) and
9 hereof. The Underwriters confirm that such statements (to such extent) are
correct.
14. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be sent by mail, telex or facsimile
transmission and confirmed in writing to Meridian Capital Group, Inc., 4675
MacArthur Court, Suite 1250, Newport Beach, California 92660; if sent to the
Company shall be delivered or sent by mail, telex or facsimile transmission and
confirmed in writing to the Company at 7600 N.E. 41st Street, Suite 350,
Vancouver, Washington 98662 Attention: Chief Executive Officer; if sent to the
Firm Selling Stockholders or the Over-Allotment Stockholders shall be delivered
or sent by mail, telex or facsimile transmission and confirmed in writing c/o
Jeffer, Mangels, Butler & Marmaro LLP, Attention: Robert M. Steinberg, Esq.
15. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
binding upon the several Underwriters, the Company, the Firm Selling
Stockholders and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company, the Firm Selling
Stockholders, and the Over-Allotment Stockholders contained in Section 9 of this
Agreement shall also be for the benefit of any person or persons who control any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Underwriters contained in Section 9
of this Agreement shall also be for the benefit of the directors of the Company,
the officers of the Company who have signed the Registration Statement, and any
person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
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16. APPLICABLE LAW. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to any provisions relating to conflicts of laws.
17. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of California, and
by execution and delivery of this Agreement, the Company accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. The Sellers designate and appoint
Jeffer, Mangels, Butler & Marmaro, LLP, and such other persons as may hereafter
be selected by the Sellers irrevocably agreeing in writing to so serve, as their
agent to receive on their behalf personal service of all process in any such
proceedings in any such court, such service being hereby acknowledged by the
Company to be effective and binding service in every respect. A copy of any
such process so served shall be mailed by registered mail to the Company at its
address provided in Section 14 hereof; PROVIDED, HOWEVER, that, unless otherwise
provided by applicable law, any failure to mail such copy shall not affect the
validity of service of such process. If any agent appointed by the Sellers
refuses to accept service, the Sellers hereby agree that service of process
sufficient for personal jurisdiction in any action against the Sellers in the
State of California may be made by registered or certified mail, return receipt
requested, to the Sellers at their respective addresses provided in Section 14
hereof, and the Sellers hereby acknowledge that such service shall be effective
and binding in every respect. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of any
Underwriter to bring proceedings against the Sellers in the courts of any other
jurisdiction.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and supersedes all previous oral and written and all contemporaneous oral
negotiations, commitments, writings and understandings.
19. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed by
original or facsimile signature in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
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20. EFFECTIVENESS. This Agreement shall become effective upon the later
of (a) the execution and delivery hereof by the parties hereto and (b) the
release of notification of the effectiveness of the Registration Statement by
the Commission.
Very truly yours,
JENKON INTERNATIONAL INC.
By
-------------------------------
David Edwards,
President and Chief Executive Officer
THE FIRM SELLING STOCKHOLDERS NAMED
IN SCHEDULE 2 HERETO
By:
------------------------------
David Edwards,
Attorney-in-fact
By:
------------------------------
Steve McKeag,
Attorney-in-fact
THE OVER-ALLOTMENT STOCKHOLDERS:
---------------------------------
David Edwards
---------------------------------
Steve McKeag
25.
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
MERIDIAN CAPITAL GROUP, INC.
By
------------------------------
Mark Mansfield, President
For itself and as one of the
Representatives of the several Underwriters
named in Schedule 1 hereto.
TRAUTMAN, KRAMER & COMPANY INCORPORATED
By
------------------------------
Richard Rosenblum
For itself and as one of the
Representatives of the several Underwriters
named in Schedule 1 hereto.
W.J. NOLAN & COMPANY INC.
By
------------------------------
Robert Kropp
For itself and as one of the
Representatives of the several Underwriters
named in Schedule 1 hereto.
26.
<PAGE>
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Securities to be
Underwriters Purchased
------------ ---------
<S> <C>
Meridian Capital Group, Inc.
Trautman, Kramer & Company Incorporated
W.J. Nolan & Company Inc.
------------
Total 1,100,000
------------
------------
</TABLE>
27.
<PAGE>
SCHEDULE 2
FIRM SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Firm
Securities To Be
Firm Selling Stockholders Sold
------------------------- ----
<S> <C>
[NAMES OF FIRM SELLING STOCKHOLDERS]
---------
Total 300,000
-----------
-----------
</TABLE>
28.
<PAGE>
SCHEDULE 3
OVER-ALLOTMENT STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Option
Securities To Be
Over-Allotment Stockholders Sold
----------------------------------------------------------- -----------------
<S> <C>
David Edwards 150,000
Steve McKeag 20,000
--------
Total 170,000
--------
--------
</TABLE>
29.
<PAGE>
EXHIBIT A
[Form of Jeffer, Mangels, Butler & Marmaro, LLP]
30.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
JENKON INTERNATIONAL, INC.
ARTICLE 1
The name of this corporation (herein called the "Corporation") is as
follows:
Jenkon International, Inc.
ARTICLE 2
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of the
Corporation's registered agent at that address is The Prentice-Hall
Corporation System, Inc., County of New Castle.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as amended from time to time.
ARTICLE 4
SECTION 1. AUTHORIZED SHARES. The total number of shares of all
classes of capital stock which the corporation is authorized to issue is
25,000,000 shares which shall be divided into two classes as follows:
20,000,000 Common shares, with a par value of $.001 per share; and 5,000,000
Preferred shares, with a par value of $.001 per share.
The full voting power of the corporation shall be exercised by the
Common Stock and all other future series of Common shares with full voting
rights and any series of Preferred shares with equivalent voting rights, all
voting together as one class, and none of such series of Common shares or
Preferred shares shall have any other or special voting rights except as
otherwise required by the laws as then applicable, the corporation's
Certificate of Incorporation as then amended, or any resolution of the Board
of Directors originally designating such series.
Preferred shares of the corporation's capital stock may be issued in one
or more series at such time or times, and for such consideration or
considerations as the Board of Directors may determine from time to time. The
Board of Directors is expressly authorized as to any wholly unissued series
of Preferred shares, to determine the number of shares thereof and the
dividend rights, dividend rates, conversion rights (if any), redemption
prices, liquidation preferences,
<PAGE>
voting rights (if any), the rights and terms of redemption (including
sinking fund provisions) and all other rights, preferences and privileges
thereof. The Board of Directors may increase or decrease the number of shares
of any series subsequent to the issue of shares of that series, but not below
the number of shares of that series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting that
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of that series.
SECTION 2. RIGHTS AND PREFERENCES OF PREFERRED STOCK. The Board of
Directors is authorized, subject to limitations prescribed by law, to
provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware,
to establish from time to time the number of shares to be included in each
such series, to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(v) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(vii) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(viii) Any other relative rights, preferences, powers, qualifications,
limitations or restrictions thereof.
2
<PAGE>
ARTICLE 5
SECTION 1. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors and elections of
directors need not be by written ballot unless otherwise provided in the
Bylaws. The number of directors of the Corporation shall be fixed from time
to time by the Board of Directors either by a resolution or Bylaw adopted by
the affirmative vote of a majority of the entire Board of Directors.
SECTION 2. Meetings of the stockholders may be held within or without
the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the Delaware
Statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or by the Bylaws of
the Corporation.
ARTICLE 6
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of his duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the general Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derives an
improper personal benefit. If the General Corporation Law of the State of
Delaware is hereafter amended to authorize corporate action further limiting
or eliminating the personal liability of directors, then the liability of the
directors of the Corporation shall be limited or eliminated to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as
so amended from time to time. Any repeal or modification of this Article 6 by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any elimination or limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or
modification.
ARTICLE 7
The Board of Directors of the Corporation shall have the power to make,
alter, amend, change, add to or repeal the Bylaws of the Corporation.
ARTICLE 8
The name and address of the Incorporator of the Corporation is as
follows:
Nicholas J. Yocca
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660-6441
3
<PAGE>
I, THE UNDERSIGNED, being the Incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated
are true, and accordingly, have hereunto set my hand this 26th day of June,
1996.
/s/ Nicholas J. Yocca
---------------------------------------
Nicholas J. Yocca, Incorporator
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
JENKON INTERNATIONAL, INC.
Jenkon International, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State
of Delaware (the "Delaware Law"), does hereby certify as follows:
FIRST: That the Board of Directors of the Corporation, adopted the
following resolutions by unanimous written consent in accordance with Section
141 of the Delaware Law, which resolutions set forth a proposed amendment of
the Certificate of Incorporation of the Corporation, declaring said amendment
to be advisable and directing that such amendment be submitted for
consideration of by the stockholders of the Corporation in accordance with
the requirements of the Delaware Law. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that, subject to obtaining the requisite approval of the
stockholders of the Corporation, the first paragraph of Section 1,
Article 4 of the Corporation's Certificate of Incorporation be amended,
without effect upon any stock designation heretofore filed, to read
as follows:
"SECTION 1. AUTHORIZED SHARES. The total number of shares of all
classes of capital stock which the corporation is authorized to issue is
25,000,000 shares which shall be divided into two classes as follows:
20,000,000 Common shares, with a par value of $.001 per share; and
5,000,000 Preferred shares, with a par value of $.001 per share. Upon
the effectiveness of this amendment (i) the number of authorized shares
of each class of capital stock shall remain unchanged, and (ii) each
outstanding share of Common Stock, par value $.001 per share, shall be
reclassified, converted and changed into .782271 shares of Common Stock,
par value $.001 per share. Each holder of Common Stock who would
otherwise be entitled to receive a fractional share shall instead be
entitled to receive cash for such fractional share in an amount to be
determined on the basis of the Board of Director's determination of the
fair market value of a share of Common Stock on the effective date of
this amendment."
SECOND: That thereafter, pursuant to resolutions of its Board of
Directors, and in lieu of a meeting and vote of stockholders, holders of the
necessary number of shares as required by the Delaware Law gave written
consent to such amendment in accordance with Section 228 of the Delaware Law.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware Law.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by David Edwards, its President and Chief Executive Officer, and Steven
McKeag, its Chief Financial Officer, this 9th day of June, 1998.
----- -----
By: /s/ David Edwards
-----------------------------------
David Edwards, President and Chief
Executive Officer
Attest:
/s/ Steven McKeag
- --------------------------
Steven McKeag,
Chief Financial Officer
-2-
<PAGE>
BYLAWS
OF
JENKON INTERNATIONAL, INC.,
a Delaware corporation
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the
Corporation may require.
SECTION 3. BOOKS. The books of the Corporation may be kept within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for the
election of directors shall be held at such place either within or without
the State of Delaware as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any
other purpose may be held at such time and place, within or without the State
of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held at a a time and date designated by the Board of Directors for the
purpose of electing directors and transacting such other business as may
properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by (i) the President, (ii) the
President or Secretary at the request in writing of a majority of the Board
of Directors which request shall specify the purpose of such meeting, or
(iii) by the President or Secretary at the request in writing of holders of
not less than 10% of the shares entitled to vote at such meeting, which
request shall specify the purpose of such meeting. In the event that written
request for a meeting is made pursuant to clauses (ii) or (iii) above, and
the President or Secretary of the Corporation fails to deliver notice of the
meeting to stockholders within thirty (30) days of receipt of such written
request, the Board of Directors or the requesting stockholders, as the case
may be, may deliver notice of the meeting to stockholders of record in
accordance with the provisions of these Bylaws."
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder entitled to vote at the meeting.
1
<PAGE>
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting,
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise required by law, such notice shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting.
If mailed, such notice shall be deemed to be given when deposited in the
mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation. A written waiver of any such
notice signed by the person entitled thereto, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of
a majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A
meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of enough votes to leave less than a
quorum, if any action taken is approved by at least a majority of the
required quorum to conduct that meeting. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting of the time and place of the
adjourned meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each stockholder entitled
to vote at the meeting.
SECTION 7. VOTING. Except as otherwise required by law, or provided by
the Certificate of Incorporation or these Bylaws, any question brought before
any meeting of stockholders at which a quorum is present shall be decided by
the vote of the holders of a majority of the stock represented and entitled
to vote thereat. Unless otherwise provided in the Certificate of
Incorporation, each stockholder represented at a meeting of stockholders shall
be entitled to cast one vote for each share of the capital stock entitled to
vote thereat held by such stockholder. Such votes may be cast in person or by
proxy, but no proxy shall be voted on or after three (3) years from its date,
unless such proxy provides for a longer period. Elections of directors need
not be by ballot unless the Chairman of the meeting so directs or unless a
stockholder demands election by ballot at the meeting and before the voting
begins.
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Except as otherwise provided in the Certificate of Incorporation, any action
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. All such consents shall be
filed with the Secretary of the Corporation and shall be maintained in the
corporate
2
<PAGE>
records. Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 9 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who
shall not be candidates for office) as inspectors of election to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, or if an appointed inspector fails to appear or fails or refuses
to act at a meeting, the Chairman of any meeting of stockholders may, and on
the request of any stockholder or his proxy shall, appoint an inspector or
inspectors of election at the meeting. The duties of such inspector(s) shall
include: determining the number of shares outstanding and the voting power of
each; the shares represented at the meeting; the existence of a quorum; the
authenticity, validity and effect of proxies; receiving votes, ballots or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all
votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all stockholders. In the event
of any dispute between or among the inspectors, the determination of the
majority of the inspectors shall be binding.
SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman
of the Board of Directors, if one shall have been elected, (or in his absence
or if one shall not have been elected, the President) shall act as Chairman
of the meeting. The Secretary (or in his absence or inability to act, the
person whom the Chairman of the meeting shall appoint secretary of the
meeting) shall act as secretary of the meeting and keep the minutes thereof.
SECTION 13. ORDER OF BUSINESS. The order and manner of transacting
business at all meetings of stockholders shall be determined by the Chairman
of the meeting.
3
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by
the Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations
in the Certificate of Incorporation, the authorized number of directors of
the Corporation shall be three (3) until changed by resolution adopted by the
initial Board of Directors. Directors shall be elected at each annual meeting
of stockholders to replace directors whose terms then expire, and each
director elected shall hold office until his successor is duly elected and
qualified, or until his earlier death, resignation or removal. Any director
may resign at any time effective upon giving written notice to the Board of
Directors, unless the notice specifies a later time for such resignation to
become effective. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. If the resignation
of a director is effective at a future time, the Board of Directors may elect
a successor prior to such effective time to take office when such resignation
becomes effective. Directors need not be stockholders.
SECTION 3. VACANCIES. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director. Each director so selected shall hold office for
the remainder of the full term of office of the former director which such
director replaces and until his successor is duly elected and qualified, or
until his earlier death, resignation or removal. No decrease in the
authorized number of directors constituting the Board of Directors shall
shorten the term of any incumbent directors.
SECTION 4. TIME AND PLACE OF MEETING. The Board of Directors shall hold
its meetings at such place, either within or without the State of Delaware,
and at such time as may be determined from time to time by the Board of
Directors.
SECTION 5. ANNUAL MEETINGS. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors
may be held at such place, either within or without the State of Delaware, on
such date and at such time as shall be specified in a notice thereof given as
hereinafter provided in Section 7 of this Article III or in a waiver of
notice thereof.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware at such
date and time as the Board of Directors may from time to time determine and,
if so determined by the Board of Directors, notices thereof need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Secretary or
by any two or more directors. Notice of the date, time and place of special
meetings shall be delivered personally or by telephone to each
4
<PAGE>
director or sent by first-class mail or telegram, charges prepaid, addressed
to each director at the director's address as it is shown on the records of
the Corporation. In case the notice is mailed, it shall be deposited in the
United States mail at least four (4) days before the time of the holding of
the meeting. In case the notice is delivered personally or by telephone or
telegram, it shall be delivered personally or by telephone or to the
telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. The notice need not specify the purpose of the
meeting. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. QUORUM: VOTE REQUIRED FOR ACTION: ADJOURNMENT. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting, from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present. A meeting at which a quorum is initially present may
continue to transact business, notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
to conduct that meeting. When a meeting is adjourned to another time or place
(whether or not a quorum is present), notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the Board of
Directors may transact any business which might have been transacted at the
original meeting.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all the members of the Board of Directors
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 10 shall constitute
presence in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution
passed unanimously by the entire Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate
members of any such committee, who may replace any absent or disqualified
member at any meeting of the committee. In the event of absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the committee member or members present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously
5
<PAGE>
appoint another member of the Board of Directors to act at the meeting in the
place of the absent or disqualified member. Any committee, to the extent
allowed by law and as provided in the resolution establishing such committee,
shall have and may exercise all the power and authority of the Board of
Directors in the management of the business and affairs of the Corporation,
but no such committee shall have the power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Each committee shall keep
regular minutes of its meetings and report to the Board of Directors when
required.
SECTION 12. COMPENSATION. The directors may be paid such compensation
for their services as the Board of Directors shall from time to time
determine.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors
or officers, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee
thereof which authorizes the contract or transaction, or solely because his
of their votes are counted for such purpose if: (i) the material facts as to
his or their relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and
the Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
"SECTION 14. REMOVAL OF DIRECTORS. Any or all of the directors of the
Corporation may be removed for cause or without cause by vote of the majority
of the shares entitled to vote."
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer. The Corporation may
also have, at the discretion of the Board of Directors, a Chairman of the
Board, a Vice Chairman of the Board, a Chief Executive Officer, one or more
Vice Presidents, one or more Assistant Financial Officers and Treasurers, one
or more Assistant Secretaries and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be appointed by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
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SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the Chief Executive Officer or President to appoint, such
other officers as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority and perform such
duties as are provided in the Bylaws or as the Board of Directors may from
time to time determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights
of an officer under any contract, any officer may be removed at any time,
with or without cause, by the Board of Directors or, except in case of an
officer chosen by the Board of Directors, by any officer upon whom such power
of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation shall be without
prejudice to the rights of the Corporation under any contract to which the
officer is a party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these Bylaws for regular appointments to
that office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the
stockholders and of the Board of Directors. He shall, in addition, perform
such other functions (if any) as may be prescribed by the Bylaws or the Board
of Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if such an officer is elected, shall, in the absence or disability of the
Chairman of the Board, perform all duties of the Chairman of the Board and
when so acting shall have all the powers of and be subject to all of the
restrictions upon the Chairman of the Board. The Vice Chairman of the Board
shall have such other powers and duties as may be prescribed by the Board of
Directors of the Bylaws.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers
of the Corporation. He shall exercise the duties usually vested in the chief
executive officer of a corporation and perform such other powers and duties
as may be assigned to him from time to time by the Board of Directors or
prescribed by the Bylaws. In the absence of the Chairman of the Board and any
Vice Chairman of the Board, the Chief Executive Officer shall preside at all
meetings of the stockholders and of the Board of Directors.
SECTION 9. PRESIDENT. The President of the Corporation shall, subject
to the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a corporation and
shall have such other powers and duties as may be prescribed by the Board of
Directors or the Bylaws or the Chief Executive Officer of the Corporation. In
the absence of the Chairman of the Board, Vice Chairman of the Board and
Chief Executive Officer, the President shall preside at all meetings of the
Board of Directors and stockholders.
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SECTION 10. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by
the Board of Directors or, if not ranked, a Vice President designated by the
Board of Directors, shall perform all the duties of the President, and when
so acting shall have all the powers of, and subject to all the restrictions
upon, the President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors or the Bylaws, and the President, or
the Chairman of the Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept,
at the principal executive office or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
Directors, committees of Directors, and stockholders, with the time and place
of holding, whether regular or special, and, if special, how authorized, the
notice given, the names of those present at Directors' meetings or committee
meetings, the number of shares present or represented at stockholders'
meetings, and a summary of the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all
stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by the Bylaws or
by law to be given, and he shall keep or cause to be kept the seal of the
Corporation if one be adopted, in safe custody, and shall have such powers
and perform such other duties as may be prescribed by the Board of Directors
or by the Bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the Corporation. The Chief Financial Officer shall deposit
all moneys and other valuables in the name and to the credit of the
Corporation with such depositories as may be designated by the Board of
Directors. He shall make such disbursements of the funds of the Corporation
as are authorized and shall render from time to time an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation. The Chief Financial Officer shall also have such other powers
and perform such other duties as may be prescribed by the Board of Directors
or the Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name
of the Corporation (i) by the Chairman or Vice Chairman of the Board of
Directors, or the President or a Vice President and (ii) by the Chief
Financial Officer or the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number
of shares owned by such stockholder in the Corporation.
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SECTION 2. SIGNATURES. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new
certificate to be issued in place of any certificate theretofore issued by
the Corporation, alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to
be lost, stolen or destroyed. The Corporation may, in the discretion of the
Board of Directors and as a condition precedent to the issuance of such new
certificate, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond (or
other security) sufficient to indemnify it against any claim that may be made
against the Corporation (including any expense or liability) on account of
the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these Bylaws or in any agreement with
the stockholder making the transfer. Transfers of stock shall be made on the
books of the Corporation only by the person named in the certificate or by
his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall
be issued.
SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
record holder of shares to receive dividends, and to vote as such record
holder, and to hold liable for calls and assessments a person registered on
its books as the record holder of shares, and shall not be bound to recognize
any equitable or other claim to or interest in such share or shares on the
part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise required by law.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and
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administrators; provided, however, that, except as provided in Section 2 of
this Article VI with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is not
entitled to be indemnified for such expenses under this Article VI or
otherwise (hereinafter an "undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1
of this Article VI is not paid in full by the Corporation within forty-five
(45) days after written claim has been received by the Corporation, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or part in
any such suit or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right hereunder, or by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified or to such advancement
of expenses under this Article VI or otherwise shall be on the Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or
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<PAGE>
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of
expenses, to any employee or agent of the Corporation to the fullest extent
of the provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determinates, greater than, those provided for in this
Article VI.
SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal
or modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of
Incorporation, the Board of Directors may declare and pay dividends upon the
shares of capital stock of the Corporation, which dividends may be paid
either in cash, securities of the Corporation or other property.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal
in such form as shall be prescribed for the Board of Directors.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned
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meeting. Stockholders on the record date are entitled to notice and to vote
or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date, except as
otherwise provided by agreement or by applicable law.
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of the
Board, the Chief Executive Officer, the President and any other officer of
the Corporation authorized by the Board of Directors shall have power, on
behalf of the Corporation, to attend, vote and grant proxies to be used at
any meeting of stockholders of any corporation (except this Corporation) in
which the Corporation may hold stock.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in
the General Corporation Law of the State of Delaware shall govern the
construction of these Bylaws.
SECTION 8. AMENDMENTS. Subject to the General Corporation Law of the
State of Delaware, the Certificate of Incorporation and these Bylaws, the
Board of Directors may by the affirmative vote of a majority of the entire
Board of Directors amend or repeal these Bylaws, or adopt other Bylaws as in
their judgment may be advisable for the regulation of the conduct of the
affairs of the Corporation. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed, and new
Bylaws may be adopted, at any annual meeting of the stockholders (or at any
special meeting thereof duly called for that purpose) by a majority of the
combined voting power of the then outstanding shares of capital stock of all
classes and series of the Corporation entitled to vote generally in the
election of directors, voting as a single class, provided that, in the notice
of any such special meeting, notice of such purpose shall be given.
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----------------------------------------------
JENKON INTERNATIONAL, INC.
and
MERIDIAN CAPITAL GROUP, INC.
TRAUTMAN, KRAMER & COMPANY INCORPORATED
W.J. NOLAN & COMPANY INC.
----------------------------------------------
REPRESENTATIVES' WARRANT AGREEMENT
Dated as of July ___, 1998
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT
THIS REPRESENTATIVES' WARRANT AGREEMENT (the "Agreement"), dated as of
July ___, 1998, is made and entered into by and between JENKON INTERNATIONAL,
INC., a Delaware corporation (the "Company"), MERIDIAN CAPITAL GROUP, INC.
and TRAUTMAN, KRAMER & COMPANY INCORPORATED and W.J. NOLAN & COMPANY INC.
(collectively, the "Warrantholders" and each a "Warrantholder")).
The Company agrees to issue and sell, and the Warrantholders agree to
purchase, for the aggregate purchase price of $140, receipt of which is hereby
acknowledged by the Company, warrants, as hereinafter described (the
"Warrants"), to purchase up to an aggregate of 140,000 shares (the "Shares") of
the Company's Common Stock, $.001 par value (the "Common Stock"), in connection
with a public offering (the "Public Offering") by the Company of 1,400,000
shares of Common Stock, of which 1,100,000 shares are being sold by the Company
and 300,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"), pursuant to an Underwriting Agreement (the
"Underwriting Agreement"), dated as of July ___, 1998, among the Company, the
Selling Stockholders and the Warrantholders, as representatives of the several
Underwriters named in the Underwriting Agreement. The purchase and sale of the
Warrants shall occur on the Firm Closing Date, as defined in the Underwriting
Agreement, and be subject to the conditions to the Underwriters' obligations to
purchase shares of Common Stock thereunder.
In consideration of the foregoing, and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholders, for value received, hereby agree
as follows:
Section 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 REGISTRATION. The Warrants shall be sold and issued to the
respective Warrantholders in the denominators shown on Schedule A to this
Agreement, shall be numbered and shall be registered on the books of the Company
when issued.
1.2 TRANSFER. The Warrants shall be transferable only on the
books of the Company maintained at its principal office in Vancouver,
Washington, or wherever its principal office may then be located, upon delivery
thereof duly endorsed by a Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration or transfer, the Company shall
execute and deliver new Warrants to the persons entitled thereto.
1.3 LIMITATIONS ON TRANSFER OF THE WARRANTS. Subject to the
provisions of section 11 hereof, the Warrants shall not be sold, transferred,
assigned or hypothecated by a Warrantholder until one year after the effective
date of the registration statement filed in connection with the Public Offering,
except to (i) one or more persons, each of whom on the date of transfer is an
officer of any of the Warrantholders; (ii) a general partnership or general
partnerships, the general partners of which are any of the Warrantholders and
one or more persons, each of whom on the date of transfer is an officer of any
of the Warrantholders; (iii) a successor to a Warrantholder in merger or
consolidation; (iv) a purchaser of all or substantially all of a Warrantholder's
assets; or (v) any person receiving the Warrants from one or more of the persons
listed in this subsection 1.3 at such person's or persons' death pursuant to
will, trust or the laws of intestate succession. The Warrants may be divided or
combined, upon request to the Company by a Warrantholder, into a certificate or
certificates representing the right to purchase the same aggregate number of
Shares. Unless the context indicates otherwise, the term "Warrantholder" shall
include any transferee or transferees of the Warrants pursuant to this
subsection 1.3, and the term "Warrants" shall include any and all warrants
outstanding pursuant to this Agreement, including those
1.
<PAGE>
evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
1.4 FORM OF WARRANTS. The text of the Warrants and of the form of
election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares issuable upon exercise of the Warrants is
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by its
President or by a Vice President, attested to by its Secretary or an Assistant
Secretary. A Warrant bearing the signature of an individual who was at any time
the proper officer of the Company shall bind the Company, notwithstanding that
such individual shall have ceased to hold such office prior to the delivery of
such Warrant or did not hold such office on the date of this Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 LEGEND ON SHARES. Each certificate for Shares initially
issued upon exercise of the Warrants shall bear the following legend, unless, at
the time of exercise, such Shares are subject to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN
ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION 11 OF THE AGREEMENT
PURSUANT TO WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to an effective registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of counsel satisfactory to the Company, the securities
represented thereby need no longer be subject to such restrictions.
Section 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
Section 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, a Warrantholder
shall have the right, at any time during the period commencing at 9:00 A.M.,
California time, on __________, 1999 and ending at 5:00 P.M. California time, on
___________, 2003 (the "Termination Date"), to purchase from the Company up to
the number of fully paid and nonassessable Shares to which the Warrantholder may
at the time be entitled to purchase pursuant to the Warrants and this Agreement,
upon surrender to the Company, at its principal office, of the certificate
evidencing the Warrants to be exercised, together with the purchase form on the
reverse thereof duly filled in and signed, with signatures guaranteed, and upon
payment to the Company of the Warrant Price (as defined in and determined in
accordance with the provisions of this section 3 and sections 7 and 8 hereof),
for the number of Shares in respect of which
2.
<PAGE>
such Warrants are then exercised, but in no event for less than 100 Shares
(unless less than an aggregate of 100 Shares are then purchasable under all
outstanding Warrants held by the Warrantholder).
(b) Payment of the aggregate Warrant Price shall be made in
cash or by check, or any combination thereof, or in the manner set forth in
paragraph (c) of this Section 3, upon such surrender of the Warrants and payment
of such Warrant Price as aforesaid and the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
Warrantholder and in such name or names as the Warrantholder may designate a
certificate or certificates for the number of full Shares so purchased upon the
exercise of the Warrant, together with cash, as provided in section 9 hereof, in
respect of any fractional Share otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such securities as of the date of surrender of the Warrants and
payment of the Warrant Price, as aforesaid, notwithstanding that the certificate
or certificates representing such securities shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
The Warrants shall be exercisable, at the election of the Warrantholder, either
in full or from time to time in part and, in the event that a certificate
evidencing the Warrants is exercised in respect of less than all of the Shares
specified therein at any time prior to the Termination Date, a new certificate
evidencing the remaining portion of the Warrants will be issued by the Company.
(c) At the option of a Warrantholder, in lieu of exercising
the Warrants by paying the Warrant Price in cash or by check, the Warrantholders
may exercise such Warrant in whole or in part in a "cashless" or "net-issue"
exercise. In such event, the Warrantholder will deliver the Warrants to the
Company with a notice stating the number of shares to be delivered to the
Warrantholders and the number of shares with respect to which the Warrant are
being surrendered in payment of the aggregate Warrant Price for the shares to be
delivered to the Warrantholder and for the shares as to which the Warrants are
being surrendered for exercise. For purposes of this provision, all shares as
to which the Warrant is surrendered will be valued at the Current Market Price
(as defined in section 9 below). The notice accompanying the Warrants shall
also set forth the number of shares, if any, remaining subject to the Warrants.
Section 4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
Shares; provided, however, the Company shall not be required to pay any tax
which may be payable in respect of any secondary transfer of the Warrants or the
Shares.
Section 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing Warrants shall be mutilated, lost, stolen or destroyed,
the Company shall, at the request of the Warrantholder, issue and deliver in
exchange and substitution for and upon cancellation of the mutilated certificate
or certificates, or in lieu of and substitution for the certificate or
certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrants. Applicants for such substitute Warrant
certificate or certificates shall also comply with such other reasonable
regulations and shall pay such other reasonable charges as the Company may
prescribe.
Section 6. RESERVATION OF SHARES. There has been reserved, and the
Company shall at all times keep reserved so long as the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of Common
Stock as shall be subject to purchase under the Warrants. Every transfer agent
for the Common Stock and other securities of the Company issuable upon the
exercise of the Warrants will be irrevocably authorized and directed at all
times to reserve such number of authorized shares and other securities as shall
be required for such purpose. The Company will keep a copy of this
3.
<PAGE>
Agreement on file with every transfer agent for the Common Stock and other
securities of the Company issuable upon the exercise of the Warrants. The
Company will supply every such transfer agent with duly executed stock and other
certificates, as appropriate, for such purpose and will provide or otherwise
make available any cash which may be payable as provided in section 9 hereof.
Section 7. WARRANT PRICE. The price per Share at which Shares shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$_______ subject to adjustment pursuant to section 8 hereof.
Section 8. ADJUSTMENT OF NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 ADJUSTMENTS. In case the Company shall (i) pay a dividend in
Common Stock or make a distribution in Common Stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares of Common Stock, (iv) effect any increase or decrease
in the number of outstanding shares of Common Stock without receipt of
consideration by the Company, or (v) issue by reclassification of its Common
Stock other securities of the Company, the Warrant Price and the number of
Shares purchasable upon exercise of the Warrants immediately prior thereto shall
be proportionally adjusted so that the Warrantholders shall be entitled to
receive the kind and number of Shares or other securities of the Company which
they would have owned or would have been entitled to receive immediately after
the happening of any of the events described above, had the Warrants been
exercised at the Warrant Price immediately prior to the happening of such event
or any record date with respect thereto. Any adjustment made pursuant to this
subsection 8.1 shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
Except for purposes of this subsection 8.1, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value or from par value to no par value or
from no par value to par value.
8.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in subsection
8.1, no adjustment in respect of any dividends or distributions out of earnings
shall be made during the term of the Warrants or upon exercise of the Warrants.
8.3 CERTIFICATE OF ADJUSTMENTS. Whenever the number of Shares
purchasable upon the exercise of the Warrants is adjusted as herein provided,
the Company shall cause to be promptly mailed to the Warrantholders by first
class mail, postage prepaid, notice of such adjustment, certified by the chief
financial officer of the Company, setting forth the number of Shares purchasable
upon the exercise of the Warrants after such adjustment, a brief statement of
the facts requiring such adjustment and the computation by which such adjustment
was made.
8.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the
Warrantholders an agreement that the Warrantholders shall have the right
thereafter upon payment of the Warrant Price in effect immediately prior to such
action to purchase, upon exercise of the Warrants, the kind and amount of shares
and other securities and property which they would have owned or have been
entitled to receive after the happening of such consolidation,
4.
<PAGE>
merger, sale or conveyance had the Warrants been exercised immediately prior top
such action. In the event of a merger described in Section 368(a)(2)(E) of the
Internal Revenue Code of 1986 in which the Company is the surviving corporation,
the right to purchase Shares under the Warrants shall terminate on the date of
such merger and thereupon the Warrants shall become null and void, but only if
the controlling corporation shall agree to substitute for the Warrants its
warrant which entitles the holder hereof to purchase upon its exercise the kind
and amount of shares and other securities and property which it would have owned
or been entitled to receive had the Warrants been exercised immediately prior to
such merger. Any such agreements referred to in this subsection 8.4 shall
provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in section 8 hereof. The provisions
of this subsection 8.4 shall similarly apply to successive consolidations,
merger, sales or conveyances.
8.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the Warrant
Price allocable to each Share below the then par value per share of the Common
Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock upon exercise of the Warrants.
8.6 INDEPENDENT PUBLIC ACCOUNTANT. The Company may retain a firm
of independent public accountants of recognized national standing (which may be
any such firm regularly employed by the Company) to make any computation
required under this section 8, and a certificate signed by such firm shall be
PRIMA FACIE evidence of the correctness of any computation made under this
section 8.
8.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion, make any change in the form of Warrant certificate
that it may deem appropriate and that does not affect the substance thereof; and
any Warrant certificate thereafter issued, whether upon registration or transfer
of, or in exchange or substitution for, an outstanding Warrant certificate, may
be in the form so changed.
Section 9. FRACTIONAL INTERESTS; CURRENT MARKET PRICE. The Company shall
not be required to issue fractional Shares on the exercise of the Warrants. If
any fraction of a Share would, except for the provisions of this section 9, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to then Current Market Price
multiplied by such fraction. For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Stock is traded in the
over-the-counter market and not in the Nasdaq National Market nor on any
national securities exchange, the average of the per share closing bid prices of
the Common Stock on the 30 consecutive trading days immediately preceding the
date in question, as reported by Nasdaq or an equivalent generally accepted
reporting service, or (ii) if the Common Stock is traded in the Nasdaq National
Market or on a national securities exchange, the average for the 30 consecutive
trading days immediately preceding the date in question of the daily per share
closing prices of the Common Stock in the Nasdaq National Market or on the
principal stock exchange on which it is listed, as the case may be. For
purposes of clause (i) above, if trading in the Common Stock is not reported by
Nasdaq, the bid price referred to in said clause shall be the lowest bid price
as reported in the "pink sheets" published by National Quotation Bureau,
Incorporated. The closing price referred to in clause (ii) above shall be the
last reported sale price or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case in
the Nasdaq National Market or on the national securities exchange on which the
Common Stock is then listed.
5.
<PAGE>
Section 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDERS. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon a Warrantholder or its transferees any rights as a stockholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a stockholder in respect to any meeting of stockholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
subsection 8.1;
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;
or
(c) any dividend, distribution, subscription rights or other
rights are to be given to stockholders;
then the Company shall give notice in writing of such event to the
Warrantholders, as provided in section 14 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive such notice
or any defect therein shall not affect the validity of any action taken with
respect thereto.
Section 11. RESTRICTION ON TRANSFER; REGISTRATION RIGHTS.
(a) Each Warrantholder agrees that prior to making any
disposition of the Warrants or the Shares, other than to persons or entities
identified in clauses (i) through (vi), inclusive, of subsection 1.3 hereof, the
Warrantholder shall give written notice to the Company describing briefly the
manner in which any such proposed disposition is to be made; and no such
disposition shall be made if the Company has notified the Warrantholder that in
the opinion of counsel reasonably satisfactory to the Warrantholder a
registration statement or other notification or post-effective amendment thereto
(hereinafter collectively a "Registration Statement") under the Act is required
with respect to such disposition and no such Registration Statement has been
filed by the Company, and declared effective, if necessary, by, the Securities
and Exchange Commission (the "Commission").
(b) The Company shall be obligated to the owners of the
Warrants and the Shares to file a Registration Statement as follows:
(i) Whenever during the six-year period beginning on
July __, 1998 and ending on July __, 2004, the Company proposes to file with the
Commission a Registration Statement (other than as to securities issued pursuant
to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act or which a Form S-4 Registration Statement could be
used), it shall, at least 30 days prior to each such filing, give written notice
of such proposed filing to the Warrantholders and each holder of Shares at their
respective addresses as they appear on the records of the Company, and shall
offer to include and shall include in such filing any proposed disposition of
the Shares upon receipt by the Company, not less than 10 days prior to the
proposed filing date, of a request therefor setting forth the facts with respect
to such proposed disposition and all other information with respect to such
person reasonably necessary to be included in such Registration Statement. In
the event that the managing underwriter for said offering advises the Company in
writing that the inclusion of such securities in the
6.
<PAGE>
offering would be materially detrimental to the offering, the Company shall
include in the Registration Statement the number of such securities that, in the
opinion of such managing underwriter, can be sold.
(ii) In addition to any Registration Statement
pursuant to subparagraph (i) above, during the four-year period beginning on
July [__], 1999 and ending on July [__], 2003, the Company will, as promptly
as practicable (but in any event within 60 days), after written request (the
"Request") by any of Meridian Capital Group, Inc., Trautman, Kramer & Company
Incorporated, W.J. Nolan & Company Inc. or by any person or persons holding
(or having the right to acquire by virtue of holding the Warrants) at least
50% of the shares of Common Stock which have been (or may be) issued upon
exercise of the Warrants, prepare and file at its own expense a Registration
Statement with the Commission and appropriate "blue sky" authorities
sufficient to permit the public offering of the Shares and will use its best
efforts at its own expense through its officers, directors, auditors and
counsel, in all matters necessary or advisable, to cause such Registration
Statement to become effective as promptly as practicable and to maintain such
effectiveness so as to permit resale of the Shares covered by the Request
until the earlier of the time that all such Shares have been sold or the
expiration of 90 days from the effective date of the Registration Statement;
provided, however, that the Company shall only be obligated to file one such
Registration Statement under this section 11(b)(ii).
(c) All fees, disbursements and out-of-pocket expenses (other
than the Warrantholders' brokerage fees and commissions and legal fees of
counsel to the Warrantholders, if any) in connection with the filing of any
Registration Statement under section 11(b) (or obtaining the opinion of counsel
and any no-action position of the Commission with respect to sales under Rule
144) and in complying with applicable securities and blue sky, laws shall be
borne by the Company. The Company at its expense will supply any Warrantholder
and any holder of Shares with copies of such Registration Statement and the
prospectus included therein and other related documents and any opinions and
no-action letters in such quantities as may be reasonably requested by the
Warrantholders or holder of Shares.
(d) The Company shall not be required by this section 11 to
file such Registration Statement if, in the opinion of counsel for the
Warrantholders and holders of Shares and the Company (or, should they not agree,
in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders and the Company), the proposed offering
or other transfer as to which such Registration Statement is requested is exempt
from applicable federal and state securities laws and would result in all
purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144 under the Act.
(e) The provisions of this section 11 and section 12 hereof
shall apply to the extent as provided herein if the Company chooses to file an
Registration Statement under Regulation A promulgated under the Act.
(f) The Company agrees that until all Shares have been sold
under a Registration Statement or pursuant to Rule 144 under the Act, it will
keep current in filing all materials required to be filed with the Commission in
order to permit the holders of shares to sell the same under Rule 144.
Section 12. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement
with respect to the Shares pursuant to section 11 hereof, the Company agrees to
indemnify and hold harmless the Warrantholders or any holder of such Shares and
each person, if any, who controls the Warrantholders or any holder of such
Shares within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to,
7.
<PAGE>
all costs of defense and investigation and all attorneys' fees), to which the
Warrantholders or any holder of such Shares or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such Registration Statement, or any related preliminary
prospectus, final prospectus, or amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
such Warrantholders or the holder of such Shares specifically for use in the
preparation thereof. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) The Warrantholders and the holders of the Shares,
severally and not jointly, agree that they will indemnify and hold harmless the
Company, each other person referred to in subparts (1), (2) and (3) of Section
11(a) of the Act in respect of the Registration Statement and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by the Warrantholders or such
holder of Shares specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the
Warrantholders or such holder of Shares may otherwise have.
(c) Promptly after receipt by an indemnified party under this
section 12 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this section 12, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this section 12. In case any such action
is brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, reasonably assume the defense thereof,
subject to the provisions herein stated, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this section 12 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is a Warrantholder
8.
<PAGE>
or a holder of Shares or a person who controls a Warrantholder or a holder of
Shares within the meaning of the Act, the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the named parties to any such action, including any impleaded parties,
include both a Warrantholder or a holder of Shares or such controlling person
and the indemnifying party and a Warrantholder or a holder of Shares or such
controlling person shall have been advised by such counsel that there may be one
or more legal defenses available to a Warrantholders or a holder of Shares or
controlling person which are not available to or in conflict with any legal
defenses which may be available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of a Warrantholder or a holder of Shares or such controlling person,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for the Warrantholders, the holders of
the Shares and controlling persons, which firm shall be designated in writing by
a majority in interest of such holders and controlling persons based upon the
value of the securities included in the Registration Statement). No settlement
of any action against an indemnified party shall be made without the consent of
the indemnified and the indemnifying parties, which shall not be unreasonably
withheld in light of all factors of importance to such parties.
Section 13. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) a Warrantholder or any
holder of the Shares or controlling person makes a claim for indemnification
pursuant to section 12 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of section 12 hereof provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of any of
the Warrantholders or any of the holders of the Shares or controlling person
thereof, then the Company and any of the Warrantholders or any such holder of
the Shares or controlling person shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by,
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or a
Warrantholder or holder of Shares or controlling person on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and such holders of
such securities and such controlling persons agree that it would not be just and
equitable if contribution pursuant to this section 13 were determined by pro
rata allocation or by any other method which does not take account of the
equitable considerations referred to in this section 13. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this section 13
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Section 14. NOTICES. Any notice pursuant to this Agreement by the Company
or by the Warrantholders or a holder of Shares shall be in writing and shall be
deemed to have been duly given if delivered or mailed by certified mail, return
receipt requested:
9.
<PAGE>
(a) If to a Warrantholder, or a holder of Shares, addressed
to the Warrantholder or holder of Shares c/o Meridian Capital Group, Inc., 4675
MacArthur Court, Suite 1250, Newport Beach, California 92660, Attention: Mark
Mansfield.
(b) If to the Company addressed to it at 7600 N.E. 41st
Street, Suite 350, Vancouver, Washington 98662, Attention: President.
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
Section 15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholders, or the
holders of Shares shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 16. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will not
merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of subsection 8.4 hereof are complied with.
Section 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf
of the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
Section 18. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the laws of said State.
Section 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrantholders and the holders of Shares.
10.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
JENKON INTERNATIONAL, INC.
By
-------------------------------
David Edwards,
President and Chief Executive Officer
MERIDIAN CAPITAL GROUP, INC.
By
-------------------------------
Mark Mansfield
TRAUTMAN, KRAMER & COMPANY INCORPORATED
By
-------------------------------
Richard Rosenblum
W.J. NOLAN & COMPANY INC.
By
-------------------------------
Robert Kropp
11.
<PAGE>
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EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION 11
OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. ___
REPRESENTATIVES' WARRANTS TO PURCHASE _________ SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
CALIFORNIA TIME, ON _________, 2003
JENKON INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
This certifies that, for value received,_____________________________, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from JENKON INTERNATIONAL, INC. (the "Company"), at any time during the
period commencing at 9:00 A.M., California Time, on ____________, 1999, and
before 5:00 P.M., California time, on _________, 2003, at the purchase price per
Share of $____ (the "Warrant Price"), the number of shares of Common Stock of
the Company set forth above (the "Shares"). The number of Shares issuable upon
exercise of each Warrant evidenced hereby shall be subject to adjustment from
time to time as set forth in the Representatives' Warrant Agreement referred to
below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder, in cash or by check
or by "cashless" or "net-issue" exercise as permitted in the Representatives'
Warrant Agreement.
The Warrants evidenced hereby represent the right to purchase an
aggregate of up to ________ Shares and are issued under and in accordance
with a Representatives' Warrant Agreement, dated as of July ___, 1998 (the
"Representatives' Warrant Agreement"), among the Company, Meridian Capital
Group, Inc., Trautman, Kramer & Company Incorporated and W.J. Nolan &
Company Inc., and are subject to the terms and provisions contained in the
Representatives' Warrant Agreement, to all of which the Warrantholder by
acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Shares of Common Stock as to which the Warrants evidenced hereby shall not
have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of Shares of Common Stock as here
evidenced by the Warrant or Warrants exchanged. No fractional Share of Common
Stock will be issued upon the exercise of rights to purchase hereunder, but the
Company shall pay the cash value of any fraction upon the exercise of one or
more Warrants as provided in the Representatives' Warrant Agreement. These
Warrants are transferable at the office of the Company in the manner and subject
to the limitations set forth in the Representatives' Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
JENKON INTERNATIONAL, INC.
Dated:__________________, 1998 By
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ATTEST: [Seal]
- -------------------------------
Secretary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
JENKON INTERNATIONAL, INC.
PURCHASE FORM
JENKON INTERNATIONAL, INC.
- ---------------------------------
- ---------------------------------
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
__________ shares of Common Stock (the "Shares") provided for therein, and
requests that certificates for the Shares be issued in the name of:
--------------------------------------
(Please Print or Type Name, Address and Social Security Number)
--------------------------------------
--------------------------------------
--------------------------------------
and, if said number of shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance of the Shares purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholders or their Assignees as below indicated and delivered to the
address stated below.
Dated:
---------------
Name of Warrantholders or Assignee:
---------------------------------------
(Please Print)
Address:
----------------------------------------
----------------------------------------
Signature:
----------------------------------------
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever, unless these
Warrants have been assigned.
Signature Guaranteed:
----------------------------
(Signature must be guaranteed by a financial institution that is a member of the
Stock Transfer Association approved medallion program such as STAMP, SEMP or
MSP.)
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(Name and Address of Assignee Must Be Printed or Typewritten)
--------------------------------------
--------------------------------------
--------------------------------------
the within Warrants, hereby irrevocably constituting and appointing
_____________________ Attorney to transfer said Warrants on the books of the
Company, with full power of substitution in the premises.
Dated:
--------------- ----------------------------------------
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
----------------------------
(Signature must be guaranteed by a financial institution that is a member of the
Stock Transfer Association approved medallion program such as STAMP, SEMP or
MSP.)
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of the
effective date of the Company's Registration Statement on Form SB-2 (File No.
333-56023), by and between Jenkon International, Inc., a Delaware corporation
(the "Company"), and David Edwards, an individual ("Employee").
In consideration of the mutual promises herein contained and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Employee and the Company agree as follows:
1. TERM. Subject to the terms and conditions herein contained, the
Company hereby employs Employee, and Employee hereby accepts such employment,
for a period of four (4) years beginning as of the effective date of this
Agreement.
2. DESCRIPTION OF DUTIES. During Employee's employment hereunder,
Employee will hold the positions of President and Chief Executive Officer
and/or such other management position(s) as the Board of Directors may
determine.
Employee shall perform his duties hereunder primarily in the
Vancouver, Washington area, it being understood that Employee's duties
hereunder may require travel. Employee shall not be required to relocate
without his consent.
3. COMPENSATION.
(a) BASE COMPENSATION. All services shall be deemed to be
services required hereby and in consideration of the compensation provided
for herein and Employee shall not be entitled to any additional compensation
for serving in any other office or for serving as a director or officer of
the Company or any of its subsidiaries. For all services which Employee may
render to the Company or its subsidiaries in any capacity during the term
hereof, Employee will receive and the Company hereby agrees to pay Employee
base compensation ("Base Compensation") at the annual rate of Two Hundred
Thousand Dollars ($200,000.00) per year commencing on the date of this
Agreement. Upon each yearly anniversary of the date of this Agreement,
Employee's Base Compensation automatically shall be increased by five percent
of the previous year's Base Compensation (the "Automatic Annual Increase").
The Base Compensation, as adjusted by any Automatic Annual Increase, is
payable in arrears in twenty-six (26) equal bimonthly installments, subject
to any deductions or withholdings required by applicable law.
(b) DISCRETIONARY BONUS. Employee shall also be entitled to
receive from the Company with respect to each fiscal year during the term of
this Agreement, such bonus ("Bonus") as the Company's Board of Directors or
the Compensation Committee of such Board shall determine; provided, however,
that nothing herein shall be deemed to require that a bonus be paid with
respect to any given fiscal year.
<PAGE>
Employee's Base Compensation, as increased by any Automatic Annual
Increase, and Bonus are hereinafter collectively referred to as
"Compensation."
4. BENEFITS; EXPENSES; AND VACATION. In addition to the Compensation,
Company will be entitled to receive the following additional benefits during
the term of this Agreement:
(a) Company-paid health, life, disability and/or dental insurance
(all on such terms and with such insurers as the Company shall offer to its
other executive officers); and
(b) such other fringe benefits and perquisites, if any, as the
Company shall from time to time make generally available to employees of the
Company.
In addition, Employee shall be entitled to reimbursement for all normal and
reasonable expenses necessarily incurred by him in the performance of his
obligations hereunder in accordance with the Company's expense reimbursement
policies and upon submission of appropriate documentation that such expenses
have been incurred. In addition, Employee shall be entitled to a minimum of
four (4) weeks paid vacation each year of his employment by the Company.
Such vacation time shall not be cumulative. If the Employee is employed by
the Company during only a portion of any year, the amount of fully-paid
vacation time shall be prorated.
5. FULL-TIME EMPLOYMENT. During the term hereof, Employee will devote
his full time and best efforts to the business of the Company.
6. NON-COMPETITION.
(a) For the period of this Agreement and for a two (2) year period
thereafter, Employee agrees not to compete with the business of the Company
anywhere in the United States. The phrase "compete with the business of"
shall be deemed to include engaging or being interested, directly or
indirectly, as an owner, employee, general partner, consultant, through stock
ownership, investment of capital, or rendering of services, either alone or
in association with others, in the ownership, operation, management or
supervision of any type of business or enterprise involving the design,
development, or sale of software or related computer products or services for
or to the direct sales industry. The foregoing shall not prevent Employee
from owning up to 5% of the outstanding securities of a publicly held
corporation which may compete with the business of the Company.
-2-
<PAGE>
(b) CONFIDENTIALITY.
(1) CONFIDENTIAL INFORMATION. The term "Confidential
Information" as used in this Agreement shall include all ideas, materials,
information, data, records, software code, methods or plans developed, used
or employed by the Company or customers and not generally known to the
public. "Confidential Information" also includes, but is not limited to, all
information regarding the Company's or customers' financial affairs,
accounts, customer lists, marketing plans, business or acquisition
strategies, pricing, products, properties, processes, rate structure,
services, employee names, addresses, employment histories, compensation;
provided, however, that Confidential Information shall not include
information which properly and lawfully has become generally known to the
public other than as a result of the act or omission of Employee.
(2) IMPORTANCE OF CONFIDENTIAL INFORMATION. Employee
acknowledges and agrees that the Company's Confidential Information is a
valuable, special and unique asset of the Company which is extremely
important in a highly competitive business such as the software industry.
Employee acknowledges that the disclosure of any Confidential Information may
cause substantial injury and loss to the Company. Employee acknowledges that
the Company retains a proprietary interest in its Confidential Information
that persists beyond the termination of Employee's employment by the Company.
Employee further acknowledges that the preservation and protection of the
Confidential Information is an essential part of Employee's employment by and
business relationship with the Company and that Employee has a duty of
fidelity and trust to the Company in handling the Confidential Information.
(3) NON-DISCLOSURE OR USE. Employee shall not, during the
term of this Agreement and for a two (2) year period thereafter, without the
prior written consent of the Company in each instance or as otherwise may be
required by law or legal process, disclose to anyone any Confidential
Information of the Company, or utilize such Confidential Information for
Employee's own benefit, or for the benefit of any third party, until such
time, if ever, as such Confidential Information becomes general public
knowledge (unless caused by any act of Employee in violation of this
Agreement), and all memoranda, records or other documents compiled by
Employee or made available during the term of this Agreement pertaining to
the business of the Company or any Confidential Information shall be the
property of the Company and shall be delivered to the Company on the
termination of Employee's employment or at any other time, immediately upon
request by the Company.
(b) NON-SOLICITATION. Employee agrees and acknowledges that
Employee's services hereunder are of a special, unique, extraordinary
character, that Employee's employment with the Company places Employee in a
position of confidence and trust and that Employee's services hereunder
necessarily will require the disclosure to Employee of Confidential
Information of the Company. Employee consequently agrees that it is
reasonable and necessary for the protection of the goodwill and business of
the Company that Employee make the covenants contained herein and that
Company is relying upon and is
-3-
<PAGE>
induced by the agreements made by Employee in this paragraph. Accordingly,
Employee agrees that during the term of this Agreement and for a two (2) year
period thereafter, Employee shall not, except on behalf of the Company,
directly or indirectly, and regardless of the reason for the cessation of
Employee's employment (i) attempt in any manner to persuade any third party
to cease to do business, or to reduce the amount of business which any such
party customarily has done or contemplates doing, with the Company, whether
or not the relationship between the Company and such third party was
originally established in whole or in part through Employee's efforts; or
(ii) on Employee's own behalf or otherwise, hire, solicit, seek to hire, or
offer employment to any person who is, during any such time period, an
employee of or independent contractor with the Company, or in any other
manner attempt, directly or indirectly, to influence, induce or encourage any
such person to leave the employ of, or terminate or diminish such person's
business relationship with, the Company. As used in this paragraph, the verb
'employ' shall include its variations, for example, retain or engage; and the
"Company" shall include Jenkon International, Inc. and each of its direct or
indirect subsidiaries.
The covenants of Employee set forth in this Section 6 are made in
consideration of the payments made to Employee pursuant to this Agreement,
the receipt, adequacy and sufficiency of which are acknowledged by Employee,
and such covenants have been made by Employee to induce the Company to enter
into this Agreement.
7. TERMINATION. Notwithstanding any other provision of this
Agreement, the Company shall have the right to terminate Employee's
employment during the term hereof for "cause" upon one (1) week's written
notice. In the event of termination for cause, and without limiting any
rights or remedies of the Company, Employee shall be entitled to receive, and
the Company shall be obligated to pay, only Employee's Compensation accrued
through the effective date of such termination. For the purposes hereof,
"cause" shall be limited to the following: (i) conviction of a felony; (ii)
commission of any intentional and material act involving fraud or
misappropriation of funds, properties or assets of the Company; (iii) chronic
alcoholism, drug addiction or substance abuse; (iv) gross negligence in the
performance of Employee's duties hereunder; (v) negligence in the performance
of Employee's duties hereunder which the Board of Directors of the Company
determines to have a material adverse effect on the Company; (vi) death of
Employee, or; (vii) Employee's physical or mental disability or incapacity.
For purposes hereof, "physical or mental disability or incapacity" shall mean
the failure of Employee to perform his assigned duties in a manner reasonably
satisfactory to the Company, where such failure shall be by reason of
physical or mental disability or incapacity, and where Employee shall have so
failed for a period of ninety (90) consecutive days or more during any period
of twelve (12) consecutive months or less.
8. EFFECT OF TERMINATION.
(a) TERMINATION FOR "CAUSE". In the event of Employee's
termination for "cause" pursuant to Section 7(i) through (v) of this
Agreement, Employee or Employee's legal representatives shall be entitled to
receive, and the Company shall be
-4-
<PAGE>
obligated to pay, only an amount equivalent to Employee's Base Compensation,
accrued through the date of such termination.
(b) TERMINATION WITHOUT "CAUSE". In the event of termination (i)
without "cause" as defined by Section 7, or (ii) for "cause" as a result of
the death or physical or mental disability or incapacity of Employee pursuant
to Section 7(vi) or (vii) of this Agreement, Employee shall be entitled to
receive, and the Company shall be obligated to pay, only an amount equivalent
to Employee's Base Compensation accrued through the date of such termination,
plus an amount equivalent to one year's Base Compensation at the annual rate
in effect on the date of termination, to be paid in accordance with the
ordinary payroll practices of the Company.
9. SURVIVAL. Upon the expiration or other termination of this
Agreement, all obligations of the parties shall forthwith terminate, except
that the provisions of Section 6, 8 and 10 through 16 shall continue in full
force and effect in accordance with its terms, such Section containing
independent agreements and obligations.
10. EQUITABLE REMEDIES. The agreements of the parties contained in
Section 6 are of a special, unique and extraordinary character; the
obligations contained therein shall therefore be enforceable both at law and
in equity, by injunction and otherwise; and the rights and remedies of the
Company and the Employee hereunder with respect thereto shall be cumulative
and not alternative and shall not be exhausted by any one or more uses
thereof.
11. ENTIRE AGREEMENT; WAIVERS AND AMENDMENTS. This Agreement sets
forth the entire agreement between the parties with respect to the terms and
conditions of Employee's employment and any and all matters related thereto,
and any and all prior agreements with respect to any thereof, whether oral or
written, are superseded hereby. Neither this Agreement nor any term or
condition hereof, including, without limitation, the terms and conditions of
this paragraph, may be waived or modified in whole or in part as against the
Company or Employee, as the case may be, except by written instrument signed
by an authorized officer of the Company or by Employee, as the case may be,
expressly stating that it is intended to operate as a waiver or modification
of this Agreement, and any such written waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach hereof.
12. NOTICE. Any notice hereunder shall be in writing and shall be
deemed given or delivered two (2) business days after it has been mailed by
registered or certified mail, postage prepaid, or one (1) business day after
being sent by a recognized national courier service, in each case addressed
as follows:
(a) Notices to the Employee:
David Edwards
7600 N.E. 41st Street, Suite 350
Vancouver, Washington 98662
-5-
<PAGE>
(b) Notices to the Company:
Jenkon International, Inc.
7600 N.E. 41st Street, Suite 350
Vancouver, WA 98662
except that either party may from time to time by written notice to the
other, designate another address which shall thereupon become his effective
address for the purposes of this Section.
13. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any person, property or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
14. NO ASSIGNMENT. This Agreement is personal in nature and the
obligations hereunder may not be assigned by the Company or by Employee
without the prior written consent of the other party hereto; provided,
however, that the provisions hereof shall inure to the benefit of, and be
binding upon each successor of the Company, whether by merger, consolidation,
transfer of all or substantially all of its assets, or otherwise.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Washington.
16. ARBITRATION; VENUE
(a) Subject to the provisions of Section 11 hereof, any dispute,
controversy or claim arising out of, relating to, or in connection with, this
Agreement or the agreements or transactions contemplated hereby shall be
finally settled by arbitration conducted in accordance with the provisions of
this Section 16. The arbitrator shall be a retired judge or practicing
attorney and the arbitration shall be conducted and the arbitrator chosen in
accordance with the rules of the American Arbitration Association (the "AAA")
in effect at the time of the arbitration, except as they may be modified
herein or by mutual agreement of the parties hereto (the "Parties"). If the
Parties are unable to agree on the location of the arbitration within five
(5) business days after the date of delivery of the request of arbitration,
the Parties agree the arbitration will be conducted in Vancouver, Washington.
Each Party hereby irrevocably submits to the jurisdiction of the arbitrator
in Portland, Oregon and waives any defense in an arbitration based upon any
claim that such Party is not subject personally to the jurisdiction of such
arbitrator, that such arbitration is brought in an inconvenient forum or that
such venue is improper.
(b) The arbitral award shall be in writing and shall be final and
binding on the Parties. The award may include an award of costs, including
reasonable
-6-
<PAGE>
attorneys' fees and disbursements. Judgment upon the award may be entered by
any court having jurisdiction thereof or having jurisdiction over the Parties
or their assets.
17. EFFECTIVE DATE OF AGREEMENT. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement shall not be effective
and shall be of no force and effect unless and until the Company's
Registration Statement on Form SB-2 (SEC file no. 333-56023) shall have been
declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the 8th day of July, 1998.
"Company"
Jenkon International, Inc.,
a Delaware corporation
By:
-------------------------------------
Steve McKeag
Chief Financial Officer
"Employee"
- ----------------------------------------
David Edwards
-7-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of the
effective date of the Company's Registration Statement on Form SB-2 (File No.
333-56023), by and between Jenkon International, Inc., a Delaware corporation
(the "Company"), and Steve McKeag, an individual ("Employee").
In consideration of the mutual promises herein contained and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Employee and the Company agree as follows:
1. TERM. Subject to the terms and conditions herein contained, the
Company hereby employs Employee, and Employee hereby accepts such employment,
for a period of one (1) year beginning as of the effective date of this
Agreement. This contract may be renewed by the mutual agreement of the
Company and Employee on an annual basis.
2. DESCRIPTION OF DUTIES. During Employee's employment hereunder,
Employee will report to the President of the Company and will hold the
position of Chief Financial Officer and/or such other management position(s)
as the Board of Directors may determine in its sole discretion.
Employee shall perform his duties hereunder primarily in the
Vancouver, Washington area, it being understood that Employee's duties
hereunder may require travel. Employee shall not be required to relocate
without his consent.
3. COMPENSATION.
(a) BASE COMPENSATION. All services shall be deemed to be
services required hereby and in consideration of the compensation provided
for herein and Employee shall not be entitled to any additional compensation
for serving in any other office or for serving as a director or officer of
the Company or any of its subsidiaries. For all services which Employee may
render to the Company or its subsidiaries in any capacity during the term
hereof, Employee will receive and the Company hereby agrees to pay Employee
base compensation ("Base Compensation") at the annual rate of One Hundred
Fifty Thousand Dollars ($150,000.00) per year commencing on the date of this
Agreement. Upon each yearly anniversary of the date of this Agreement,
Employee's Base Compensation automatically shall be increased by five percent
of the previous year's Base Compensation (the "Automatic Annual Increase").
The Base Compensation, as adjusted by any Automatic Annual Increase, is
payable in arrears in twenty-six (26) equal bimonthly installments, subject
to any deductions or withholdings required by applicable law.
(b) DISCRETIONARY BONUS. Employee shall also be entitled to
receive from the Company with respect to each fiscal year during the term of
this Agreement, such bonus ("Bonus") as the Company's Board of Directors or
the Compensation Committee of
<PAGE>
such Board shall determine; provided, however, that nothing herein shall be
deemed to require that a Bonus be paid with respect to any given fiscal year.
Employee's Base Compensation, as increased by any Automatic Annual
Increase, and Bonus are hereinafter collectively referred to as
"Compensation."
4. BENEFITS; EXPENSES; AND VACATION. In addition to the Compensation,
Company will be entitled to receive the following additional benefits during
the term of this Agreement:
(a) Company-paid health, life, disability and/or dental insurance
(all on such terms and with such insurers as the Company shall offer to its
other executive officers); and
(b) such other fringe benefits and perquisites, if any, as the
Company shall from time to time make generally available to employees of the
Company.
In addition, Employee shall be entitled to reimbursement for all normal and
reasonable expenses necessarily incurred by him in the performance of his
obligations hereunder in accordance with the Company's expense reimbursement
policies and upon submission of appropriate documentation that such expenses
have been incurred. In addition, Employee shall be entitled to a minimum of
four (4) weeks paid vacation each year of his employment by the Company.
Such vacation time shall not be cumulative. If the Employee is employed by
the Company during only a portion of any year, the amount of fully-paid
vacation time shall be prorated.
5. FULL-TIME EMPLOYMENT. During the term hereof, Employee will devote
his full time and best efforts to the business of the Company.
6. NON-COMPETITION.
(a) For the period of this Agreement and for a two (2) year period
thereafter, Employee agrees not to compete with the business of the Company
anywhere in the United States. The phrase "compete with the business of"
shall be deemed to include engaging or being interested, directly or
indirectly, as an owner, employee, general partner, consultant, through stock
ownership, investment of capital, or rendering of services, either alone or
in association with others, in the ownership, operation, management or
supervision of any type of business or enterprise involving the design,
development, or sale of software or related products for or to the direct
sales industry. The foregoing shall not prevent Employee from owning up to
5% of the outstanding securities of a publicly held corporation which may
compete with the business of the Company.
-2-
<PAGE>
(b) CONFIDENTIALITY.
(1) CONFIDENTIAL INFORMATION. The term "Confidential
Information" as used in this Agreement shall include all ideas, materials,
information, data, records, software code, methods or plans developed, used
or employed by the Company or customers and not generally known to the
public. "Confidential Information" also includes, but is not limited to, all
information regarding the Company's or customers' financial affairs,
accounts, customer lists, marketing plans, business or acquisition
strategies, pricing, products, properties, processes, rate structure,
services, employee names, addresses, employment histories, compensation;
provided, however, that Confidential Information shall not include
information which properly and lawfully has become generally known to the
public other than as a result of the act or omission of Employee.
(2) IMPORTANCE OF CONFIDENTIAL INFORMATION. Employee
acknowledges and agrees that the Company's Confidential Information is a
valuable, special and unique asset of the Company which is extremely
important in a highly competitive business such as the software industry.
Employee acknowledges that the disclosure of any Confidential Information may
cause substantial injury and loss to the Company. Employee acknowledges that
the Company retains a proprietary interest in its Confidential Information
that persists beyond the termination of Employee's employment by the Company.
Employee further acknowledges that the preservation and protection of the
Confidential Information is an essential part of Employee's employment by and
business relationship with the Company and that Employee has a duty of
fidelity and trust to the Company in handling the Confidential Information.
(3) NON-DISCLOSURE OR USE. Employee shall not, during the
term of this Agreement and for a two (2) year period thereafter, without the
prior written consent of the Company in each instance or as otherwise may be
required by law or legal process, disclose to anyone any Confidential
Information of the Company, or utilize such Confidential information for
Employee's own benefit, or for the benefit of any third party, until such
time, if ever, as such Confidential Information becomes general public
knowledge (unless caused by any act of Employee in violation of this
Agreement), and all memoranda, records or other documents compiled by
Employee or made available during the term of this Agreement pertaining to
the business of the Company or any Confidential Information shall be the
property of the Company and shall be delivered to the Company on the
termination of Employee's employment or at any other time, immediately upon
request by the Company.
(b) NON-SOLICITATION. Employee agrees and acknowledges that
Employee's services hereunder are of a special, unique, extraordinary
character, that Employee's employment with the Company places Employee in a
position of confidence and trust and that Employee's services hereunder
necessarily will require the disclosure to Employee of Confidential
Information of the Company. Employee consequently agrees that it is
reasonable and necessary for the protection of the goodwill and business of
the Company that Employee make the covenants contained herein and that
Company is relying upon and is
-3-
<PAGE>
induced by the agreements made by Employee in this paragraph. Accordingly,
Employee agrees that during the term of this Agreement and for a two (2) year
period thereafter, Employee shall not, except on behalf of the Company,
directly or indirectly, and regardless of the reason for the cessation of
Employee's employment (i) attempt in any manner to persuade any third party
to cease to do business, or to reduce the amount of business which any such
party customarily has done or contemplates doing, with the Company, whether
or not the relationship between the Company and such third party was
originally established in whole or in part through Employee's efforts; or
(ii) on Employee's own behalf or otherwise, hire, solicit, seek to hire, or
offer employment to any person who is, during any such time period, an
employee of or independent contractor with the Company, or in any other
manner attempt, directly or indirectly, to influence, induce or encourage any
such person to leave the employ of, or terminate or diminish such person's
business relationship with, the Company. As used in this paragraph, the verb
'employ' shall include its variations, for example, retain or engage; and the
"Company" shall include Jenkon International, Inc. and each of its direct or
indirect subsidiaries.
The covenants of Employee set forth in this Section 6 are made in
consideration of the payments made to Employee pursuant to this Agreement,
the receipt, adequacy and sufficiency of which are acknowledged by Employee,
and such covenants have been made by Employee to induce the Company to enter
into this Agreement.
7. TERMINATION. Notwithstanding any other provision of this
Agreement, the Company shall have the right to terminate Employee's
employment during the term hereof for "cause" upon one (1) week's written
notice. In the event of termination for cause, and without limiting any
rights or remedies of the Company, Employee shall be entitled to receive, and
the Company shall be obligated to pay, only Employee's Compensation accrued
through the effective date of such termination. For the purposes hereof,
"cause" shall be limited to the following: (i) conviction of a felony; (ii)
commission of any intentional and material act involving fraud or
misappropriation of funds, properties or assets of the Company; (iii) chronic
alcoholism, drug addiction or substance abuse; (iv) gross negligence in the
performance of Employee's duties hereunder; (v) negligence in the performance
of Employee's duties hereunder which the Board of Directors of the Company
determines to have a material adverse effect on the Company; (vi) any
material violation of any written policies of the Company which, to the
extent curable, are not cured within thirty (30) days of Employee's receipt
of notice thereof; (vii) death of Employee; or (viii) Employee's physical or
mental disability or incapacity. For purposes hereof, "physical or mental
disability or incapacity" shall mean the failure of Employee to perform his
assigned duties in a manner reasonably satisfactory to the Company, where
such failure shall be by reason of physical or mental disability or
incapacity, and where Employee shall have so failed for a period of ninety
(90) consecutive days or more during any period of twelve (12) consecutive
months or less.
-4-
<PAGE>
8. EFFECT OF TERMINATION.
(a) TERMINATION FOR "CAUSE". In the event of Employee's
termination for "cause" pursuant to Section 7(i) through (vi) of this
Agreement, Employee or Employee's legal representatives shall be entitled to
receive, and the Company shall be obligated to pay, only an amount equivalent
to Employee's Base Compensation, accrued through the date of such termination.
(b) TERMINATION WITHOUT "CAUSE". In the event of termination (i)
without "cause" as defined by Section 7, or (ii) for "cause" as a result of
the death or physical or mental disability or incapacity of Employee pursuant
to Section 7(vii) or (viii) of this Agreement,, Employee shall be entitled to
receive, and the Company shall be obligated to pay, only an amount equivalent
to Employee's Base Compensation accrued through the date of such termination,
plus an amount equivalent to one year's Base Compensation at the annual rate
in effect on the date of termination, to be paid in accordance with the
ordinary payroll practices of the Company.
9. SURVIVAL. Upon the expiration or other termination of this
Agreement, all obligations of the parties shall forthwith terminate, except
that the provisions of Section 6, 8 and 10 through 16 shall continue in full
force and effect in accordance with its terms, such Section containing
independent agreements and obligations.
10. EQUITABLE REMEDIES. The agreements of the parties contained in
Section 6 are of a special, unique and extraordinary character; the
obligations contained therein shall therefore be enforceable both at law and
in equity, by injunction and otherwise; and the rights and remedies of the
Company and the Employee hereunder with respect thereto shall be cumulative
and not alternative and shall not be exhausted by any one or more uses
thereof.
11. ENTIRE AGREEMENT; WAIVERS AND AMENDMENTS. This Agreement sets
forth the entire agreement between the parties with respect to the terms and
conditions of Employee's employment and any and all matters related thereto,
and any and all prior agreements with respect to any thereof, whether oral or
written, are superseded hereby. Neither this Agreement nor any term or
condition hereof, including, without limitation, the terms and conditions of
this paragraph, may be waived or modified in whole or in part as against the
Company or Employee, as the case may be, except by written instrument signed
by an authorized officer of the Company or by Employee, as the case may be,
expressly stating that it is intended to operate as a waiver or modification
of this Agreement, and any such written waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach hereof.
12. NOTICE. Any notice hereunder shall be in writing and shall be
deemed given or delivered two (2) business days after it has been mailed by
registered or certified
-5-
<PAGE>
mail, postage prepaid, or one (1) business day after being sent by
a recognized national courier service, in each case addressed as follows:
(a) Notices to the Employee:
Steve McKeag
7600 N.E. 41st Street, Suite 350
Vancouver, Washington 98662
(b) Notices to the Company:
Jenkon International, Inc.
7600 N.E. 41st Street, Suite 350
Vancouver, WA 98662
except that either party may from time to time by written notice to the
other, designate another address which shall thereupon become his effective
address for the purposes of this Section.
13. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any person, property or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
14. NO ASSIGNMENT. This Agreement is personal in nature and the
obligations hereunder may not be assigned by the Company or by Employee
without the prior written consent of the other party hereto; provided,
however, that the provisions hereof shall inure to the benefit of, and be
binding upon each successor of the Company, whether by merger, consolidation,
transfer of all or substantially all of its assets, or otherwise.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Washington.
16. ARBITRATION; VENUE.
(a) Subject to the provisions of Section 11 hereof, any dispute,
controversy or claim arising out of, relating to, or in connection with, this
Agreement or the agreements or transactions contemplated hereby shall be
finally settled by arbitration conducted in accordance with the provisions of
this Section 16. The arbitrator shall be a retired judge or practicing
attorney and the arbitration shall be conducted and the arbitrator chosen in
accordance with the rules of the American Arbitration Association (the "AAA")
in effect at the time of the arbitration, except as they may be modified
herein or by mutual agreement of the parties hereto (the "Parties"). If the
Parties are unable to agree on the location of the arbitration within five
(5) business days after the date of delivery of the request of arbitration,
the Parties agree the arbitration will be conducted in Vancouver, Washington.
Each Party
-6-
<PAGE>
hereby irrevocably submits to the jurisdiction of the arbitrator in Portland,
Oregon and waives any defense in an arbitration based upon any claim that
such Party is not subject personally to the jurisdiction of such arbitrator,
that such arbitration is brought in an inconvenient forum or that such venue
is improper.
(b) The arbitral award shall be in writing and shall be final and
binding on the Parties. The award may include an award of costs, including
reasonable attorneys' fees and disbursements. Judgment upon the award may be
entered by any court having jurisdiction thereof or having jurisdiction over
the Parties or their assets.
17. EFFECTIVE DATE OF AGREEMENT. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement shall not be effective
and shall be of no force and effect unless and until the Company's
Registration Statement on Form SB-2 (SEC file no. 333-56023) shall have been
declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the 8th day of July, 1998.
"Company"
Jenkon International, Inc.,
a Delaware corporation
By:
------------------------------------
David Edwards
President & Chief Executive Officer
"Employee"
- ----------------------------------------
Steve McKeag
-7-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of the
effective date of the Company's Registration Statement on Form SB-2 (File No.
333-56023) by and between Jenkon International, Inc., a Delaware corporation
(the "Company"), and Jim Thompson, an individual ("Employee").
In consideration of the mutual promises herein contained and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Employee and the Company agree as follows:
1. TERM. Subject to the terms and conditions herein contained, the
Company hereby employs Employee, and Employee hereby accepts such employment,
for a period of one (1) year beginning as of the effective date of this
Agreement. This contract may be renewed by the mutual agreement of the
Company and Employee on an annual basis.
2. DESCRIPTION OF DUTIES. During Employee's employment hereunder,
Employee will report to the President of the Company and will hold the
position of Technology Officer and/or such other management position(s) as
the Board of Directors may determine in its sole discretion.
Employee shall perform his duties hereunder primarily in the
Vancouver, Washington area, it being understood that Employee's duties
hereunder may require travel. Employee shall not be required to relocate
without his consent.
3. COMPENSATION.
(a) BASE COMPENSATION. All services shall be deemed to be
services required hereby and in consideration of the compensation provided
for herein and Employee shall not be entitled to any additional compensation
for serving in any other office or for serving as a director or officer of
the Company or any of its subsidiaries. For all services which Employee may
render to the Company or its subsidiaries in any capacity during the term
hereof, Employee will receive and the Company hereby agrees to pay Employee
base compensation ("Base Compensation") at the annual rate of One Hundred
Fifty Thousand Dollars ($150,000.00) per year commencing on the date of this
Agreement. Upon each yearly anniversary of the date of this Agreement,
Employee's Base Compensation automatically shall be increased by five percent
of the previous year's Base Compensation (the "Automatic Annual Increase").
The Base Compensation, as adjusted by any Automatic Annual Increase, is
payable in arrears in twenty-six (26) equal bimonthly installments, subject
to any deductions or withholdings required by applicable law.
(b) DISCRETIONARY BONUS. Employee shall also be entitled to
receive from the Company with respect to each fiscal year during the term of
this Agreement, such bonus ("Bonus") as the Company's Board of Directors or
the Compensation Committee of
<PAGE>
such Board shall determine; provided, however, that nothing herein shall be
deemed to require that a Bonus be paid with respect to any given fiscal year.
Employee's Base Compensation, as increased by any Automatic Annual
Increase, and Bonus are hereinafter collectively referred to as
"Compensation."
4. BENEFITS; EXPENSES; AND VACATION. In addition to the Compensation,
Company will be entitled to receive the following additional benefits during
the term of this Agreement:
(a) Company-paid health, life, disability and/or dental insurance
(all on such terms and with such insurers as the Company shall offer to its
other executive officers); and
(b) such other fringe benefits and perquisites, if any, as the
Company shall from time to time make generally available to employees of the
Company.
In addition, Employee shall be entitled to reimbursement for all normal and
reasonable expenses necessarily incurred by him in the performance of his
obligations hereunder in accordance with the Company's expense reimbursement
policies and upon submission of appropriate documentation that such expenses
have been incurred. In addition, Employee shall be entitled to a minimum
four (4) weeks paid vacation each year of his employment by the Company.
Such vacation time shall not be cumulative. If the Employee is employed by
the Company during only a portion of any year, the amount of fully-paid
vacation time shall be prorated.
5. FULL-TIME EMPLOYMENT. During the term hereof, Employee will devote
his full time and best efforts to the business of the Company.
6. NON-COMPETITION.
(a) For the period of this Agreement and for a two (2) year period
thereafter, Employee agrees not to compete with the business of the Company
anywhere in the United States. The phrase "compete with the business of"
shall be deemed to include engaging or being interested, directly or
indirectly, as an owner, employee, general partner, consultant, through stock
ownership, investment of capital, or rendering of services, either alone or
in association with others, in the ownership, operation, management or
supervision of any type of business or enterprise involving the design,
development, or sale of software or related products for or to the direct
sales industry. The foregoing shall not prevent Employee from owning up to
5% of the outstanding securities of a publicly held corporation which may
compete with the business of the Company.
-2-
<PAGE>
(b) CONFIDENTIALITY.
(1) CONFIDENTIAL INFORMATION. The term "Confidential
Information" as used in this Agreement shall include all ideas, materials,
information, data, records, software code, methods or plans developed, used
or employed by the Company or customers and not generally known to the
public. "Confidential Information" also includes, but is not limited to, all
information regarding the Company's or customers' financial affairs,
accounts, customer lists, marketing plans, business or acquisition
strategies, pricing, products, properties, processes, rate structure,
services, employee names, addresses, employment histories, compensation;
provided, however, that Confidential Information shall not include
information which properly and lawfully has become generally known to the
public other than as a result of the act or omission of Employee.
(2) IMPORTANCE OF CONFIDENTIAL INFORMATION. Employee
acknowledges and agrees that the Company's Confidential Information is a
valuable, special and unique asset of the Company which is extremely
important in a highly competitive business such as the software industry.
Employee acknowledges that the disclosure of any Confidential Information may
cause substantial injury and loss to the Company. Employee acknowledges that
the Company retains a proprietary interest in its Confidential Information
that persists beyond the termination of Employee's employment by the Company.
Employee further acknowledges that the preservation and protection of the
Confidential Information is an essential part of Employee's employment by and
business relationship with the Company and that Employee has a duty of
fidelity and trust to the Company in handling the Confidential Information.
(3) NON-DISCLOSURE OR USE. Employee shall not, during the
term of this Agreement and for a two (2) year period thereafter, without the
prior written consent of the Company in each instance or as otherwise may be
required by law or legal process, disclose to anyone any Confidential
Information of the Company, or utilize such Confidential information for
Employee's own benefit, or for the benefit of any third party, until such
time, if ever, as such Confidential Information becomes general public
knowledge (unless caused by any act of Employee in violation of this
Agreement), and all memoranda, records or other documents compiled by
Employee or made available during the term of this Agreement pertaining to
the business of the Company or any Confidential Information shall be the
property of the Company and shall be delivered to the Company on the
termination of Employee's employment or at any other time, immediately upon
request by the Company.
(b) NON-SOLICITATION. Employee agrees and acknowledges that
Employee's services hereunder are of a special, unique, extraordinary
character, that Employee's employment with the Company places Employee in a
position of confidence and trust and that Employee's services hereunder
necessarily will require the disclosure to Employee of Confidential
Information of the Company. Employee consequently agrees that it is
reasonable and necessary for the protection of the goodwill and business of
the Company that Employee make the covenants contained herein and that
Company is relying upon and is
-3-
<PAGE>
induced by the agreements made by Employee in this paragraph. Accordingly,
Employee agrees that during the term of this Agreement and for a two (2) year
period thereafter, Employee shall not, except on behalf of the Company,
directly or indirectly, and regardless of the reason for the cessation of
Employee's employment (i) attempt in any manner to persuade any third party
to cease to do business, or to reduce the amount of business which any such
party customarily has done or contemplates doing, with the Company, whether
or not the relationship between the Company and such third party was
originally established in whole or in part through Employee's efforts; or
(ii) on Employee's own behalf or otherwise, hire, solicit, seek to hire, or
offer employment to any person who is, during any such time period, an
employee of or independent contractor with the Company, or in any other
manner attempt, directly or indirectly, to influence, induce or encourage any
such person to leave the employ of, or terminate or diminish such person's
business relationship with, the Company. As used in this paragraph, the verb
'employ' shall include its variations, for example, retain or engage; and the
"Company" shall include Jenkon International, Inc. and each of its direct or
indirect subsidiaries.
The covenants of Employee set forth in this Section 6 are made in
consideration of the payments made to Employee pursuant to this Agreement,
the receipt, adequacy and sufficiency of which are acknowledged by Employee,
and such covenants have been made by Employee to induce the Company to enter
into this Agreement.
7. TERMINATION. Notwithstanding any other provision of this
Agreement, the Company shall have the right to terminate Employee's
employment during the term hereof for "cause" upon one (1) week's written
notice. In the event of termination for cause, and without limiting any
rights or remedies of the Company, Employee shall be entitled to receive, and
the Company shall be obligated to pay, only Employee's Compensation accrued
through the effective date of such termination. For the purposes hereof,
"cause" shall be limited to the following: (i) conviction of a felony; (ii)
commission of any intentional and material act involving fraud or
misappropriation of funds, properties or assets of the Company; (iii) chronic
alcoholism, drug addiction or substance abuse; (iv) gross negligence in the
performance of Employee's duties hereunder; (v) negligence in the performance
of Employee's duties hereunder which the Board of Directors of the Company
determines to have a material adverse effect on the Company; (vi) any
material violation of any written policies of the Company which, to the
extent curable, are not cured within thirty (30) days of Employee's receipt
of notice thereof; (vii) death of Employee; or (viii) Employee's physical or
mental disability or incapacity. For purposes hereof, "physical or mental
disability or incapacity" shall mean the failure of Employee to perform his
assigned duties in a manner reasonably satisfactory to the Company, where
such failure shall be by reason of physical or mental disability or
incapacity, and where Employee shall have so failed for a period of ninety
(90) consecutive days or more during any period of twelve (12) consecutive
months or less.
-4-
<PAGE>
8. EFFECT OF TERMINATION.
(a) TERMINATION FOR "CAUSE". In the event of Employee's
termination for "cause" pursuant to Section 7(i) through (vi) of this
Agreement, Employee or Employee's legal representatives shall be entitled to
receive, and the Company shall be obligated to pay, only an amount equivalent
to Employee's Base Compensation, accrued through the date of such termination.
(b) TERMINATION WITHOUT "CAUSE". In the event of termination (i)
without "cause" as defined by Section 7 or (ii) for "cause" as a result of
the death or physical or mental disability or incapacity of Employee pursuant
to Section 7(vii) or (viii) of this Agreement, Employee shall be entitled to
receive, and the Company shall be obligated to pay, only an amount equivalent
to Employee's Base Compensation accrued through the date of such termination,
plus an amount equivalent to one year's Base Compensation at the annual rate
in effect on the date of termination, to be paid in accordance with the
ordinary payroll practices of the Company.
9. SURVIVAL. Upon the expiration or other termination of this
Agreement, all obligations of the parties shall forthwith terminate, except
that the provisions of Section 6, 8 and 10 through 16 shall continue in full
force and effect in accordance with its terms, such Section containing
independent agreements and obligations.
10. EQUITABLE REMEDIES. The agreements of the parties contained in
Section 6 are of a special, unique and extraordinary character; the
obligations contained therein shall therefore be enforceable both at law and
in equity, by injunction and otherwise; and the rights and remedies of the
Company and the Employee hereunder with respect thereto shall be cumulative
and not alternative and shall not be exhausted by any one or more uses
thereof.
11. ENTIRE AGREEMENT; WAIVERS AND AMENDMENTS. This Agreement sets
forth the entire agreement between the parties with respect to the terms and
conditions of Employee's employment and any and all matters related thereto,
and any and all prior agreements with respect to any thereof, whether oral or
written, are superseded hereby. Neither this Agreement nor any term or
condition hereof, including, without limitation, the terms and conditions of
this paragraph, may be waived or modified in whole or in part as against the
Company or Employee, as the case may be, except by written instrument signed
by an authorized officer of the Company or by Employee, as the case may be,
expressly stating that it is intended to operate as a waiver or modification
of this Agreement, and any such written waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach hereof.
12. NOTICE. Any notice hereunder shall be in writing and shall be
deemed given or delivered two (2) business days after it has been mailed by
registered or certified
-5-
<PAGE>
mail, postage prepaid, or one (1) business day after being sent by a
recognized national courier service, in each case addressed as follows:
(a) Notices to the Employee:
Jim Thompson
7600 N.E. 41st Street, Suite 350
Vancouver, Washington 98662
(b) Notices to the Company:
Jenkon International, Inc.
7600 N.E. 41st Street, Suite 350
Vancouver, WA 98662
except that either party may from time to time by written notice to the
other, designate another address which shall thereupon become his effective
address for the purposes of this Section.
13. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any person, property or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
14. NO ASSIGNMENT. This Agreement is personal in nature and the
obligations hereunder may not be assigned by the Company or by Employee
without the prior written consent of the other party hereto; provided,
however, that the provisions hereof shall inure to the benefit of, and be
binding upon each successor of the Company, whether by merger, consolidation,
transfer of all or substantially all of its assets, or otherwise.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Washington.
16. ARBITRATION; VENUE.
(a) Subject to the provisions of Section 11 hereof, any dispute,
controversy or claim arising out of, relating to, or in connection with, this
Agreement or the agreements or transactions contemplated hereby shall be
finally settled by arbitration conducted in accordance with the provisions of
this Section 16. The arbitrator shall be a retired judge or practicing
attorney and the arbitration shall be conducted and the arbitrator chosen in
accordance with the rules of the American Arbitration Association (the "AAA")
in effect at the time of the arbitration, except as they may be modified
herein or by mutual agreement of the parties hereto (the "Parties"). If the
Parties are unable to agree on the location of the arbitration within five
(5) business days after the date of delivery of the request of arbitration,
-6-
<PAGE>
the Parties agree the arbitration will be conducted in Vancouver, Washington.
Each Party hereby irrevocably submits to the jurisdiction of the arbitrator
in Portland, Oregon and waives any defense in an arbitration based upon any
claim that such Party is not subject personally to the jurisdiction of such
arbitrator, that such arbitration is brought in an inconvenient forum or that
such venue is improper.
(b) The arbitral award shall be in writing and shall be final and
binding on the Parties. The award may include an award of costs, including
reasonable attorneys' fees and disbursements. Judgment upon the award may be
entered by any court having jurisdiction thereof or having jurisdiction over
the Parties or their assets.
17. EFFECTIVE DATE OF AGREEMENT. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement shall not be effective
and shall be of no force and effect unless and until the Company's
Registration Statement on Form SB-2 (SEC file no. 333-56023) shall have been
declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the 8th day of July, 1998.
"Company"
Jenkon International, Inc.,
a Delaware corporation
By:
-------------------------------------
David Edwards
President & Chief Executive Officer
"Employee"
- ----------------------------------------
Jim Thompson
-7-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of the
effective date of the Company's Registration Statement on Form SB-2 (File No.
333-56023), by and between Jenkon International, Inc., a Delaware corporation
(the "Company"), and Robert Cavitt, an individual ("Employee").
In consideration of the mutual promises herein contained and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Employee and the Company agree as follows:
1. TERM. Subject to the terms and conditions herein contained, the
Company hereby employs Employee, and Employee hereby accepts such employment,
for a period of four (4) years beginning as of the effective date of this
Agreement.
2. DESCRIPTION OF DUTIES. During Employee's employment hereunder,
Employee will report to the President of the Company and will hold the
position of Executive Vice President of Sales and Marketing and/or such other
management position(s) as the Board of Directors may determine in its sole
discretion.
Employee shall perform his duties hereunder primarily in the
Vancouver, Washington area, it being understood that Employee's duties
hereunder may require travel. Employee shall not be required to relocate
without his consent.
3. COMPENSATION.
(a) BASE COMPENSATION. All services shall be deemed to be
services required hereby and in consideration of the compensation provided
for herein and Employee shall not be entitled to any additional compensation
for serving in any other office or for serving as a director or officer of
the Company or any of its subsidiaries. For all services which Employee may
render to the Company or its subsidiaries in any capacity during the term
hereof, Employee will receive and the Company hereby agrees to pay Employee
base compensation ("Base Compensation") at the annual rate of Ninety Thousand
Dollars ($90,000.00) per year commencing on the date of this Agreement. Upon
each yearly anniversary of the date of this Agreement, Employee's Base
Compensation automatically shall be increased by five percent of the previous
year's Base Compensation (the "Automatic Annual Increase"). The Base
Compensation, as adjusted by any Automatic Annual Increase, is payable in
arrears in twenty-six (26) equal bimonthly installments, subject to any
deductions or withholdings required by applicable law.
(b) DISCRETIONARY BONUS. Employee shall also be entitled to
receive from the Company with respect to each fiscal year during the term of
this Agreement, such bonus ("Discretionary Bonus") as the Company's Board of
Directors or the Compensation Committee of such Board shall determine;
provided, however, that nothing herein shall be
<PAGE>
deemed to require that a Discretionary Bonus be paid with respect to any
given fiscal year and within ninety (90) days following the completion of
each contract year of this Agreement.
(c) PERFORMANCE BONUS. In addition to the Discretionary Bonus,
Employee shall also be entitled to a performance bonus based on performance
criteria to be mutually agreed to in writing by the Company and Employee
within ninety (90) days following the effective date of this Agreement.
Employee's Base Compensation, as increased by any Automatic Annual
Increase, and bonuses payable pursuant to Section 3(b) and (c) are
hereinafter collectively referred to as "Compensation."
4. BENEFITS; EXPENSES; AND VACATION. In addition to the Compensation,
Company will be entitled to receive the following additional benefits during
the term of this Agreement:
(a) Company-paid health, life, disability and/or dental insurance
(all on such terms and with such insurers as the Company shall offer to its
other executive officers); and
(b) such other fringe benefits and perquisites, if any, as the
Company shall from time to time make generally available to employees of the
Company.
In addition, Employee shall be entitled to reimbursement for all normal and
reasonable expenses necessarily incurred by him in the performance of his
obligations hereunder in accordance with the Company's expense reimbursement
policies and upon submission of appropriate documentation that such expenses
have been incurred. In addition, Employee shall be entitled to a minimum of
four (4) weeks paid vacation each year of his employment by the Company.
Such vacation time shall not be cumulative. If the Employee is employed by
the Company during only a portion of any year, the amount of fully-paid
vacation time shall be prorated.
5. FULL-TIME EMPLOYMENT. During the term hereof, Employee will devote
his full time and best efforts to the business of the Company.
6. NON-COMPETITION.
(a) For the period of this Agreement and for a two (2) year period
thereafter, Employee agrees not to compete with the business of the Company
anywhere in the United States. The phrase "compete with the business of"
shall be deemed to include engaging or being interested, directly or
indirectly, as an owner, employee, general partner, consultant, through stock
ownership, investment of capital, or rendering of services, either alone or
in
-2-
<PAGE>
association with others, in the ownership, operation, management or
supervision of any type of business or enterprise involving the design,
development, or sale of software or related computer products or services for
or to the direct sales industry. The foregoing shall not prevent Employee
from owning up to 5% of the outstanding securities of a publicly held
corporation which may compete with the business of the Company.
(b) CONFIDENTIALITY.
(1) CONFIDENTIAL INFORMATION. The term "Confidential
Information" as used in this Agreement shall include all ideas, materials,
information, data, records, software code, methods or plans developed, used
or employed by the Company or customers and not generally known to the
public. "Confidential Information" also includes, but is not limited to, all
information regarding the Company's or customers' financial affairs,
accounts, customer lists, marketing plans, business or acquisition
strategies, pricing, products, properties, processes, rate structure,
services, employee names, addresses, employment histories, compensation;
provided, however, that Confidential Information shall not include
information which properly and lawfully has become generally known to the
public other than as a result of the act or omission of Employee.
(2) IMPORTANCE OF CONFIDENTIAL INFORMATION. Employee
acknowledges and agrees that the Company's Confidential Information is a
valuable, special and unique asset of the Company which is extremely
important in a highly competitive business such as the software industry.
Employee acknowledges that the disclosure of any Confidential Information may
cause substantial injury and loss to the Company. Employee acknowledges that
the Company retains a proprietary interest in its Confidential Information
that persists beyond the termination of Employee's employment by the Company.
Employee further acknowledges that the preservation and protection of the
Confidential Information is an essential part of Employee's employment by and
business relationship with the Company and that Employee has a duty of
fidelity and trust to the Company in handling the Confidential Information.
(3) NON-DISCLOSURE OR USE. Employee shall not, during the
term of this Agreement and for a two (2) year period thereafter, without the
prior written consent of the Company in each instance or as otherwise may be
required by law or legal process, disclose to anyone any Confidential
Information of the Company, or utilize such Confidential information for
Employee's own benefit, or for the benefit of any third party, until such
time, if ever, as such Confidential Information becomes general public
knowledge (unless caused by any act of Employee in violation of this
Agreement), and all memoranda, records or other documents compiled by
Employee or made available during the term of this Agreement pertaining to
the business of the Company or any Confidential Information shall be the
property of the Company and shall be delivered to the Company on the
termination of Employee's employment or at any other time, immediately upon
request by the Company.
-3-
<PAGE>
(b) NON-SOLICITATION. Employee agrees and acknowledges that
Employee's services hereunder are of a special, unique, extraordinary
character, that Employee's employment with the Company places Employee in a
position of confidence and trust and that Employee's services hereunder
necessarily will require the disclosure to Employee of Confidential
Information of the Company. Employee consequently agrees that it is
reasonable and necessary for the protection of the goodwill and business of
the Company that Employee make the covenants contained herein and that
Company is relying upon and is induced by the agreements made by Employee in
this paragraph. Accordingly, Employee agrees that during the term of this
Agreement and for a two (2) year period thereafter, Employee shall not,
except on behalf of the Company, directly or indirectly, and regardless of
the reason for the cessation of Employee's employment (i) attempt in any
manner to persuade any third party to cease to do business, or to reduce the
amount of business which any such party customarily has done or contemplates
doing, with the Company, whether or not the relationship between the Company
and such third party was originally established in whole or in part through
Employee's efforts; or (ii) on Employee's own behalf or otherwise, hire,
solicit, seek to hire, or offer employment to any person who is, during any
such time period, an employee of or independent contractor with the Company,
or in any other manner attempt, directly or indirectly, to influence, induce
or encourage any such person to leave the employ of, or terminate or diminish
such person's business relationship with, the Company. As used in this
paragraph, the verb 'employ' shall include its variations, for example,
retain or engage; and the "Company" shall include Jenkon International, Inc.
and each of its direct or indirect subsidiaries.
The covenants of Employee set forth in this Section 6 are made in
consideration of the payments made to Employee pursuant to this Agreement,
the receipt, adequacy and sufficiency of which are acknowledged by Employee,
and such covenants have been made by Employee to induce the Company to enter
into this Agreement.
7. TERMINATION. Notwithstanding any other provision of this
Agreement, the Company shall have the right to terminate Employee's
employment during the term hereof for "cause" upon one (1) week's written
notice. In the event of termination for cause, and without limiting any
rights or remedies of the Company, Employee shall be entitled to receive, and
the Company shall be obligated to pay, only Employee's Compensation accrued
through the effective date of such termination. For the purposes hereof,
"cause" shall be limited to the following: (i) conviction of a felony; (ii)
commission of any intentional and material act involving fraud or
misappropriation of funds, properties or assets of the Company; (iii) chronic
alcoholism, drug addiction or substance abuse; (iv) gross negligence in the
performance of Employee's duties hereunder; (v) negligence in the performance
of Employee's duties hereunder which the Board of Directors of the Company
determines to have a material adverse effect on the Company; (vi) any
material violation of any written policies of the Company which, to the
extent curable, are not cured within thirty (30) days of Employee's receipt
of notice thereof; (vii) death of Employee; or (viii) Employee's physical or
mental disability or incapacity. For purposes hereof, "physical or mental
disability or incapacity" shall mean the failure of Employee to perform his
assigned duties in a manner reasonably
-4-
<PAGE>
satisfactory to the Company, where such failure shall be by reason of
physical or mental disability or incapacity, and where Employee shall have so
failed for a period of ninety (90) consecutive days or more during any period
of twelve (12) consecutive months or less.
8. EFFECT OF TERMINATION.
(a) TERMINATION FOR "CAUSE". In the event of Employee's
termination for "cause" pursuant to Section 7(i) through (vi) of this
Agreement, Employee or Employee's legal representatives shall be entitled to
receive, and the Company shall be obligated to pay, only an amount equivalent
to Employee's Base Compensation, accrued through the date of such termination.
(b) TERMINATION WITHOUT "CAUSE". In the event of termination (i)
without "cause" as defined by Section 7, or (ii) for "cause" as a result of
the death or physical or mental disability or incapacity of Employee pursuant
to Section 7(vii) or (viii) of this Agreement, Employee shall be entitled to
receive, and the Company shall be obligated to pay, only an amount equivalent
to Employee's Base Compensation accrued through the date of such termination,
plus $200,000.00 to be paid in 26 equal bi-monthly installments in accordance
with the ordinary payroll practices of the Company.
9. SURVIVAL. Upon the expiration or other termination of this
Agreement, all obligations of the parties shall forthwith terminate, except
that the provisions of Section 6, 8 and 10 through 16 shall continue in full
force and effect in accordance with its terms, such Section containing
independent agreements and obligations.
10. EQUITABLE REMEDIES. The agreements of the parties contained in
Section 6 are of a special, unique and extraordinary character; the
obligations contained therein shall therefore be enforceable both at law and
in equity, by injunction and otherwise; and the rights and remedies of the
Company and the Employee hereunder with respect thereto shall be cumulative
and not alternative and shall not be exhausted by any one or more uses
thereof.
11. ENTIRE AGREEMENT; WAIVERS AND AMENDMENTS. This Agreement sets
forth the entire agreement between the parties with respect to the terms and
conditions of Employee's employment and any and all matters related thereto,
and any and all prior agreements with respect to any thereof, whether oral or
written, are superseded hereby. Neither this Agreement nor any term or
condition hereof, including, without limitation, the terms and conditions of
this paragraph, may be waived or modified in whole or in part as against the
Company or Employee, as the case may be, except by written instrument signed
by an authorized officer of the Company or by Employee, as the case may be,
expressly stating that it is intended to operate as a waiver or modification
of this Agreement, and any such written waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach hereof.
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12. NOTICE. Any notice hereunder shall be in writing and shall be
deemed given or delivered two (2) business days after it has been mailed by
registered or certified mail, postage prepaid, or one (1) business day after
being sent by a recognized national courier service, in each case addressed
as follows:
(a) Notices to the Employee:
Robert Cavitt
7600 N.E. 41st Street, Suite 350
Vancouver, Washington 98662
(b) Notices to the Company:
Jenkon International, Inc.
7600 N.E. 41st Street, Suite 350
Vancouver, WA 98662
except that either party may from time to time by written notice to the
other, designate another address which shall thereupon become his effective
address for the purposes of this Section.
13. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any person, property or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
14. NO ASSIGNMENT. This Agreement is personal in nature and the
obligations hereunder may not be assigned by the Company or by Employee
without the prior written consent of the other party hereto; provided,
however, that the provisions hereof shall inure to the benefit of, and be
binding upon each successor of the Company, whether by merger, consolidation,
transfer of all or substantially all of its assets, or otherwise.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Washington.
16. ARBITRATION; VENUE.
(a) Subject to the provisions of Section 11 hereof, any dispute,
controversy or claim arising out of, relating to, or in connection with, this
Agreement or the agreements or transactions contemplated hereby shall be
finally settled by arbitration conducted in accordance with the provisions of
this Section 16. The arbitrator shall be a retired judge or practicing
attorney and the arbitration shall be conducted and the arbitrator chosen in
accordance with the rules of the American Arbitration Association (the "AAA")
in effect at the time of the arbitration, except as they may be modified
herein or by mutual agreement of the parties hereto (the "Parties"). If the
Parties are unable to agree on the location of the
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arbitration within five (5) business days after the date of delivery of the
request of arbitration, the Parties agree the arbitration will be conducted
in Vancouver, Washington. Each Party hereby irrevocably submits to the
jurisdiction of the arbitrator in Portland, Oregon and waives any defense in
an arbitration based upon any claim that such Party is not subject personally
to the jurisdiction of such arbitrator, that such arbitration is brought in
an inconvenient forum or that such venue is improper.
(b) The arbitral award shall be in writing and shall be final and
binding on the Parties. The award may include an award of costs, including
reasonable attorneys' fees and disbursements. Judgment upon the award may be
entered by any court having jurisdiction thereof or having jurisdiction over
the Parties or their assets.
17. EFFECTIVE DATE OF AGREEMENT. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement shall not be effective
and shall be of no force and effect unless and until the Company's
Registration Statement on Form SB-2 (SEC file no. 333-56023) shall have been
declared effective by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the 8th day of July, 1998.
"Company"
Jenkon International, Inc.,
a Delaware corporation
By:
-------------------------------------
David Edwards
President & Chief Executive Officer
"Employee"
- ----------------------------------------
Robert Cavitt
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<PAGE>
CONSULTING AND NON-COMPETITION AGREEMENT
THIS CONSULTING AND NON-COMPETITION AGREEMENT (this "Agreement") is
entered into as of July 1, 1998 by and between DAN JENSEN ("Jensen") on the
one hand, and JENKON INTERNATIONAL, INC., a Delaware corporation (the
"Company"), with respect to the following facts:
A. Jensen is a co-founder of the Company and is currently an employee
and a director of the Company and/or its direct or indirect subsidiaries (the
"Subsidiaries"), including Jenkon International, Inc., a Washington
corporation, and Summit V, Inc., a Washington corporation.
B. Jensen and the Company have agreed that Jensen's employment with
the Company will terminate as of July 1, 1998, and that simultaneously with
such termination, Jensen will resign and cease to serve as an officer or
employee of the Company or as a director, officer or employee of each of the
Subsidiaries.
C. The Company and Jensen desire to settle and resolve any and all
controversies between them including, but not limited to any differences or
claims that might also arise out of Jensen's employment with the Company or
any Subsidiaries and Jensen's termination therefrom, to bring these matters
to a conclusion and to avoid incurring costs and expenses which would be
incident to the prosecution and defense of claims arising from disputed
matters, if any.
D. Following the effective date of this Agreement, the Company and
Jensen desire that the Company retain Jensen as a consultant and that the
Jensen agree to a covenant not to compete with the Company or its
Subsidiaries on the terms described in this Agreement.
NOW, THEREFORE, in consideration for the covenants and agreements
contained herein, and other good and valuable consideration, the parties
hereto agree as follows:
1. TERMINATION AS AN EMPLOYEE AND ACKNOWLEDGMENT OF PAYMENT. Jensen
and the Company hereby agree that Jensen's employment with the Company shall
terminate at 12:01 a.m., Pacific Daylight Time, on July 1, 1998 (the
"Termination Date") and effective on the Termination Date, Jensen shall, by
execution of this Agreement and by no further action on the part of the
Company, any Subsidiary or Jensen, be deemed to have resigned as (i) an
employee and officer of the Company and each of its Subsidiaries, and (ii) as
a director of each of the Subsidiaries. Jensen shall remain as a director of
the Company. Simultaneously with the termination of Jensen's employment with
the Company as set forth herein, Jensen agrees to serve as a consultant to
the Company upon the terms detailed below. Except as otherwise specifically
set forth in this Agreement, Company shall have no further obligations to
Jensen and all compensation and benefits payable to him shall cease as of the
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Termination Date. Jensen hereby acknowledges that he has been paid all
accrued compensation, wages, bonus or vacation pay, benefits and other
compensation owed to him by the Company or to which he may be entitled up to
and through the Termination Date and hereby releases the Company of any
further obligations to pay any such amounts except as specifically
contemplated by this Agreement.
2. CONSULTING SERVICES AND COMPENSATION.
2.1 CONSULTING SERVICES. Effective on the Termination Date, and
for a period of three years thereafter, Jensen shall serve as a consultant of
the Company and shall provide such consulting services as may be reasonably
be requested by the Chief Executive Officer of the Company from time to time;
provided that unless otherwise agreed by the parties hereto, Jensen shall not
be required to travel or provide services at any location other than from
Jensen's home or, at the reasonable request of the Company, at the Company's
headquarters in Vancouver, Washington. The relationship of Jensen to the
Company following the Termination Date shall be that of an independent
contractor. The Company shall pay Jensen consulting fees hereunder directly
and without payroll deductions of any kind whatsoever. Nothing contained
herein shall be construed to create the relationship between the Company and
Jensen of employer and employee for any period subsequent to the Termination
Date.
2.2 PAYMENT OF TAXES. Jensen, at his sole cost and expense, shall
be fully and solely liable and responsible to report his income and expenses
and to pay and withhold any and all payroll, withholding, Social Security or
other taxes on any compensation or other payments made pursuant to the terms
of this Agreement (collectively, "Taxes") to the extent required by
applicable law. It is understood and agreed that, since following the
Termination Date, Jensen shall not be an employee of the Company, the Company
shall not withhold any taxes from amounts paid to Jensen. It is also
understood and agreed that, except as specifically provided for in this
Agreement, Jensen shall not be eligible to participate in any benefits or
programs sponsored or financed by the Company for its employees, including,
but not limited to, any insurance, workers' compensation, retirement,
vacation, sick, or holiday programs and benefits. Jensen assumes full
responsibility for and agrees to indemnify and hold harmless the Company and
each of its officers, employees, directors, agents, and affiliates from any
claims relating to the failure of Jensen to pay or properly withhold any
Taxes.
2.3 COMPENSATION FOR CONSULTING SERVICES. In consideration of
Jensen's consulting services, the Company shall make the following payments
to Jensen: (i) a monthly fee of $3,000, payable on or before the first day of
each month commencing August 1, 1998 until January 31, 1999, and (ii) a
monthly fee of $2,000, payable on or before the first day of each month
commencing February 1, 1999 until July 31, 2001.
2.4 ADDITIONAL BENEFITS. In addition to the payments set forth
above, the Company agrees to:
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<PAGE>
(i) transfer ownership to Jensen of the Lexus automobile
presently owned by the Company and used by Jensen in consideration for the
payment by Jensen to the Company or its designee of $15,000, which may be
offset against any consulting payments otherwise due or payable to Jensen
pursuant to the terms of this Agreement. The Company shall continue to
provide insurance for such automobile until the current policy for such
automobile expires at which time Jensen shall be required to apply for and
maintain insurance coverage,
(ii) install an ISDN line at Jensen's home for Internet
connection, but only to the extent that the Company deems the costs of such
installation to be reasonable;
(iii) provide Jensen a PCS Nextel phone for use by Jensen until
the expiration of the contract period on such phone (October 31, 1998). All
non-business related telephone calls from such telephone shall be borne by
Jensen; and
(iv) pay all premiums necessary to continue Jensen's health
insurance coverage under COBRA for the maximum period permitted by COBRA and
other applicable laws.
2.5 EXPENSES. Other than long distance phone charges that are
made from Jensen's home and are reasonably related to the provision of
services by Jensen pursuant to this Agreement, any and all expenses to be
incurred by Jensen in connection with his consulting services shall be
subject to the prior written approval of the Company. Reimbursement of such
expenses shall be made in accordance with the Company's ordinary expense
reimbursement policies, including the requirement that Jensen submit
appropriate receipts or other documentation evidencing any reimbursable
expenses.
2.6 COMPLIANCE WITH AGREEMENT. Jensen acknowledges and agrees
that all payments and other benefits provided to him under this Agreement are
contingent upon his complete compliance with all of the terms and conditions
of this Agreement.
3. RETURN OF COMPANY PROPERTY. Jensen warrants and represents that he
has or will, within five (5) business days of the Termination Date, return to
the Company all property of the Company and/or its Subsidiaries in the
possession, custody and/or control of Jensen, his spouse or any affiliate(s)
thereof. Such Company property shall include any written records or computer
files containing Confidential Information, as such term is defined in Section
6.2 of this Agreement.
4. RELEASE OF CLAIMS BY JENSEN.
4.1 RELEASE. As a material inducement to the Company to enter
into this Agreement, Jensen does hereby covenant not to sue and fully and
forever waives, releases, and discharges, on his own behalf and on behalf of
any dependents, heirs, affiliates, successors and assigns, the Companies and
any entity or individual affiliated with the organization,
3
<PAGE>
including, without limitation, any of its attorneys, accountants,
predecessors, successors, agents, directors, officers and employees ("COMPANY
RELEASED PARTIES") from all rights, claims, actions and suits of all kinds
and descriptions that Jensen may have against the Company Released Parties
including, but not limited to, claims, actions, suits or charges arising out
of his employment with the Company and/or his resignation or termination
therefrom, including, but not limited to any claim that the Company
discriminated against Jensen on the basis of his race, sex, religion,
national origin, handicap, ancestry or age, that the Company violated any
promise or agreement either express or implied with Jensen, or that the
Company has terminated him for any illegal reason or in an illegal fashion,
including specifically without limiting the generality of the foregoing any
claim under the Employee Retirement Income Security Act, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, or any claim for employment discrimination,
defamation, liable, interference with contract, business relationships, or
prospective economic advantage, emotional distress, wrongful termination,
wages, severance pay, deferred compensation, stock options, bonus, sick
leave, holiday pay, vacation pay, life insurance, health and medical
insurance, or any other fringe benefit or commissions.
4.2 NO PRIOR ASSIGNMENT. Jensen represents and warrants that he
has not heretofore assigned, transferred, or granted, or purported to assign,
transfer or grant, any of the claims, demands, and cause or causes of action
released pursuant to this Agreement. Jensen represents that he is the owner
of the claims, demands and cause or causes of action that he is releasing,
and shall indemnify, defend, and hold the Company Released Parties free and
harmless from and against all claims, demands, and cause or causes of action
made or asserted by any other person, firm or entity purporting to be the
owner of any claims, demands, and cause or causes of action so released.
5. NO ADMISSION. The Company and Jensen understand and agree that
neither this Agreement nor the consideration referenced above is to be
construed as an admission on the part of the Company Released Parties, or any
of them, of any liability whatsoever.
6. CONFIDENTIALITY AND NON-COMPETITION COVENANTS.
6.1 NON-COMPETITION. For a period of three (3) years following
the Termination Date, Jensen agrees not to compete with the business of the
Company. The phrase "compete with the business of the Company" shall be
deemed to include engaging or being interested, directly or indirectly, as an
owner, employee, director, officer, general partner, member, consultant,
through stock ownership, investment of capital, or rendering of services,
either alone or in association with others, in the ownership, operation,
management or supervision of any type of business or enterprise that designs,
develops, or sells software solutions for or to, or provides consulting
services relating to the design, development or sale of software solutions
for or to, the network marketing or direct sales industry. The foregoing
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<PAGE>
shall not prevent Jensen from owning up to 5% of the outstanding securities
of a publicly held corporation which may compete with the business of the
Company.
6.2 CONFIDENTIALITY.
(A) CONFIDENTIAL INFORMATION. The term "Confidential
Information" as used in this Agreement shall include all ideas, materials,
information, data, records, technology, software, operating methods or
systems or plans developed, used or employed by the Company its customers or
suppliers other than information which has properly and lawfully become
generally known to the public other than as a result of the act or omission
of Jensen or his representatives or agents. "Confidential Information" also
includes, but is not limited to, all information regarding the financial
affairs of the Company, or their customers or suppliers, accounts, customer
or supplier lists, marketing plans, business or acquisition strategies,
development plans, software code or design, pricing, products, properties,
processes, rate structures, services, employee names, addresses, employment
histories, or compensation policies.
(B) IMPORTANCE OF CONFIDENTIAL INFORMATION. Jensen
acknowledges and agrees that the Company's Confidential Information is a
valuable, special and unique asset of the Company which is extremely
important in a highly competitive business such as software development.
Jensen acknowledges that the disclosure of any Confidential Information may
cause substantial injury and loss to the Company. Jensen acknowledges that
the Company retains a proprietary interest in its Confidential Information
that persists beyond the termination of Jensen's employment by the Company.
Jensen further acknowledges that the preservation and protection of the
Confidential Information is an essential part of Jensen's employment by and
business relationship with the Company and that Jensen has a duty of fidelity
and trust to the Company in handling the Confidential Information.
(C) NON-DISCLOSURE OR USE. Jensen shall not for a period of
three (3) years following the Termination Date, without the prior written
consent of the Company in each instance or as otherwise may be required by
law or legal process, disclose to anyone any Confidential Information of the
Company, or utilize such Confidential Information for Jensen's own benefit,
or for the benefit of any third party.
6.3 NON-SOLICITATION. Jensen agrees that it is reasonable and
necessary for the protection of the goodwill and business of the Companies
that Jensen make the covenants contained herein and that the Company is
relying upon and is induced by the agreements made by Jensen in this
paragraph. Accordingly, Jensen agrees that for a period of three (3) years
following the Termination Date, Jensen shall not, directly or indirectly (i)
attempt in any manner to persuade any third party to cease to do business, or
to reduce the amount of business which any such party customarily has done or
contemplates doing, with any of the Companies, whether or not the
relationship was originally established in whole or in part through Jensen's
efforts; or (ii) on Jensen's own behalf or otherwise, hire, solicit, seek to
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<PAGE>
hire, or offer employment to any person who is, during any such time period,
an Jensen of or independent contractor with the Company, or in any other
manner attempt, directly or indirectly, to influence, induce or encourage any
such person to leave the employ of, or terminate or diminish such person's
business relationship with, any of the Companies.
6.4 CONSIDERATION FOR COVENANTS. In consideration of the
covenants of Jensen set forth in this Section 6, the Company agrees to make
the following payments to Jensen which shall be in addition to any payments
required pursuant to Section 2 of this Agreement: (i) a lump sum payment of
$30,000 on the date of this Agreement, (ii) a lump sum payment of $50,000
within three business days following completion of an initial public offering
by the Company, (iii) a monthly fee of $9,000, payable on or before the first
day of each month commencing August 1, 1998 until January 31, 1999, (iv) a
monthly fee of $6,000, payable on or before the first day of each month
commencing February 1, 1999 until January 31, 2000, (v) a monthly fee of
$2,000, payable on or before the first day of each month commencing February
1, 2000 until July 31, 2001, and (vi) a lump sum payment of $75,000 on or
before July 31, 2001.
7. MATERIAL BREACH. In the event any party breaches any of the
provisions, covenants or promises set forth in Sections 4, 5 and 6 or other
provisions of this Agreement, the injured party will be entitled, in addition
to damages, to injunctive relief from a court of competent jurisdiction,
enjoining the party which committed the breach, or any of them, their agents,
attorneys, and all others acting on his or its behalf from any further
disclosure or dissemination of information or any activity in breach of
Sections 4, 5 and 6 of this Agreement.
8. COSTS. Each party shall bear her or its own costs and attorneys'
fees in connection with the negotiation and preparation of this Agreement.
9. ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter hereof, and any and all prior discussions, negotiations, commitments
or understandings related thereto, if any are hereby merged herein and
therein. No representations, oral or otherwise, express or implied, other
than those specifically referred to in this Agreement have been made by any
party hereto. No other agreements not specifically contained or referenced
herein, oral or otherwise, shall be deemed to exist or to bind any of the
parties hereto.
10. WAIVER, MODIFICATION AND AMENDMENT. No provision hereof may be
waived unless in writing signed by all parties hereto. Waiver of any one
provision herein shall not be deemed to be a waiver of any provision herein.
This Agreement may be amended or modified only by a written agreement
executed by all of the parties hereto.
11. BINDING ON PARTIES. This Agreement, and all the terms and
provisions hereof, shall be binding on the parties and their respective
heirs, legal representatives, successors and assigns, and shall inure to the
benefit of the parties and their respective heirs,
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<PAGE>
legal representatives, successors and assigns. The parties shall defend,
indemnify and hold the other parties harmless from any claim or action
brought by any third party related to this Agreement or any claim or matter
released herein.
12. VOLUNTARY AGREEMENT. This Agreement in all respects has been
voluntarily and knowingly executed by the parties after each party has had
the opportunity to review it with their respective legal counsel. All
parties have participated in the drafting of this Agreement. Accordingly, no
rule of construction shall apply against any party or in favor of any party,
and any uncertainty or ambiguity shall not be interpreted against any party
and in favor of another.
13. ACKNOWLEDGMENT. Jensen acknowledges that he has been given a
reasonable period of time to study this Agreement before signing it. Jensen
certifies that he has fully read, has received an explanation of, and
completely understands the terms, nature and effect of this Agreement. Jensen
further acknowledges that he is executing this Agreement freely, knowingly
and voluntarily and that his execution of this Agreement is not the result of
any fraud, duress, mistake or undue influence whatsoever. In executing this
Agreement, Jensen does not rely on any inducements, promises or
representations by the Companies or any person other than the terms and
conditions of this Agreement.
14. NO RELIANCE. The parties acknowledge that they have read this
Agreement, that they are relying solely upon the contents of this Agreement,
and are not relying upon any other representations, warranties, or
inducements whatsoever as an inducement to enter into this Agreement, other
than those referenced herein, and acknowledge that no representations,
warranties, or covenants have been made which are not referenced in this
Agreement.
15. NO WAIVER. Failure to insist on compliance with any term,
covenant, or condition contained in this Agreement shall not be deemed a
waiver of that term, covenant, or condition, nor shall any waiver or
relinquishment of any right or power contained in this Agreement at any one
time or more times be deemed a waiver or relinquishment of any right or power
at any other time or times.
16. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Washington.
17. ARBITRATION AND WAIVER OF JURY TRIAL. Any and all disputes which
may arise from or relate to this Agreement or the employment of Jensen or the
termination of such employment shall be subject to final and binding
arbitration to be held in Vancouver, Washington. All such disputes shall be
arbitrated under the auspices and rules of the American Arbitration
Association pursuant to its Expedited Labor Arbitration Rules in effect at
the time the claim or dispute arises. There shall be one arbitrator, who
shall be a retired superior court or federal court judge. The arbitrator
shall have the authority only to enforce the legal and contractual rights of
the parties and shall not add to, modify, disregard or refuse
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<PAGE>
to enforce any contractual provision. The arbitrator shall have no right,
power or jurisdiction to award Jensen any punitive or exemplary damages of
any kind. JENSEN AND THE COMPANY RECOGNIZE AND AGREE THAT BY ENTERING INTO
THIS AGREEMENT, THEY ARE WAIVING ANY AND ALL RIGHTS TO A TRIAL BY JURY.
Notwithstanding any of the foregoing, this provision for arbitration shall
not prevent the Companies, or any of them, from seeking injunctive relief for
violation of the provisions of Section 4, 5 and 6 hereof. The prevailing
party in any arbitration or in any action or proceeding involving injunctive
relief shall be entitled to recover her or its reasonable attorneys' fees and
costs.
18. SEVERABILITY. Should any portion, word, clause, phrase, sentence
or paragraph of this Agreement be declared void or unenforceable, such
portion shall be considered independent of and severable from the remainder,
the validity of which shall remain unaffected.
19. TITLES AND CAPTIONS. Paragraph titles or captions contained in
this Agreement are inserted only as a matter of convenience and for reference
and in no way define, limit, extend or describe the scope of this Agreement
or the intent of any provisions hereof.
20. COUNTERPARTS. This Agreement may be executed in counterparts, and
when each party has signed and delivered at least one such counterpart, each
counterpart shall be deemed an original, and, when taken together with the
other signed counterparts, shall constitute one agreement, which shall be
binding and effective as to the parties. This Agreement shall be effective
on the date last executed by one of the parties hereto if so executed in
counterparts.
21. FURTHER ASSURANCES; COOPERATION IN LITIGATION. Jensen hereby
agrees that from time to time at the reasonable request of the Company, and
without further consideration, Jensen will (i) execute and deliver such
additional instruments and take such other actions as the Company may
reasonably require to carry out the terms of this Agreement, (ii) cooperate
with the Company in connection with preparing for, defending, and testifying
in connection with any pending or future litigation or other proceeding or
dispute between any of the Companies and any third party, and (iii) cooperate
with the Company in connection with any financial audit of the Companies.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
"COMPANY"
JENKON INTERNATIONAL, INC.
By:
-------------------------------------
David Edwards, Chief Executive Officer
"JENSEN"
- ----------------------------------------
DAN JENSEN
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INDEMNIFICATION AGREEMENT
This Agreement is made effective as of July 13, 1998, by and between
Jenkon International, Inc., a Delaware corporation (the "Company"), and the
undersigned, a director and/or officer of the Company ("Indemnitee"), with
respect to the following facts.
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that
the exposure frequently bears no reasonable relationship to the compensation
of such directors and officers.
B. The following facts contribute to unfairness to directors and
officers: (i) laws regarding the duties of directors and officers are often
ambiguous; (ii) costs of litigation may be so enormous (whether or not the
case is meritorious) that the defense and/or settlement of such litigation is
often beyond the personal resources of officers and directors; and (iii)
delay in litigation may extend the period of exposure to an officer or
director until after retirement or death, thus forcing spouses, heirs,
executors or administrators to expend funds.
C. The Company has been advised that there can be no assurance that
directors' and officers' liability insurance will be available to the Company
and Indemnitee in the future, and that the cost of such insurance, if
available, may not be acceptable to the Company.
D. Indemnitee questions the adequacy and reliability of the protection
presently afforded by the Delaware General Corporation Law and the corporate
laws of the State of Washington (together with the Delaware General
Corporation Law, the "Corporation Laws") and the Company's Certificate of
Incorporation and Bylaws, in part because certain of the indemnification
provisions of the Corporation Laws are for the most part merely permissive
and because the impact of provisions of the Company's Certificate of
Incorporation and Bylaws is presently uncertain.
E. Indemnitee currently serves or has agreed to serve as a director
and/or officer of the Company and/or any of its subsidiaries. Indemnitee is
concerned about continuing to serve the Company as a director and/or officer
without assurance that indemnities available to him are, and will be,
adequate to protect him against the risks associated with his service to the
Company.
F. The Company, in order to induce Indemnitee to continue to serve the
Company as a director and/or officer without assurance that indemnities
available to him are, and will be, adequate to protect him against the risks
associated with his service to the Company, has agreed to provide Indemnitee
with the benefits contemplated by this Agreement, which benefits are intended
to provide Indemnitee with the maximum possible protection permitted by law.
<PAGE>
G. As a result of the provision of such benefits and in reliance
thereon Indemnitee is continuing to serve as a director or officer.
NOW, THEREFORE, in consideration of the foregoing and the promises,
conditions, representations and warranties set forth herein, the Company and
Indemnitee hereby agree as follows:
1. DEFINITIONS. The following terms, as used herein, shall have the
following respective meanings:
1.1 "COVERED ACT" means (i) any actual or alleged action taken or
attempted by Indemnitee (including, without limitation, any breach of duty,
neglect, error, misstatement, or misleading statement) (a) in his capacity
as, or otherwise by reason of, or arising out of his being, a director,
officer, employee or other agent of the Company or any of its subsidiaries,
or (b) by reason of the fact he is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise; or (ii) any inaction
or omission on Indemnitee's part while acting in any of the foregoing
capacities. For purposes solely of this Agreement, it shall be conclusively
deemed between the parties that the Indemnitee is serving at the request of
the Company whenever such director serves as an officer, director, employee
or other agent of any business entity controlling, controlled by or under
common control with the Company.
1.2 "D & O INSURANCE" means directors' and officers' liability
insurance with coverage sufficient to ensure performance of the
indemnification obligation of the Company hereunder issued by one or more
reputable insurers.
1.3 "EXCLUDED CLAIM" means any payment for Losses or Expenses in
connection with any claim: (i) for the return by Indemnitee of any
remuneration which is illegal; or (ii) for an accounting of profits in fact
made from the purchase or sale by Indemnitee of securities of the Company
within the meaning of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or similar provisions of any state law, if the Company is in
fact entitled to recover such profits; or (iii) resulting from Indemnitee's
knowingly fraudulent, deliberately dishonest or intentional misconduct; or
(iv) the payment of which by the Company under this Agreement is not
permitted by applicable law; or (v) initiated or brought voluntarily by
Indemnitee and not by way of defense, except with respect to proceedings
brought to establish or enforce a right to indemnification or advancement of
Expenses and Losses or a proceeding initiated with the approval of a majority
of the members of the Board of Directors.
Any facts pertaining to any other director, officer, employee
or agent of the Company shall not be imputed to Indemnitee for the purpose of
determining an Excluded Claim.
1.4 "EXPENSES" means any reasonable expenses incurred by
Indemnitee as a result of a claim or claims whether brought by or in the
right of the Company (e.g.,
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derivatively by stockholders of the Company for the benefit of the Company)
or otherwise and whether of a civil, criminal, administrative or
investigative nature made against him for, or otherwise in respect of,
Covered Acts including, without limitation, counsel fees, costs of bonds, and
other costs of proceedings or appeals.
1.5 "LOSS" means any amount which Indemnitee pays or is obligated
to pay as a result of a claim or claims whether brought by or in the right of
the Company (e.g., derivatively by stockholders of the Company for the
benefit of the Company) or otherwise and whether of a civil, criminal,
administrative or investigative nature made against him or for or otherwise
in respect of Covered Acts including, without limitation, damages, judgments,
sums paid in settlement of such claim or claims, sums paid in respect of any
deductible under any policy of D & O Insurance, and fines and penalties other
than fines and penalties for which indemnification is not permitted by
applicable law.
2. MAINTENANCE OF D & O INSURANCE.
2.1 The Company hereby covenants and agrees that, as long as
Indemnitee shall continue to serve as a director or officer of the Company
and thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether
civil, criminal or investigative, by reason of his services to the Company,
the Company, subject to Section 2.3 hereof, shall obtain and maintain in full
force and effect D & O Insurance.
2.2 All policies of D & O Insurance shall be written in such a
manner as to provide Indemnitee the same rights and benefits, subject to the
same limitations, as are accorded to the Company's directors or officers most
favorably insured by such policy.
2.3 The Company shall have no obligation to maintain D & O
Insurance if the Board of Directors of the Company determines in good faith
that such insurance is not reasonably available, the premium costs for such
insurance are disproportionate to the amount of coverage provided, or the
coverage provided for such insurance is limited by exclusions so as to
provide an insufficient benefit.
3. INDEMNIFICATION.
3.1 The Company, at the request of Indemnitee, shall indemnify
Indemnitee and hold him harmless from any and all Losses and Expenses
subject, in each case, to the further provisions of this Agreement.
3.2 The protection afforded to Indemnitee hereunder is intended to
supplement the other protections to which Indemnitee may be entitled now or
hereafter under statutory law, the Company's Certificate of Incorporation or
Bylaws, the D & O Insurance, vote of stockholders or of directors or
otherwise, and all of such protections and the provisions hereof are intended
to be cumulative.
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<PAGE>
3.3 Indemnitee may seek such indemnification under statutory law,
the Company's Certificate of Incorporation or Bylaws, the D & O Insurance,
the provisions of Section 3.1 of this Agreement, or otherwise concurrently or
in such sequence as Indemnitee may choose, in his sole discretion.
3.4 The Company shall have no obligation to indemnify Indemnitee
for and hold him harmless from any Loss or Expense which constitutes an
Excluded Claim.
4. INDEMNIFICATION PROCEDURES.
4.1 Promptly after receipt by Indemnitee of notice of the
commencement of or the threat of commencement of any action, suit or
proceeding, Indemnitee shall notify the Company of the commencement or threat
thereof; but the omission so to notify or delay in notifying the Company will
not relieve it from any liability which it may have to Indemnitee except to
the extent that the Company is actually prejudiced by any such omission or
delay.
4.2 The Company shall give prompt notice of the commencement of
such action, suit or pending to the insurers on the D & O Insurance, if any,
in accordance with the procedures set forth in the respective policies in
favor of Indemnitee. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of Indemnitee, all
amounts as a result of such action, suit or proceeding in accordance with the
terms of such policies.
4.3 If such action, suit or proceeding is other than by or in the
right of the Company, Indemnitee shall, assuming that the D & O Insurance, if
any, then provides for Indemnitee's defense, accept the defense provided
under the D & O Insurance. If it does not so provide for his defense, or if
Indemnitee determines that the insurers under the D & O Insurance are unable
or unwilling to defend, contest and protect Indemnitee adequately against any
such action, suit or proceeding, or if no D & O Insurance is maintained
pursuant to Section 2.3 hereof, Indemnitee may at his option, either control
the defense thereof himself or require the Company to defend him; provided,
however, that Indemnitee may not control the defense himself or require the
Company to defend him if such decision would jeopardize the coverage provided
by the D & O Insurance, if any, to the Company and/or the other directors and
officers covered thereby. If (a) Indemnitee requires the Company to defend
him, (b) the Company does not maintain any D & O Insurance pursuant to
Section 2.3 hereof or (c) Indemnitee proceeds under the D & O Insurance but
Indemnitee determines that the insurers under the D & O Insurance are unable
or unwilling to defend, contest and protect Indemnitee adequately against any
such action, suit or proceeding, then the Company shall promptly undertake to
defend any such action, suit or proceeding, at the Company's sole cost and
expense, utilizing counsel of the Indemnitee's choice who has been approved
by the Company. If appropriate the Company shall have the right to
participate in the defense of such action, suit or proceeding.
4.4 If such action, suit or proceeding is by or in the right of
the Company, Indemnitee may, at his option, either control the defense
thereof himself or accept the defense
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<PAGE>
provided under the D & O Insurance, if any; PROVIDED, HOWEVER, that
Indemnitee may not control the defense himself if such decision would
jeopardize the coverage provided by the D & O Insurance, if any, to the
Company and/or the other directors and officers covered thereby.
4.5 If the Company shall fail to defend, contest or otherwise
protect Indemnitee in a timely manner against any such action, suit or
proceeding which is not by or in the right of the Company, Indemnitee shall
have the right to do so, including without limitation, the right to make any
compromise or settlement thereof, and to recover from the Company all
attorney's fees, reimbursements and all amounts paid as a result thereof.
4.6 Expenses and Losses incurred or to be incurred by Indemnitee
from time to time as a result of any actions, suit or proceeding covered by
the indemnity provisions of this Agreement (including, without limitation, an
action, suit or proceeding by or in the right of the Company) which have not
been paid by the insurers under the D & O Insurance, if any, shall be paid by
the Company within 30 days of the written request of the Indemnitee, whether
or not the Company believes that such Expenses and Losses may constitute an
Excluded Claim. At the election of Indemnitee, Indemnitee may from time to
time request the Company to advance to him funds to pay any expenses which
would be subject to reimbursement hereunder. The Company shall provide such
advances within five business days after written request thereof. Indemnitee
agrees that he will reimburse the Company for all Losses and Expenses paid or
advanced by the Company in connection with any such action, suit or
proceeding against Indemnitee in the event, and only to the extent, that a
determination shall have been made by an arbitrator that Indemnitee is not
entitled to be indemnified by the Company for such Losses and Expenses
because the claim is an Excluded Claim.
5. SETTLEMENT. Except as otherwise provided in Section 4.5, hereof,
Indemnitee shall not settle any suit, action or proceeding without the
Company's prior written consent. The Company shall not settle any suit,
action or proceeding in any manner which would impose any obligation on
Indemnitee which is not covered by indemnification hereunder without
Indemnitee's written consent. Neither the Company nor Indemnitee shall
unreasonably withhold their consent to any proposed settlement.
6. MISCELLANEOUS.
6.1 NOTICES. Any communication contemplated under this Agreement
shall be in writing and shall be effective upon personal delivery or five
days after deposit in the United States mail, postage prepaid, certified or
registered, return receipt requested, addressed as follows or to such other
address as may be specified in the same manner:
If to Company: Jenkon International, Inc.
7600 N.E. 41st Street, 3rd Floor
Vancouver, Washington 98662
Attention: President
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<PAGE>
With copy to: Robert Steinberg, Esq.
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars, 10th Flr.
Los Angeles, California 90067
If to Indemnitee: To the address set forth on the signature page
hereof.
6.2 ENFORCEMENT.
(a) The burden of proving that indemnification is not
appropriate shall be on the Company and any actual determination by the
Company (including any determination made by its Board of Directors or
stockholders, or by independent legal counsel) that Indemnitee is not
entitled to indemnification hereunder shall not be a defense to such action
or create a presumption that Indemnitee has not met the applicable standard
for indemnification. If Indemnitee commences an action to enforce this
Agreement, the Company shall nevertheless be obligated, subject to
Indemnitee's obligation to reimburse the Company contained in Section 4.6
hereof, to pay Expenses and Losses from time to time as incurred by
Indemnitee.
(b) If any action is instituted under this Agreement, or to
enforce or interpret any of the terms of this Agreement, all court costs and
expenses, including reasonable counsel fees, incurred or to be incurred by
Indemnitee with respect to such action or arbitration shall be paid by the
Company within 30 days of written request by the Indemnitee, unless and until
an arbitrator determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous.
(c) All agreements and obligations of the Company contained
herein shall continue during the period the Indemnitee is a director,
officer, employee or agent of the Company (or is serving at the request of
the Company as a director, officer, employee or agent of another corporation
or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal or investigative, by
reason of the fact that Indemnitee was a director or officer of the Company
or serving in any other capacity referred to herein.
(d) The Company's indemnity obligations hereunder shall be
applicable to any and all claims made after the date hereof regardless of
when the facts upon which such claims are based occurred, including times
prior to the date hereof.
(e) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Company hereby, in order to induce Indemnitee to serve, or continue to serve,
as a director and/or officer of the Company, and acknowledges that Indemnitee
is relying upon this Agreement in agreeing to serve or in continuing to serve
in such capacity.
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<PAGE>
6.3 PROVISIONS NOT TO INURE TO BENEFIT OF INSURERS. It is the
intention of the parties in entering into this Agreement that the insurers
under the D & O Insurance, if any, shall be obligated ultimately to pay any
claims by Indemnitee which are covered by the D & O Insurance, and nothing
herein shall be deemed to diminish or otherwise restrict the Company's or
Indemnitee's right to proceed or collect against any insurers under the D & O
Insurance or to give such insurers any rights against the Company under or
with respect to this Agreement, including, without limitation, any right to
be subrogated to Indemnitee's rights hereunder, unless otherwise expressly
agreed to by the Company in writing and the obligation of such insurers to
the Company and Indemnitee shall not be deemed reduced or impaired in any
respect by virtue of the provisions of this Agreement.
6.4 SEVERABILITY. In the event that any provision of this
Agreement is determined by a court to require the Company to do or to fail to
do any act which is in violation of applicable law, such provision shall be
limited or modified in its application to the minimum extent necessary to
avoid a violation of law and, as so limited or modified, such provision and
the balance of this Agreement shall be enforceable in accordance with their
terms. Without limiting the generality of the foregoing, if this Agreement
or any portion thereof shall be invalidated on any ground, the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated.
6.5 PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses and Losses but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion
of such Expenses and Losses to which Indemnitee is entitled to
indemnification.
6.6 CHOICE OF LAW. The validity, construction, performance, and
enforcement of this Agreement, and each part thereof, shall be governed by
and construed in accordance with the laws of the State of Delaware,
applicable to agreements made and to be wholly performed in such state.
6.7 SUCCESSOR AND ASSIGNS. This Agreement shall be (i) binding
upon all successors and assigns of the Company (including any transferee of
all or substantially all of its assets and any successor by merger or
otherwise by operation of law) and (ii) shall be binding on and inure to the
benefit of the heirs, personal representatives and estate of Indemnitee.
6.8 AMENDMENT. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in writing and
signed by each of the parties hereto. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof.
6.9 GENDER. Whenever the context so requires, the masculine shall
mean the feminine.
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<PAGE>
6.10 ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement or any other agreement entered into in
connection herewith, other than matters pertaining to injunctive relief,
including without, limitation, temporary restraining orders, preliminary
injunctions and permanent injunctions, shall, upon the written demand of
either party served upon the other party, be submitted to arbitration. Such
arbitration shall be held in the City of Vancouver, Washington and conducted
in accordance with the provisions of the rules of the American Arbitration
Association, as then in effect. The arbitrator's determination of the
dispute or controversy shall be final and binding on the parties. Judgment
may be entered on the arbitrator's award in any court having jurisdiction,
and the parties hereby consent to the jurisdiction of the courts of the State
of Washington (including the federal courts located therein) for this
purpose. The parties specifically confer upon the arbitrator the right to
direct each of the parties to produce in advance of the hearing(s) whatever
documents the arbitrator deems appropriate.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Agreement as of the date and year first above written.
"Company" JENKON INTERNATIONAL, INC.
By
-------------------------------------
Name:
Title:
"Indemnitee"
---------------------------------------
Name:
Address:
---------------------------------------
---------------------------------------
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JENKON INTERNATIONAL, INC.
STOCK OPTION PLAN
1. PURPOSE. The purpose of this Jenkon International, Inc. Stock
Option Plan ("Plan") is to further the growth and development of Jenkon
International, Inc., a Delaware corporation (the "Company"), and its
subsidiaries by providing, through ownership of stock of the Company, an
incentive to officers, directors, outside consultants and employees who are
in a position to contribute materially to the prosperity of the Company, to
increase such persons' interests in the Company's welfare, to encourage them
to continue their services to the Company or its subsidiaries, and to attract
individuals of outstanding ability to render services to and enter the
employment of the Company or its subsidiaries. This Plan shall be effective
on the Effective Date (as provided in Section 10) and shall apply to options
granted on or after the Effective Date.
2. INCENTIVE AND NON-QUALIFIED STOCK OPTIONS. Two types of Stock
Options (referred to herein as "Options" without distinction between such two
types) may be granted under the Plan: Options intended to qualify as
Incentive Stock Options under Section 422 of the Code and Non-Qualified Stock
Options not specifically authorized or qualified for favorable income tax
treatment by the Code.
3. DEFINITIONS. The following definitions are applicable to the Plan:
3.1 BOARD. The Board of Directors of the Company.
3.2 CODE. The Internal Revenue Code of 1986, as amended from time
to time.
3.3 COMMON STOCK. The shares of Common Stock of the Company.
3.4 COMPANY. Jenkon International, Inc., a Delaware corporation.
3.5 CONSULTANT. An individual or entity that renders professional
services to the Company as an independent contractor and is not an employee
or under the direct supervision and control of the Company.
3.6 DISABLED OR DISABILITY. For the purposes of Section 7.4, a
disability of the type defined in Section 22(e)(3) of the Code. The
determination of whether an individual is Disabled or has a Disability is
determined under procedures established by the Plan Administrator for
purposes of the Plan.
<PAGE>
3.7 FAIR MARKET VALUE. For purposes of the Plan, the "fair market
value" per share of Common Stock of the Company at any date shall be (a) if
the Common Stock is listed on an established stock exchange or exchanges or
the Nasdaq National Market, the closing price per share on the last trading
day immediately preceding such date on the principal exchange on which it is
traded or as reported by Nasdaq, or (b) if the Common Stock is not then
listed on an exchange or the Nasdaq National Market, but is quoted on the
Nasdaq Small Cap Market, the Nasdaq Electronic Bulletin Board or the National
Quotation Bureau pink sheets, the average of the closing bid and asked prices
per share for the Common Stock as quoted by Nasdaq or the National Quotation
Bureau, as the case may be, on the last trading day immediately preceding
such date, or (c) if the Common Stock is not then listed on an exchange or
the Nasdaq National Market, or quoted by Nasdaq Small Cap Market, the NASD's
Electronic Bulletin Board, or the National Quotation Bureau, an amount
determined in good faith by the Plan Administrator.
3.8 INCENTIVE STOCK OPTION. Any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422
of the Code.
3.9 NON-EMPLOYEE DIRECTOR. A "non-employee director" within the
meaning of Rule 16b-3(b)(3)(i) promulgated by the Securities and Exchange
Commission.
3.10 NON-QUALIFIED STOCK OPTION. Any Stock Option that is not an
Incentive Stock Option.
3.11 OPTIONEE. The recipient of a Stock Option.
3.12 PLAN. The Jenkon International, Inc. Stock Option Plan, as
amended from time to time.
3.13 PLAN ADMINISTRATOR. The Board or the Committee designated
pursuant to Section 4 to administer, construe and interpret the terms of the
Plan.
3.14 STOCK OPTION OR OPTION. Any option to purchase shares of
Common Stock granted pursuant to Section 7.
4. ADMINISTRATION.
4.1 ADMINISTRATION BY BOARD. Subject to Section 4.2 hereof, the
Plan Administrator shall be the Board of Directors of the Company (the
"Board") during such periods of time as all members of the Board are "outside
directors" as defined in Treas. Regs. Section 1.162-27(e)(3) ("outside
directors"). Anything to the contrary notwithstanding, the requirement that
all members of the Board be outside directors shall not apply for any period
of time prior to the date the Company's Common Stock becomes registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
Subject to the provisions of the Plan, the Plan Administrator shall have
authority to construe and interpret the Plan, to promulgate, amend, and
rescind rules and regulations relating to its administration, from time to
time to
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<PAGE>
select from among the eligible employees, directors and non-employee
consultants (as determined pursuant to Section 5) of the Company and its
subsidiaries those employees, directors and consultants to whom Stock Options
will be granted, to determine the timing and manner of the grant of the
Options, to determine the exercise price, the number of shares covered by and
all of the terms of the Stock Options, to determine the duration and purpose
of leaves of absence which may be granted to Stock Option holders without
constituting termination of their employment for purposes of the Plan, and to
make all of the determinations necessary or advisable for administration of
the Plan. The interpretation and construction by the Plan Administrator of
any provision of the Plan, or of any agreement issued and executed under the
Plan, shall be final and binding upon all parties. No member of the Board
shall be liable for any action or determination undertaken or made in good
faith with respect to the Plan or any agreement executed pursuant to the Plan.
4.2 ADMINISTRATION BY COMMITTEE. The Board may, in its sole
discretion, delegate any or all of its duties as Plan Administrator and,
subject to the provisions of Section 4.1 of the Plan, at any time the Board
includes any person who is not an outside director, the Board shall delegate
all of its duties as Plan Administrator during such period of time to the
Stock Option and Retirement Plans Committee (the "Committee") of not fewer
than two (2) members of the Board, all of the members of which Committee
shall be persons who, in the opinion of counsel to the Company, are outside
directors and Non-Employee Directors, to be appointed by and serve at the
pleasure of the Board. From time to time, the Board may increase or decrease
(to not less than two members) the size of the Committee, and add additional
members to, or remove members from, the Committee. The Committee shall act
pursuant to a majority vote, or the written consent of a majority of its
members, and minutes shall be kept of all of its meetings and copies thereof
shall be provided to the Board. Subject to the provisions of the Plan and
the directions of the Board, the Committee may establish and follow such
rules and regulations for the conduct of its business as it may deem
advisable. No member of the Committee shall be liable for any action or
determination undertaken or made in good faith with respect to the Plan or
any agreement executed pursuant to the Plan.
5. ELIGIBILITY. Any employee or director (including any officer or
director who is an employee) of the Company or any of its subsidiaries shall
be eligible to receive an Option under the Plan; provided, however, that no
person who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or
subsidiary corporations shall be eligible to receive an Incentive Stock
Option under the Plan unless at the time such Incentive Stock Option is
granted the Option price (determined in the manner provided in Section 7.2)
is at least 110% of the fair market value of the shares subject to the Option
and such Option by its terms is not exercisable after the expiration of five
years from the date such Option is granted. An employee may receive more
than one Option under the Plan. Non-Employee Directors shall be eligible to
receive Non-Qualified Stock Options on such terms as the Plan Administrator
may determine, subject to the restrictions on exercise described in Section
7.5 below. In addition, Non-Qualified Stock Options may be granted to
Consultants who are selected by the Plan Administrator.
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<PAGE>
6. SHARES SUBJECT TO OPTIONS. The stock available for grant of
Options under the Plan shall be shares of the Company's authorized but
unissued, or reacquired, Common Stock. The aggregate number of shares which
may be issued pursuant to exercise of Options granted under the Plan, as
amended, shall not exceed 1,000,000 shares of Common Stock (subject to
adjustment as provided in Section 7.13 but after giving effect to the reverse
stock split effected by the Company in June 1998), including shares
previously issued under the Plan. The maximum number of shares for which an
Option may be granted to any Optionee during any calendar year shall not
exceed 250,000 shares. In the event that any outstanding Option under the
Plan for any reason expires or is terminated, the shares of Common Stock
allocable to the unexercised portion of the Option shall again be available
for Options under the Plan as if no Option had been granted with respect to
such shares.
7. TERMS AND CONDITIONS OF OPTIONS. Options granted under the Plan
shall be evidenced by agreements (which need not be identical) in such form
and containing such provisions which are consistent with the Plan as the
Plan Administrator shall from time to time approve. Such agreements may
incorporate all or any of the terms hereof by reference and shall comply with
and be subject to the following terms and conditions:
7.1 NUMBER OF SHARES SUBJECT TO OPTION. Each Option agreement
shall specify the number of shares subject to the Option.
7.2 OPTION PRICE. The purchase price for the shares subject to
any Option shall be determined by the Plan Administrator at the time of
grant, but shall not be less than 85% of Fair Market Value per share.
Anything to the contrary notwithstanding, the purchase price for the shares
subject to any Incentive Stock Option shall not be less than 100% of the Fair
Market Value of the shares of Common Stock of the Company on the date the
Stock Option is granted. In the case of any Option granted to an employee
who owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its parent or subsidiary
corporations, the Option price shall not be less than 110% of the fair market
value per share of the Common Stock of the Company on the date the Option is
granted. For purposes of determining the stock ownership of an employee, the
attribution rules of Code Section 424(d) shall apply.
7.3 NOTICE AND PAYMENT. Any exercisable portion of a Stock Option
may be exercised only by:
(a) delivery of a written notice to the Company, prior to the
time when such Stock Option becomes unexercisable under Section 7.4, stating
the number of shares being purchased and complying with all applicable rules
established by the Plan Administrator;
(b) payment in full of the exercise price of such Option by,
as applicable, delivery of (i) cash or check for an amount equal to the
aggregate Stock Option exercise price for the number of shares being
purchased, (ii) in the discretion of the Plan Administrator, upon such terms
as the Plan Administrator shall approve, a copy of instructions
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<PAGE>
to a broker directing such broker to sell the Common Stock for which such
Option is exercised, and to remit to the Company the aggregate exercise price
of such Stock Option (a "cashless exercise"), or (iii) in the discretion of
the Plan Administrator, upon such terms as the Plan Administrator shall
approve, shares of the Company's Common Stock owned or purchasable upon
exercise of the Option by the Optionee, duly endorsed for transfer to the
Company, with a Fair Market Value on the date of delivery equal to the
aggregate purchase price of the shares with respect to which such Stock
Option or portion is thereby exercised (a "stock-for-stock exercise");
(c) payment of the amount of tax required to be withheld (if
any) by the Company or any parent or subsidiary corporation as a result of
the exercise of a Stock Option. At the discretion of the Plan Administrator,
upon such terms as the Plan Administrator shall approve, the Optionee may pay
all or a portion of the tax withholding by (i) cash or check payable to the
Company, (ii) cashless exercise, (iii) stock-for-stock exercise, or (iv) a
combination of one or more of the foregoing payment methods; and
(d) delivery of a written notice to the Company requesting
that the Company direct the transfer agent to issue to the Optionee (or to
his designee) a certificate for the number of shares of Common Stock for
which the Option was exercised or, in the case of a cashless exercise, for
any shares that were not sold in the cashless exercise.
Notwithstanding the foregoing, the Company, in its sole discretion, may
extend and maintain, or arrange for the extension and maintenance of, credit
to any Optionee to finance the Optionee's purchase of shares pursuant to
exercise of any Stock Option, on such terms as may be approved by the Plan
Administrator, subject to applicable regulations of the Federal Reserve Board
and any other laws or regulations in effect at the time such credit is
extended.
7.4 TERM OF OPTION. No Option shall be exercisable after the
expiration of the earliest of (a) ten years after the date the Option is
granted, (b) three months after the date the Optionee's employment with the
Company and its subsidiaries terminates, or a Non-Employee Director or
Consultant ceases to provide services to the Company, if such termination or
cessation is for any reason other than Disability or death, (c) one year
after the date the Optionee's employment with the Company and its
subsidiaries terminates, or a Non-Employee Director or Consultant ceases to
provide services to the Company, if such termination or cessation is a result
of death or Disability; provided, however, that the Option agreement for any
Option may provide for shorter periods in each of the foregoing instances.
In the case of an Incentive Stock Option granted to an employee who owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any of its parent or subsidiary
corporations, the term set forth in (a), above, shall not be more than five
years after the date the Option is granted.
7.5 EXERCISE OF OPTION. No Option shall be exercisable during the
lifetime of an Optionee by any person other than the Optionee. Subject to
the foregoing, the Plan Administrator shall have the power to set the time or
times within which each Option shall be exercisable and to accelerate the
time or times of exercise; provided, however, the
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<PAGE>
Option shall provide the right to exercise at the rate of at least 20% per
year over five years from the date the Option is granted. Unless otherwise
provided by the Plan Administrator, each Option granted under the Plan shall
become exercisable on a cumulative basis as to one-third (1/3) of the total
number of shares covered thereby at any time after one year from the date the
Option is granted and an additional one-third (1/3) of such total number of
shares at any time after the end of each consecutive one-year period
thereafter until the Option has become exercisable as to all of such total
number of shares. To the extent that an Optionee has the right to exercise
an Option and purchase shares pursuant thereto, the Option may be exercised
from time to time by written notice to the Company, stating the number of
shares being purchased and accompanied by payment in full of the exercise
price for such shares.
7.6 NO TRANSFER OF OPTION. No Option shall be transferable by an
Optionee otherwise than by will or the laws of descent and distribution.
7.7 LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate fair market
value (determined at the time the Option is granted) of the stock with
respect to which Incentive Stock Options granted after 1986 are exercisable
for the first time by an Optionee during any calendar year (under all
Incentive Stock Option plans of the Company and its subsidiaries) shall not
exceed $100,000. To the extent that the aggregate Fair Market Value
(determined at the time of the Stock Option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first
time by an Optionee during any calendar year (under all Incentive Stock
Option plans of the Company and any parent or subsidiary corporations)
exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock
Options. The determination of which Stock Options shall be treated as
Non-Qualified Stock Options shall be made by taking Stock Options into
account in the order in which they were granted.
7.8 RESTRICTION ON ISSUANCE OF SHARES. The issuance of Options
and shares shall be subject to compliance with all of the applicable
requirements of law with respect to the issuance and sale of securities,
including, without limitation, any required qualification under state
securities laws. If an Optionee acquires shares of Common Stock pursuant to
the exercise of an Option, the Plan Administrator, in its sole discretion,
may require as a condition of issuance of shares covered by the Option that
the shares of Common Stock shall be subject to restrictions on transfer. The
Company may place a legend on the certificates evidencing the shares,
reflecting the fact that they are subject to restrictions on transfer
pursuant to the terms of this Section. In addition, the Optionee may be
required to execute a buy-sell agreement in favor of the Company or its
designee with respect to all or any of the shares so acquired. In such event,
the terms of such agreement shall apply to such shares.
7.9 INVESTMENT REPRESENTATION. Any Optionee may be required, as a
condition of issuance of shares covered by his or her Option, to represent
that the shares to be acquired pursuant to exercise of the Option will be
acquired for investment and without a view to distribution thereof; and in
such case, the Company may place a legend on the certificate evidencing the
shares reflecting the fact that they were acquired for investment and
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<PAGE>
cannot be sold or transferred unless registered under the Securities Act of
1933, as amended, or unless counsel for the Company is satisfied that the
circumstances of the proposed transfer do not require such registration.
7.10 RIGHTS AS A SHAREHOLDER OR EMPLOYEE. An Optionee or
transferee of an Option shall have no right as a stockholder of the Company
with respect to any shares covered by any Option until the date of the
issuance of a share certificate for such shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether cash, securities, or other
property) or distributions or other rights for which the record date is prior
to the date such share certificate is issued, except as provided in Section
7.13. Nothing in the Plan or in any Option agreement shall confer upon any
employee any right to continue in the employ of the Company or any of its
subsidiaries or interfere in any way with any right of the Company or any
subsidiary to terminate the Optionee's employment at any time.
7.11 NO FRACTIONAL SHARES. In no event shall the Company be
required to issue fractional shares upon the exercise of an Option.
7.12 EXERCISABILITY IN THE EVENT OF DEATH. In the event of the
death of the Optionee, any Option or unexercised portion thereof granted to
the Optionee, to the extent exercisable by him or her on the date of death,
may be exercised by the Optionee's personal representatives, heirs, or
legatees subject to the provisions of Section 7.4 hereof.
7.13 RECAPITALIZATION OR REORGANIZATION OF COMPANY. Except as
otherwise provided herein, appropriate and proportionate adjustments shall be
made in the number and class of shares subject to the Plan and to the Option
rights granted under the Plan, and the exercise price of such Option rights,
in the event that the number of shares of Common Stock of the Company are
increased or decreased as a result of a stock dividend (but only on Common
Stock), stock split, reverse stock split, recapitalization, reorganization,
merger, consolidation, separation, or like change in the corporate or capital
structure of the Company. In the event there shall be any other change in
the number or kind of the outstanding shares of Common Stock of the Company,
or any stock or other securities into which such common stock shall have been
changed, or for which it shall have been exchanged, whether by reason of a
complete liquidation of the Company or a merger, reorganization, or
consolidation of the Company with any other corporation in which the Company
is not the surviving corporation or the Company becomes a wholly-owned
subsidiary of another corporation, then if the Plan Administrator shall, in
its sole discretion, determine that such change equitably requires an
adjustment to shares of Common Stock currently subject to Options under the
Plan, or to prices or terms of outstanding Options, such adjustment shall be
made in accordance with such determination.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Plan
Administrator, the determination of which in that respect shall be final,
binding, and conclusive. No right to purchase fractional shares shall result
from any adjustment of Options pursuant to this Section. In case of any such
adjustment, the shares subject to the option shall be rounded down to the
nearest whole
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<PAGE>
share. Notice of any adjustment shall be given by the Company to each
Optionee whose Options shall have been so adjusted and such adjustment
(whether or not notice is given) shall be effective and binding for all
purposes of the Plan.
In the event of a complete liquidation of the Company or a merger,
reorganization, or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
wholly-owned subsidiary of another corporation, any unexercised Options
theretofore granted under the Plan shall be deemed canceled unless the
surviving corporation in any such merger, reorganization, or consolidation
elects to assume the Options under the Plan or to issue substitute Options in
place thereof; provided, however, that, notwithstanding the foregoing, if
such Options would be canceled in accordance with the foregoing, the Optionee
shall have the right, exercisable during a fifteen-day period ending on the
fifth day prior to such liquidation, merger, or consolidation, to exercise
such Option in whole or in part without regard to any installment exercise
provisions in the Option agreement.
7.14 MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to
the terms and conditions and within the limitations of the Plan, the Plan
Administrator may modify, extend, or renew outstanding Options granted under
the Plan and accept the surrender of outstanding Options (to the extent not
theretofore exercised). The Plan Administrator shall not, however, without
the approval of the Board, modify any outstanding Incentive Stock Option in
any manner which would cause the Option not to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code. Notwithstanding the
foregoing, no modification of an Option shall, without the consent of the
Optionee, alter or impair any rights of the Optionee under the Option.
7.15 OTHER PROVISIONS. Each Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may be
determined by the Plan Administrator.
8. TERMINATION OR AMENDMENT OF THE PLAN. The Board may at any time
terminate or amend the Plan; provided that, without approval of the holders
of a majority of the shares of Common Stock of the Company represented and
voting at a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute a majority of the required quorum) or by
the written consent of a majority of the outstanding shares of Common Stock,
there shall be, except by operation of the provisions of Section 7.13, no
increase in the total number of shares covered by the Plan, no change in the
class of persons eligible to receive Options granted under the Plan, no
reduction in the exercise price of Options granted under the Plan, and no
extension of the latest date upon which Options may be exercised; and
provided further that, without the consent of the Optionee, no amendment may
adversely affect any then outstanding Option or any unexercised portion
thereof.
9. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Plan Administrator, the members of the Plan
Administrator administering the Plan shall be indemnified by the Company against
reasonable expense,
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<PAGE>
including attorney's fees, actually and necessarily incurred in connection
with the defense of any action, suit, or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by reason of
any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any action, suit, or proceeding, except in relation to matters as
to which it shall be adjudged in such action, suit, or proceeding that such
member is liable for negligence or misconduct in the performance of his
duties, provided that within 60 days after institution of any such action,
suit, or proceeding, the member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
10. EFFECTIVE DATE AND TERM OF PLAN. This Plan shall become effective
(the "Effective Date") on the date of adoption designated below. No options
granted under the Plan will be effective unless the Plan is approved by
stockholders of the Company within 12 months of the date of adoption. Unless
sooner terminated by the Board in its sole discretion, the Plan will expire
on October 6, 2006.
IN WITNESS WHEREOF, the Company by its duly authorized officer, has
caused this Plan to be executed at Vancouver, Washington, as of this 7th day
of October, 1996 as amended effective July 8, 1998.
JENKON INTERNATIONAL, INC.
By: /s/ DAVID EDWARDS
---------------------------------
David Edwards, President
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<PAGE>
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Standard Form of OFFICE BUILDING LEASE Developed by
One Park Place OWNERS AND MANAGERS
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[LOGO] OFFICE LEASE
This lease, made and entered into at 7600 NE 41st
Street, Suite 350, Vancouver, WA 98662, this 18th
day of April, 1996 by and between the following:
LANDLORD: ALCO Limited Partnership, a Oregon
limited partnership
and
TENANT: JENKON INTERNATIONAL, INC.
PREMISES: Landlord hereby leases to Tenant the
following: Approximately 6,058 gross rentable
square feet of office space (5,409 usable square
feet x 1.12% building load factor to compensate
for the common area shared by all tenants) located
on the 3rd floor of Premises, see Exhibit A, Space
Plan/Floor Plan, attached hereto and by this
reference made a part of the Office Lease, to be
known as Suite #350 (the Premises) in the ONE PARK
PLACE building (the Building) at 7600 NE 41st
Street Vancouver, WA 98662
TERM: Commencing June 1, 1996, and continuing
through May 31, 1998
RENTAL RATE: Monthly Base Rental shall be as
follows:
$18.00 per square foot during
months 01-12 or $9,087.00/mo = $109,044.00
$18.50 per square foot during
months 13-24 or $9,339.42/mo = $112,073.04
$19.00 per square foot during
months 25-36 or $9,591.83/mo = $115,101.96
-----------
Total Rent $336,219.00
Rent is payable in advance on the 1st day of each
month commencing, June 1, 1996.
Landlord and Tenant covenant and agree as follows:
1.1 DELIVERY OF Should Landlord be unable to deliver possession of
POSSESSION. the Premises on the date fixed for commencement of
the term, commencement will be deferred and
Tenant shall owe no rent until notice from
Landlord tendering possession to Tenant. If
possession is not so tendered within 90 days
following commencement of the term, then Tenant
may elect to cancel this lease by notice to
Landlord within 10 days following expiration of
the 90-day period. Landlord shall have no
liability to Tenant for delay in delivering
possession, nor shall such delay extend the term
of this lease in any manner.
2.1 RENT PAYMENT. Tenant shall pay the Base Rent for the Premises
and any additional rent provided herein without
deduction or offset. Rent for any partial month
during the lease term shall be prorated to reflect
the number of days during the month that Tenant
occupies the Premises. Additional rent means
amounts determined under Section 18.4 of this lease
and any other sums payable by Tenant to Landlord
under this lease. Rent not paid when due shall
bear interest at the rate of one-and-one-half
percent per month until paid. Landlord may at its
option impose a late charge of $0.05 for each $1
of rent for rent payments made more than 10 days
late in lieu of interest for the first month of
delinquency, without waiving any other remedies
available for default. Failure to impose a late
charge shall not be a waiver of Landlord's rights
hereunder.
3.1 LEASE Upon execution of the lease Tenant has paid the
CONSIDERATION. Base Rent for the first full month of the lease
term for which rent is payable and in addition has
paid the sum equivalent to the last months rent of
$9,591.83 as lease consideration. Landlord may
apply the lease consideration to pay the cost of
performing any obligation which Tenant fails to
perform within the time required by this lease,
but such application by Landlord shall not be the
exclusive remedy for Tenant's default. If the
lease consideration is applied by Landlord, Tenant
shall on demand pay the sum necessary to replenish
the lease consideration to its original amount. To
the extent not applied by Landlord to cure
defaults by Tenant, the lease consideration shall
be applied against the rent payable for the LAST
MONTH OF THE TERM. The lease consideration shall
not be refundable.
<PAGE>
4.1 USE. Tenant shall use the Premises as business for
GENERAL OFFICE and for no other purpose without
Landlord's written consent. In connection with its
use, Tenant shall at its expense promptly comply
with all applicable laws, ordinances, rules and
regulations of any public authority and shall not
annoy, obstruct, or interfere with the rights of
other tenants of the Building. Tenant shall create
no nuisance nor allow any objectionable fumes,
noise or vibrations to be emitted from the
Premises. Tenant shall create no nuisance nor
allow activities that will increase Landlord's
insurance rates for any portion of the Building or
that will in any manner degrade or damage the
reputation of the Building.
4.2 ENVIRONMENTAL. Without limiting any other provision of this lease:
a. Tenant agrees to comply with
Environmental Laws (as defined below) and shall
not cause or permit any Hazardous Substance (as
defined below) to be used, stored, generated, or
disposed of on or in the Premises by Tenant,
Tenant's agents, employees, contractors or invitee
without first obtaining Landlord's prior written
consent.
b. As used herein, "Hazardous Substance"
means any substance which is toxic, ignitable
reactive, or corrosive and which is regulated by
the United States government, the State in which
the Premises are located or any local government,
including without limitation any and all materials
or substances which are defined as "hazardous
wastes," "extremely hazardous wastes,"
"radioactive materials," "contaminants,"
"pollutants," or "hazardous substances" pursuant
to Environmental Laws, including, but not limited
to asbestos, polychlorinatedbiphenyls and
petroleum.
c. As used herein, "Environmental Laws" means
all federal, state and local statutes, laws,
ordinances, orders, and regulations relating to
the use, generation, release, handling, storage,
discharge, transportation, deposit or disposal of
Hazardous Substances or otherwise related to
protection of health or the environment.
4.3 EQUIPMENT. Tenant shall install in the Premises only such
office equipment as is customary for general
office use and shall not overload the floors or
electrical circuits of the Premises or Building or
alter the plumbing or wiring of the Premises or
Building. Landlord must approve in advance the
location of and manner of installing any wiring or
electrical, heat generating or communication
equipment or exceptionally heavy articles. All
telecommunications equipment, conduit, cables and
wiring and any additional air conditioning
required because of heat generating equipment or
special lighting installed by Tenant shall be
installed and operated at Tenant's expense.
4.4 SIGNS. No signs, awnings, antennas, or other apparatus
shall be painted on or attached to the Building or
anything placed on any glass or woodwork of the
Premises or positioned so as to be visible from
outside the Premises without Landlord's written
approval as to design, size, location, and color.
All signs installed by Tenant shall comply with
Landlord's standards for signs and all applicable
codes and all signs and sign hardware shall be
removed upon termination of this lease with the
sign location restored to its former state unless
Landlord elects to retain all or any portion
thereof.
5.1 UTILITIES AND Landlord will furnish water, electricity and
SERVICES. elevator service, during the normal Building hours
of 6:00 a.m. to 9:00 p.m. Monday through Thursday,
6:00 am to 8:00 pm Friday, 7:00 am to 1:00 pm
Saturday, closed Sunday, except holidays, and will
furnish heat and air conditioning (if the Building
is air conditioned). Janitorial service will be
provided in accordance with the regular schedule
of the Building, which schedule and service may
change form time to time. Tenant shall comply with
all government laws or regulations regarding the
use or reduction of use of utilities on the
Premises. Interruption of services or utilities
shall not be deemed an eviction or disturbance of
Tenant's use and possession of the Premises,
render Landlord liable to Tenant for damages, or
relieve Tenant from performance of Tenant's
obligations under this lease. Landlord shall take
all reasonable steps to correct any interruptions
in service. Electrical service furnished will be
110 volts unless different service already exists
in the Premises. Tenant shall provide its own
surge protection for power furnished to computers.
5.2 EXTRA USAGE. If Tenant uses excessive amounts of utilities or
services of any kind because of operation outside
of normal Building hours, high demands from office
machinery and equipment, nonstandard lighting, or
any other cause, Landlord may impose a reasonable
charge for supplying such extra utilities or
services, which charge shall be payable monthly by
Tenant in conjunction with rent payments. In case
of dispute over any extra charge under this
paragraph, Landlord shall designate a qualified
independent engineer whose decision shall be
conclusive on both parties. Landlord and Tenant
shall each pay one-half of the cost of such
determination.
6.1 MAINTENANCE AND Landlord shall have no liability for failure to
REPAIR. perform required maintenance and repair unless
written notice of such maintenance or repair is
given by Tenant and Landlord fails to commence
efforts to remedy the problem in a reasonable time
and manner. Landlord shall have the right to erect
scaffolding and other apparatus necessary for the
purpose of making repairs, and Landlord shall have
no liability for interference with Tenant's use
because of repairs.
<PAGE>
6.1 (CONTINUED) and installations. Tenant shall have no claim
against Landlord for any interruption or reduction
of services or interference with Tenant's
occupancy, and no such interruption or reduction
shall be construed as a constructive or other
eviction of Tenant. Repair of damage caused by
negligent or intentional acts or breach of this
lease by Tenant, its employees or invitees shall
be at Tenant's expense.
6.2 ALTERATIONS. Tenant shall not make any alterations, additions,
or improvements to the Premises, change the color
of the interior, or install any wall or floor
covering without Landlord's prior written consent.
Any such improvements, alterations, wiring, cables
or conduit installed by Tenant shall at once
become part of the Premises and belong to Landlord
except for removable machinery and unattached
movable trade fixtures. Landlord may at its option
require that Tenant remove any improvements,
alterations, wiring, cables or conduit installed by
Tenant and restore the Premises to the original
condition upon termination of this lease. Landlord
shall have the right to approve the contractor
used by Tenant for any work in the Premises, and
to post notices of non-responsibility in
connection with work being performed by Tenant in
the Premises.
6.3 AMERICANS From and after the commencement date of the Lease,
WITH Tenant covenants and agrees to conduct its
DISABILITIES operations, at Tenant's sole cost and expense, in
ACT. compliance with the ADA (as defined below).
a. In the event Tenant undertakes any
alterations or improvements to, for, or within
the Premises, including initial build-out work if
such work, pursuant to other terms of this lease,
is the responsibility of Tenant to perform, the
Tenant agrees to cause such alterations to be
performed, at Tenant's sole cost and expense, in
compliance with the ADA.
b. Paragraph 6.3.b. intentionally deleted.
c. Pursuant to paragraphs (a) and b) above,
Landlord and Tenant have allocated certain
liabilities and obligations under the federal law
commonly known as the Americans with Disabilities
Act, 42 U.S.C. 12101 ET SEQ., together with the
regulations and accessibility guidelines
thereunder, as supplemented and amended from time
to time (collectively, the "ADA").
7.1 INDEMNITY. Tenant shall not allow any liens to attach to the
Building or Tenant's interest in the Premises as a
result of its activities. Tenant shall indemnify
and defend Landlord and its managing agents from
any claim, liability, damage, or loss occurring on
the Premises, arising out of any activity by
Tenant, its agents, or invitees or resulting from
Tenant's failure to comply with any terms of this
Lease. Neither Landlord nor its managing agent
shall have any liability to Tenant because of loss
or damage to Tenant's property or for death or
bodily injury caused by the acts or omissions of
other tenants of the building, or by third parties
(including criminal acts).
7.2 INSURANCE. Tenant shall carry liability insurance with limits
of not less than ONE MILLION DOLLARS ($1,000,000)
combined single limit bodily injury and property
damage which insurance shall have an endorsement
naming Landlord and Landlord's managing agent, if
any, as an additional insured and covering the
liability insured under paragraph 7.1 of this
lease. Tenant shall furnish a certificate
evidencing such insurance which shall state that
the coverage shall not be canceled or materially
changed without 10 days advance notice to Landlord
and Landlord's managing agent, if any. A renewal
certificate shall be furnished at least 10 days
prior to expiration of any policy.
8.1 FIRE OR CASUALTY. "Major damage" means damage by fire or other
casualty to the Building or the Premises which
causes the Premises or any substantial portion of
the Building to be unusable, or which will cost
more than 25 percent of the pre-damage value of
the Building to repair, or which is not covered by
insurance. In case of major damage, Landlord may
elect to terminate this lease by notice in writing
to Tenant within 30 days after such date. If this
lease is not terminated following Major Damage, or
if damage occurs which is not Major Damage,
Landlord shall promptly restore the Premises to
the condition existing just prior to the damage.
Tenant shall properly restore all damage to tenant
improvements or alterations installed by Tenant or
pay the cost of such restoration to Landlord if
Landlord elects to do the restoration of such
improvements. Rent shall be reduced from the date
of damage until the date restoration work being
performed by Landlord is substantially complete,
with the reduction to be in proportion to the area
of the Premises not usable by Tenant.
<PAGE>
8.2 WAIVER OF Tenant shall be responsible for insuring its
SUBROGATION. personal property and trade fixtures located on
the Premises and any alterations or tenant
improvements it has made to the Premises. Neither
Landlord, its managing agent nor Tenant shall be
liable to the other for any loss or damage caused
by water damage, sprinkler leakage, or any of the
risks that are or could be covered by a standard
all risk insurance policy with an extended
coverage endorsement, or for any business
interruption, and there shall be no subrogated
claim by one party's insurance carrier against the
other party arising out of any such loss.
9.1 EMINENT DOMAIN. If a condemning authority takes title by eminent
domain or by agreement in lieu thereof to the
entire Building or a portion sufficient to render
the Premises unsuitable for Tenant's use, then
either party may elect to terminate this Lease
effective on the date that possession is taken by
the condemning authority. Rent shall be reduced for
the remainder of the term in an amount
proportionate to the reduction in area of the
Premises caused by the taking. All condemnation
proceeds shall belong to Landlord, and Tenant
shall have no claim against Landlord or the
condemnation award because of the taking.
10.1 ASSIGNMENT AND This Lease shall bind and inure to the benefit
SUBLETTING. of the parties, their respective heirs,
successors, and assigns, provided that Tenant
shall not assign its interest under this Lease or
sublet all or any portion of the Premises without
first obtaining Landlord's consent in writing.
This provision shall apply to all transfers by
operation of law including but not limited to
mergers and changes in control of Tenant. No
assignment shall relieve Tenant of its obligation
to pay rent or perform other obligations required
by this Lease, and no consent to one assignment or
subletting shall be a consent to any further
assignment or subletting. Landlord shall not
unreasonably withhold its consent to any
assignment or subletting provided the proposed
Tenant is compatible with Landlord's normal
standards for the Building. If Tenant proposes a
subletting or assignment to which Landlord is
required to consent under this paragraph, Landlord
shall have the option of terminating this Lease and
dealing directly with the proposed subtenant or
assignee, or any third party. Tenant shall pay any
reasonable costs incurred by Landlord in
connection with a request for assignment or
subletting, including reasonable attorney's fees.
11.1 DEFAULT. Any of the following shall constitute a default by
Tenant under this Lease:
a. Tenant's failure to pay rent or any other
charge under this Lease within 10 days after it is
due, or failure to comply with any other term or
condition within 20 days following written notice
from Landlord specifying the noncompliance. If
such noncompliance cannot be cured within the
20-day period, this provision shall be satisfied
if Tenant commences correction within such period
and thereafter proceeds in good, faith and with
reasonable diligence to effect compliance as soon
as possible. Time is of the essence of this Lease.
b. Tenant's insolvency, business failure or
assignment for the benefit of its creditors.
Tenant's commencement of proceedings under any
provision of any bankruptcy or insolvency law or
failure to obtain dismissal of any petition filed
against it under such laws within the time required
to answer, or the appointment of a receiver for
Tenant's properties.
c. Assignment or subletting by Tenant in
violation of paragraph 10.1.
d. Vacation or abandonment of the Premises
without the written consent of Landlord or failure
to occupy the Premises within 20 days after notice
tendering possession.
11.2 REMEDIES FOR In case of default as described in paragraph 11.1
DEFAULT. Landlord shall have the right to the following
remedies which are intended to be cumulative and
in addition to any other remedies provided under
applicable law:
a. Landlord may at its option terminate the
Lease by notice to Tenant. With or without
termination, Landlord may retake possession of the
Premises and may use or relet the Premises without
accepting a surrender or waiving the right to
damages. Following such retaking of possession,
efforts by Landlord to relet the Premises shall be
sufficient if Landlord follows its usual
procedures for finding tenants for the space at
rates not less than the current rates for other
comparable space in the Building. If Landlord has
other vacant space in the Building, prospective
tenants may be placed in such other space without
prejudice to Landlord's claim to damages or loss
of rentals from Tenant.
<PAGE>
11.2 (CONTINUED) b. Landlord may recover all damages caused by
Tenant's default which shall include an amount equal
to rentals lost because of the default, lease commissions
paid for this Lease, and the unamortized cost of any
tenant improvements installed by Landlord to meet Tenant's
special requirements. Landlord may sue periodically to
recover damages as they occur throughout the lease term,
and no action for accrued damages shall bar a later action
for damages subsequently accruing. Landlord may elect in
any one action to recover accrued damages plus damages
attributable to the remaining term of the Lease. Such
damages shall be measured by the difference between the
rent under this Lease and the reasonable rental value of
the Premises for the remainder of the term, discounted to
the time of judgment at the prevailing interest rate on
judgments.
c. Landlord may make any payment or perform any
obligation which Tenant has failed to perform, in which
case Landlord shall be entitled to recover from Tenant
upon demand all amounts so expended, plus interest from
the date of the expenditure at the rate of one-and-one-
half percent per month. Any such payment or performance by
Landlord shall not waive Tenant's default.
12.1 SURRENDER. On expiration or early termination of this Lease Tenant
shall deliver all keys to Landlord and surrender the
Premises vacuumed, swept, and free of debris and in the
same condition as at the commencement of the term subject
only to reasonable wear from ordinary use, tenant shall
remove all of its furnishings and trade fixtures that
remain its property and restore all damage resulting from
such removal. Failure to remove shall be an abandonment of
the property, and Landlord may dispose of it in any manner
without liability. If Tenant fails to vacate the Premises
when required, including failure to remove all of its
personal property, Landlord may elect either: (i) to treat
Tenant as a tenant from month to month, subject to the
provisions of this Lease except that rent shall be one-
and-one-half time the total rent being charged when the
Lease term expired: or (ii) to eject Tenant from the
Premises and recover damages caused by wrongful holdover.
13.1 REGULATIONS. Landlord shall have the right but shall not be
obligated, to make, revise and enforce regulations or
policies consistent with this Lease for the purpose of
promoting safety, health (including regulation or
prohibition of smoking), order, economy, cleanliness, and
good service to all tenants of the Building. All such
regulations and policies shall be complied with as if part
of this Lease.
14.1 ACCESS. During times other than normal Building hours Tenant's
officers and employees or those having business with
Tenant may be required to identify themselves or show
passes in order to gain access to the Building. Landlord
shall have no liability for permitting or refusing to
permit access by anyone. Landlord shall have the right to
enter upon the Premises at any time by passkey or
otherwise to determine Tenant's compliance with this
Lease, to perform necessary services, maintenance and
repairs or alterations to the Building or the Premises, or
to show the Premises to any prospective tenant or
purchasers. Except in case of emergency such entry shall
be at such times and in such manner as to minimize
interference with the reasonable business use of the
Premises by Tenant.
14.2 FURNITURE AND Tenant shall move furniture and bulky articles in and out
BULKY ARTICLES. of the Building or make independent use of the
elevators approved by Landlord following at least 24 hours
written notice to Landlord of the intended move. Landlord
will not unreasonably withhold its consent under this
paragraph.
15.1 SUBORDINATION. This Lease shall be subject to and subordinate to any
mortgages, deeds of trust, or land sale contracts
(hereafter collectively referred to as encumbrances) now
existing against the Building. At Landlord's option this
Lease shall be subject and subordinate to any future
encumbrance hereafter placed against the Building
(including the underlying land) or any modifications of
existing encumbrances, and Tenant shall execute such
documents as may reasonably be requested by Landlord or
the holder of the encumbrance to evidence this
subordination.
15.2 TRANSFER OF If the Building is sold or otherwise transferred by
BUILDING. Landlord or any successor, Tenant shall attorn to the
purchaser or transferee and recognize it as the Lessor
under this Lease, and, provided the purchaser or
transferee assumes all obligations hereunder, the
transferor shall have no further liability hereunder.
15.3 ESTOPPELS. Either party will within 10 days after notice from the
other execute, acknowledge and deliver to the other party
a certificate certifying whether or not this Lease has
been modified and is in full force and effect; whether
there are any modifications or alleged breaches by
the other party; the dates to which rent has been paid in
advance, and the amount of any security deposit or prepaid
rent; and any other facts that may reasonably be
requested. Failure to deliver the certificate within the
specified time shall be conclusive upon the party of whom
the certificate was requested that the Lease is in full
force and effect and has not been modified except as may
be represented by the party requesting the certificate. If
requested by the holder of any encumbrance, or any ground
Lessor, Tenant will agree to give such holder or Lessor
notice of and an opportunity to cure any default by
Landlord under this Lease.
<PAGE>
16.1 LITIGATION: All disputes relating to this Lease shall be litigated
ATTORNEY FEES. only in the state and federal courts located in Clark
County, Washington, unless otherwise required by law. In
any litigation arising out of this Lease, the prevailing
party shall be entitled to recover attorney fees at trial
and on any appeal. If Landlord incurs attorneys' fees
because of a default by Tenant, Tenant shall pay all such
fees whether or not litigation is filed.
16.2 ATTORNEY REVIEW. This Lease has been prepared for submission to your
attorney for approval. No representation or recommendation
is made by the Landlord or by The Real Estate Brokers or
their agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Lease or the
transaction to which it relates. The Parties shall rely
solely upon the advice of their own counsel as to the
legal and tax consequences of this Lease.
17.1 QUIET ENJOYMENT. Landlord warrants that so long as Tenant complies with
all terms of this Lease it shall be entitled to peaceable
and undisturbed possession of the Premises free from any
eviction or disturbance by Landlord. Neither Landlord nor
its managing agent shall have any liability to Tenant
for loss or damages arising out of the acts, including
criminal acts, of other tenants of the Building or third
parties, nor any liability for any reason which exceeds
the value of its interest in the Building. No assets of
Landlord, other than the Building, shall be liable for any
judgment against Landlord. As used herein, "Landlord"
includes all employees and agents of Landlord and all
heirs, successors and assigns of Landlord.
18.1 ADDITIONAL RENT: Whenever for any January 1 to December 31 tax year the
TAX ADJUSTMENT real property taxes levied against the Building and its
underlying land exceed those levied for the 1996 tax year,
then the monthly rental for the next succeeding calendar
year shall be increased by one-twelfth of such tax
increase times Tenant's proportionate share. "Real
property taxes" as used herein means all taxes and
assessments of any public authority against the Building
and the land on which it is located, the cost of
contesting any tax and any form of fee or charge imposed
on Landlord as a direct consequence of owning or leasing
the Premises, including but not limited to rent taxes,
gross receipt taxes, leasing taxes, or any fee or charge
wholly or partially in lieu of or in substitution for ad
valorem real property taxes or assessments, whether now
existing or hereafter enacted. If any portion of the
Building is occupied by a tax-exempt tenant so that the
Building has a partial tax exemption under Washington
State Law, then real property taxes shall mean taxes
computed as if said partial exemption did not exist. If a
separate assessment or identifiable tax increase arises
because of improvements to the Premises, then Tenant shall
pay 100 percent of such increase.
18.2 TENANT'S "Tenant's proportionate share" as used herein means the
PROPORTIONATE area of the Premises, divided by the total area of office
SHARE. space in the Building, with said area determined using
one of the methods of building measurement defined by the
Building Owners and Managers Association (BOMA). Tenant's
proportionate share as of the Lease commencement date
shall be 8.98% percent.
18.3 ADDITIONAL RENT: On the TWENTY FIFTH MONTH of this Lease, the Landlord
COST-OF-LIVING shall adjust the base rental in the same percentage as
ADJUSTMENT. the increase, if any, in the Consumer Price Index
published by the United States Department of Labor, Bureau
of Labor Statistics. The change shall be computed by
comparing the schedule entitled "U.S. CITY AVERAGE, ALL
ITEMS, ALL URBAN CONSUMERS, 1982-84 = 100" for the
latest available month preceding the month in which the
Lease term commenced with the same figure for the same
month in the years for which the adjustment is computed,
but under no circumstances shall base rent exceed $19.57
per square foot. All comparisons shall be made using
index figures derived from the same base period and in no
event shall this provision operate to decrease the monthly
rental for the Premises below the initial stated monthly
rental, plus property tax adjustments and operating
expense adjustments as provided in this Lease. If the
index cited above is revised or discontinued during the
term of this Lease then the index that is designated by
the Portland Metropolitan Association of Building Owners
and Managers to replace it shall be used.
18.4 ADDITIONAL RENT: Tenant shall pay as additional rent its proportionate
OPERATING share, as defined in paragraph 18.2, of the amount by
EXPENSE which operating expenses for the Building exceed $4.50 per
ADJUSTMENT. square foot of gross leaseable area. This amount shall
be called the "Expense Stop". Effective January 1 of
each year Landlord shall estimate the amount by which
operating expenses are expected to increase, if any, over
those incurred in the base year. Monthly rental for that
year shall be increased by one-twelfth of Tenant's share
of the estimated increase. Following the end of each
calendar year, Landlord shall compute the actual
increase in operating expenses and bill Tenant for any
deficiency or credit Tenant with any excess collected. As
used herein "operating expenses" shall mean all costs of
operating and maintaining the Building as determined by
standard real estate accounting practice, including, but
not limited to: all water and sewer charges; the cost of
natural gas and electricity provided to the building;
janitorial and cleaning supplies and services;
administration costs and management fees; superintendent
fees; security services, if any; insurance premiums;
licenses; permits for the operation and maintenance of
the Building and all of its component elements and
mechanical systems; the annual amortized capital
improvement cost (amortized over such a period as
Landlord may select but not shorter than the period
allowed under the Internal Revenue Code and at a current
market interest rate) for any capital improvements to the
Building required by any governmental authority or those
which have a reasonable probability of improving the
operating efficiency of the Building.
<PAGE>
19.1 TENANT AND Upon request of Landlord, Tenant and any
GUARANTOR guarantor of this Lease shall provide Landlord
FINANCIAL with current signed financial statements
STATEMENTS. (certified by a certified public accountant) and
tax returns complete with all schedules, including
K-1 statements for any partnership or
S-corporation in which Tenant or any guarantor has
an interest. All financial statements shall be
prepared in accordance with generally accepted
accounting principles, in form and substance
acceptable to Landlord, and certified to be
complete and accurate in all respects.
20.1 PARKING During the term of this Lease, Landlord shall
make available to Tenant 4 parking space(s) per
1,000 thousand square feet of rentable space.
Parking may be located on the real property where
the Premises are located or at another parking
facility in close proximity to the Building.
Landlord's obligation pursuant to this paragraph
shall be limited to making such spaces available
in whatever manner Landlord deems appropriate
(attended, unattended, marked stalls, or other
means), so long as the number of spaces referred
to in this paragraph is made available to Tenant.
Tenant shall not be required to pay as rental for
the spaces made available to, and used by, Tenant.
Landlord may establish parking rates, which may
be adjusted from time to time, and such sum shall
be in addition to the Base Rent and Additional
Rent payable under this Lease.
21.1 CONFERENCE ROOM. Tenant shall have FREE non-exclusive use of the
Building's conference room. Landlord reserves the
right to schedule Tenant usage in order to avoid
conflicts.
22.1 TIME LIMITATION ON Whenever there is provided in this Lease, a time
PERFORMANCE OF limitation for performance by Landlord of any
LANDLORD construction, repair, maintenance, or service, the
time provided shall be extended for as long as and
to the extent that delay in compliance with such
limitation is due to an act of God, strike,
governmental control or other causes, beyond the
reasonable control of Landlord.
23.1 COMPLETE This Lease and the attached Exhibits and Schedules
AGREEMENT. if any, constitute the entire agreement of the
parties and supersede all prior written and oral
agreements and representations. Neither Landlord
nor Tenant is relying on any representations other
than those expressly set forth herein.
23.2 SPACE LEASED Unless otherwise stated in this Lease, the
AS IS. Premises are leased as is in the condition now
existing with no alterations or other work to be
performed by Landlord.
23.3 CAPTIONS. The titles to the paragraphs of this Lease are
descriptive only and are not intended to change or
influence the meaning of any paragraph or to be
part of this Lease.
23.4 NON-WAIVER. Failure by Landlord to promptly enforce any
regulation, remedy or right of any kind under this
Lease shall not constitute a waiver of the same
and such right or remedy may be asserted at any
time after Landlord becomes entitled to the
benefit thereof notwithstanding delay in
enforcement.
23.5 EXHIBITS. The following exhibits are attached hereto and
incorporated as a part of this Lease:
a. Exhibit A: Premises-floor plan
b. Exhibit B: Building Rules and Regulations
24.1 ADDENDUM TO By this reference, any addendum to the Lease
LEASE: attached hereto shall be made a part hereof,
AMENDMENTS. provided same is mutually agreed upon by both
Landlord and Tenant, modified in writing, and
signed by Landlord and Tenant at time of the
modification.
<PAGE>
25.1 NOTICES. All notices or tenders required or permitted
hereunder shall be made and given in writing to
the parties at the addresses set forth herein
below by either facsimile (with hard copy sent via
regular U.S. Mail postage prepaid), certified mail
return receipt requested or overnight courier such
as Federal Express. If notice be given by
facsimile or overnight courier it shall be deemed
received on the next business day following
mailing and if by certified mail, it shall be
deemed received on the third business day
following mailing. Notice to Tenant may always be
delivered to the Premises. Rent shall be payable
to Landlord at the same address and in the same
manner, but shall be considered paid only when
received. Either party may change its address for
notice purposes by giving written notice of such
change in accordance with the provisions of this
paragraph. Notice shall be addressed as follows:
LANDLORD:
Property Manager Treasurer of ALCO
Limited Partnership
Mr. Lee Tucker with copy to: Mr. Lon Wood
c/o S&P Company c/o MT Hood
Beverage Company
7600 NE 41st Street 3601 NW Yeon
Suite 300 Avenue
Vancouver, WA 98662 Portland, OR 97210
TENANT:
Mr. David A. Edwards, President
JENKON INTERNATIONAL, INC.
4601 NE 77th Avenue
Suite 300
Vancouver, WA 98662
26.1 SUBSTITUTE In the event the Leased Premises under this Lease
PREMISES. contains less than 2,000 usable square feet, then
one time during the term of this Lease, the
Landlord may relocate the Tenant to substitute
premises situated within the Building in
accordance with the following:
a. The substitute premises shall be of equal
or better quality and shall be
substantially the same in size,
dimensions, configuration and decor as
the Premises described in this Lease and
any alterations or improvements necessary
to place the substitute premises in that
condition will be performed by the
Landlord at its cost.
b. The physical relocation to the Tenant from
the Premises to the substitute premises
shall be accomplished by the Landlord at
its cost.
c. The Landlord shall give Tenant at least
sixty (60) days notice of Landlord's
intention to relocate the Premises. The
Tenant shall have thirty (30) days from
the date of Landlord's notice to accept
or reject the substitute premises. If
Tenant refuses to accept the substitute
premises or fails to reply to Landlord's
notice within the time stated, this Lease
shall terminate upon Tenant vacating the
Premises or sixty (60) days from the date
of Landlord's notice to Tenant, whichever
occurs first.
d. If Tenant accepts the substitute premises
as offered by Landlord, then Landlord will
prepare the substitute premises for
Tenant's occupancy and the physical
relocation to the substitute premises shall
take place on a weekend. All reasonable
direct costs such as changing addresses on
stationery, business cards, directories
and advertising, moving expenses, and
telephone relocation expenses, but
excluding any lost revenues or other
consequential costs, shall be paid by
Landlord.
e. The parties shall immediately execute an
amendment to this Lease changing the
designation of the Premises with all other
terms and conditions of the Lease
remaining in full force and effect.
27.1 NO BROKERS. Tenant represents and warrants to Landlord
that it has not engaged any broker, finder or other
person who would be entitled to any commission or
fees in respect of the negotiation, execution or
deliver of this Lease and shall indemnify and hold
harmless Landlord against any loss, cost,
liability or expense incurred by Landlord as a
result of any claim asserted by any such broker,
finder or other person on the basis of any
arrangements or agreements made or alleged to have
been made by or on behalf of Tenant. The
provisions of this Section shall not apply to
brokers with whom Landlord has an express written
brokerage agreement.
*7.2 AGENCY DISCLOSURE. At the signing of this Agreement, the listing
agent, Wicklund & Associates Commercial Brokerage
Company, represented the Landlord and the leasing
agent, Cushman & Wakefield of Oregon represented
the Tenant and both parties acknowledge and agree
to same. Upon execution of the Lease, Landlord
shall pay a commission to Wicklund & Associates
and said commission shall be shared equally by
both agencies.
<PAGE>
28.1 RIGHT OF FIRST Landlord shall provide Lessee with the first right
REFUSAL of refusal to lease adjacent space. This first
right of refusal is subordinate to subleases or
assignments and is not enforceable should tenant
in possession of the space exercise an Option to
Renew or a First Right of Refusal provided in
their respective leases. This first right of
refusal is also subordinate in time to other
Building Tenants' rights of first refusal as they
may pertain to the adjacent space.
29.1 TENANT Landlord agrees to provide the Building Standard
IMPROVEMENTS. Tenant Improvements in the Premises as described
below:
1. Paint: Paint interior Premises walls with
Colors to be selected from Landlord's Building
Standard colors.
2. Carpet: Install Building Standard carpet and
base throughout premises with carpet color to be
mutually agreed upon prior to installation.
3. Partition Wall: A partition wall currently
separates the Premises into two separate suite
areas of approximately 1,292 gross rentable square
feet and 4,766 gross rentable square feet.
Landlord shall remove said wall thereby creating
one large contiguous suite area of 6,058 gross
rentable area.
LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE LANDLORD AND TENANT HEREBY AGREE
THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND
TENANT WITH RESPECT TO THE PREMISES.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this Lease as of the day and year first written above.
<TABLE>
<S><C>
LANDLORD: ALCO Limited Partnership, a Oregon limited partnership The Agnew Company
its General Partner
By: /s/ Dan J. Agnew
----------------------
Title: Pres
-------------------
Telephone No. (503) 274-9990 Tax ID#: 91-1530085
Fax No. (503) 727-3234 -----------------
Address:
3601 NW Yeon Ave.
- ----------------------------------
Portland, OR 97005
- ----------------------------------
TENANT: JENKON INTERNATIONAL, INC. By: /s/ David O. Jansen By:
-------------------- -----------------------
Title: Chairman Title:
----------------- --------------------
Telephone No. (360) 256-4400
Fax No. 360-256-9623
Address:
4601 NE 77th Avenue
- ----------------------------------
Suite 300
- ----------------------------------
Vancouver, WA 98662
- ----------------------------------
</TABLE>
<PAGE>
EXHIBIT A
[DIAGRAM]
ONE PARK PLACE - THIRD FLOOR
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
1. COMMON AREAS The sidewalks, halls, passages, exits, entrances,
elevators, escalators and stairways of the
Building shall not be obstructed by Tenant or
used by Tenant for any purpose other than for
ingress to and egress from Tenant's Premises. The
halls, passages, exits, entrances, elevators, and
stairways are not intended for use by the general
public and Landlord shall in all cases retain the
right to control and prevent access thereto of
all persons whose presence in the judgement of
Landlord would be prejudicial to the safety,
character, reputation or interest of the
Building, Landlord or tenants, provided that
nothing herein contained shall be construed to
prevent access by persons with whom any tenant
normally deals in the ordinary course of its
business, unless such persons are engaged in
illegal activities.
2. USE AND OCCUPANCY For the safety, efficiency, and protection of the
OF PREMISES tenants and the Building, Tenant shall not, nor
permit any employee, agent or invitee of Tenant to
use its Premises for:
a. Storage or merchandise held for sale to
the general public, other than those reasonably
necessary for the operation of Tenant's business.
Landlord may, from time to time, inspect the
Premises to insure compliance with the foregoing.
b. Lodging or sleeping;
c. Cooking, except for private use by Tenant
or its employees with Underwriters approved
equipment for brewing coffee, tea, hot chocolate
or microwave cooking. Such use shall comply with
all governmental regulations;
d. Storage of any flammables, combustibles,
explosives, or environmentally hazardous materials
other than limited quantities reasonably necessary
for operation or maintenance of office equipment.
Such limited quantities shall be only stored in
containers approved by appropriate regulatory
agencies;
e. Keeping or storing foul or noxious gas or
substance;
f. The business of stenography, typewriting,
printing, or photocopying or any similar business
for the service or accommodation of occupants of
any other portion of the Building, unless
specifically authorized in the Lease;
g. Any use which would be reasonably
offensive to other tenants or Landlord or which
would tend to create a nuisance or damage the
reputation of the Premises or Building, including
but not limited to, using any portion of the
Premises as a second hand store or conduct therein
any auction, distress sale, fire sale, bankruptcy
sale, "going out of business sale" or "lost our
lease" sale.
3. PROHIBITED Tenant shall not, nor permit any employee, agent
ACTIVITIES or invitee of Tenant to:
a. Interfere in any way with other tenants or
those having business in the Building;
b. Bring into the Building or keep within its
Premises any bicycles, vehicles, fish, birds or
animals of any kind other than seeing eye dogs and
like animals;
c. Use in its Premises ice, drinking water,
beverages, or catering service except at such
reasonable hours and under such reasonable
regulations as may be fixed by Landlord;
d. Use any method of heating or air
conditioning other than that provided by Landlord;
e. Attach or install awnings, curtains,
draperies, blinds, shades, or screens on or
adjacent to any window or glass situated within
its Premises without prior written consent of
Landlord. Landlord may withhold its consent;
f. Use in the Building or its Premises any
hand trucks except those equipped with rubber
tires and side guards or such other material
handling equipment without Landlord's prior
written consent;
<PAGE>
(3. CONTINUED) g. Operate any television, radio, recorder or
sound system in such a manner which, in the
judgement of the Landlord, might cause a nuisance
to any; other tenant of the Building;
h. Load any floor beyond the point considered
safe by a competent engineer or architect selected
by Landlord;
i. Engage in any activity which would make it
impossible to insure the Premises against
casualty, would increase the insurance rate, or
would prevent Landlord from taking advantage of
any ruling of the Insurance Rating bureau or its
successor allowing Landlord to obtain reduced
premium rates for long-term fire insurance
policies, unless Tenant pays the additional cost
of insurance.
j. Except as may be permitted by Landlord in
writing, place any radio, television, or other
antenna, on the roof or on or in any part of the
inside or outside of the Building other than
inside the Premises; or operate any device that
emits interference with radio, television, or
other communications from or in the Building or
elsewhere.
k. Enter or permit to be entered into or
upon the roof of the Building or any storage,
heating, ventilation, air conditioning, mechanical
or machinery housing areas.
4. TENANT REQUIREMENTS Tenant shall, and shall require its employees and
agents to:
a. Keep window coverings in its Premises
closed when the effect of sunlight or cold weather
would impose unnecessary loads on the Building's
heating or air conditioning system;
b. Keep the doors to the Building corridors
closed at all times except for ingress and
egress and ensure that the doors of its Premises
are closed and locked and that all water faucets,
water apparatus and utilities are shut off before
leaving the Premises;
c. Store all its trash and refuse within its
Premises. No material shall be placed in trash
boxes or receptacles if such material is of such
nature that it may not be safely disposed of in
the customary manner of removing and disposing of
office building trash and refuse in the City of
Vancouver without being in violation of any law or
ordinance governing such disposal. All trash and
refuse disposal shall be made only through
entrances and elevators provided for such purposes
and at such times as Landlord shall designate.
5. JANITORIAL SERVICE Tenant shall not employ, authorize, or permit any
person, persons or firm, other than the janitor of
Landlord for purpose of cleaning its Premises.
Landlord shall not be responsible to any tenant
for any loss of property on the Premises, however
occurring, or for any damage done to the effects
of any tenant by the janitor or any other
employee or any other person. Janitor service will
not be furnished on nights when rooms are occupied
after 6:00 p.m. unless, by prior agreement in
writing, service is extended to a later hour for
specifically designated rooms.
6. KEYS, LOCKS Landlord will furnish each tenant two keys to each
entry door lock to its Premises. Landlord may make
a reasonable charge for any additional keys.
Tenant shall not have any such keys duplicated.
Tenant shall not alter any lock, install a new or
additional lock or any bolt on any door of its
Premises. Upon the termination of the Lease,
Tenant shall deliver to Landlord all keys to doors
in the Premises.
7. MOVEMENT OF All persons employed, and means or methods used to
EQUIPMENT move equipment, materials, supplies, furniture or
other property in or out of the Building, must be
approved by Landlord prior to any such movement.
Landlord shall have the right to prescribe the
time of movement of such items in and out of the
Building and the maximum weight, size and
positions (to the extent of structural load
considerations only) of all equipment, materials,
furniture or other property brought into the
Building, heavy objects shall, if considered
necessary by Landlord, stand on a platform of
such thickness as is necessary to properly
distribute the weight. Landlord will not be
responsible for loss of or damage to any such
property from any cause, and all damage done to
the Building by moving or maintaining such
property shall be repaired at the expense of the
Tenant.
8. USE OF SERVICE The Landlord shall designate appropriate entrances
ELEVATORS and a "service" elevator for deliveries or other
movement to or from the Premises of equipment,
materials, supplies, furniture or other property,
and tenant shall not use any other entrances or
elevators for such purposes. The service elevator
shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as
Landlord in its discretion shall deem appropriate.
9. ACCESS TO BUILDING Landlord reserves the right to exclude from the
AFTER HOURS Building between the hours of 8:00 p.m. and 6:00
a.m. and at all hours on Saturdays, Sundays and
legal holidays all persons who do not present
identification acceptable to Landlord. Tenant
shall provide Landlord with a list of all persons
authorized by Tenant to enter its Premises and
shall be liable to Landlord for all acts of such
persons. Landlord shall in no case be liable for
damages for any error with regard to
<PAGE>
(9. CONTINUED) the admission to or exclusion from the Building
of any persons. In the case of invasion, mob,
riot, public excitement or other circumstances
rendering such action advisable in Landlord's
opinion, Landlord reserves the right to prevent
access to the Building during the continuance
of the same by such action as Landlord may deem
appropriate.
10. BUILDING DIRECTORY A building directory will be provided for the
display of the name and location of tenants and
a reasonable number of the principal officers
and employees of tenants. Landlord reserves the
right to restrict the amount of directory space
utilized by any tenant.
11. RESTROOMS Tenant shall use the toilet rooms, toilets,
urinals, washbowls, and other apparatus
available to tenants solely for the purposes
for which they were constructed, and Tenant
shall not place therein any foreign substances
of any kind. The expense of any breakage,
stoppage or damage resulting from the violation
of this rule shall be borne by the Tenant who,
or whose employees or invitees, shall have
caused same. No appliances or other electrical
devices shall be used in restrooms.
12. CANVASSING IN Canvassing, soliciting, distribution of
THE BUILDING handbills or any other written material and
peddling in the Building are prohibited, and
Tenant shall cooperate to prevent the same.
13. TENANTS' REQUESTS Special requests of tenants will be considered
only upon written application to Landlord.
Landlord reserves the right to deny any such
special requests. Employees of Landlord shall
not perform any work or do anything outside of
their regular duties unless under special
instructions form Landlord.
14. CHANGES Landlord reserves the right to make reasonable
additions to, modifications of, or other
changes to these Rules and Regulations. Such
changes shall become effective when written
notice is provided to tenants of the Building.
15. TENANT CONTRACTOR All contractors and technicians rendering any
service to Tenant shall be referred to Landlord
for approval prior to performing any such
service and shall be subject to any reasonable
contractor guidelines established by Landlord
from time to time. This applies to all work
performed in or about the Premises including,
but not limited to, installation of telephone
and telegraph equipment and electrical devices
and installations affecting floors, walls,
woodwork, windows, ceilings and any other
physical portion of the Premises or the
Building. The location of telephones, call
boxes and other office equipment affixed to the
Premises shall be subject to Landlord's prior
written approval.
16. INTERIOR SIGNAGE Except as otherwise herein provided, Tenant
shall have the right, at its sole cost and
expense, to erect and maintain within the
interior of the Premises all signs and
advertising matter customary or appropriate in
the conduct of Tenant's business; provided,
however, that Tenant shall upon written notice
by the Landlord immediately remove any sign,
advertisement, decoration, lettering or notice
which Tenant has placed or permitted to be
placed in, upon or about the Premises and which
Landlord reasonably deems objectionable or
offensive, and if Tenant fails or refuses so to
do within fifteen (15) days after written
notice from Landlord, the Landlord may enter
upon the Premises and remove the same at
Tenant's cost and expense. In this connection,
Tenant acknowledges that the Premises are a
part of an integrated commercial development,
and agrees that control of all signs by
Landlord is essential to the maintenance of
uniformity, propriety and the aesthetic values
in or pertaining to the Building.
17. LITTER Tenant and its employees, representatives and
invitees shall not throw cigar or cigarette
butts or other substances or litter of any kind
in or about the Building or Common Areas,
except in receptacles placed therein by
Landlord for such purposes.
18. GENERAL COMMENT With respect to the Common Area, Landlord shall
have the right from time to time to employ
personnel; establish, modify and enforce
reasonable rules and regulations; construct,
maintain and operate lighting facilities;
police the Common Area and facilities; from
time to time to change the area, level,
location and arrangement of parking areas and
other facilities herein above referred to
(including, without limitation, the conversion
of common Area into usable floor area to be
occupied by one or more tenants of the
Building); to restrict parking areas; to
enforce parking charges (by operation of meters
or otherwise), with appropriate provisions for
free parking ticket validating by Tenant; to
close all or any portion of the Common Area to
such extent as may, in the opinion of
Landlord's counsel,
<PAGE>
(18. CONTINUED) be legally sufficient to prevent a dedication
thereof or the accrual of any interest therein
by any person or the public; to temporarily
close all or any portion of the parking areas
or facilities to discourage non-customer
parking; to use portions of the Common Area
while engaged in making additional improvements
or repairs or alterations to the Building; and
to do and perform such other acts in and to the
Common Area as, in the use of good business
judgment, Landlord shall determine to be
advisable with a view to the improvement of the
convenience and use thereof by tenants of the
Building, their employees, invitees and
customers. Tenant shall use the Common Area in
an orderly manner in accordance with
directional or other signs or guides. Roadways
shall not be used at a speed in excess of ten
(10) miles per hour and shall not be used for
parking or stopping, except for the immediate
loading or unloading of passengers. Walkways
shall be used only for pedestrian travel.
Tenant shall require its customers and invitees
to park all motor vehicles in an orderly manner
within the painted lines defining the
individual parking places.
<PAGE>
ADDENDUM
to LEASE dated April 18, 1996
by and between
Jenkon International, Inc., Tenant
and
ALCO Limited Partnership, Landlord
RECITALS
The parties to this Addendum to Lease are JENKON INTERNATIONAL, INC.
(JENKON), Tenant and ALCO LIMITED PARTNERSHIP (ALCO), an Oregon limited
partnership, Landlord. The same terms and conditions of said lease shall
apply and the following amendments are hereby confirmed.
WHEREAS, both parties wish to change the rent commencement date of the
Lease and extend the expiration of the Lease term by thirty (30) days due to
delays experienced during tenant improvements in the month of June 1996.
NOW, THEREFORE, effective the date executed by Jenkon and ALCO, as shown
below, these parties, for the consideration hereinafter mentioned, covenant
and agree that the said Lease is amended as follows:
RENT COMMENCEMENT AND LEASE EXPIRATION DATE CHANGES:
Rent shall commence effective July 1, 1996 and the Lease shall expire on June
30, 1999. All other terms and conditions of the Lease shall remain in force
and effect.
TENANT LANDLORD
------ --------
AGREED AND ACCEPTED AGREED AND ACCEPTED
Jenkon International, Inc. ALCO Limited Partnership, an Oregon
limited partnership
By: /s/ DA Edwards By: The Agnew Company
----------------------- its General Partner
Title: President
-------------------- /s/ Dan J. Agnew
Date: 7-24-96 -------------------------
--------------------- Dan J. Agnew
Title: President
-------------------
Date: 7-28-96
-------------------
<PAGE>
SOFTWARE SERVICE AGREEMENT
- -------------------------------------------------------------------------------
The following document constitutes a Software Service Agreement between:
SUMMIT V, INC., a subsidiary of Jenkon International, Inc., a corporation
organized and existing under the laws of the State of Washington, United
States of America, located at 7600 NE 41ST STREET, SUITE 350, VANCOUVER,
WASHINGTON, 98662, hereinafter referred to as Seller, and
a corporation organized and existing under the laws of the State of Georgia,
United States of America, located hereinafter referred to as LICENSEE.
1. BASIS OF AGREEMENT:
Buyer has engaged Seller to provide certain software services as
described further below with respect to the Summit V Jenkon Software
Base System and related modules (hereinafter referred to as the
"Software") which are the subject of a Software License Agreement
dated as of _____________ between Seller and Buyer.
2. PRICE AND PAYMENT:
2.1 PRICE:
Buyer shall pay annually to Seller for Covered Service as defined, the
sum of ________ in U.S. Funds. ANNUAL THIRD PARTY SOFTWARE SUPPORT
EQUALS THE SUM OF ________ IN U.S. FUNDS.
2.2 PAYMENT SCHEDULE:
Seller will invoice Buyer in advance for each period of Covered
Service. Payments are required to be received by Seller PRIOR to the
start of the period to insure continued service.
PAYMENT SCHEDULE: PAYMENT OF TO BE INVOICED MONTHLY (SEE
SALES ORDERS # ) THIRD PARTY SOFTWARE SUPPORT PAYMENT
SCHEDULE; PAYMENT OF TO BE INVOICED MONTHLY. (SEE SALES ORDER
# )
2.3 EFFECTIVE DATE
The effective date of this Agreement shall be the Date of Acceptance
as determined in Paragraph 4.12.1 of the Software License Agreement.
2.4 TAXES:
All service charges are exclusive of applicable federal, state or
local taxes. Buyer shall pay or reimburse Seller for any such taxes to
the invoices submitted to Buyer by Seller.
2.5 CHANGES IN SERVICE RATE:
Seller may change the service charges for Covered Service anytime with
thirty (30) days prior written notice to the Buyer. Buyer has the
right to cancel this Agreement within thirty (30) days of receiving
such notice with a written cancellation notice. Seller may not
increase the service charges more often than annually. The service
charges for the first twelve months of this
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Summit V, Inc. Software Service Agreement Page 1
<PAGE>
Agreement will be fixed at price not to exceed 15% of the total
license fees for the Licensed Software. In no event shall the service
charges to licensee exceed the preceding year's service charges by
more than 15 percent. When additional Licenses and or Modules are
purchased standard service charges will be calculated as of the date
of purchase.
3. COVERED SERVICE:
3.1 COVERED SERVICE:
The term "Covered Service" as used herein means the periodic service
Seller deems reasonable, appropriate and necessary to keep Buyer's
Software performing as documented in the documentation manuals
provided by Seller to Buyer. Covered Service shall be provided during
Seller's normal business hours on all weekdays, Monday through
Friday. Buyer shall have access to Emergency Hotline Support outside
of normal business hours and during holidays. Seller shall provide to
Buyer under the terms of this Agreement, the following:
3.1.1 Continuing warranty that the licensed programs will perform in
conformity with the written manuals for the version of
Licensed Software in use.
3.1.2 Free telephone support service during Seller's normal business
hours.
3.1.3 Free access to 24 hour Emergency Hotline Support Services.
3.1.4 New enhancements and upgrades to Licensed Software. Major
enhancements that are priced separately to other Buyers who
purchase similar Software from Seller will be made available
to Buyer at costs charged by Seller to such other customers.
Where Buyer has implemented special changes to existing
programs, the new enhancements may required special
installation work to incorporate the Buyer's special changes.
In such cases, Seller will install the enhancements at buyers
request with special changes incorporated, and charge the fees
based on Seller's current rates.
3.1.5 New versions of computer equipment operating system tapes as
they are made available to Seller from the equipment vendors.
Seller will provide installation instructions for each tape.
3.1.6 Manufacturer/vendor technical notes as they are made available
to Seller. These notes often describe operating system
problems and solutions that the vendor has discovered and other
information of a technical nature that may assist Buyer to
keep the computer equipment operational and operating system
Software at the most current version releases and
functionality.
3.1.7 Seller will, from time to time, advise Buyer of new devices,
software programs, or other information that will aid Buyer
in the ongoing utilization of the computer system.
3.1.8 Patches and fixes to the Software as they are made generally
available by Seller.
3.1.9 Free Software program updates to generate 1099 and T4A forms
for U.S. and Canadian tax reporting.
3.1.10 Repair or correction of Software programming due to special
changes made by Seller at Buyer's request.
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Summit V, Inc. Software Service Agreement Page 2
<PAGE>
3.1.11 Correction of Buyer data caused by Licensed Software program
error.
3.1.12 Seller shall respond to a call from Buyer for covered services
by the end of the next business day.
3.2 EXCLUSIONS FROM COVERED SERVICES
Covered Service does not include the following:
3.2.1 Those items listed under 3.3, "Billable Service Call".
3.2.2 Correction of Buyer data caused by Buyer's error, or equipment
failure.
3.2.3 Work on Software not sold and licensed to Buyer by the Seller.
3.2.4 Buyer shall advise Seller in writing of any modifications made
to the Software. Seller shall not be responsible for maintaining
Buyer modified portions of the Software. Corrections or defects
traceable to Buyer's errors or system changes will be billed
at Seller's standard time and materials rate.
3.3 BILLABLE SERVICE CALL
Billable service call will be any service, other than Covered Service,
performed by Seller and includes, but is not limited to, the following
types of service:
3.3.1. Work requested by the Buyer for the creation of new software
programs, or the enhancement or customizing, of existing
Software programs.
3.3.2. Training, consulting, or advising Buyer on matters not covered
under Covered Service.
3.3.3 Correcting or changing data at the request of Buyer.
3.3.4 Work requested by Buyer to install new enhancements to
previously changed or customized programs where the new
version of the programs does not contain the special change or
customized feature previously installed for Buyer.
3.3.5 Work required to correct the Operating System or Licensed
Software which has been modified by the Buyer or a third party.
3.3.6 Work required to correct problems which would not have
occurred if the current release of the Software, which had
been offered to the Buyer, was being used by Buyer but the
Buyer elected not to load it on the system.
3.3.7 Revisions to the operating system and the application Software
that are made available to the Seller by the Manufacturer for
a fee, are excluded from being provided at no charge and will
be made available to Buyer for a fee.
3.4 BILLABLE SERVICE TERMS AND RATES
Billable service will be charged to the Buyer according to the
Seller's billable rates in force at the time the service is carried
out. All charges for billable service shall be paid by Buyer within
the terms set in the sales order for any work sold on a sales order,
otherwise within the due date on the invoice. Failure the comply with
this shall cause a default of this Agreement. Interest will be
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Summit V, Inc. Software Service Agreement Page 3
<PAGE>
charged on the past due balances at an annualized rate of 18% (1.5%
per month) or the maximum allowed by law, whichever is less.
Billable service calls, as defined herein, performed at Buyer's
location will be charged at a minimum rate of $150.00 per hour. Each
additional hour beyond the first eight will be charged at the Seller's
current billable rates, plus transportation, lodging, and other
related business expenses.
3.5 TAXES
All service charges are exclusive of applicable federal, state or
local taxes. Buyer shall pay or reimburse Seller for any such taxes to
the invoices submitted to Buyer by Seller.
4. TERMS AND TERMINATION:
This Agreement shall become effective on the Effective Date of this
Agreement, and unless sooner terminated as hereinafter provided, shall
remain in full force and effect for an initial term of one (1) year
from such date, and then automatically renewed each subsequent year
unless otherwise terminated by either party by written notice
delivered at least 30 days in advance. Automatic renewal shall not
occur if Buyer is in default of a material term of the Agreement.
Either Buyer or Seller, after the initial term, may terminate this
Software Service Agreement at any time upon thirty (30) days written
notice.
Seller shall have the right at its option to immediately terminate
this Agreement by written notice to Buyer in the event of:
4.1 An assignment for the benefit of creditors, or
4.2 Admitted insolvency, or
4.3 Dissolution or loss of charter by forfeiture, or
4.4 Being adjudged bankrupt or insolvent by a United States Court
of competent jurisdication, or
4.5 A trustee or receiver being appointed for all assets or any
substantial proportion thereof, or
4.6 Filing a voluntary petition under any bankruptcy or other
similar law providing for reorganization, dissolution, or
liquidation, or
4.7 Consenting to the appointment of a receiver or a trustee for
all assets of any substantial part thereof.
5. LIMITATION OF LIABILITY:
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Summit V, Inc. Software Service Agreement Page 4
<PAGE>
5.1 LIMITATIONS
In all situations involving performance or nonperformance of the
Licensed Software furnished hereunder, Seller's entire liability and
the Buyer's exclusive remedy shall be as follows:
5.1.1 The correction by Seller of Licensed software defects, and the
correction or restoration of any Buyer's data that was damaged
or corrupted by any Licensed software defect, or
5.1.2 If, after reasonable efforts, Seller is unable to make the
unmodified Licensed Software operate as documented, Buyer
shall be entitled to recover actual damages to the limits as
set forth in this section. For any other claim concerning
performance or nonperformance of Licensed Software pursuant to
or in any other way related to the subject matter of this
Agreement and any supplement hereto, the Buyer shall be
entitled to recover actual damages to the limits set forth in
this section.
5.1.3 Seller's liability for damages to the Buyer for any cause
whatsoever, and regardless of the form of action, whether in
contract or in tort, including negligence, shall be limited to
the total amounts paid to Seller under the Software License
Agreement. In no event will Seller be liable for damages caused
by the Buyer's failure to perform the Buyer's responsibilities.
5.1.4 In as much as Buyer shall prepare commission checks from time
to time, Buyer shall accept full responsibility to audit and
verify all commission calculation amounts before sending any
commission check to any person. In the event an error is found,
whether before or after any commission check is sent to any
person, Seller's exclusive liability shall be to correct the
software programs in a timely fashion. If Buyer sends incorrect
commission checks to any person, Seller shall not be liable for
loss of profits or damages of any kind resulting from the
incorrect calculations of commission amounts.
5.1.5 No action regardless of form, arising out of a claim of a
breach of this Agreement may be brought by either party more
than two (2) years after the date of the alleged breach,
except that an action for nonpayment will be limited only by
the statute of limitations of the State of Washington.
6. GENERAL:
6.1 DEFAULT
It is a default under this Agreement if any one or more of the
following events occur and Seller is adversely affected:
6.1.1 Buyer breaches any one or more of the covenants, terms or
conditions of this Agreement to be paid, performed, or complied
with by Buyer; or
6.1.2 Buyer becomes bankrupt or insolvent
6.2 NOTICES
All notices required hereunder shall be given in writing and shall be
personally delivered or sent by postage prepaid mail addressed to the
parties at their addresses first mentioned, or at such other addresses
as either party may designate to the other by notice as provided in
this section. Notices
- -------------------------------------------------------------------------------
Summit V, Inc. Software Service Agreement Page 5
<PAGE>
shall be deemed effective upon their deposit into the U.S. Mail,
properly addressed and postage prepaid.
6.3 INVALID PROVISIONS
If any provision of this Agreement be invalid or unenforceable, then
the remainder of this Agreement shall not be affected thereby.
6.4 ENTIRE AGREEMENT
This Agreement supersedes all prior agreements, letters of intent,
negotiations, representations and proposals, written or oral, requests
for proposals, or previous discussions of the parties. There have been
no other promises or inducements, oral or written, given by any party
to the other to enter into this Agreement. The parties agree that this
Agreement or any term or provision thereof shall not be modified in any
manner whatsoever without the written authorization of both parties
hereto and signed by both an authorized representative of Buyer and by
an authorized representative of Seller. To the extent of any conflict
or inconsistency, the Software License Agreement shall supersede and
prevail over any term of this Software Service Agreement as to the
matters addressed herein.
6.5 ARBITRATION
If any controversy or dispute arises out of this Agreement, or the
breach thereof, the parties will endeavor to settle such dispute
amicably. If the parties shall fail to settle any dispute, such
dispute shall be finally settled by binding arbitration conducted in
Clark County, Washington. All arbitration shall be in accordance with
the then existing Commercial Arbitration rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof;
provided that nothing in this section shall prevent a party from
applying to a court of competent jurisdiction to obtain temporary
relief pending resolution of the dispute through arbitration. The
parties hereby agree that service of any notices in the course of such
arbitration at their respective addresses as provided for in this
Agreement shall be valid and sufficient. If either party seeks
to enforce its rights under this Agreement, the non-prevailing party
shall pay all costs and expenses incurred by the prevailing party.
6.6 ATTORNEY FEES
The prevailing party in any arbitration or lawsuit concerning this
Agreement or any matter related thereto shall be entitled to any award
of reasonable attorney fees and costs from the other, including fees
incurred through trial, appeal or in bankrupt proceedings. Attorney
fees awarded pursuant to this paragraph shall not be included within
the definitions of "Damages" or otherwise limited by paragraph 5.1.1.
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Summit V, Inc. Software Service Agreement Page 6
<PAGE>
7. AUTHORIZED SIGNATURE:
This Agreement shall be binding upon Buyer and Seller only at such
time as it has been signed by an Authorized Officer of the Buyer and
by an Officer, identified below, of Seller.
- -----------------------------------------------------------------------------
ACCEPTED BY: SUMMIT V, INC.
- -----------------------------------------------------------------------------
NAME:
(PLEASE PRINT)
- -----------------------------------------------------------------------------
NAME:
(SIGNATURE)
- -----------------------------------------------------------------------------
TITLE:
- -----------------------------------------------------------------------------
DATE:
- -----------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Summit V, Inc. Software Service Agreement Page 7
<PAGE>
[LOGO]
UNIDATA-Registered Trademark-
VALUE ADDED RESELLER AGREEMENT
This Agreement, made as of the 17th day of Jan, 1997 is by and between
Unidata, Inc., a Colorado Corporation ("Unidata") with principal offices at
1099 18th Street, Denver, Colorado 80202 and Summit V, Inc. ("Var").
Unidata is engaged in developing and marketing computer products, including
application development software. Var markets software and / or hardware and
services directly to End users. The parties, intending to be bound, agree as
follows.
1. CERTAIN DEFINITIONS.
Certain terms used in this Agreement and the Schedules attached are defined
below:
1.1 "Agreement" means this agreement.
1.2 An "Affiliate" of any person means (x) any other person directly
or indirectly controlling or controlled by or under direct or
indirect common control with such person or (y) any officer,
director, employee, shareholder of such person. "Control" means
possession, directly or indirectly, of power to direct or cause
the direction of the management and policies of a person,
through ownership, by contract or otherwise; and "controlling"
and "controlled" have correlative meanings.
1.3 "Authorized territory" means Var's non-exclusive territory set
forth in Schedule 1, Part A.
1.4 To "distribute" means to market, promote, sell, assign, distribute,
license, sublicense, lease, disclose or otherwise transfer to a
person. A distribution occurs at the earliest time that the item
distributed is shipped or otherwise leaves the possession of the
transferor.
1.5 "Documentation" means on line help, printed manuals or electronic
media instructions which accompany Software.
1.6 "Effective date" means the date Unidata accepts this Agreement.
1.7 "End user" means a person sublicensed to use Software to develop
and/or run applications software for internal purposes, with no
right to distribute Software.
1.8 A "License" means a right granted by Unidata to use specified
Software.
1.9 A "License fee" means an amount to be paid by a person receiving
Software under this Agreement. License fees include relicensing
or transfer fees stated in the Price List.
1.10 A "person" means a natural person or an entity.
1.11 "Price list" means the most current version of Unidata's Retail
Price list, as revised from time to time, for the territory in
which the Software is to be used.
1.12 "Product availability list" means the most current version of
Unidata's published list of standard Software available for
commercial, educational or scientific use on commercial computer
platforms, as revised from time to time.
- --------------------------------------------------------------------------------
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Provider (var1-1;rev 2/15/96) Page 1
<PAGE>
[LOGO]
1.13 "Release" means a version of Software, numbered "x.y.z" which
Unidata distributes to customers. A "new release" is an "x" or
"y" releases, and a "major" release" is an "x" release as
designated by Unidata.
1.14 "Ship date" means the date Unidata ships Software to Var or its
End user.
1.15 "Software" means the Unidata products listed in Schedule 1, Part C,
and other products which may be added from time to time,
including object code programs, and documentation.
1.16 To "sublicense" means to distribute Software configured for a
maximum number of simultaneous users, for a License fee, upon
receipt of a sublicense agreement signed by an End user.
1.17 "Support fees" means fees paid by Var for Unidata Support service.
1.18 "Support service" or "maintenance" means help in resolving a
problem with Software.
1.19 The "term" of this Agreement means the initial term and any renewal
terms.
1.20 "Third party products" means products licensed or developed by
third parties and acquired or licensed by Unidata for distribution.
1.21 "Upgrade fee" means an annual fee paid by Var for Upgrade service
for its End users.
1.22 "Upgrade service" means a right to receive, subsequent to an
initial License, new releases of Software from Unidata as they
become available.
1.23 To add "value" means to supply prepared software applications,
custom programming or professional services to a customer. Var's
"added value" is set forth in Schedule 1, Part A. Value is
"significant" if the aggregate charges for it exceed the Price
list amount of License fees for Software sublicensed to the End
user.
1.24 A "Var license" means a personal, non transferable internal License
installed on a single machine, network or cluster of machines
operating under the control of one machine and used by Var solely
for application development, End user support, Software
demonstration and data processing for Var's internal business
use.
1.25 "Warranty period" means the ninety (90) day period beginning on
the Ship date. No additional Warranty period attaches to
Software which is transferred to a new platform, which is
upgraded with a Release, or which is reconfigured for a
different number of users.
2. GRANT OF DISTRIBUTION LICENSE; TERM.
2.1 As of the effective date and subject to the limitations in this
Agreement and its Schedules, Unidata grants Var a personal, non
transferable, limited, non exclusive right and license, during
the Term, from Var locations listed in Schedule 1, Part A and
within the Authorized territory, to
* distribute, for a license fee, Software products for which Var
has licensed Reseller Kits under Schedule 1.
* distribute, without a fee, demonstration versions of Software
provided that Var first obtains a demonstration license limited
in scope to a term of ninety (90) days or fewer;
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Provider (var1-1;rev 2/15/96) Page 2
<PAGE>
[LOGO]
* use internally licensed Software for (a) Var's sales
personnel to demonstrate the use of Software; (b) Var's
service personnel to recreate errors in, isolate defects
of or propose improvements to Software; and (c) data
processing for Var's internal business use;
2.2 This Agreement transfers no title to or ownership of the
Software, intellectual property or proprietary rights associated
with the Software or its documentation. Without limiting the
foregoing, the licenses granted under this Agreement are expressly
conditioned upon and subject to these restrictions:
2.2.1 Var may sublicense only those Software products (a) for
which it has been granted a Var License and (b) which
are stated in the then current Product availability list.
2.2.2 Var may distribute Software only if such Software is
subject to written non transferable sublicense agreements
as stated in this Agreement.
2.2.3 In nations in which copyright and other intellectual
property protection exists for computer software, Var
may sublicense any Software product marked "shrink-
wrapped" in Exhibits to Schedule 1 under the "break the
seal" license agreement in the packaging supplied by
Unidata, with the license agreement visible from the
outside.
2.2.4 Every copy of Software or documentation Var distributes
will bear legends or restrictive notices as Unidata may
reasonably require to protect its rights.
2.2.5 All rights granted to distribute Software are limited to
Software in object code form only, together with
documentation.
2.2.6 This Agreement grants no rights to use, copy or modify any
Software source code or to derive any source code from
Software in any manner.
2.3 Certain Third party products which Unidata may make available
are subject to restrictions imposed by the products' licensors.
The restrictions are stated in Schedule 2. Upon Var's written
acceptance of the requirements in Schedule 2, Unidata grants Var
the right to distribute, for a License fee, those Third party
product(s) designated in Schedules 1 and 2.
2.4 Except as expressly authorized under this Agreement Var, its
affiliates and its sublicensees are prohibited from copying or
distributing Software.
2.5 Unidata reserves all rights not expressly granted to Var.
Nothing in this Agreement will be construed to constrain
Unidata from distributing Software to any other person or from
granting any person the right to use Software in any manner.
2.6 The initial term commences on the Effective date and continues
for one (1) year unless sooner terminated. The term renews
automatically on each anniversary for a term of one year until
four (4) renewal terms have been completed.
3. LICENSE FEES AND TERMS.
3.1 Var may sublicense Software to End users in exchange for License
fees under the Price list at the order date, for the applicable
hardware and number of users, less discounts calculated in
accordance with Schedule 1, Part B. All fees are f.o.b. Denver,
Colorado. Var may add users to an existing sublicense or
transfer an existing sublicense to a different platform for
additional License Fees under the Price list.
3.2 Unidata may revise its Price list(s) or Product Availability
list(s) at any time and from time to time. Changes to any
Price list will take effect after ninety (90) days notice
to Var. Price lists may vary between territories, and pricing
for Software delivered to a territory will be determined under
the territory Price list. Prices stated are exclusive of any
federal, state,
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Provider (var1-1;rev 2/15/96) Page 3
<PAGE>
[LOGO]
municipal, or other governmental taxes, duties, licenses, fees,
excises, or tariffs now or hereinafter imposed on the production,
storage, licensing, transportation, import, export or use of
Software. Var agrees to pay all such taxes or charges, exclusive
of taxes based on Unidata's income, or to provide Unidata with
evidence of exemption.
3.3 Unidata may require advance payment prior to shipment. Payment
of the balance is due thirty (30) days after the Ship date. On
Unidata's request, Var agrees to provide Unidata with an
accounting of Software distributed and fees paid to Unidata.
Unidata's right to receive License Fees from Var for licensed
Software survives termination of this Agreement. Should Var's
account become delinquent, Unidata may revise Var's payment terms
or decline to continue performing any agreement with Var.
3.4 Var may cancel any order, without penalty, until five (5) days
before the requested Ship date. If Var cancels up to sixty (60)
days after the Ship date, Var will reimburse Unidata for shipping
by paying a fee of ten percent (10%) of the License fee or two
hundred fifty dollars ($250), whichever is less. No order may
be canceled later than sixty (60) days after the Ship date.
4. VAR'S OBLIGATIONS.
4.1 Var agrees to sublicense or acquire, for License and service
fees, the products and services summarized in Schedule 1 Part C.
Var's authorized representative will approve all orders to
Unidata. Software provided to Var under this Section may be
copied for back-up, archive or emergency recovery purposes, or to
replace a worn copy. The original copy of Software and any other
internal copies are and will remain Unidata property.
4.2 Var represents that it (i) distributes computer software; (ii)
adds significant value to products obtained from other persons,
and (iii) engages in selling, licensing and distributing products
to End users through direct "face to face" contact.
4.3 Var agrees to
4.3.1 use all commercially reasonable efforts to distribute and
install Software correctly and appropriately, so as to
not detract from Unidata's and its Software reputation.
4.3.2 add Significant value before distributing Software.
4.3.3 obtain, for every copy of Software it sublicenses, a
signed agreement including in substance the provisions
in Schedule 4.3. Var may elect to use Unidata's standard
End user license agreement in lieu of preparing Var's
own. Var agrees to send Unidata a copy of Var's standard
sublicense agreement before Var's initial shipment of
Unidata Software, and thereafter if Var modifies or
replaces its standard agreement. Var agrees to retain
a copy of each signed sublicense agreement on file at
its main office. Var agrees to furnish Unidata either
a copy of the End user sublicense agreement or the End
user's name, major contact, address, type of processor,
location of the licensed copy, media specifications,
operating system and release number, number of users, and
the manufacturer's model number and serial number of the
computer licensed to run Software. In the United States
and other nations in which copyright protection exists for
computer software, Var may sublicense any Software marked
"shrink-wrapped" in Schedule 1 Part C under the "break the
seal" license agreement in the packaging Unidata supplies
with the license agreement visible from the outside, or an
end user license agreement signed by the user.
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4.3.4 use all commercially reasonable efforts to enforce its
sublicense agreements including the provisions set forth
in Schedule 4.3.
4.3.5 enroll for Support service as set forth in Schedule 5.
4.3.6 assume responsibility for proper installation of
Software on the End user's system.
4.3.7 assume responsibility for first call support during the
Warranty period. After the Warranty period, Var may
offer its End user Support and Upgrade Service.
[Except for products designated in Exhibits B and G to
Schedule 1, Var may elect to refer End users to Unidata
for support and upgrades.]
4.3.8 enroll and send at least two of its employees during the
first year, and one of its employees during each year
thereafter, for a minimum of one week of Unidata
training during each year of the term.
4.3.9 determine, in its sole discretion, its sublicense fees
for Software, which may be different from fees stated in
the Price list. No Unidata employee has any authority to
advise Var what Var's license fees for Software must be.
4.4 Var agrees not to:
4.4.1 distribute Software except as permitted under this
Agreement and in the packaging as received from Unidata;
4.4.2 market Software without including Unidata's applicable
copyright and trademark notices;
4.4.3 modify or alter any advertising, artwork, promotional
materials, logos, or trademarks of Unidata without prior
written consent from Unidata; or
4.4.4 make any claims, commitments or representations about
Software that are inconsistent with the information
provided by Unidata in product descriptions,
documentation, and promotional material.
4.5 Var agrees to hold Unidata, its employees and directors harmless
from any and all claims or loss or liability arising in any way
out of acts or omissions by Var or its agents. This Section
survives termination or expiration of this Agreement.
5. GENERAL DUTIES OF UNIDATA
5.1 On five (5) days' advance written notice, Unidata will ship the
Software on the Ship date requested by Var and in accordance
with Var's shipping instructions.
5.2 Subject to space availability, Unidata will permit Var employees
to attend Unidata training classes, at a cost determined
according to the discount structure in Schedule 1 and Schedule
4.1.
5.3 Unidata will provide Var reasonable supplies of Software
marketing materials. Upon mutual agreement, Unidata will provide
marketing support for major accounts, lead referrals from
Unidata marketing channels, and trade show participation.
5.4 Before terminating Support service for machines listed in the
Product availability list, Unidata will give Var six (6) months
advance written notice.
5.5 Additional agreements of the parties are set forth in Schedule
5.5.
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6. AUTHORITY, LAWS AND REGULATIONS.
The parties represent and warrant to each other that they have the power and
authority to enter this Agreement, have obtained any requisite government
approvals to enter and to perform this Agreement, will keep such approvals in
force and will obtain such additional government approvals as may from time
to time be required. This Agreement and each party's performance thereof is
made subject to all laws, regulations, orders or other restrictions that may
be imposed from time to time on export from the US or other nations of
computer software, hardware, communications equipment and related technical
knowledge. Var assures Unidata that it will not export, re-export or
transfer, directly or indirectly, any such software, hardware, communications
equipment or information to any country for which the US Government or any
agency thereof or any other nation requires an export license or other
governmental approval at the time of export, re-export or transfer without
first obtaining the consent of the licensing party and such export license
and approval. Each party further agrees that it will obtain the written
assurance of each person to which the Software is distributed that such
person will comply with all applicable export control laws and regulations.
7. COPYRIGHT NOTICES; PROPRIETARY INFORMATION; TRADE SECRETS; CONFIDENTIALITY.
7.1 Var acknowledges that Unidata's Software and documentation are
protected by copyright and other law. Var agrees to include
unaltered in all copies of Software distributed reproductions of
Unidata's restricted rights notices, copyright notices and other
proprietary legends. A copyright notice in Software does not, by
itself, constitute evidence of publication or public disclosure.
7.2 Var acknowledges that Software and documentation are Unidata's
proprietary products. Unidata retains all proprietary right and
interest in all Software, including, but not limited to, patent,
copyright, trademark, and trade secret rights. Var agrees to
protect Unidata's proprietary rights in any Software in Var's
possession or control, and not to challenge or assist any other
person in challenging Unidata's proprietary rights in any manner.
7.3 Var understands that Software (including programs, documentation
and sales and marketing information) supplied by Unidata contain
legally protected trade secrets the use and disclosure must be
carefully controlled. Var agrees to safeguard Unidata's trade
secrets with no less care than it uses in safeguarding its own
valuable trade secrets. Var and its affiliates may have access
to confidential information owned or controlled by Unidata
relating to Software, specifications, plans, sales and marketing
information and other data. This information may contain
confidential and proprietary information and disclosures. All
information or data acquired from Unidata by Var or its
employees, affiliates or agents under this Agreement will be and
will remain Unidata's exclusive property. Var agrees to keep, or
have its employee keep, all such information confidential, and
not to copy or publish or disclose it to others, or authorize
its employees, agents, or any person to copy, publish, or
disclose it, without Unidata's prior written approval. Var
agrees to return such information and data to Unidata at its
request. Disclosure of information which: (a) is publicly
available at the time of disclosure; (b) is disclosed to the Var
by a third party who is not in breach of an obligation of
confidentiality; (c) becomes publicly available after disclosure
through no act of Var; or (d) is developed by the Var without
breach of this Agreement, is excepted from the restrictions in
this Section.
7.4 Var agrees to notify Unidata immediately of any possession or
use of Software that Var believes is unauthorized. Var agrees to
provide Unidata all information in Var's possession regarding
unauthorized possession or use, assist in preventing the
recurrence of such
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unauthorized possession or use, and cooperate with Unidata, at
Unidata's direction and expense, in any proceeding Unidata deems
necessary to protect its proprietary rights. Var's compliance
with this Section will not be construed as a waiver of Unidata's
right to recover damages or obtain other relief against Var for
its negligent or intentional harm to Unidata's proprietary rights
or for breach of any other provision of this Agreement.
7.5 Var agrees not to:
7.5.1 copy or duplicate Software or permit any person to copy
or duplicate Software without the express written
permission of Unidata, except as is required for normal
backup and security purposes on hardware licensed to use
the Software, and except for operator manuals or training
manuals, and other user oriented materials copied for
Var's internal use;
7.5.2 disseminate or publish Software benchmarks of any kind
without the advance written consent of Unidata.;
7.5.3 modify or alter the Software; or
7.5.4 create or attempt to create or permit others to create or
attempt to create, by reverse engineering, decompiling,
assembling or otherwise, all or part of any Software
source program from the object program or from other
information made available to Var by Unidata.
7.6 Unidata grants Var the right to use the trademarks for the
products listed in Schedule 1 Part C in connection with
Var's marketing of Software. Use of trademarks will be in
accordance with Unidata's established uses and practices and
written standards. Nothing in this Agreement grants Var any
proprietary interest in such trademarks, and Var's use will
cease immediately upon termination of this Agreement. Unidata may
from time to time use other or additional trademarks or trade
names with respect to its products, and this Agreement will apply
to such trademarks and trade names.
7.7 The parties understand that breach of this Section may give
Unidata the right to injunctive relief in addition to other
remedies. Section 7 survives termination of this Agreement.
8. AUDIT.
8.1 Unidata may, on reasonable advance notice, at its expense, and
during normal business hours, examine copies of the relevant
excerpts of the books and records of Var that relate to the
distribution and maintenance of the Software, or Unidata may
request that such an audit be performed by a nationally
recognized public accounting firm. Any person performing an
audit will protect the confidentiality of Var's confidential
information and abide by Var's reasonable security regulations
while on Var's premises.
8.2 If Var distributes Third party products, Unidata's suppliers may
have certain rights to audit the accuracy of the number of
copies of Software distributed, the number of users licensed,
and compliance with copyright, confidentiality and similar
restrictions contained in this Agreement. If an audit discloses
the necessity of an increase in License fees, such fees will be
payable within thirty (30) days of such invoice. If the
adjustments to License Fees are greater than 5% of the amounts
previously accrued due to under reporting by Var, then Var agrees
to pay the reasonable expenses associated with such audit.
Section 8 survives termination of this Agreement.
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9. TERMINATION.
9.1 Either party may terminate this Agreement at the end of its term
by giving ninety (90) days' advance written notice prior to the
first day of each renewal term.
9.2 Unidata may terminate this Agreement by written notice to Var if
(i) Var fails to comply with any material provision of this
Agreement, including failure to pay License fees or Support
Fees; or (ii) Var becomes bankrupt, insolvent or seeks relief
from creditors. Termination by Unidata will be effective as of
the day written notice is given if based upon failure to perform
or comply with Section 7; otherwise, termination will become
effective fifteen (15) days after notice that a payment to
Unidata is past due or thirty (30) days after notice of any other
breach of this Agreement.
9.3 Upon termination, all licenses granted under this Agreement will
cease, and Var will be deemed to have waived, transferred, and
conveyed back to Unidata all goodwill, or other rights granted
under, in and to this Agreement and its subject matter.
Termination will not relieve Var or Unidata of any obligations
that survive this Agreement, nor will it affect valid End user
sublicenses properly granted by Var prior to termination.
9.4 Upon termination, Var shall return promptly to Unidata all
copies of the Software (except for an archive version) and
related materials licensed to or in Var's possession, and each
party will return to the other any of the other's confidential
information. Var may retain for a reasonable period such
materials which facilitate support for Software. At Unidata's
request, an officer of Var will certify that Var has complied
with and will continue to comply with Var's continuing
obligations under this Agreement.
9.5 Unidata will continue to furnish Support and Upgrade service to
Var's End users which have contracted for support for the
Software and for which Unidata has received Support and Upgrade
fees. On the anniversary date of an End user's service contract,
it may elect to enroll for Unidata Support and Upgrade service
at the then current service fee.
10. LIMITED WARRANTIES.
10.1 Unidata warrants to Var and to End users sublicensed by Var that
during the Warranty period Software licensed to Var will operate
substantially in conformity with its documentation. Var
understands that computer Software is a complex product which may
have inherent defects. Should Software perform inconsistently
with the documentation when used in accordance with the
documentation, Var's sole and exclusive remedy will consist
of Unidata's correcting the defect(s), providing replacement
Software, or refunding the License fee paid by Var to Unidata
for the Software on Var's return of the Software to Unidata. Var
agrees to provide Unidata details of the occurrence and
circumstances of any breach of warranty. This warranty extends
only to Var, and to End users licensed by Var, and will be void
if the Software has been modified, tampered with or improperly
used, or if the Software is used with hardware or an operating
system other than as approved and supported by Unidata. Unidata
and its suppliers do not warrant that all errors in any Software
will be corrected or that Software's functionality meets Var's or
its End users' requirements.
10.2 Unidata warrants that it has the right to license the Software,
and that distribution or use of Software under this Agreement
will not infringe U.S. patents, trademarks or copyrights.
10.2.1 Unidata will defend and hold Var, and End users licensed
by Var, harmless in any action brought against them, to
the extent that such action is based upon a claim that
Software infringes a U.S. patent, trademark or
copyright, and if the claim is
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settled. Unidata will pay the amount of such settlement.
This indemnification is expressly subject to the
conditions precedent that (1) Unidata receives prompt
written notice of any action or claim, (2) Unidata
retains sole and exclusive control of the defense of
any action including the right to select counsel and to
settle, and (3) Var cooperates with Unidata and
provides all information relating to the claim.
10.2.2 If all or any part of the Software is or in Unidata's
opinion may become the subject of any claim or action
for patent, copyright, trademark or trade secret
infringement, Unidata may, and should Var or an End
user be enjoined by a court from continued use of the
Software because such Software is declared to infringe
a valid United States copyright or patent, then Unidata
will, at its sole option and expense (1) procure the
right to continue using the Software, (2) replace or
modify the Software with non infringing software that
is substantially functionally equivalent to the
Software, or (3) refund the unamortized portion (using
a five (5) year life) of the License fee paid by Var
for all such infringing Software.
10.2.3 Unidata will have no liability to Var under any
provision of this Agreement with respect to any claim
of patent or copyright infringement or violation of a
third party's proprietary right which is based on the
use of any release other than a current release if the
claim would have been avoided by the use of the current
release of Software, or which is based upon the
combination or utilization of Software with equipment
or devices not authorized by Unidata.
10.2.4 Unidata's contractual obligation of indemnity will not
extend to modifications of the Software effected by
Var, its End users, or others.
10.2.5 This contractual obligation of indemnity is Unidata's
entire obligation with respect to third party claims,
demands or causes of action with respect to Software,
and is Var's and End users' sole and exclusive remedy
with respect to any third party claims, demands or
causes of action. The foregoing states the entire
liability of Unidata with respect to infringement of
copyrights or patents or violation of third party trade
secrets or rights.
10.3 EXCEPT FOR THE EXPRESS WARRANTIES IN THIS SECTION 10, UNIDATA
DISCLAIMS ALL WARRANTIES INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
10.4 THE REMEDIES STATED IN THIS SECTION 10 ARE THE SOLE AND EXCLUSIVE
REMEDIES FOR ANY BREACH OF WARRANTY UNDER THIS AGREEMENT.
THE TOTAL LIABILITY, IF ANY, OF UNIDATA AND ITS AFFILIATES
AND SUPPLIERS, HOWEVER CAUSED, OR OCCURRING OUT OF OR IN
CONNECTION WITH THE DISTRIBUTION, USE OR PERFORMANCE OF THE
SOFTWARE, OR FROM TERMINATION OF THIS AGREEMENT FOR ANY
REASON SHALL NOT EXCEED THE LICENSE FEES PAID BY VAR TO
UNIDATA. UNIDATA, ITS AFFILIATES AND SUPPLIERS SHALL NOT BE
LIABLE TO VAR OR ANY OTHER PERSON FOR LOSS OF PROFITS, LOSS
OR INACCURACY OF DATA, OR FOR INDIRECT, SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES, BASED ON CONTRACT, TORT,
BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY OR ANY
OTHER LEGAL THEORY, EVEN IF UNIDATA HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS OF LIABILITY
SHALL APPLY TO ANY CLAIMS BY VAR AGAINST UNIDATA OF EVERY
KIND AND CHARACTER WHATSOEVER, WHETHER SUCH CLAIMS ARE BASED
ON CONTRACT, TORT, OR OTHERWISE. THESE PROVISIONS ARE
INTENDED TO APPLY EVEN IF THEY HAVE THE EFFECT OF
EXCULPATING A PARTY FROM LEGAL RESPONSIBILITY FOR THE
CONSEQUENCES OF ITS NEGLIGENCE OR OTHER CONDUCT. NO ACTION
AGAINST UNIDATA OR ITS SUPPLIERS MAY BE
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BROUGHT MORE THAN ONE YEAR AFTER THE CAUSE OF ACTION HAS
ACCRUED. SECTION 10 SURVIVES TERMINATION OF THIS AGREEMENT.
11. MISCELLANEOUS.
11.1 RELATIONSHIP. Each party in a contractor independent of the
other. Neither party has any authority to assume or create
any obligation, express or implied, on behalf of the other,
or to represent the other as agent or in any other capacity.
Unidata will incur no obligation or liabilities to Var or
End users except as contracted directly through Unidata.
This Agreement confers no third party right of action on any
person, and there are no intended third party beneficiaries
except as expressly created under sublicense agreements.
11.2 BINDING AGREEMENT; SEVERABILITY. This Agreement, including its
Schedules, is binding on the parties and their successors
and assigns. To the extent that any law, statute, treaty or
regulation by its terms as determined by a court, tribunal
or other governmental authority of competent jurisdiction,
is in conflict with the terms of this Agreement, the
conflicting terms of this Agreement shall be superseded only
to the extent necessary by the terms required by such law,
statute, treaty or regulation. It is understood that each
provision of this Agreement that provides for a disclaimer
of warranty, limitation of liability or exclusion of damages
is intended to be severable and independent of any other
provision and to be enforced as such. If any provision of
this Agreement shall be otherwise unlawful, void, or for any
reason unenforceable, then that provision shall be enforced
to the maximum extent permissible so as to effect the intent
of the parties. In either case, the remainder of this
Agreement shall continue in full force and effect.
GOVERNMENT RESTRICTED RIGHTS NOTICE. The Software and
Documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to
restrictions as set forth in subparagraph (c)(1)(ii) of the
Rights in Technical Data and Computer Software clause of
DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of
Commercial Computer Software--Restricted Rights at 48 CFR
52.227-19, as applicable. Manufacturer is Unidata, Inc.,
1099 18th Street, Denver, CO 80802.
11.3 ASSIGNMENT. Var will not sell, assign, transfer, convey, delegate,
or encumber its appointment or any rights or interests under
this Agreement, and Var will not suffer or permit any
voluntary assignment or transfer or encumbrance, by
operation of law or otherwise, without the prior written
consent of Unidata.
11.4 NOTICE. All notices will be sent or delivered by certified mail
or by commercial courier overnight delivery to the parties
at the addresses listed above, or to such other address as
either party may substitute by written notice.
11.5 WAIVER AND AMENDMENT. Failure of a party to exercise any right,
or to require the performance of any term of this Agreement,
or the waiver of either party of any breach of this
Agreement, will not prevent a subsequent exercise or
enforcement of such terms or be deemed a waiver of any
subsequent breach of any provision of this Agreement. Any
modification or amendment of this Agreement must be in
writing, be captioned an "Amendment," and be signed by
authorized representatives of both parties.
11.6 FORCE MAJEURE. No delay, failure or default in performance of
any obligation of either party, excepting all obligations to
make payments hereunder, will constitute a breach of this
Agreement to the extent caused by force majeure. If the
period of non performance exceeds thirty (30) days from the
receipt of notice of the force majeure event, the unaffected
party may, by written notice, terminate this Agreement.
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11.7 EFFECTIVENESS. This Agreement will become effective when executed
by the authorized officers of each party. Unidata and Var each
warrant to each other that the person executing this Agreement
on its behalf has been, and is on the date of this Agreement,
duly authorized by all necessary action to execute this
Agreement.
11.8 DISPUTE RESOLUTION; REMEDIES.
11.8.1 Any and all existing or future claims, demands or
disputes arising out of or relating to this Agreement,
its breach, or in any way relating to the relationship
between and/or among Unidata, Var and End users
licensed by Var, even though some or all of such claims,
demands or disputes arise ancillary to or independently
of this Agreement, whether in contract, tort or
otherwise, at law or equity, under state or federal law,
shall be resolved and determined exclusively under the
provisions of this Section 11.8.
11.8.2 If there is a controversy between Var and Unidata
relating to this Agreement, the parties agree to use all
reasonable efforts to resolve such controversy amicably
at senior management levels of both parties.
11.8.3 If the parties fail to reach a mutually acceptable
resolution of the controversy within sixty (60) days of
the first formal written notice of the controversy, then
either party may request settlement by arbitration.
Arbitration will take place in Denver, Colorado, in
accordance with the Center for Public Resources Rules
for Non Administered Arbitration of Business Disputes
(the "CPR Rules"), by a single arbitrator acceptable to
both parties (acceptance not to be withheld
unreasonably) knowledgeable in computer software
disputes. If the parties fail to agree upon the
appointment of an arbitrator then an arbitrator shall be
appointed under CPR Rule 6. The language of the
arbitration shall be English. The arbitrator may make no
finding, ruling or award that does not conform to the
terms of this Agreement, and may award no punitive
damages. The parties hereby agree to submit to such
arbitration and to the enforcement of any award resulting
therefrom by any court of competent jurisdiction. Nothing
contained in this Section shall prohibit either party from
seeking equitable relief without first resorting to
arbitration under circumstances in which that party
believes that its interests under this Agreement and/or
in its property otherwise will be compromised. This
Agreement will be construed under Colorado law, without
regard to conflict of laws. No remedy under law or this
Agreement is intended to be exclusive of any other remedy,
and every remedy will be cumulative and in addition to any
other remedy.
11.9 HEADINGS; COUNTERPARTS; ENTIRE AGREEMENT. This Agreement, which
includes the Schedules, sets forth the entire understanding between
the parties, merges all discussions between them, and replaces
all other agreements which may have existed between Unidata and
Var to the extent that any such agreement relates to the
establishment of an arrangement for the distribution of Support
of software. The express terms of this Agreement control and
supersede any course of performance and/or usage of trade
inconsistent with any of the terms, and will control any
conflicting or inconsistent standard terms or conditions on any
communication, purchase order or sales order of either party,
notwithstanding any provision to the contrary in any such
document. The section headings in this Agreement are for
convenience of reference only and will not affect the meaning of
any provisions. This Agreement may be executed in multiple
counterparts, each of which may be deemed to be an original, and
all of which will constitute one Agreement.
In witness whereof, the parties have caused their authorized officers to sign
this Agreement.
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UNIDATA, INC. SUMMIT V, INC.
(VAR)
/s/ Harold Nussenfeld /s/ Brian W. Maggs Ex VP
- -------------------------------------- ---------------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
Harold Nussenfeld, VP/ General Counsel Brian W. Maggs Ex VP
- -------------------------------------- ---------------------------------------
NAME/TITLE NAME/TITLE
date date 2/28/97
--------- -------
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Schedule 1
A. Var Information
<TABLE>
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<S> <C>
NAME Summit V, Inc.
- -------------------------------------------------------------------------------
ADDRESS 44601 NE 77th Avenue
- -------------------------------------------------------------------------------
Suite 300
- -------------------------------------------------------------------------------
Vancouver, WA 98662
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VAR'S "VALUE ADD" Summit V (Software Application)
- -------------------------------------------------------------------------------
AUTHORIZED TERRITORY Worldwide except China and Taiwan.
In addition, Var may not distribute any products
listed under Exhibit C to Schedule 1, Part C of
this Agreement, in Switzerland, Russia, Czech
Republic or Austria.
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AUTHORIZED VAR LOCATIONS Vancouver, WA
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</TABLE>
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B. Discount Schedule
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRODUCT CLASS DISCOUNT NOTES
RATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class 1 Products 40% 1) During the first term of the Agreement Var's discount rate for
Class 1 & 2 products will be 50% and the discount rate for Class 3
products will be 40%. These discounts will remain in effect for each
term following a term in which net license fees paid to Unidata by Var
are greater than or equal to $450,000.
2) Var's list price for SBClient will be fifty dollars ($50) less than
the then current list price of SBClient.
3) Var's special pricing for customers currently using Var's application
software, DISCOS-TM-, is as follows:
- --------------------------------------
Class 2 Products 40% - Var's list price for UniData RDBMS will be thirty percent (30%)
less than the then current list price for UniData RDBMS.
- Var's list price for SB+ Runtime will be fifty percent (50%) less
than the then current list price for SB+ Runtime.
The special pricing in item 3, above, is valid only when:
- Var's customer is replacing DISCOS-tm- with Summit V-TM-
application software.
- --------------------------------------
Class 3 Products 30% - Var's customer is replacing a non-UniData database with the
UniData database. Customer must order SB+ Runtime within
twelve (12) months of the initial ship date of UniData RDBMS
to be eligible for the special pricing.
- The number of SB+ Runtime users ordered at special pricing may
not exceed the number of UniData RDBMS users originally licensed.
- -------------------------------------------------------------------------------------------------------------
Unidata 50% for training of Var employees at scheduled classes at Unidata
Training facilities. Enrollment is subject to seating availability.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
C. Var Sign-up Fees & Services
Var sign up fee is $_______________. (Sum of all selected Reseller Kits)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RESELLER KIT FEE RESELLER KIT FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A. RDBMS Renewal E. System Builder #3 Renewal
- --------------------------------------------------------------------------------
B. wIntegrate Renewal F. System Builder #4
- --------------------------------------------------------------------------------
C. System Builder #1 G. UDMS #1
- --------------------------------------------------------------------------------
D. System Builder #2 H. UDMS #2
- --------------------------------------------------------------------------------
total:
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</TABLE>
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<PAGE>
[LOGO]
Exhibit A to Schedule 1, Part C
UNIDATA RDBMS-REGISTERED TRADEMARK- (CORE PRODUCT) RESELLER KIT - SIGN UP FEE
PAID UNDER A PRIOR AGREEMENT (SEE SCHEDULE 5.5).
- The following Var licenses. Additional Var licenses can be acquired
for $250 each.
<TABLE>
<CAPTION>
Discount Product Discount Product
Class Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 UniData RDBMS-REGISTERED TRADEMARK- (required) 3 UniDesktop-TM- for Windows (Open Client,
ODBC, ObjectCall-TM-)
- -------------------------------------------------------------------------------------------------------------
3 UniData Journaling 3 UniDesktop-TM- for UNIX (Open Client)
- -------------------------------------------------------------------------------------------------------------
3 UniData Recoverable File System/ 3 UniData Bond to OpenInsight Client
Transaction Processing
- -------------------------------------------------------------------------------------------------------------
3 USAM-TM- (all modules) 3 UniData Bond to Advanced Revelation
Client
- -------------------------------------------------------------------------------------------------------------
3 UniData Network File Access 3 OpenInsight / Advanced Revelation
Server
- -------------------------------------------------------------------------------------------------------------
3 UniServer-TM- 3 Cobol DIRECT CONNECT-TM-
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(Please indicate the hardware platform and operating system for each license)
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Var License #1 HP 837S / 16 user: RDBMS
195J0013 HPUX 10.0
- ---------------------------------------------------------------------------------------------------
Var License #2 DGAV 4625 / 60 user: RDBMS, UniSQL, NFA, UniServer, USAM
993J0003 DGUX 5-4-2.01 Monitor/Profile, Print/Batch, UniDesktop, Journaling
- ---------------------------------------------------------------------------------------------------
Var License #3 HP 800H70 / 100 user: RDBMS
196J0003 HPUX 10.01
- ---------------------------------------------------------------------------------------------------
Var License #4 PC+ Pentium / 16 user: RDBMS
196J0017 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #5 PC+ Pentium / 16 user: RDBMS
196J0011 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #6 PC+ Pentium / 16 user: RDBMS
196J0012 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #7 PC+ Pentium / 16 user: RDBMS
196J0013 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #8 PC+ Pentium / 16 user: RDBMS
196J0014 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #9 PC+ Pentium / 16 user: RDBMS
196J0015 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #10 PC+ Pentium / 16 user: RDBMS
196J0016 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #11 PC+ Pentium / 16 user: RDBMS
196J0007 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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Provider (var1-1;rev 2/15/96) Page 15
<PAGE>
[LOGO]
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Var License #12 PC+ Pentium / 16 user: RDBMS
196J0006 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #13 PC+ Pentium / 16 user: RDBMS
196J0008 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #14 PC+ Pentium / 16 user: RDBMS
196J0009 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #15 PC+ Pentium / 16 user: RDBMS
196J0010 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #16 PC+ Pentium / 16 user: RDBMS
196S0027 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #17 PC+ Pentium / 16 user: RDBMS
196S0026 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #18 PC+ Pentium / 16 user: RDBMS
196S0025 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #19 PC+ Pentium / 1 user: RDBMS
196J0019 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
Var License #20 PC+ Pentium / 1 user: RDBMS
196S0021 Sco Unix 3-2V4-2
- ---------------------------------------------------------------------------------------------------
</TABLE>
- Support for the initial conversion process including one (1) week of
conversion support at Unidata's Denver office, four (4) days on site
at Var's headquarters, and forty-five (45) days of subsequent
telephone support. THIS SERVICE WAS PROVIDED UNDER A PRIOR AGREEMENT
(SEE SCHEDULE 5.5).
- One (1) week of Unidata training for two (2) Var employees, in
scheduled classes at Unidata facilities. Training is required to be
taken during the first ninety (90) days after the Effective date.
Seating is subject to availability. Var is responsible for its
employees' travel and living expenses. THIS SERVICE WAS PROVIDED
UNDER A PRIOR AGREEMENT (SEE SCHEDULE 5.5).
- Reduced rate consulting. Unidata consulting service is available to
Var at a discount to assist in conversion and application front end
redevelopment. Reduced rate consulting is available during the first
one hundred eighty (180) days after the Effective date. THIS SERVICE
WAS PROVIDED UNDER A PRIOR AGREEMENT (SEE SCHEDULE 5.5).
- Var is enrolled for Support service as stated in Schedule 5, Part
III, Item A.
VAR IS ENROLLED FOR RESELLER KIT A
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 16
<PAGE>
[LOGO]
Exhibit B
To Schedule 1, Part C
WINTEGRATE-TM- RESELLER KIT - NO ADDITIONAL FEE. THE CONTENTS OF THIS
RESELLER KIT WERE PROVIDED UNDER A PRIOR AGREEMENT (SEE SCHEDULE 5.5).
- The following Var licenses:
1. Four (4) copies of wIntegrate-TM-
- Two (2) Developer Reference Guides.
- Three (3) days of training for two Var employees, in scheduled
classes at Unidata facilities. Training is required to be taken
during the first ninety (90) days after the Effective date.
Seating is subject to availability. Var is responsible for its
employees' travel and living expenses.
- One (1) day of consulting for four hundred dollars ($400), to be
used within one (1) year of the Effective date.
- Var is enrolled for Support and Upgrade service as set forth in
Schedule 5, Part III, Item C.
wIntegrate-TM- is designated a Class 3, Shrink-wrapped
product.
VAR IS ENROLLED FOR RESELLER KIT B
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 17
<PAGE>
[LOGO]
Exhibit C
To Schedule 1, Part C
C. SYSTEM BUILDER RESELLER KIT # 1: SB+-TM- SERVER KIT - $5,000
- One (1) Var license configured with two (2) SB+-TM- Server Developer
users and five (5) SB+-TM- Server Runtime users. Additional users or
licenses may be acquired at a fifty percent (50%) discount from the
Price list.
- Two (2) SB+ Reference Manuals.
- Two (2) SB+ System Administration Manuals.
- Var is enrolled for Support service as stated in Schedule 5, Part III,
Item B. This Reseller Kit includes one year of Standard Var support.
Other levels of Support service are available at list price for such
services. Fees for subsequent terms are as set forth in Schedule 5.
- Enrollment for two (2) Var employees in a scheduled ED500 class (or
equivalent) to be held at Unidata facilities. Seating is subject to
availability. Var is responsible for its employees' travel and living
expenses.
All products offered in Reseller Kit C are Class 3 products.
VAR SELECTS RESELLER KIT C:_____________INITIALS _________________DATE
D. SYSTEM BUILDER RESELLER KIT # 2: SB+-TM- SERVER KIT UPGRADE - $3,500
- The following Var licenses:
1. Five (5) copies of SBClient-TM-.
Additional users or licenses may be acquired at a fifty percent (50%)
discount from the Price list.
- Two (2) SBClient User's Guide.
- Var is enrolled for Support service as stated in Schedule 5, Part III,
Item B. This Reseller Kit includes one year of Standard Var support.
Other levels of Support service are available at list price for such
services. Fees for subsequent terms are as set forth in Schedule 5.
- Enrollment for two (2) Var employees in a scheduled SBClient Class (or
equivalent) to be held at Unidata facilities. Seating is subject to
availability. Var is responsible for its employees' travel and living
expenses.
All products offered in Reseller Kit D are Class 3 products.
VAR SELECTS RESELLER KIT D:_______________INITIALS _______________DATE
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 18
<PAGE>
[LOGO]
E. SYSTEM BUILDER RESELLER KIT # 3: SB+ -TM-CLIENT/SERVER KIT - SIGN UP FEE
IS WAIVED. CONTENTS OF THIS RESELLER KIT WERE PROVIDED UNDER A PRIOR
AGREEMENT (SEE SCHEDULE 5.5).
- The following Var licenses. Additional users or licenses may be acquired
at a fifty percent (50%) discount from the Price list.
- -------------------------------------------------------------------------------
Var License #1 HP 800H70/ 100 user: SB+ Runtime, SB+ Development
196J0003 HPUX 10.01
- -------------------------------------------------------------------------------
Var License #2 PC+ Pentium/ 16 user: SB+ Runtime
196J0017 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #3 PC+ Pentium/ 16 user: SB+ Runtime
196J0011 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #4 PC+ Pentium/ 16 user: SB+ Runtime
196J0012 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #5 PC+ Pentium/ 16 user: SB+ Runtime
196J0013 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #6 PC+ Pentium/ 16 user: SB+ Runtime
196J0014 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #7 PC+ Pentium/ 16 user: SB+ Runtime
196J0015 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #8 PC+ Pentium/ 16 user: SB+ Runtime
196J0016 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #9 PC+ Pentium/ 16 user: SB+ Runtime
196J0007 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #10 PC+ Pentium/ 16 user: SB+ Runtime
196J0006 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #11 PC+ Pentium/ 16 user: SB+ Runtime
196J0008 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #12 PC+ Pentium/ 16 user: SB+ Runtime
196J0009 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #13 PC+ Pentium/ 16 user: SB+ Runtime
196J0010 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #14 PC+ Pentium/ 16 user: SB+ Runtime
196S0027 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #15 PC+ Pentium/ 16 user: SB+ Runtime
196S0026 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #16 PC+ Pentium/ 16 user: SB+ Runtime
196S0025 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #17 HP 800H70 1 user: SB+ Development
196J0019 HP UX 10.01
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 19
<PAGE>
[LOGO]
- -------------------------------------------------------------------------------
Var License #18 PC+ Pentium/ 1 user: SB+ Runtime
196S0021 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #19 PC+ 486/ 3 user: SB+ Development, SBClient
196J0001 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #20 PC+ Pentium/ 1 user: SB+ Runtime
196J0005 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #21 PC+ Pentium/ 1 user: SB+ Runtime
196S0016 Sco Unix 3-2V4-2
- -------------------------------------------------------------------------------
Var License #22 HP 800H70 1 user: SB+ Runtime
196S0022 HPUX 10.01
- -------------------------------------------------------------------------------
- Two (2) SB+ Reference Manuals and two (2) SB+ System Administration
Manuals.
- Var is enrolled for Support service as stated in Schedule 5,
Part III, Item B. This Reseller Kit includes one year of
Standard Var support. Other levels of Support service are available
at list price for such services. Fees for subsequent terms are as
set forth in Schedule 5.
- Enrollment for two (2) Var employees in a scheduled ED500 class (or
equivalent) to be held at Unidata facilities. Enrollment is subject
to availability. Var is responsible for travel, lodging and meals
for its employees.
- Enrollment for two (2) Var employees in a scheduled SBClient Class
(or equivalent) to be held at Unidata facilities. Seating is
subject to availability. Var is responsible for its employees'
travel and living expenses.
- All products offered in Reseller Kit E are Class 3 products.
VAR IS ENROLLED FOR RESELLER KIT E
F. SYSTEM BUILDER RESELLER KIT #4: SB+-TM- FOR WINDOWS RESELLER KIT - $2,000
- The following Var licenses:
1. Two (2) copies of SB+ for Windows.
2. Five (5) copies of SB+ for Windows-TM- (Runtime Environment).
Additional users or licenses may be acquired at a fifty percent (50%)
discount from the Price list.
- Two (2) SB+ Reference Manuals.
- Two (2) SB+ System Administration Manuals.
- Var is enrolled for Support service as stated in Schedule 5, Part
III, Item B. This Reseller Kit includes one year of Standard Var
support. Other levels of Support service are available at list price
for such services. Fees for subsequent terms are as set forth in
Schedule 5.
- Enrollment for two (2) Var employees in a scheduled SB+ for Windows
class (or equivalent) to be held at Unidata facilities. Seating is
subject to availability. Var is responsible for its employees' travel
and living expenses.
All products offered in Reseller Kit F are Class 3 products.
VAR SELECTS RESELLER KIT F: ___________ INITIALS __________ DATE
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 20
<PAGE>
[LOGO]
EXHIBIT G
TO SCHEDULE 1, PART C
G. UDMS RESELLER KIT # 1: UDMS RESELLER KIT - $4,000
- The following Var licenses:
1. One (1) copy of UDMS ReportMaker-TM-.
2. Three (3) copies of Safari-TM- Client.
3. Three (3) copies of VisualRPW-TM- for Windows Client.
- UDMS Documentation Set.
- VisualRPW-TM- Getting Started Guide.
- Enrollment for one (1) Var employee in a scheduled ED700 Class (or
equivalent) to be held at Unidata facilities. Seating is subject to
availability. Var is responsible for its employees' travel and living
expenses.
- Var is enrolled for Support and Upgrade Service as set forth in
Schedule 5, Part III, Item A.
All products offered in Reseller Kit G are Class 3 products.
VAR SELECTS RESELLER KIT G:________________INITIALS _______________DATE
H. UDMS RESELLER KIT # 2: FAST START PROGRAM - $6,000
- The following Software and documentation for resale:
1. Two (2) copies of UDMS ReportViewer-TM-.
2. Two (2) copies of Safari-TM- Client
3. Two (2) copies of VisualRPW-TM- for Windows Client
4. UDMS Product Documentation Set.
5. VisualRPW-TM- Getting Started Guide.
- Five (5) days of on-site training and consulting. Var is responsible
for all related travel and living expenses.
- Var is enrolled for Support and Upgrade Service as set forth in
Schedule 5, Part III, Item A.
All products offered in Reseller Kit H are Class 3 products.
VAR SELECTS RESELLER KIT H:________________INITIALS _______________DATE
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 21
<PAGE>
[LOGO]
SCHEDULE 2
THIRD PARTY PRODUCTS
DERIVATIVE PRODUCTS BASED ON SYBASE, INC. PROGRAMS.
- ---------------------------------------------------
UniDesktop-TM-
UniServer-TM-
RESTRICTIONS FOR DISTRIBUTION OF SUCH PRODUCTS
- ----------------------------------------------
A. Sybase, Inc. is an intended third party beneficiary of this
Agreement and may enforce certain of its terms directly against Var.
B. Var agrees to comply with all export and re-export restrictions and
regulations ("Export Restrictions") imposed by the governments of the United
States or the country to which the Software is shipped. Var will not commit
any act or omission which will result in a breach of any such Export
Requirements. Var agrees that it will comply in all respects with any
governmental laws, orders or other restrictions on the export of the Software
(and related information and documentation) which may be imposed from time to
time by the governments of the United States and Canada or the country to
which the Software is shipped (Export Requirements). Var will take all
actions which may be reasonably necessary to assure that it does not
contravene the Export Requirements. Without limiting the foregoing, Var
agrees that unless prior authorization is obtained from the US. Office of
Export Administration, it will not export, re-export or transship, directly
or indirectly, to country groups Q, S, W, Y, or Z (as defined in the Export
Administration Regulations) or Afghanistan or the People's Republic of China
(excluding Taiwan), or disclose to any national or resident thereof, any of
the technical data or software disclosed or provided to licensee or the
direct product of such technical data or software (if the direct products
are commodities, software or technical data described on the Control List with
a letter "A" following its Export Control Number). This Section will survive
the expiration or termination of this Agreement.
C. Although copyrighted, the Software is unpublished and contains
proprietary and confidential information of Unidata and its licensors and is
considered by Unidata and its licensors to constitute valuable trade secrets.
The licensee will hold the Software in confidence and will protect the
Software with at least the same degree of care with which the licensee
protects its own similar confidential information.
Agreed by Var__________ __________
Initials Date
- --------------------------------------------------------------------------------
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Provider (var1-1;rev 2/15/96) Page 22
<PAGE>
[LOGO]
Schedule 4.3.
End User Sublicense Provisions
1. Sublicensee is granted a non-exclusive, personal, and nontransferable
right to install the Software on the machine and at the site specified in
this Agreement, to perform data processing for the Authorized entities
designated in this Agreement. Authorized entities do not include entities
which pay any Authorized entity for data processing services. Sublicensee may
not make copies of the Software except for back-up, archive, or emergency
recovery purposes, or to replace a worn copy. If this license agreement
terminates or expires, all such copies must be destroyed and the Software
returned to licensor or its suppliers. Sublicensee agrees to certify
destruction of copies, on request. Any copies of Software must retain the
copyright and proprietary notices in the same form as were affixed on the
original.
2. Sublicensee agrees not to transfer the Software outside of the nation in
which it was acquired and licensed.
3. Sublicensee recognizes that the Software and related materials are
proprietary and that all copyrights, patents, trade secrets, and other
intellectual rights remain the sole and valuable property of licensor or
licensor's suppliers, and that no title is transferred to Sublicensee.
Sublicensee agrees to protect these rights diligently. Sublicensee agrees not
to disassemble, reverse compile or in any way attempt to obtain source code
for the Software.
4. Sublicensee agrees not to assign or grant sublicenses, leases, or other
rights or obligations to the Software or the Software documentation to
others, or reverse assemble, decompile, reverse translate, or in any way
derive from the Software any source code.
5. EXCEPT FOR THE EXPRESS WARRANTY AND LIMITED REMEDIES GRANTED, LICENSOR AND
LICENSOR'S SUPPLIERS SPECIFICALLY DISCLAIM ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6. THE REMEDIES STATED IN THIS AGREEMENT ARE THE SOLE AND EXCLUSIVE REMEDIES
FOR ANY BREACH OF WARRANTY UNDER THIS AGREEMENT. THE TOTAL LIABILITY, IF ANY,
OF LICENSOR AND ITS SUPPLIERS, HOWEVER CAUSED, OR OCCURRING OUT OF OR IN
CONNECTION WITH THE DISTRIBUTION, USE OR PERFORMANCE OF THE LICENSED SOFTWARE
SHALL NOT EXCEED THE LICENSE FEES PAID. LICENSOR, ITS AFFILIATES AND
SUPPLIERS SHALL NOT BE LIABLE TO LICENSEE OR ANY OTHER PERSON FOR LOSS OF
PROFITS, REVENUE OR GOODWILL, LOSS OR INACCURACY OF DATA, FOR INDIRECT,
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, BASED ON CONTRACT,
TORT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY OR ANY OTHER LEGAL
THEORY, EVEN IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THESE LIMITATIONS OF LIABILITY SHALL APPLY TO ANY CLAIM BY LICENSEE AGAINST
LICENSOR, OR ITS SUPPLIERS, OF EVERY KIND AND CHARACTER WHATSOEVER, WHETHER
SUCH CLAIMS ARE BASED ON THEORIES OF CONTRACT LAW, TORT LAW, OR OTHERWISE.
THESE PROVISIONS ARE INTENDED TO APPLY EVEN IF THEY HAVE THE EFFECT OF
EXCULPATING A PARTY FROM LEGAL RESPONSIBILITY FOR THE CONSEQUENCES OF ITS
NEGLIGENCE OR OTHER CONDUCT. THIS SECTION WILL SURVIVE TERMINATION OF THIS
AGREEMENT.
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 23
<PAGE>
[LOGO]
Schedule 5
SUPPORT & UPGRADE SERVICES
SERVICE IN GENERAL
Unidata has established support service policies published in UNIDATA, INC.
SUPPORT SERVICE POLICIES SUPPORT FOR VALUE ADDED RESELLERS, as revised from
time to time (the "Policies"). Services provided under this Agreement are
governed by this Schedule and the Policies.
NEW RELEASES. New Releases do not necessarily include new products or Third
party products which may require additional licenses and License Fees. New
products contain new functions and features and are licensed separately under
product names not included in Schedule 1, Part C.
DEFAULT. Unidata will not provide Support or Upgrade services if Var's
service fees are overdue or if Var is in breach of this Agreement.
ADDITIONAL FEATURES; CONSULTING SERVICES. Var may request the addition of new
features, functions or support of new hardware platforms. Unidata reviews all
enhancement requests quarterly and will advise Var. Additions not scheduled
for new releases may be made available through Unidata consulting services as
requested by purchase order.
I. VAR SUPPORT AND UPGRADE SERVICE.
Var agrees to enroll for Support & Upgrade Service as provided in this
Schedule. Unidata will provide annual Support and Upgrade service for all Var
licenses. Var agrees to
1. have available dump analysis tool(s) for all hardware platforms Var
sells and supports;
2. during problem diagnosis, follow the guidelines in Unidata's Problem
Determination Profile to isolate and reproduce a problem.
3. require in its End user service agreements that End users assume
responsibility for back up and other protection of data against loss
during service.
4. notify Unidata of End users declining Var support within ninety (90)
days after the Ship date. Unidata may then offer support directly to the
End user. In all cases, if Var fails to support the Software adequately,
Unidata may provide support on End user request.
II. END USER UPGRADE SERVICE.
1. Var agrees to encourage End users to enroll for Upgrade service.
Upgrade fees are due and payable ninety (90) days after the Ship date
and subsequently on each anniversary, unless Var has notified Unidata
prior to the anniversary date that the End user declines to continue
service.
2. For the Upgrade fee, Unidata will provide Var new releases of
Software for enrolled End users, free of charge except for shipping.
Var accepts responsibility for distribution and installation of new
releases to its End users, and agrees that new releases will be
distributed only to
* Var End user sublicenses still within the Warranty period, or
* Var End users for which Unidata has received an Upgrade fee for
the period covering the new release.
- --------------------------------------------------------------------------------
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<PAGE>
[LOGO]
End users not enrolled for Upgrade service may license upgrades according to
the Price list, but only from the immediate previous Major Release. The
License fee will be determined in accordance with the Price list at the time
the upgrade is shipped. Unidata will not ship any Software if Upgrade Fees
are unpaid.
III. SUPPORT AND UPGRADE SERVICE PACKAGES
A. UNIDATA RDBMS (CORE PRODUCT) AND UDMS SUPPORT AND UPGRADE SERVICE PACKAGE.
Var's annual Support & Upgrade fee is six thousand dollars ($6,000), payable
in advance in four quarterly installments of $1,500 each. THIS SUPPORT AND
UPGRADE SERVICE PACKAGE COVERS THE PRODUCTS LICENSED AS PART OF RESELLER KITS
A, G AND H IN THE EXHIBITS TO SCHEDULE 1.
STANDARD SUPPORT SERVICE. Unidata provides Support service to Var from 7:00
AM to 6:00 PM, Mountain Time, Monday through Friday, except Unidata holidays.
For each End user enrolled for Support and Upgrade service with the Var, Var
agrees to pay Unidata an annual Upgrade fee in an amount equal to the greater
of (i) for Class 2 products, six percent (6%) of the then current License fee
in the Price list, (ii) for Class 3 products, nine percent (9%) of the then
current License fee in the Price list, or (iii) the then current minimum
Upgrade fee.
EXTENDED SUPPORT SERVICE. Unidata provides Support service to Var seven (7)
days a week, twenty-four (24) hours a day, every day of the year (365 days).
For each End user enrolled for Support service with the Var. Var agrees to
pay Unidata an annual Upgrade fee in an amount equal to the greater of (i)
nine percent (9%) of the then current License fee in the Price List, or (ii)
the then current minimum Upgrade fee. Unidata does not offer Extended Support
service for all products.
EXTENDED PLUS SUPPORT SERVICE: Unidata provides Support service to the Var
seven (7) days a week, twenty-four (24) hours a day, every day of the year
(365 days). Unidata provides Support service to Var's End users after hours,
from 6:00 PM to 7:00 AM Mountain Time. For each End user enrolled for Support
service with the Var, Var agrees to pay Unidata an annual Upgrade fee in an
amount equal to the greater of (i) eleven percent (11%) of the then current
License fee in the Price list, or (ii) the then current minimum Upgrade fee.
Unidata does not offer Extended Plus Support Service for all products.
Var elects support service as follows:
STANDARD x
---------
EXTENDED
---------
EXTENDED PLUS
---------
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 25
<PAGE>
[LOGO]
B. SYSTEM BUILDER SUPPORT AND UPGRADE SERVICE PACKAGE. Var's annual Support &
Upgrade fee is $3,000.00 (sum total of fees for service levels as selected
below). THIS SUPPORT AND UPGRADE SERVICE PACKAGE COVERS THE PRODUCTS LICENSED
AS PART OF RESELLER KITS C THROUGH F.
(Please select from the following services)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Service Type Annual Fee No Charge Hourly Rate Hourly Additional Services
Procedural for Rate for
("how to") Procedural After
support Support hours
(beyond No support
Charge
hours
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REQUIRED $3,000 1 hour per $150 $250
Standard (must be month
enrolled for standard
support to be eligible
for any other level of
service)
- -------------------------------------------------------------------------------------------------------------------------------
Bronze Standard fee + 4 hours per $75 $250
$1,495 month
- -------------------------------------------------------------------------------------------------------------------------------
Silver Standard fee + 15 hours per $65 $250
$5,940 month
- -------------------------------------------------------------------------------------------------------------------------------
Gold Standard fee + 15 hours per $55 $250 *Guaranteed Call Back
$10,740 month within 2 hours
*Two designated support
reps
- -------------------------------------------------------------------------------------------------------------------------------
Platinum Standard fee + unlimited N/A $250 *Guaranteed call back within
$19,992 2 hours
*Two designated support
reps
*Customized monthly
support reports
- -------------------------------------------------------------------------------------------------------------------------------
7x24 - after hours Standard fee + N/A N/A $150 *4 hours of no charge after
coverage other applicable hours support per month
(May be added to any annual fee + $5,940 *Support Rep accessible by
of the above packages pager
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For each End user enrolled for Support and Upgrade service with the Var, Var
agrees to pay Unidata an annual Upgrade fee in an amount equal to nine
percent (9%) of the then current License fee in the Price list.
- --------------------------------------------------------------------------------
-C- Unidata, Inc. 1996 Value Added Reseller Agreement-Support
Provider (var1-1;rev 2/15/96) Page 26
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EARTHLINK NETWORK TOTALACCESS
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made as of the Effective Date set forth
below among EarthLink Network, Inc., a Delaware corporation ("EarthLink") and
the Distributor named below.
AGREEMENT DATA:
1. Distributor: Jenkon International
2. Effective Date: 11/27/97
3. Notice information per Section 12:
(1) If intended for Distributor: (2) If intended for EarthLink:
Jenkon International EarthLink Network, Inc.
7600 NE 41st Street, #350 3100 New York Drive
Vancouver, Washington 98662 Pasadena, California 91107
Attn: Mr. Jim Thompson Attn: Contracts Administration
Facsimile No.: (360) 883-4009 Facsimile No.: (626) 398-5477
4. Applicable Exhibits (THE REFERENCED EXHIBITS ARE A PART OF THIS AGREEMENT):
INITIALS
<TABLE>
<S> <C>
/s/ [ILLEGIBLE] A. Definitions /s/ [ILLEGIBLE] B. EarthLink Trademarks
--------------- ---------------
EarthLink Distributor EarthLink Distributor
/s/ [ILLEGIBLE] C. EarthLink General /s/ [ILLEGIBLE] D. Special Terms
--------------- Guidelines for Use of Marks ---------------
EarthLink Distributor EarthLink Distributor
</TABLE>
5. Total pages in this Agreement:_______ (including this cover page).
SIGNATURES:
Distributor and EarthLink acknowledge that they have read and fully
understand this Agreement and hereby agree to its terms. In witness whereof,
the parties have executed this Agreement under seal.
EARTHLINK: DISTRIBUTOR:
/s/ [ILLEGIBLE] /s/ Jim G. Thompson, COO
- ------------------------------------ ------------------------------------
(Signature of Authorized (Signature of Authorized
Representative) Representative)
JIM G. THOMPSON
- ------------------------------------ ------------------------------------
(Printed Name of Authorized (Printed Name of Authorized
Representative) Representative)
CHIEF OPERATING OFFICER, JENKON INT.
- ------------------------------------ ------------------------------------
(Title) (Title)
<PAGE>
1. DEFINITIONS. Certain terms used in this Agreement have the meanings
defined on the Definitions Exhibit hereto.
2. LICENSE GRANT.
2.1 NON-EXCLUSIVE LICENSE. EarthLink hereby grants to Distributor a
royalty free, non-exclusive and non-transferable license during the Term to
market, sell and distribute the Licensed Material in the Territory (the
"License"). If EarthLink delivers the Licensed Material to Distributor in the
form of a Master CD-ROM or a Master Diskette (as indicated in the Special
Terms Exhibit), the License shall include the right to reproduce the Licensed
Material. If so indicated on the Special Terms Exhibit, the Licensed Material
may be distributed only if bundled with the Distributor Product; otherwise,
the Licensed Material may be distributed without being bundled with any
Distributor Product.
2.2 CUSTOMIZATION. EarthLink shall customize the Software to default to
the URL set forth on the Special Terms Exhibit. EarthLink shall retain the
Customization Fee from initial Bounties payables for reimbursement of the
cost of customizing the Licensed Material as provided herein.
2.3 PROHIBITION ON OTHER SALES OR LICENSE. Distributor shall distribute
the Licensed Material only in accordance with the terms of this Agreement and
only in the form of EarthLink Network TotalAccess and shall not independently
distribute the various components of EarthLink Network TotalAccess or any
component of the Licensed Material separately from all other components.
2.4 NO OTHER RIGHT. Distributor shall not, nor shall it permit others to:
reproduce or otherwise make copies of any portion of the Licensed Material
(except as provided in Section 4.2) or modify, reverse engineer, disassemble,
decompile, or otherwise determine or attempt to determine or have or attempt
to obtain access to, the source code or internal design of the Software or to
create any derivative works based upon the Software. Nothing in this
Agreement shall be construed a granting Distributor any rights of any kind
with respect to any portion of the Licensed Material except as expressly and
unambiguously set forth in this Agreement. All rights title and interest in
and to, and ownership of, the Licensed Material shall remain at all times
exclusively with EarthLink and EarthLink's third-party licensors.
3. REPRESENTATIONS AND WARRANTIES.
3.1 EARTHLINK AUTHORITY. EarthLink represents and warrants to Distributor
that (i) EarthLink owns or has a valid license to all portions of the
Licensed Material and to EarthLink Trademarks, (ii) EarthLink has the full
power and authority to enter into this Agreement and grant the License, and
(iii) EarthLink is a functional Internet access provider (the "Authority
Warranty").
3.2 ACCESS WARRANTY. Subject to the limitations set forth in this
Agreement and any other warranties contained herein, EarthLink warrants to
Distributor that the Software when properly installed and used in conjunction
with EarthLink's dial-up Internet access service will provide access to the
Internet a substantial amount of time and will perform substantially in
accordance with the Documentation (the "Access Warranty"). EARTHLINK MAKES NO
WARRANTY THAT ALL ERRORS OR FAILURES IN THE SOFTWARE WILL BE CORRECTED, AND
MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE
SOFTWARE (EXCEPT WITH RESPECT TO THE PROPRIETARY SOFTWARE AS SET FORTH IN
SECTION 3.3 BELOW), WHETHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY
OPERATION OF LAW. EARTHLINK EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. EARTHLINK DOES NOT
WARRANT THAT THE SOFTWARE IS ERROR-FREE OR THAT OPERATION OF THE SOFTWARE OR
INTERNET ACCESS WILL BE SECURE, UNINTERRUPTED OR ERROR-FREE.
3.3 NON-INFRINGEMENT WARRANTY AND THIRD PARTY SOFTWARE REPRESENTATION.
EarthLink warrants to Distributor that the Proprietary Software and related
Documentation and EarthLink Trademarks do not infringe upon the patents,
copyrights, trademarks or other intellectual property rights of any third
party (the "Non-infringement Warranty"). EarthLink represents to Distributor
that as of the Effective Date with respect to the Third Party Software and
related Documentation, EarthLink has not received notice, either oral or
written, that the Third Party Software and related Documentation infringes
upon the patents, copyrights, trademarks or other intellectual property
rights of any third party.
3.4 DEFECTS NOT COVERED BY WARRANTIES. EARTHLINK SHALL HAVE NO OBLIGATION
UNDER THE WARRANTY PROVISIONS SET FORTH IN THE ABOVE SECTIONS IN THE EVENT OF
ANY OF THE FOLLOWING ACTIONS/INACTION BY DISTRIBUTOR OR END USERS: (A)
DISTRIBUTOR INCORPORATES, ATTACHES OR OTHERWISE ENGAGES ANY ATTACHMENT,
FEATURE, PROGRAM, OR DEVICE TO THE SOFTWARE OR ANY PART THEREOF OR MODIFIES
THE SOFTWARE IN ANY WAY WHICH CAUSES THE SOFTWARE NOT TO CONFORM TO THE
WARRANTY; OR (B) IF ANY NONCONFORMANCE IS CAUSED BY ACCIDENT; TRANSPORTATION;
NEGLECT OR MISUSE; ALTERATION, MODIFICATION, OR ENHANCEMENT OF THE
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SOFTWARE BY DISTRIBUTOR; FAILURE TO PROVIDE A SUITABLE INSTALLATION
ENVIRONMENT; USE OF SUPPLIES OR MATERIALS NOT MEETING SPECIFICATIONS; USE OF
THE SOFTWARE FOR OTHER THAN THE SPECIFIED PURPOSE FOR WHICH THE SOFTWARE IS
DESIGNED; USE OF THE SOFTWARE ON ANY SYSTEMS OTHER THAN THE SPECIFIED
SOFTWARE PLATFORM FOR THE SOFTWARE; OR DISTRIBUTOR USE OF DEFECTIVE MEDIA OR
DEFECTIVE REPLICATION OF THE SOFTWARE.
3.5 PROHIBITION ON EXTENSION OF WARRANTIES. Distributor shall not make
or pass on, or attempt to make or pass on, any representation or warranty on
behalf of EarthLink to any third party other than as set forth in EarthLink's
standard end user license agreement, in a form to be specified by EarthLink
in its sole and absolute discretion, and which shall be included by
Distributor together with the Software distributed by Distributor under this
Agreement.
3.6 REMEDY FOR BREACH OF AUTHORIZATION WARRANTY. In the event of a breach
by EarthLink of the Authority Warranty, EarthLink shall take whatever action
is reasonably necessary to acquire such authorization or licenses necessary
to grant the License and perform its obligations hereunder. If such authority
or licenses is or are not reasonably obtainable, this Agreement shall
terminate.
3.7 REMEDIES FOR BREACH OF NON-INFRINGEMENT WARRANTY.
3.7.1 REMEDY FOR BREACH OF NON-INFRINGEMENT WARRANTY FOR PROPRIETARY
SOFTWARE. In the event the Proprietary Software fails to conform to the
Non-infringement Warranty, EarthLink shall either: (i) obtain a valid license
or other right, as applicable, for Distributor to distribute the Proprietary
Software; or (ii) replace or modify the Proprietary Software, without
affecting the material portions of its functionality, to make it
non-infringing in which case that replacement software shall then be governed
by the terms of this Agreement. Distributor shall have the right to terminate
this Agreement pursuant to Section 10.2 in the event that: (a) EarthLink
provides Distributor with written notice that neither Subsection (i) nor
Subsection (ii) of the preceding sentence of this Sub-section is commercially
reasonable in the discretion of EarthLink; or (b) Distributor provides
EarthLink with written notice that Distributor believes that the replacement
or modified Software is not of equal material functionality.
3.7.2 REMEDY FOR BREACH OF NON-INFRINGEMENT WARRANTY FOR EARTHLINK
TRADEMARKS. In the event any EarthLink Trademark fails to conform to the
Non-infringement Warranty Distributor shall immediately upon notice from
EarthLink cease use of such alleged infringing EarthLink Trademark. In such
event, EarthLink, at its sole option, shall either obtain a valid license
for Distributor to use such EarthLink Trademark or select an alternative
non-infringing mark which is similar as possible to the unavailable EarthLink
Trademark, and that new mark shall then be governed by the terms of this
Agreement as an EarthLink Trademark.
3.7.3 INDEMNIFICATION FOR THIRD PARTY INFRINGEMENT CLAIMS. EarthLink agrees
to indemnify, and hold harmless, Distributor from and against all reasonable
costs and expenses related to claims made by third parties against
Distributor that the Proprietary Software or EarthLink Trademarks infringe
the patents, copyrights, trademarks or service marks or other intellectual
property rights of such third parties.
3.7.4 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, AND EXCEPT FOR THE OBLIGATIONS SET FORTH IN
SECTION 10. NEITHER PARTY SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE
OTHER PARTY FOR CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING LOST
PROFITS, EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH
DAMAGES OCCURRING.
4. DELIVERY; REPLICATION; REORDERS.
4.1 DELIVERY OF LICENSE MATERIAL. EarthLink shall deliver the Licensed
Material to Distributor in the format indicated on the Special Terms Exhibit.
Shipment of the media containing the Licensed Material shall be made to
Distributor to an address specified in writing by Distributor. Risk of loss
shall pass to Distributor when EarthLink has placed the Licensed Material in
the possession of the carrier. Shipping and freight costs and expenses shall
be payable in accordance with the Special Terms Exhibit.
4.2 REPLICATION; ORDER QUANTITIES; SOFTWARE FEES.
4.2.1 FORMAT - MASTER DISK. In the event that the Licensed Material is
delivered from EarthLink to Distributor in the form of a master disk (whether
a gold master CD-ROM, a master 3.5" diskette or otherwise) Distributor shall
have the right to replicate the Licensed Material in such quantities as
Distributor shall, in good faith, believe it can reasonably distribute. If
Distributor outsources the replication process, then (i) within seven (7)
days prior to each replication run of the Licensed Material, Distributor
shall provide EarthLink with a copy of the purchase order submitted to the
replicator, and (ii) within seven (7) days following each replication run,
Distributor shall notify EarthLink in a writing signed by an authorized
officer verifying the quantity of Licensed Material replicated and providing
a copy of the invoice from the
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replicator for such run showing the quantity of Licensed Material replicated.
If Distributor performs the replication process inhouse, Distributor will
provide EarthLink with written notice signed by an authorized officer,
verifying the quantity of Licensed material replicated. If the Licensed
Material is to be distributed over an Internet site, Distributor shall notify
EarthLink of the Internet address from where the Licensed Material may be
downloaded.
4.2.2 FORMAT - INDIVIDUAL DISKS. In the event that the Licensed Material is
delivered in the form of individual disks (whether on CD-ROM, 3.5" diskettes
or otherwise) Distributor shall be delivered the Initial Quantity set forth
on the Special Terms Exhibit and shall, thereafter, order such quantities of
additional disks as Distributor and EarthLink may, in good faith, determine
that Distributor can distribute with a reasonable probability of obtaining
new Qualified Subscribers; provided, however, that EarthLink shall be under
no obligation to distribute additional disks in quantities less than the
Minimum Reorder Quantity set forth on the Special Terms Exhibit.
4.2.3 SOFTWARE FEES. Distributor shall pay to EarthLink the Software Fees
specified on the Special Terms Exhibit. Such Software Fees shall be due and
payable to EarthLink within 30 days receipt by Distributor of an invoice
therefor. All past due amounts shall bear an interest rate of 1.5% per month.
5. QUALITY CONTROL.
5.1 SAMPLES. Distributor shall provide EarthLink with the disks containing
the Software and five copies of all reproduced Documentation from: (i) each
initial replication run of the Software and Documentation, and of any update,
upgrade and/or new version of the Software provided to Distributor by
EarthLink; and (ii) each initial replication run subsequent to any change in
the replication facility and/or process utilized by Distributor.
5.2 QUALITY PROBLEMS. In the event EarthLink notifies Distributor of
quality problems with the replicated Licensed Materials which cause the
Software not to operate properly or not consistent with the Documentation,
Distributor shall immediately correct such problems in current and future
replication runs. EarthLink may, in its sole discretion, require Distributor
to remove from inventory and/or Distributor's distribution channel all faulty
copies of the Licensed Material. Failure by Distributor to so correct any
such identified problems shall constitute a material breach of this Agreement.
6. MARKETING.
6.1 PROMOTION. Distributor shall use its best efforts to promote,
advertise and market the Software and to promote the goodwill of EarthLink
and the market reputation of EarthLink's products and services.
6.2 PUBLICITY. Each party shall have the right to refer to the other party
and its services and products in advertisements, press releases, news
releases and general releases to professional and trade publications;
provided, however, that any such item shall be presented to such other party
not less than ten (10) days prior to the intended publication date for
approval by such other party, which approval shall not be unreasonably
withheld or delayed, and which shall be deemed to be given if no written
response is provided within said ten (10) day period.
6.3 BOOKMARKS. EarthLink may include bookmarks in the Software provided to
Distributor in accordance with mutually agreed upon specifications; provided,
however, that Distributor agrees that EarthLink may include a bookmark to
EarthLink's home page which bookmark shall be the first bookmark if
additional bookmarks are agreed upon. Distributor shall not alter any
bookmarks included in the Software.
7. TRADEMARKS, TRADE NAMES AND OTHER DESIGNATIONS. Distributor undertakes
to faithfully reproduce all Marks as they may appear on or in respect of the
Licensed Material. The Distributor shall not use the Marks except as provided
herein. All such use of the Marks shall be in accordance with the "EarthLink
General Guidelines for Use of Marks." Distributor undertakes to reproduce
faithfully all EarthLink Trademarks and proprietary notices, slogans, designs
and distinct advertising as may appear on or in respect of the Licensed
Material. Notwithstanding the foregoing, any such use or proposed use shall
be presented to EarthLink for approval, which approval will not be unreasonably
withheld, not less than ten (10) business days prior to the intended date of
use. Notwithstanding the authorization granted in this section, EarthLink and
its third party licensors shall own all right, title and interest in and to
the Marks. Other than as expressly and unambiguously provided in this
Agreement, Distributor shall not have, under any circumstances whatsoever, any
right to use the Marks.
8. PAYMENT AND REPORTING.
8.1 BOUNTY PAYMENTS. EarthLink will pay Distributor, at the address
indicated on the cover page, a bounty in the amount specified on the Special
Terms Exhibit for each Qualified Subscriber (the "Bounty"). Within sixty (60)
days after the end of each calendar month, EarthLink shall pay the Bounty for
each Qualified Subscriber obtained in the previous month. EarthLink shall
accompany each monthly payment with a report containing all information
reasonably necessary to verify the accuracy of the payment for that month.
8.2 REGISTRATION NUMBER. EarthLink will assign unique registration numbers
to the versions of the Software provided to Distributor. The Bounty will
be calculated through the use of these unique registration numbers by
tracking each Qualified Subscriber.
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8.3 MAINTENANCE OF RECORDS; AUDIT. Each party shall maintain proper books
and records so as to allow for the verification of amounts paid or owed to
the other party. Each party agrees to allow the other party's auditors to
audit and analyze its applicable records to ensure compliance with all terms
of this Agreement. Any such audit shall be permitted by party to be audited,
during normal business hours, upon at least fifteen (15) days notice given in
accordance with Section 12. The cost of this audit shall be borne by the
auditing party, unless the results identify a bona fide underpayment to the
auditing party by more than five percent (5%) of the total amount paid or
owned during the audited period, in which case the cost of the audit shall be
borne by the audited party.
9. TECHNICAL SUPPORT AND TRAINING. EarthLink shall provide to end users
of the Software that obtain the Software through Distributor, technical
support for the Software in accordance with the general policies of EarthLink
with respect to the particular Software product at issue.
10. TERM; TERMINATION.
10.1 TERM. This Agreement shall commence on the Effective Date, and unless
sooner terminated in accordance with this Section, shall continue for one (1)
year, whereupon it shall automatically renew for consecutive one (1) year
terms unless notice of non-renewal is given by either party in writing no
less than thirty (30) calendar days and no more than ninety (90) calendar
days prior to the end of the then current term.
10.2 TERMINATION FOR INFRINGEMENT CLAIM. Distributor shall have the right
to terminate this Agreement at any time, effective immediately upon written
notice of termination as set forth in Section 3.7.1.
10.3 AUTOMATIC TERMINATION FOR TERMINATION OF UNDERLYING LICENSE. In the
event of termination of any underlying license to the Software this Agreement
and the License shall automatically terminate WITH RESPECT TO THE SOFTWARE
FOR WHICH THE UNDERLYING LICENSE HAS TERMINATED.
10.4 TERMINATION FOR CAUSE. Either party shall have the right to terminate
this Agreement at any time, effective upon written notice of termination to
the other party, in the event of a breach of this Agreement which is
unremedied for period of thirty (30) days after written notice.
Notwithstanding the foregoing, either party may terminate this Agreement
immediately upon a breach of Section 11.
10.5 EFFECT OF TERMINATION OF THIS AGREEMENT. Upon termination of this
Agreement for any reason whatsoever Distributor shall: (i) immediately cease
to replicate copies of the Licensed Material; and (ii) return the EarthLInk
all other existing copies (including original copies) of any of the Licensed
Material (Gold Master, unused CD-ROM or disks) in the possession or under the
control of Distributor. Notwithstanding the foregoing, upon any termination
of this Agreement, Distributor shall have the right to continue to distribute
copies of the Licensed Material then in the inventory of Distributor until
such time as such inventory is exhausted for a period of 180 days, except
that Distributor shall not have such right in the event that such termination
of this Agreement was by EarthLink pursuant to Sections 10.3 or 10.4 or by
reason of Distributor's failure to correct a quality problem as described in
Section 5.2.
10.6 NO DAMAGES OR INDEMNIFICATION FOR TERMINATION. Neither party shall be
liable to the other party for any costs or damages of any kind, including
incidental or consequential damages, or for indemnification, solely on account
of the lawful termination of this Agreement, even if informed of the
possibility of such damages.
10.7 SURVIVAL OF TERMS UPON TERMINATION. The provisions of this Agreement
that by their sense and context are intended to survive termination of this
Agreement, shall so survive this Agreement, including Sections 3.7.3 (WHICH
WILL SURVIVE FOR ONE YEAR), 3.7.4., 10.5, 10.6, 11 and 13.
11. CONFIDENTIALITY. Each party shall: (i) hold in confidence, and not
disclose or reveal to any person or entity, any Confidential Information
disclosed under this Agreement without the clear and express prior written
consent of a duly authorized representative of the disclosing party; and
(ii) not use or disclose any of the Confidential Information for any purpose
at any time, other than for the limited purpose at any time, other than for
the limited purpose of performance under this Agreement. These obligations
shall continue indefinitely for so long as the Confidential Information is a
trade secret under applicable law and shall continue for two (2) years
following termination of this Agreement with respect to Confidential
Information which does not rise to the level of trade secret.
12. NOTICES. Except as specifically provided in this Agreement, all
notices required hereunder shall be in writing and shall be given by personal
delivery, overnight courier service, or first class mail postage prepaid, to
the parties at their respective addresses set forth on the first page hereof,
or at such other address(es) as shall be specified in writing by such party
to the other parties in accordance with the terms and conditions of this
Section. All notices shall be deemed effective upon personal delivery, or
three (3) business days following deposit with any overnight courier service
or with the U.S. Postal System, first class postage attached, in accordance
with this Section.
13. MISCELLANEOUS.
13.1 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
and agreement, and supersedes
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any and all prior or contemporaneous representations, understandings and
agreements between the parties with respect to the subject matter of this
Agreement, all of which are merged in this Agreement.
13.2 INDEPENDENT PARTIES. The parties are independent parties and nothing
herein shall be construed as creating an employment relationship between the
parties. Neither party is authorized as an agent or legal representative of
the other party. Neither party is granted any right or authority to assume or
to create, any obligation or responsibility, express or implied, on behalf or
in the name of the other party, or to bind such other party in any manner.
Each party is solely responsible for its own taxes.
13.3 WAIVER. No waiver of any provision of this Agreement, or any rights
or obligations of either party under this Agreement, shall be effective,
except pursuant to a written instrument signed by the party or parties
waiving compliance, and any such waiver shall be effective only in the
specific instance and for the specific purpose stated in such writing.
13.4 AMENDMENT. All amendments or modifications of this Agreement shall be
binding upon the parties despite any lack of consideration so long as such
amendment or modifications are in writing and executed by the parties.
13.5 SEVERABILITY OF PROVISIONS. In the event that any provision of this
Agreement is found to be invalid or unenforceable pursuant to judicial decree
or decision, the remainder of this Agreement shall remain valid and
enforceable according to its terms.
13.6 ASSIGNMENT. This Agreement may not be assigned by Distributor without
the written consent of EarthLink. This Agreement shall be binding upon and
inure to the benefit of each of the parties and their respective legal
successors and permitted assigns.
13.7 GOVERNING LAW; JURISDICTION; ATTORNEY'S FEES. This Agreement shall be
governed by the laws of California without giving effect to applicable
conflict of laws provisions. All actions with respect of this Agreement shall
be brought in the federal and state courts having jurisdiction within
Pasadena, California and the parties expressly consent to the personal
jurisdiction of such courts. In the event any litigation or other proceeding
is brought by either party in connection with this Agreement, the prevailing
party in such litigation or other proceeding shall be entitled to recover
from the other party all costs, attorney's fees and other expenses incurred
by such prevailing party in such litigation.
13.8 FORCE MAJEURE. Neither EarthLink nor Distributor shall be deemed in
default of this Agreement if its performance or obligations under this
Agreement are delayed or become impossible or impractical by reason of any
act of God, war, civil disobedience or any other cause beyond the control of
such party. Notwithstanding the foregoing, a change in economic conditions or
technology shall not be deemed a force majeure event.
13.9 EXPORT RESTRICTIONS. None of the Licensed Material or underlying
information or technology may be downloaded or otherwise exported or
re-exported (i) into (or to a national or resident of) Cuba, Iraq, Libya,
North Korea, Yugoslavia, Iran, Syria or any other country to which the U.S.
has embargoed goods; or (ii) to anyone on the U.S. Treasury Department's list
of Specially Designated Nationals or the U.S. Commerce Department's Table of
Denial Orders.
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EXHIBIT A
DEFINITIONS
- --------------------------------------------------------------------------------
1.1 CONFIDENTIAL INFORMATION means any information or material which: (i) is
confidential or proprietary to the disclosing party, which derives economic
value from not being generally known and is the subject of reasonable efforts
by the disclosing party to maintain its secrecy; or (ii) the disclosing party
obtains from any third party, which the disclosing party treats as proprietary,
whether or not owned by the disclosing party. Confidential Information shall not
include information which the receiving party can show is: (i) known by the
receiving party at the time of receipt from the disclosing party and not subject
to any other nondisclosure agreement between the parties; (ii) now, or which
hereafter becomes, generally known to the public through no fault of the
receiving party; (iii) otherwise lawfully and independently developed by the
receiving party without reference to Confidential Information of the disclosing
party; or (iv) lawfully acquired by the receiving party from a third party
without any obligation of confidentiality.
1.2 CUSTOMIZATION FEE means the amount payable to EarthLink by Distributor
for EarthLink's customization of the Licensed Material as provided in
Section 2.2.
1.3 DISTRIBUTOR PRODUCT means the hardware and/or software product(s)
distributed or marketed by Distributor as set forth on the Special Terms
Exhibit.
1.4 DOCUMENTATION means the documentation customarily supplied by EarthLink
with the Software.
1.5 EARTHLINK TRADEMARKS means the trademarks, service marks, logos, trade
names and slogans of EarthLink identified in the Trademarks Exhibit.
1.6 EFFECTIVE DATE means the date first set forth above which, upon
execution of this Agreement by both parties, shall be the effective date of
this Agreement.
1.7 INITIAL ORDER QUANTITY means the number of disk sets in the initial order
of Licensed Materials as specified on the Special Terms Exhibit.
1.8 LICENSED MATERIAL means the Software and the related Documentation.
1.9 MARKS means the EarthLink Trademarks and copyright and proprietary notices
associated with EarthLink's products and services as well as the trademarks,
trade names, service marks, logos, slogans and copyright and proprietary notices
of EarthLink's third-party licensors.
1.10 MINIMUM REORDER QUANTITY means the minimum number of disk sets which
Distributor may reorder in a single order as specified in the Special Terms
Exhibit.
1.11 PROPRIETARY SOFTWARE means the object code form only of EarthLink's
proprietary software contained in the EarthLink Network TotalAccess software
suite.
1.12 QUALIFIED SUBSCRIBER means an end user who subscribes to EarthLink's
services through Software distributed by Distributor, and who has paid in
full for at least two months service from EarthLink.
1.13 SOFTWARE means the Proprietary Software and the Third Party Software. The
Software shall include all enhancements, updates, upgrades and/or versions
released during the term of this Agreement.
1.14 SOFTWARE FEES means the fees charged to Distributor for the right to
replicate and/or distribute the Licensed Material.
1.15 TERMINATION DATE means the date upon which any termination of this
Agreement, for any reason whatsoever (including expiration), becomes effective.
1.16 TERRITORY means the territory in which Distributor may market and
distribute the Licensed Material as described on the Special Terms Exhibit.
1.17 THIRD PARTY SOFTWARE means the object code form only of software
EarthLink licenses from other third parties and which is included in
EarthLink Network TotalAccess, including but not limited to: Netscape
Navigator, Microsoft Internet Explorer and software from Apple Computer, Inc.
and Network Telesystems.
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EXHIBIT B
EARTHLINK TRADEMARKS
- --------------------------------------------------------------------------------
NOTE: THIS EXHIBIT B MAY BE AMENDED FROM TIME TO TIME AS REQUIRED BY COMPANY
AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
TRADEMARKS, TRADE NAMES, LOGOS AND OTHER PRODUCT AND PROPRIETARY IDENTIFIERS.
EarthLink Network-Registered Trademark-
EarthLink Network TotalAccess-TM-
Netscape Communication Corporation's Netscape Navigator-TM-
EarthLink Network-Registered Trademark- is a registered trademark of
EarthLink Network, Inc.
EarthLink Network TotalAccess-TM- is a trademark of EarthLink Network, Inc.
Netscape Navigator-TM- is a trademark of the Netscape Communications
Corporation.
Copyright-C- 1997, Netscape Communications Corporation
Copyright-C- 1997 by Network Telesystems, Inc.
Copyright-C- 1997 EarthLink Network, Inc.
All Rights Reserved.
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EXHIBIT C
EARTHLINK NETWORK, INC.
TRADEMARK AND COPYRIGHT NOTICE REQUIREMENTS FOR
EARTHLINK NETWORK TOTALACCESS-TM- SOFTWARE
I. CONTRACT TERMS
A. EarthLink Network, Inc.'s ownership of trademarks, trade names, and
copyrights shall be clearly indicated on all documents which
include reference to the EARTHLINK NETWORK TOTALACCESS-TM- software.
A representative sample of each document, showing EarthLink's
ownership, must be sent to the Legal Department.
B. There shall be no alteration of any proprietary (-TM-,
-Registered Trademark-, or -C-) notices on the EARTHLINK
TOTALACCESS-TM- software delivered to Distributor by EarthLink.
C. All trademarks and service marks belonging to EarthLink Network, Inc.
shall be used consistently and in the exact form provided by
EarthLink Network, Inc. The marks shall never be abbreviated, used
in a plural form, or altered in any manner.
II. ADDITIONAL TERMS PROVIDED:
A. SPECIFICATIONS FOR USE OF NOTICES:
TRADEMARKS AND SERVICE MARKS:
EarthLink Network is both a trade name and a federally registered
service mark of EarthLink Network, Inc. EARTHLINK NETWORK
TOTALACCESS-TM- is a common law trademark of EarthLink Network, Inc.
1. The marks "EARTHLINK NETWORK-Registered Trademark-" and
"EARTHLINK NETWORK TOTALACCESS-TM-" should always be used as
ADJECTIVES rather than as nouns or verbs.
Examples: OK: The EarthLink Network TotalAccess-TM- software
includes...
Earthlink Network-Registered Trademark- Internet
access services are among the most innovative
access services available...
NOT OK: The EarthLink Network TotalAccess includes...
2. The mark must be set apart, at all times, from any surrounding
text, either physically or through the use of boldface type,
underlining, italics, or quotation marks, so that it is
distinctive.
3. Proper trademark notice (-Registered Trademark- or -TM-, as
appropriate) should be used. For marks that are not federally
registered, I.E., "EARTHLINK NETWORK TOTALACCESS-TM-," the
symbol"-TM-" must be used with the mark at all times. For marks
that are federally registered, I.E., "EARTHLINK NETWORK," the
symbol "-Registered Trademark-" must be used with the mark at
all times.
COPYRIGHTS:
4. Copyright notices must read as follows:
-C- [YEAR DATE OF PUBLICATION] EARTHLINK NETWORK, INC. ALL
RIGHTS RESERVED.
B. SPECIFICATIONS FOR USE OF LOGO:
1. In Product Packaging:
(a) Placement:
EXHIBIT C - Netscape Trademark Provisions - 1
<PAGE>
(1) The logo must not touch or overlap any other logo on
the packaging.
(2) When used in conjunction with the NETSCAPE
NAVIGATOR-TM- logo, the EarthLink logo must be 10%
larger.
2. In Print, On-line, Broadcast Advertising and Direct Mail:
(a) Placement:
(1) Generally: The logo must be on a high-contrast
background and stand-alone in making a commercial
impression.
(2) Generally: The logo must not touch or overlap any
other logo on the advertisement.
(3) In print and direct mail: The logo must appear in
every viewing plane (plane, spread or gatefold) of
the advertisement.
(4) In broadcast advertising: The logo must be on a
screen for at least five seconds and totally within
the title-safe screen area.
3. In Production Brochures and Other Collateral:
(a) Placement:
(1) The logo must be displayed on the first page of all
brochures and the cover of all manuals and bound
collateral.
(2) The logo must be on high contrast background and
stand-alone in making a commercial impression.
4. General Logo Requirements:
(a) All usage of EARTHLINK NETWORK-Registered Trademark- and/or
EARTHLINK NETWORK TOTALACCESS-TM- included logos must always
be identified as trademarks of EarthLink Network, Inc. as
follows: EARTHLINK NETWORK-Registered Trademark- (AND/OR
EARTHLINK NETWORK TOTALACCESS-TM-) AND THE EARTHLINK
NETWORK(-Registered Trademark-) LOGO ARE TRADEMARKS OF
EARTHLINK NETWORK, INC.
(b) THE EARTHLINK NETWORK-Registered Trademark- and/or EARTHLINK
NETWORK TOTALACCESS-TM- included logos must be displayed in
a positive manner and may not depict EarthLink in any
negative way.
(c) The logo may not be altered in color, shape, font,
proportion or in any other manner without prior written
consent from an officer of EarthLink Network, Inc.
RELATIONSHIP BETWEEN EARTHLINK AND NETSCAPE NAVIGATOR-TM- MARKS
When Netscape Navigator-TM- software is included with the EarthLink Network
TotalAccess-TM- software, the following requirements must be met:
1. Netscape Navigator-TM- included logo in relation to the
EarthLink logo:
a) The EarthLink logo may stand alone, however, any use of
the Netscape Navigator-TM- logo must be accompanied by
the EarthLink logo.
b) The EarthLink logo must be 10% larger than the Netscape
logo. Type face should be Garamond, Garamond Bold, and/or
Garamond Italic.
EXHIBIT C - Netscape Trademark Provisions - 2
<PAGE>
2. Netscape Navigator-TM- trademark and trade name usage in
relation to EarthLink Network TotalAccess-TM- trademark and
trade name usage:
a) Any reference to the combination of marks should read as
follows: "INCLUDES EARTHLINK TOTALACCESS-TM- WITH
NETSCAPE NAVIGATOR-TM-"
b) EarthLink Network TotalAccess-TM- typeface must be 30%
larger than the Netscape Navigator-TM- trademark typeface.
3. Copyright notices must read as follows:
a) In combination with EarthLink references:
-C-1997 EARTHLINK NETWORK, INC. TRADEMARKS ARE PROPERTY
OF THEIR RESPECTIVE OWNERS. NETSCAPE NAVIGATOR IS A
TRADEMARK OF NETSCAPE COMMUNICATIONS CORPORATION. ALL
RIGHTS RESERVED.
4. For all material that is distributed outside of the United
States and Canada the following notice must appear:
NETSCAPE NAVIGATOR-TM- IS OFFERED ONLY IN CONJUNCTION
WITH EARTHLINK NETWORK-Registered Trademark- INTERNET
ACCESS SERVICE, WHICH MAY NOT BE AVAILABLE IN ALL AREAS.
EXHIBIT C - Netscape Trademark Provisions - 3
<PAGE>
NETSCAPE TRADEMARK PROVISIONS
For "Netscape Navigator-TM- Included"
I. CONTRACT TERMS:
A. Whenever reference to is made to the Navigator or the functionality
of the Navigator provided within EarthLink's Product, the Netscape
trademarks and trade names relating to the Navigator must be used
in any advertising, marketing, technical or other materials related
to the Navigator which are distributed.
B. Netscape's ownership of trademarks or trade names must be clearly
indicated on all documents which include reference to the Netscape
Navigator-TM- software.
C. Netscape may request copies of goods bearing Netscape's trademarks
and trade names to verify their adequate quality and if Netscape
determines the quality is inferior, EarthLink must suspend use of
Netscape's trademarks and trade names until EarthLink has taken the
steps Netscape requires to solve the quality deficiencies.
D. There shall be no alteration of any proprietary (-TM-,
-Registered Trademark-, or -C-) notices on any documents or on the
Netscape Navigator-TM- software delivered to EarthLink by Netscape.
E. Each portion of the Netscape Navigator-TM- and documentation
reproduced by EarthLink shall include the intellectual property
notices appearing in or on the corresponding portion of such
materials as delivered by Netscape.
F. All copies of the Netscape Navigator-TM- must conspicuously
display on labels and all media containing the Navigator the
following:
COPYRIGHT -C- 1997 (OR OTHER APPROPRIATE YEARS), NETSCAPE
COMMUNICATIONS CORPORATION. ALL RIGHTS RESERVED.
II. ADDITIONAL TERMS PROVIDED:
A. SPECIFICATIONS OF LOGO: Use of logo must comply with all of the
following terms:
1. In Product Packaging:
a) Placement:
(1) The logo must appear on the front of the product
package.
(2) The logo may appear on the spine and/or back of the
product package.
(3) The logo must be placed on a high contrast
background.
(4) The logo must not touch or overlap any other logo
on the package.
b) Size:
(1) Generally: the "N" graphic portion of Netscape
Navigator-TM- logo must be at least 3/4" (1/2" is
okay) on each side. The proportion of the entire
graphic should be based on the size of the "N"
graphic.
(2) For CD ROMs and CD ROM Jewel Cases: the minimum
size of the "N" graphic portion of the Netscape
Navigator-TM- logo must be at least 1/2" on each
side.
(3) Maximum size: The "N" graphic portion of the
Netscape Navigator logo can be no larger than 3/4" on
each side.
(4) The Netscape Navigator-TM- logo must be no larger
than the OEM brand or product name or logo on the
package.
(5) When a third party is bundling their products with
EarthLink Network-Registered Trademark- service
(i.e. EarthLink is entering into an "Affiliate"
relationship) and three brands, EarthLink,
Netscape, Third party brand X, are on the package,
the required size is 3/8" as measured by the size
of the N square size.
EXHIBIT C - Netscape Trademark Provisions - 4
<PAGE>
2. In Print, On-line, Broadcast Advertising and Direct Mail:
a) Placement:
(1) Generally: The logo must me on a high-contrast
background and stand-alone in making a commercial
impression.
(2) Generally: The logo must not touch or overlap any
other logo on the advertisement.
(3) In print and direct mail: The logo must appear in
every viewing plane (page, spread or gatefold) of
the advertisement.
(4) In broadcast advertising: The logo must be on a
screen for at least 5 seconds and totally within
the title-safe screen area.
b) Size:
(1) Print: The "N" graphic portion of Netscape
Navigator-TM- Included logo must be at least 3/4"
on each side.
(2) Print: The "N" graphic portion of the Netscape
Navigator-TM- Included logo can never be larger then
1 1/2" on each side.
(3) Print: The "N" graphic portion of the Netscape
Navigator-TM- Included logo can never be larger
than the OEM brand or product name or logo.
(4) Broadcast: the logo must be a minimum of 15% of the
title safe area.
(5) Broadcast: the logo may be no larger than the OEM
brand or product name or logo in the broadcast
advertisement.
(6) On-line: the "N" graphic portion of the Netscape
Navigator-TM- Included logo must be at least 30
pixels one each side and must link to the Netscape
site at the following URL: "www.netscape.com."
3. In Production Brochures and Other Collateral:
a) Placement:
(1) The logo must be displayed on the first page of all
brochures and the cover of all manuals and bound
collateral.
(2) The logo must be on high contrast background and
stand-alone in making a commercial impression.
b) Size:
(1) The "N" graphic portion of the Netscape
Navigator-TM- Included logo must be at least 3/4"
on each side.
(2) The "N" graphic portion of the Netscape
Navigator-TM- Included logo can never exceed 1 1/2"
on each side.
(3) The logo can never be larger than the OEM
brand/ product name or logo in the collateral.
4. General Logo Requirements:
a) All usage of Netscape Navigator-TM- Included logo should
always be identified as a trademark of Netscape
Communications Corporation as:
"NETSCAPE NAVIGATOR AND THE NETSCAPE NAVIGATOR INCLUDED
LOGO ARE TRADEMARKS OF NETSCAPE COMMUNICATIONS
CORPORATION"
b) The Netscape Navigator-TM- Included logo must be
displayed in positive manner and may not depict Netscape
in any negative way.
c) The logo may only be reproduced directly from the
diskette provided by Netscape. It may not be altered in
color, shape, font, proportion or in any other manner.
d) The words Netscape Navigator-TM- must be 16 pt font or
smaller on all usage including, but not limited to,
packaging and advertising. The only exception is the
usage of the words within the Navigator Included logo at
the appropriate size.
e) The words "free," "free Upgrades," or "Personal Edition"
may not be used in association with the words Netscape
Navigator-TM-.
EXHIBIT C - Netscape Trademark Provisions - 5
<PAGE>
f) The number version of the Netscape Navigator software may
not be used (i.e. Netscape Navigator 2.0 or Netscape
Navigator 3.0)
B. TRADEMARK, TRADE NAME AND COPYRIGHT USE: Use of the Netscape marks
must comply with all of the following terms:
1. The first mention of a Netscape trademark in the body of
printed material must include proper notice of trademark
ownership (-Registered Trademark-, -TM-, or sm.)
a) If the first use is in a headline, the symbols do not
have to appear in the headline provided there is text on
the same page/screen where proper notice does appear.
2. "Netscape Navigator-TM- should be used as an adjective rather
than a noun or verb:
a) Example: OK: The Netscape Navigator-TM- software
provides....
NOT OK: The Netscape Navigator-TM- provides...
b) However, after first use of the Netscape trademark as an
adjective, the trademark can alternately be used as both
a noun and adjective.
3. When referencing Netscape Communications Corporation:
"Copyright-C- 1997, Netscape Communications Corporation. All
Rights Reserved."
a) If more than one Netscape mark is used, all may be
incorporated into one sentence as follows: "The following
are worldwide trademarks of Netscape Communications
Corporation or its subsidiaries, registered in the United
States as indicated by -Registered Trademark- and in
numerous other countries worldwide: Netscape-TM-;
Netscape Navigator-TM-; Netscape iStore-TM-."
4. The OEM must always represent the products as "including",
"containing" or "with" Netscape Navigator-TM- software.
5. The words "Netscape" or "Netscape Navigator-TM-" may not
appear in the product or brand name
a) OK: ABC Internet Suite with Netscape Navigator-TM-
software
b) NOT OK: ABC Netscape Navigator-TM-
6. The OEM must not indicate that the product is supported by
Netscape Communications Corporation directly.
7. The Netscape Navigator-TM- name must be used in a positive
manner. The name may not depict Netscape in any negative way.
EXHIBIT C - Netscape Trademark Provisions - 6
<PAGE>
EXHIBIT D
SPECIAL TERMS
TERRITORY
The Territory shall be the fifty states of the United States and Canada.
BUNDLING
The Licensed Material shall be included on some of Distributor's demo disks
or online NOW! Product CD-ROMs and other customer CD-ROMs.
WAIVER OF SIGN-UP FEE
The sign-up fee shall be waived for customers who sign-up for EarthLink's
dial-up service as a result of Distributor's efforts.
FREE DAYS
The number of initial free days EarthLink will provide each customer who
signs-up to EarthLink's dial-up service as a result of Distributor's efforts
shall be Five (5).
BOUNTY
Bounty shall be the one-time fixed amount of $20.00 per Qualified Subscriber.
This shall be a one-time payment per Qualified Subscriber.
FORMAT
The format in which the Licensed Material will be delivered to distributor
shall be Gold Master CD-ROM.
The platform for the Licensed Material shall be Windows 95, Windows 3.x and
Macintosh.
EXHIBIT D - Special Terms - 1
<PAGE>
QUANTITIES
Distributor shall duplicate a minimum of 5,000 units from the Gold Master
CD-ROM provided.
NON-CIRCUMVENT
It is agreed by the parties hereto that no efforts will be made to
circumvent, avoid, bypass, or any way attempt to obviate one another, either
directly or indirectly to avoid the payment of any fees, commissions or sales
in any transaction with any corporation, partnership or individual revealed
by either party to the other unless specifically agreed to in writing by the
parties.
AGREED TO BY THE PARTIES
Sign below:
/s/ [ILLEGIBLE] /s/ Jim G. Thompson, Chief Operating Officer
- ------------------------- ---------------------------------------------
EarthLink Distributor JENKON INTERNATIONAL
EXHIBIT D - Special Terms - 2
<PAGE>
SUBLEASE AGREEMENT
The parties to this Sublease Agreement dated April 1, 1998 are Jenkon
International, Inc. hereinafter referred to as Sublessee and S & P Company,
hereinafter referred to as Sublessor
RECITALS.
The Premises are presently being leased by S&P Company ("S&P") pursuant to
the following: On March 15, 1994 S&P, as tenant, entered into a Lease with
Dan J. Agnew, an Individual, as Landlord. On December 31, 1995, Dan J. Agnew
as representative of the Estate of Sam J. Agnew, assigned, transferred, and
conveyed all of its rights, title, and interests in the leases pertaining to
the Building including, but not limited to, the above referenced lease to
ALCO Limited Partnership, an Oregon limited partnership. On March 1, 1997
ALCO Limited Partnership, an Oregon limited partnership, assigned,
transferred, and conveyed all of its rights, title, and interests in the
leases pertaining to the Building including, but not limited to, the above
referenced lease to ALCO Holdings L.L.C., an Oregon limited liability
company, hereinafter referred to as Lessor.
ALCO Holdings L.L.C., an Oregon limited liability company ("ALCO") is the
Lessor and owner of the premises located at 7600 NE 41st Street, Suite 300,
Vancouver, WA 98662, situated in Clark County and consisting of approximately
10,239 gross rentable square feet of office improved area. The real estate,
building, common areas and improvements are commonly known as One Park Place
at the Park Place Corporate Center, Vancouver, WA 98662 ("the Premises"). The
Premises are shown on Exhibit A attached hereto and incorporated herein by
this reference.
The Lease dated March 15, 1994 by and between S & P Company and ALCO
(collectively the Lease) is attached hereto as Exhibit B.
Whereas S&P Company ("Sublessor") wishes to sublease the Premises to Jenkon
International, Inc. ("Sublessee"). In order to sublease on acceptable terms
and conditions, Sublessor and Sublessee need ALCO's ("Lessor") consent to
sublease. Lessor is willing to grant such consent, subject to the terms and
conditions set forth below.
THEREFORE, the parties agree as follows:
SECTION 1. Sublessor hereby subleases the Premises to Sublessee,
AGREEMENT and Sublessee hereby subleases the Premises from
TO SUBLEASE Sublessor (the "Sublease"). The term of the Sublease
shall be for 22 months commencing May 15, 1998 and
expiring on March 14, 2000.
SECTION 2. Sublessee shall pay Sublessor as base sublease rent
RENT the sum of Fifteen Thousand Seven Hundred Eighty
Five and 00/100 dollars ($15,785) per month for 22
months commencing May 15, 1998 and expiring March 14,
2000. Rent for the first month of the Sublease term
shall be pro-rated and due upon Sublease execution.
Rent shall be payable in advance on the first day of
each subsequent month during the Sublease term. No
deductions or pro-rates to rent shall be made without
first obtaining Sublessor and Lessor approval.
Possession of Premises shall be effective May 1,
1998. Sublessor shall pay as additional rent its
proportionate share of the amount by which operating
expenses for the Building exceed $6.24 per square
foot of gross leasable area. This amount shall be
called the "Expense Stop". Effective January 1 of
each year Lessor shall estimate the amount by which
operating expenses are expected to increase, if any,
over those incurred in the base year. Monthly rental
for that year shall be increased by one-twelfth of
Sublessor's share of the estimated increase.
Following the end of each calendar year, Lessor
shall compute the actual increase in operating
expenses and bill Sublessor for any deficiency or
credit Sublessor with any excess collected. As used
herein, "operating expenses" shall mean all costs of
operating and maintaining the Building as determined
by standard real estate accounting practice,
including, but not limited to: all property taxes,
all water and sewer charges; the cost of natural gas
and electricity provided to the building; janitorial
and
- --------------------------------------------------------------------------------
Page 1 of 5 A107
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------------- ------------- -------------
Sublessor Sublessee Lessor
<PAGE>
cleaning supplies and services; administration costs
and management fees; superintendent fees; security
services, if any; insurance premiums; licenses;
permits for the operation and maintenance of the
Building and all of its component elements and
mechanical systems; the annual amortized capital
improvement cost (amortized over such a period as
Lessor may select but not shorter than the period
allowed under the Internal Revenue Code and at a
current market interest rate) for any capital
improvements to the Building required by any
governmental authority or those which have a
reasonable probability of improving the operating
efficiency of the Building. Sublessee agrees to all
terms and conditions of the Lease and shall
faithfully perform all covenants therein, including
but not limited to, payment of all pro-rata (see
paragraph 19.1 of the Lease) additional
rent-operating expense adjustments, as defined in
paragraph 19.2, "Additional Rent-Operating Expense
Adjustment", of the Lease and as adjusted in Section
2 of this Sublease. This Sublease shall not relieve,
dismiss, discharge, absolve or release Sublessor
from any terms and conditions of the Lease.
SECTION 3. Sublessee may use the Premises for General Office
USE OF PREMISES use as it relates to Sublessee's business. Sublessee
shall not use the Premises in any manner which would
constitute a violation of the Lease.
SECTION 4. Sublessee accepts the leased Premises in an "as is"
CONDITION OF PREMISES condition, provided the space is delivered in a
broom swept condition.
SECTION 5. Sublessee at its own expense and with prior written
IMPROVEMENTS Lessor and Sublessor consent, whose consent shall
not be unreasonably withheld, may perform tenant
improvements to the Premises, provided all materials
used conform to Building Standard Tenant Improvements.
SECTION 6. Sublessor warrants that Sublessor will pay to the
SUBLESSOR'S Lessor on the Lease, as and when due, all rents
REPRESENTATIONS required to be paid by the terms of the Lease and
that Sublessor will not otherwise do any act which
would cause the Lease to become in default.
SECTION 7. Sublessee acknowledges the existence of the Lease
SUBLESSEE'S and agrees to take the leased Premises subject to
REPRESENTATIONS all the terms and conditions of the Lease, to use
the Premises within the restrictions provided by the
Lease and this Sublease, and to perform any and all
obligations required to be performed by Sublessor as
Lessee under the Lease, except for the payment of
rentals due thereunder which Sublessor shall
continue to pay to Lessor. Sublessee agrees to
protect, defend and hold Sublessor harmless from and
against any loss or claim arising out of or
attributable to Sublessee's use of the Premises or
Sublessee's breach of any provision of the Lease,
the performance or observance of which is
Sublessee's responsibility. Sublessee warrants that
it is authorized to enter into this Sublease.
SECTION 8. Sublessee will provide Sublessor with a certificate
INSURANCE PRIOR TO of insurance evidencing commercial liability coverage
COMMENCEMENT OF THE of One Million dollars and naming Lessor and
SUBLEASE TERM Sublessor as additional insureds.
SECTION 9. As between Sublessor and Sublessee, and unless this
MUTUAL RIGHTS provision conflicts with an express provision of
AND OBLIGATIONS this Sublease, Sublessor shall be deemed to have all
of the rights and obligation of the Lessor under the
Lease, and Sublessee shall be deemed to have all of
the rights and obligations of the Lessee under the
Lease, except that Sublessee may not renew this
Sublease beyond March 14, 2000 unless otherwise
permitted by Sublessor and Lessor in writing.
SECTION 10. Any addendum attached hereto and either signed or
ADDENDUM initialed by the parties shall be deemed a part of
this Sublease.
- --------------------------------------------------------------------------------
Page 2 of 5 A107
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------------- ------------- -------------
Sublessor Sublessee Lessor
<PAGE>
SECTION 11. Lessor and Sublessor shall not be required to
DUTIES OF LESSOR make any alterations, additions, improvements
AND SUBLESSOR to or on the Premises during the Term of this
Sublease, except as may be outlined in the
Lease.
SECTION 12. Sublessee shall maintain in good condition the
DUTIES OF premises, save normal wear and tear.
SUBLESSEE
SECTION 13. Time is of the essence of each obligation of
TIME OF THE ESSENCE Sublessee and Sublessor and Lessor under this
Sublease.
SECTION 14. If litigation is instituted in respect to this
ATTORNEY FEES Sublease, the prevailing party shall be
entitled to recover from the non-prevailing
party its reasonable attorneys' fees and court
costs, both at trial and upon appeal.
SECTION 15. Sublessee shall promptly yield and deliver to
SURRENDER OF Sublessor possession of the Premises upon
POSSESSION expiration of the Sublease in the same
condition as when subleased save normal wear
and tear, or as may be amended in accordance
with Section 20 "Alterations." Any furniture,
fixtures, equipment or improvements of
Sublessee not removed from the Premises upon
such expiration of the Term or earlier
termination of the Sublease, whether Sublessor
or Lessor has requested the removal of the same
pursuant to this Sublease or the Lease or not,
may be removed by Sublessor or Lessor and
stored or disposed of in Sublessor or Lessor's
sole discretion, and Sublessee shall reimburse
Sublessor or Lessor for all costs of such
removal, storage and/or disposal within ten
(10) days following Sublessee's receipt from
Sublessor or Lessor of notice of such costs.
Sublessee's obligation pursuant to the
foregoing sentence shall survive the expiration
of the Term or earlier termination of this
Sublease.
SECTION 16. Any holding over by Sublessee after the
HOLDING OVER expiration of the Term or earlier termination
of the Sublease shall be construed to be a
tenancy at sufferance on all of the terms and
conditions set forth herein to the extent not
inconsistent with a tenancy at sufferance;
provided, that the minimum Rent for such
hold-over period shall be an amount equal to
the last monthly rent received during the
Sublease Term (subject to adjustment as
provided herein and prorated on a daily basis
based on a thirty (30) day month). Acceptance
by Sublessor or Lessor of rent or any other sum
payable hereunder after such expiration or
earlier termination shall not result in an
extension or renewal of this Sublease. If
Sublessee fails to surrender the Premises upon
the expiration of the Term or earlier
termination of this Sublease, Sublessee shall
indemnify, defend and hold harmless Sublessor
from all loss, damage, cost, liability or
expense (including, without limitation,
attorneys' fees and expenses) resulting from,
relating to or founded upon such failure to
surrender the Premises, including, without
limitation, any claim made by any succeeding
tenant.
SECTION 17 It is hereby understood that Wicklund &
AGENCY DISCLOSURE. Associates Commercial Brokerage Company,
represents both parties to this transaction and
both parties hereby acknowledge and agree to
same
SECTION 18 Sublessee represents and warrants to Sublessor
NO BROKERS. that it has not engaged any broker, finder or
other person who would be entitled to any
commission or fees in respect of the
negotiation, execution or delivery of this
Sublease and shall indemnify and hold harmless
Sublessor against any loss, cost, liability or
expense incurred by Sublessor as a result of
any claim
- -------------------------------------------------------------------------------
Page 3 of 5 A107
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--------- --------- ---------
Sublessor Sublessee Lessor
<PAGE>
asserted by any such broker, finder or other
person on the basis of any arrangements or
agreements made or alleged to have been made by
or on behalf of Sublessee. The provisions of
this Section shall not apply to brokers with
whom Sublessor has an express written brokerage
agreement.
SECTION 19. All notices or tenders required or permitted
NOTICES hereunder shall be made and given in writing to
the parties at the addresses set forth
hereinbelow by either facsimile (with hard copy
sent via regular U.S. Mail postage prepaid),
certified mail return receipt requested or
overnight courier such as Federal Express. If
notice be given by facsimile or overnight
courier it shall be deemed received on the next
business day following mailing and if by
certified mail, it shall be deemed received on
the third business day following mailing.
Notice to Sublessee may always be delivered to
the Premises. Rent shall be payable to
Sublessor at the address seen below, but shall
be considered paid only when received. Either
party may change its address for notice
purposes by giving written notice of such
change in accordance with the provisions of
this paragraph. Notices shall be addressed as
follows:
SUBLESSEE: SUBLESSOR:
Mr. Bernard Orsi, Mr. Steve McKeag
Vice President Chief Financial Officer
100 Shoreline Highway, Jenkon International, Inc.
Building B 7600 NE 41st Street,
Suite 395 Suite 350
Mill Valley, CA 94945 Vancouver, WA 98662
SECTION 20: Sublessee shall not perform any alterations to
SUBLESSOR'S ALTERATIONS Premises without first obtaining Lessor's and
prior written consent and whose consent shall
not be unreasonably withheld.
SECTION 21. The premises is a smoke free environment.
SMOKING Sublessee shall prohibit its employees, agents,
assigns, and invitees from smoking in the
premises. This shall include, but not be
limited to, cigarette, cigar and pipe smoking.
SECTION 22: All rent shall be paid by Sublessee to
RENT WITHOUT OFFSET Sublessor monthly in advance on the first day
LATE CHARGE of every calendar month, at the address shown
below, or such other place as Sublessor may
designate in writing from time to time. All
rent shall be paid without prior demand or
notice and without any deduction or offset
whatsoever. All rent shall be paid in lawful
currency of the United States of America.
Proration of rent due for any partial month
shall be calculated by dividing the number of
days in the month for which rent is due by the
actual number of days in that month and
multiplying by the applicable monthly rate.
Sublessee acknowledges that late payment by
Sublessee to Sublessor of any rent or other
sums due under the Sublease will cause
Sublessor to incur costs not contemplated by
this Sublease, the exact amount of such cost
being extremely difficult and impractical to
ascertain. Such costs include, without
limitation, processing and accounting charges
and late charges that may be imposed on
Sublessor by the terms of any encumbrance or
note secured by the Premises. Therefore, if any
rent or other sum due from Sublessee is not
received when due, Sublessee shall pay to
Sublessor an additional sum equal to 10% of
such overdue payment. Sublessor and Sublessee
hereby agree that such late charge represents a
fair and reasonable estimate of the costs that
Sublessor will incur by reason of any such late
payment and that the late charge is in addition
to any and all remedies available to the
Sublessor and that the assessment and/or
collection of the late charge shall not be
deemed a waiver of any other default.
Additional, all such delinquent rent or other
sums, plus this late charge, shall bear
interest at the rate of 18 percent per annum.
Any payments of any kind returned for
insufficient funds will be subject to an
additional handling charge of $25.00,
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Page 4 of 5 A107
[ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE]
--------- --------- ---------
Sublessor Sublessee Lessor
<PAGE>
and thereafter. Sublessor may require Sublessee
to pay all future payments of rent or other
sums due by money order or cashier's check.
SECTION 23 Upon request of Lessor or Sublessor, Sublessee
FINANCIAL STATEMENTS. shall provide a copy of its most recent annual
report to shareholders as evidence of its
financial qualifications to duly perform under
this Sublease.
IN WITNESS WHEREOF, the undersigned have caused this agreement to be executed.
Sublessor: By: /s/ [ILLEGIBLE] By:
S&P Company --------------------- -----------------------
Title: [ILLEGIBLE] Title:
------------------ ---------------------
Date: 4/2/98 Date:
------------------- ---------------------
Telephone No. (415)
Fax No. (415) 332-0567
Address:
100 Shoreline Hwy., Bldg. B, Suite 395
Mill Valley, CA 94945
Sublessee: By: /s/ [ILLEGIBLE] By:
Jenkon International Inc. --------------------- ------------------
Title: President Title:
------------------ ---------------
Date: 4/15/98 Date:
------------------- ----------------
Telephone No. (360) 256-4400
Fax No. (360) 256-9623
Address:
7600 NE 41st Street, Suite 350
Vancouver, WA 98662
Lessor: ALCO Holdings L.L.C. By: [ILLEGIBLE] By:
an Oregon limited liability company ---------------- ----------------
Date: 4/18/98 Date:
-------------- --------------
Telephone No. (503) 274-9990
Address: 3601 NW Yeon Avenue
Portland, OR 97210
SUBLESSOR, SUBLESSEE AND LESSOR HAVE CAREFULLY READ AND REVIEWED THIS
SUBLEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION
OF THIS SUBLEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE
SUBLESSOR AND SUBLESSEE HEREBY AGREE THAT, AT THE TIME THIS SUBLEASE IS
EXECUTED, THE TERMS OF THIS SUBLEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF SUBLESSOR AND SUBLESSEE WITH RESPECT TO
THE PREMISES.
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Page 5 of 5 A107
[ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE]
--------- --------- ---------
Sublessor Sublessee Lessor
<PAGE>
ADDENDUM TO SUBLEASE
Dated April 1, 1998
By and Between
S&P Company Sublessor
And
Jenkon International, Inc., Sublessee
RECITALS:
In reference to the master lease (see Exhibit B of the Sublease) by and
between Dan J. Agnew, Landlord and S&P Company, Tenant dated March 15,
1994, two clauses found therein, 13.1 "Regulations" and 14.3 "Parking"
respectively, become null and void as a result of this Sublease. Any salvage
costs associated with the removal of the installed "Smoke-eater" shall
belong to Jenkon International.
The Landlord reserves the right to convert the former S&P Company reserved
parking stalls to either customer/visitor parking or to unassigned parking
for the benefit of all tenants in the Building.
13.1 REGULATIONS Intentionally deleted.
14.3 PARKING Intentionally deleted.
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Page 6 of 6 A107
[ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE]
--------- --------- ---------
Sublessor Sublessee Lessor
<PAGE>
EXHIBIT B
OFFICIAL LEASE
This lease, made and entered into at Vancouver, Washington, this
15th day of March, 1994, by and between Dan J. Agnew, an individual,
as Landlord, and S & P Company, as Tenant.
Landlord hereby leases to Tenant the following: Approximately
10,239 rentable square feet of office space (9,325 usable square feet
x 1.12% building load factor to compensate for the common area shared
by all tenants) located on the 3rd floor of premises, see Exhibit A,
Space Plans, attached hereto and by this reference made a part of the
office lease, to be known as Suite #300 (the Premises) in the ONE
PARK PLACE building (the building) at 7600 NE 41st Street, Vancouver,
Clark County, Washington 98662, for a term of six (6) years,
commencing, March 15, 1994 and continuing through March 14, 2000; at
a Base Rental of $12,798.75 (U.S.) per month payable in advance on
the 1ST day of each month commencing March 15, 1994.
Landlord and Tenant covenant and agree as follows:
1.1 DELIVERY OF Tenant is in possession of the premises. Tenant
POSSESSION accepts the premises "AS IS" and agrees that Landlord
is not responsible for providing any Tenant Improvements
whatsoever.
2.1 RENT PAYMENT Tenant shall pay the Base Rent for the Premises
and any additional rent provided herein without
deduction or offset. Rent for any partial month during
the lease term shall be prorated to reflect the number
of days during the month that Tenant occupies the
Premises. Additional rent means amounts determined
under paragraphs 19.1 and 19.2 of this Lease and any
other sums payable by Tenant to Landlord under this
Lease. Rent not paid when due shall bear interest at the
rate of one-and-one-half percent per month until paid.
Landlord may at its option impose a late charge of
$.05 for each $1 of rent for rent payments made more
than 10 days late in lieu of interest for the first
month of delinquency, without waiving any other
remedies available for default. Base rental shall not
be increased during the term of this lease.
3.1 LEASE Upon execution of the lease Tenant has paid the
CONSIDERATION Base Rent for the first full month of the lease term
for which rent is payable and in addition has paid the
sum of $12,798.75 as lease consideration. Landlord may
apply the lease consideration to pay the cost of
performing any obligation which Tenant fails to
perform within the time required by this lease, but
such application by Landlord shall not be the
exclusive remedy for Tenant's default. If the lease
consideration is applied by Landlord, Tenant shall on
demand pay the sum necessary to replenish the lease
consideration to its original amount. To the extent not
applied by Landlord to cure defaults by Tenant, the lease
consideration shall be applied against the rent
payable for the last month of the term. The lease
consideration shall not be refundable.
4.1 USE Tenant shall use the Premises as business offices
for GENERAL OFFICE USE and for no other purpose
without Landlord's written consent. In connection with
its use, Tenant shall at its expense promptly comply
with all applicable laws, ordinances, rules and
regulations of any public authority and shall not
annoy, obstruct, or interfere with the rights of other
tenants of the Building. Tenant shall create no
nuisance nor allow any objectionable fumes, noise, or
vibrations to be emitted from the Premises. Tenant
shall not conduct any activities that will increase
Landlord's insurance rates for any portion of the
Building or that will in any manner degrade or damage
the reputation of the Building.
4.2 EQUIPMENT Tenant shall install in the Premises only such
office equipment as customary for general office use
and shall not overload the floors or electrical
circuits of the Premises or Building or alter the
plumbing or wiring of the Premises or Building. Any
additional air conditioning required because of heat
generating equipment or special lighting installed by
Tenant shall be installed and operated at Tenant's
expense.
<PAGE>
4.3 SIGNS No sign, awnings, antennas, or other apparatus
shall be painted on or attached to the Building or
anything placed on any glass or woodwork of the
Premises or positioned so as to be visible from
outside the Premises without Landlord's written
approval as to design, size, location, and color. All
signs installed by Tenant shall comply with Landlord's
standards for signs and all applicable codes and all
signs and sign hardware shall be removed upon
termination of this lease with the sign location
restored to its former state unless Landlord elects to
retain all or any portion thereof.
5.1 UTILITIES AND Landlord will furnish heat, electricity, elevator
SERVICES service, and if the Premises are air conditioned, air
conditioning during the normal Building hours of 8:00
AM to 6:00 PM, Monday through Friday, except holidays
and 8:00 AM to 12:00 noon Saturdays, except holidays.
Janitorial service will be provided in accordance with
the regular schedule of the Building, which schedule
and service may change from time to time. Tenant shall
comply with all government laws or regulations
regarding the use or reduction of use of utilities on
the Premises. Interruption of the services or
utilities shall not be deemed an eviction or
disturbance of Tenant's use and possession of the
Premises, render Landlord liable to Tenant for
damages, or relieve Tenant from performance of
Tenant's obligations under this lease, but Landlord
shall take all reasonable steps to correct any
interruptions in service. Electrical service furnished
will be 110 volts unless different service already
exists in the Premises.
5.2 EXTRA USAGE If Tenant uses excessive amounts of utilities or
services of any kind because of operation outside of
normal Building hours, high demands from office
machinery and equipment, nonstandard lighting, or any
other cause, Landlord may impose a reasonable charge
for supplying such extra utilities or services, which
charge shall be payable monthly by Tenant in
conjunction with rent payments. In case of dispute
over any extra charge under this paragraph, Landlord
shall designate a qualified independent engineer whose
decision shall be conclusive on both parties. Landlord
and Tenant shall each pay one-half of the cost of such
determination.
5.3 CONFERENCE Tenant shall have the FREE use of the 591 square
ROOM foot conference room. Landlord reserves the right to
schedule Tenant usage in order to avoid conflicts.
6.1 MAINTENANCE Landlord shall have no liability for failure to
AND REPAIR perform required maintenance and repair unless written
notice of the needed maintenance or repair is given by
Tenant and Landlord fails to commence efforts to
remedy the problem in a reasonable time and manner. If
Landlord fails to commence efforts to remedy the
problem in a reasonable time and manner or thereafter
fails to diligently pursue efforts to remedy the
problem, and if the maintenance or repair problem
prevents Tenant from substantially conducting its
business in the usual manner at the Premises, then
Tenant shall have the option to terminate this Lease
upon written notice to Landlord; Tenant's termination
option shall be its exclusive remedy for Landlord's
non-performance under this paragraph. In performing
maintenance or repairs Landlord shall have the right
to erect scaffolding and other apparatus necessary for
such maintenance or repairs. Notwithstanding the
foregoing, repair of damage caused by negligent or
intentional acts or breach of this lease by Tenant,
its employees or invitees, shall be at Tenant's
expense.
6.2 ALTERATIONS Tenant shall not make any alterations, additions,
or improvements to the Premises, change the color of
the interior, or install any wall or floor covering
without Landlords's prior written consent. Any such
additions, alterations, or improvements, except for
removable machinery and unattached movable trade
fixtures, shall at once become a part of the realty
and belong to Landlord. Landlord shall have the right
to approve the contractor used by Tenant for any work
in the Premises, and to post notices of
nonresponsibility in connection with any work being
performed by Tenant in the Premises.
7.1 INDEMNITY Tenant shall not allow any liens to attach to the
Building or Tenants' interest in the Premises as a
result of its activities. Each party shall indemnify
and defend the other party from any claim, liability,
damage, or loss occurring on the Premises, arising out
of any activity by the party, its agents, or invitees
or resulting from said party's failure to comply with
any term of this lease. Landlord shall have no
liability to Tenant because of loss or damage caused
by the acts or omissions of other Tenants of the
Building.
7.2 INSURANCE Both parties shall carry liability insurance
with the following limits: $1,000,000 CSL, which
insurance shall have an endorsement naming the other
party as an insured and covering the liability insured
under paragraph 7.1 of this lease. Each party shall
furnish a certificate evidencing such insurance which
shall state that the coverage shall not be canceled or
materially changed without 10 days advance notice to
the other party, and a renewal certificate shall be
furnished at least 10 days prior to expiration of any
policy. Landlord shall provide all risk insurance
coverage for the building, including Tenant
improvements and Tenant shall provide insurance
coverage for its personal property, furnishing and
fixtures.
<PAGE>
8.1 FIRE OR "Major Damage" means damage by fire or other casualty
CASUALTY to the Building or the Premises which causes the Premises
or any substantial portion of the Building to be unusable,
or which will cost more that 25 percent of the pre-damage
value of the Building to repair, or which is not covered by
insurance. In case of Major Damage, Landlord may elect to
terminate this lease by notice in writing to Tenant within
30 days after such date. If this lease is not terminated
following Major Damage, or if damage occurs which is not
Major Damage, Landlord shall promptly restore the Premises
and Tenant improvements to the condition existing just prior
to the damage. Rent shall be reduced from the date of damage
until the date restoration work being performed by Landlord
is substantially complete, with the reduction to be in
proportion to the area of the premises not useable by Tenant.
8.2 WAIVER OF Tenant shall be responsible for insuring its personal
SUBROGATION property and trade fixtures located on the premises. Landlord
shall be liable to the Tenant for any loss or damage caused
by water damage, sprinkler leakage, or any of the risks that
are or could be covered by a standard all risk insurance
policy with an extended coverage endorsement, or for any
business interruption.
9.1 EMINENT If a condemning authority takes title by eminent domain
DOMAIN or by agreement in lieu thereof to the entire Building or
a portion sufficient to render the Premises unsuitable for
Tenant's use, then either party may elect to terminate this
lease effective on the date that possession is taken by the
condemning authority. Rent shall be reduced for the
remainder of the term in an amount proportionate to the
reduction in area of the Premises caused by the taking. All
condemnation proceeds shall belong to Landlord, and Tenant
shall have no claim against Landlord or the condemnation
award because of the taking.
10.1 ASSIGNMENT This lease shall bind and inure to the benefit of the
AND parties, their respective heirs, successors, and assigns,
SUBLETTING provided that Tenant shall not assign its interest under
this lease or sublet all or any portion of the Premises
without first obtaining Landlord's consent in writing. This
provision shall apply to all transfers by operation of law
including but not limited to mergers and changes in control
of Tenant. No assignment shall relieve Tenant of its
obligation to pay rent or perform other obligations required
by this lease, and no consent to one assignment or
subletting shall be a consent to any further assignment or
subletting. Landlord shall not unreasonably withhold its
consent to any assignment, or to subletting provided the
subrental rate or effective rental paid by the assignee is
not less than the current scheduled rental rate of the
Building for comparable space and the proposed Tenant is
compatible with Landlord's normal standards for the Building.
If Tenant proposes a subletting or assignment to which
Landlord is required to consent under this paragraph,
Landlord shall have the option of terminating this lease and
dealing directly with the proposed subtenant or assignee, or
any third party. If an assignment or subletting is permitted,
any cash profit, or the net value of any other consideration
received by Tenant as a result of such transaction shall be
paid to Landlord promptly following its receipt by Tenant.
Tenant shall pay any costs incurred by Landlord in connection
with a request for assignment or subletting, including
reasonable attorneys' fees not to exceed $500.00.
11.1 DEFAULT Any of the following shall constitute a default by
Tenant under this lease:
(a) Tenant's failure to pay rent within 10 days after
it is due, or failure to comply with any other term or
condition within 30 days following written notice from
Landlord specifying the noncompliance. If such noncompliance
cannot be cured within the 30-day period, this provision
shall be satisfied if Tenant commences correction within such
period and thereafter proceeds in good faith and with
reasonable diligence to effect compliance as soon as
possible.
(b) Tenant's insolvency, business failure or
assignment for the benefit of its creditors. Tenant's
commencement of proceedings under any provision of any
bankruptcy or insolvency law or failure to obtain dismissal
of any petition filed against it under such laws within the
time required to answer; or the appointment of a receiver for
Tenant's properties.
11.2 REMEDIES FOR In case of default as described in paragraph 11.1,
DEFAULT Landlord shall have the right to the following remedies
which are intended to be cumulative and in addition to any
other remedies provided under applicable law:
(a) Landlord may terminate the lease and retake
possession of the Premises. Following such retaking of
possession, efforts by Landlord to relet the Premises shall
be sufficient if Landlord follows its usual procedures for
finding tenants for the space at rates not less than the
current rates for other comparable space in the Building.
(b) Landlord may recover all damages caused by
Tenant's default which shall include an amount equal to
rentals Landlord is able to reasonably demonstrate were
lost because of the default. Landlord may sue periodically to
recover damages as they occur throughout the lease term,
and no action for
<PAGE>
accrued damages shall bar a later action for damages
subsequently accruing. Landlord may elect in any one action
to recover accrued damages plus damages attributable to the
remaining term of the lease. Such damages shall be measured
by the difference between the rent under this lease and the
reasonable rental value of the Premises for the remainder of
the term, discounted to the time of judgement at the
prevailing interest rate on judgements. Landlord shall be
obligated to make reasonable good faith efforts to mitigate
its damages.
(c) Landlord may make any payment or perform any
obligation which Tenant has failed to perform, in which case
Landlord shall be entitled to recover from Tenant upon demand
all amounts so in possession of the premises expended, plus
interest from the date of the expenditure at the rate of one
percent per month. Any such payment or performance by
Landlord shall not waive Tenant's default.
(d) Landlord shall be in default if it fails to
perform any of its obligations hereunder and Tenant shall be
entitled to all remedies available to Tenant at Law or in
equity.
12.1 SURRENDER On expiration or early termination of this lease
Tenant shall deliver all keys to Landlord and surrender the
Premises broom clean and in the same condition as at the
commencement of the term subject only to reasonable wear from
ordinary use and damage or destruction. Tenant shall remove
all of its furnishings and trade fixtures that remain its
property and restore all damage resulting from such removal.
Failure to remove shall be an abandonment of the property,
and Landlord may dispose of it in any manner without
liability. If Tenant fails to vacate the Premises when
required, including failure to remove all its personal
property, Landlord may elect either: (i) to treat the Tenant
as a tenant from month to month, subject to the provisions of
this lease except that rent shall be one-and-one-half times
the total rent being charged when the lease term expired; or
(iii) to eject Tenant from the Premises and recover damages
caused by wrongful holdover.
13.1 REGULATIONS Landlord shall have the right (but shall not be
obligated) to make, revise and enforce regulations or
policies consistent with this lease for the purpose of
promoting safety, order, economy, cleanliness, and good
service to all tenants of the Building. All such
regulations and policies shall be complied with as if part
of this lease. *SEE ADDENDUM
14.1 ACCESS During times other than normal Building hours Tenant's
officers and employees or those having business with
Tenant may be required to identify themselves or show
passes in order to gain access to the Building, Land-lord
shall have no liability for permitting or refusing to
permit access by anyone. Landlord shall have the right to
enter upon the Premises at any time by passkey or
otherwise to determine Tenant's compliance with this
lease, to perform necessary services, maintenance and
repairs to the Building or the Premises, or to show the
Premises to any prospective tenant or purchasers. Except
in the case of emergency such entry shall be at such
times and in such manner as to minimize interference with
the reasonable business use of the Premises by Tenant.
14.2 FURNITURE Tenant shall move furniture and bulky articles in and
AND BULKY out of the Building or make independent use of the elevators
ARTICLES only at times approved by Landlord following at least 24
hours' written notice to Landlord of the intended move.
Landlord will not unreasonably withhold its consent under
this paragraph.
14.3 PARKING Tenant shall have four (4) free parking spaces per
1,000 (one thousand) square feet of rentable space. *SEE
ADDENDUM
15.1 NOTICES Notices between the parties relating to this lease
shall be in writing, effective when delivered, or if mailed,
effective on the third day following mailing, postage
prepaid, via certified mail return receipt requested, to the
address for the party stated in this lease or to such other
address as either party may specify by notice to the other.
Notice to Tenant may always be delivered to the Premises.
Rent shall be payable to Landlord at the same address and in
the same manner, but shall be considered paid only when
received.
16.1 SUBORDINATION This lease shall be subject and subordinate to any
mortgages, deeds of trust, or landsale contracts (hereafter
collectively referred to as encumbrances) now existing
against the Building. At Landlord's option this lease shall
be subject to and subordinate to any future encumbrance
hereafter placed against the Building (including the
underlying land) or any modifications of existing
encumbrances, and Tenant shall execute such documents as may
reasonably be requested by Landlord or the holder of the
encumbrance to evidence this subordination.
TRANSFER OF If the Building is sold or otherwise transferred by
BUILDING Landlord or any successor, Tenant shall attorn to the
purchaser or transferee and recognize it as the Landlord
under this lease, and, provided the purchaser assumes all
obligations hereunder, the transferor shall have no further
liability hereunder.
<PAGE>
16.3 ESTOPPELS Either party will within 20 days after notice
from the other execute, acknowledge and deliver to the
other party a certificate certifying whether or not
this lease has been modified and is in full force and
effect; whether there are any modifications or alleged
breaches by the other party; the dates to which rent
has been paid in advance, and the amount of any
security deposit or prepaid rent; and any other facts
that may reasonably be requested. Failure to deliver
the certificate within the specified time shall be
conclusive upon the party of whom the certificate was
requested that the lease is in full force and effect
and has not been modified except as may be
represented by the party requesting the certificate.
If requested by the holder of any encumbrance, or any
ground lessor, Tenant will agree to give such holder
or lessor notice of and an opportunity to cure any
default by Landlord under this lease.
17.1 ATTORNEYS' In any litigation arising out of this lease, the
FEES prevailing party shall be entitled to recover
attorneys' fees at trial and on any appeal.
18.1 QUIET Landlord warrants that so long as Tenant
ENJOYMENT complies with all terms of this lease it shall be
entitled to peaceable and undisturbed possession of
the Premises free from any eviction or disturbance by
Landlord. Landlord shall have no liability to Tenant
for loss or damages arising out of the acts of other
Tenants of the Building or third parties, nor any
liability for any reason which exceeds the value of
its interest in the Building.
19.1 TENANT'S "Tenant's proportionate share" as used herein
PROPORTIONATE means the area of the Premises, divided by the total
SHARE area of the Building (not including basement storage
space), with area determined using one of the methods
of building measurement defined by the Building Owners
and Managers Association (BOMA). Tenant's
proportionate share as of the lease commencement date
shall be 15.14% percent.
19.2 ADDITIONAL Tenant shall pay as additional rent its
RENT-OPERATING proportionate share, as defined in 19.1, of the amount
EXPENSE by which operating expenses for the Building exceed
ADJUSTMENT $4.25 per square foot of gross leasable floor area.
This amount shall be called "the expense stop." As of
January 1 of each year Landlord shall estimate the
amount by which operating expenses are expected to
exceed, if any, the expense stop. Monthly rental for
the year shall be increased by one-twelfth of Tenant's
share of the estimated excess. Following the end of
each calendar year, Landlord shall compute the actual
operating expenses and bill Tenant for any deficiency
or credit Tenant with any excess collected over the
expense stop. As used herein, "operating expenses"
shall mean all costs of operating and maintaining the
Building as determined by standard real estate
accounting practice, including but not limited to: all
water and sewer charges, the cost of steam, natural
gas, electricity provided to the building; janitorial
and cleaning supplies and services; administration
costs and management fees; superintendent fees;
security services, if any; insurance premiums;
licenses, permits for the operation and maintenance of
the building and all of its component elements and
mechanical systems; the annual amortized capital
improvement cost (amortized over such a period as
Landlord may select by not shorter than the period
allowed under the Internal Revenue Service Code and at
a current market interest rate) for any capital
improvements to the building required by any
governmental authority or those which have a
reasonable probability of improving the operating
efficiency of the Building; and the real and personal
property taxes (and any tax levied wholly or partially
in lieu thereof) levied by any governmental authority
against the building and any personal property used in
its operation.
20.1 LIMITATION Any liability of Landlord to Tenant or any other
OF LANDLORD'S person shall be limited to the interest of Landlord in
LIABILITY the Building. Tenant and any other person claiming
through Tenant agrees to look solely to such interest
for the recovery of any judgement against Landlord, it
being intended by the parties that neither Landlord,
nor any assets of Landlord, other than the Building,
shall be liable for any such judgement. For purposes
of this provision "Landlord" includes all employees
and agents of Landlord and all heirs, successors and
assigns of Landlord.
21.1 COMPLETE This lease and the attached Exhibits and
AGREEMENT Schedules, if any, constitute the entire agreement of
the parties and supersede all prior written and oral
agreements and representations. Neither Landlord nor
Tenant is relying on any representations other than
those expressly set forth herein.
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this lease as of the day and year first written above.
LANDLORD: By /s/ Dan J. Agnew
-------------------------------
Address for notices: 3601 NW Yeon Name: Dan J. Agnew
-------------------- ----------------------------
Portland, Oregon 97210 Title:
- ---------------------------------------- ---------------------------
TENANT: By /s/ John M. Schiess
-------------------------------
Address for notices: 7600 NE 41st St. #300 Name: JOHN M. SCHIESS
-------------------- ----------------------------
Vancouver, WA 98662 Title: Vice President
- ---------------------------------------- ---------------------------
<PAGE>
EXHIBIT "A"
[MAP]
ONE PARK PLACE - THIRD FLOOR
<PAGE>
ADDENDUM TO LEASE
Addendum to Office Lease Agreement dated March 15, 1994 by and between DAN J.
AGNEW, as Landlord, and S & P COMPANY, as Tenant.
13.1 REGULATIONS So long as S & P Company shall be the Tenant in
occupancy of the premises under this Lease, smoking
shall be permitted in Suite 300 as regulated by Tenant
unless otherwise prohibited by law and subject to the
provisions of Section 4.1 of the Lease.
14.3 PARKING So long as S & P Company shall be the Tenant in
occupancy of the premises under this Lease, S & P
Company, shall also have five (5) reserved parking
spaces as assigned on the date of this Lease.
<PAGE>
BANKAMERICA
LEASING & CAPITAL GROUP LEASE NO. 960171
- --------------------------------------------------------------------------------
SCHEDULE NO. 1
This SCHEDULE NO. 1 dated November 26, 1996 is made pursuant to, and
hereby made a part of, LEASE INTENDED AS SECURITY NO. 960171 (the "Lease
Agreement" and, together with this Schedule, the "Lease") dated as of 11/26/1996
between BA LEASING & CAPITAL CORPORATION ("Lessor") and SUMMIT V, INC.
("Lessee"), defined terms therein being used herein as so defined.
A. DESCRIPTION AND ASSIGNMENT OF UNITS. Lessee has entered into and will
enter into purchase agreements ("Purchase Agreement") with various vendors
(each, a "Vendor"), in the forms attached hereto, providing for the sale to
Lessee of certain equipment including but not limited to NEC NEAX 2000 IVS
TELEPHONE SYSTEM, PERSONAL COMPUTERS, NETWORK SERVERS AND RELATED PERIPHERAL
EQUIPMENT AND OFFICE FURNITURE (the "Units"). Lessee hereby assigns to Lessor
all of Lessee's right, title and interest in and to the Purchase Agreements and
the Units. Lessor hereby accepts such assignment. Notwithstanding such
assignment, Lessee may pay for or make advances toward the purchase of one or
more Units and, subject to satisfaction of the conditions precedent herein,
obtain reimbursement from Lessor. Lessor hereby appoints Lessee as its agent
solely for the purpose of purchasing the Units on behalf of Lessor under the
Lease. Neither Lessee nor Lessor may amend, modify, rescind, or terminate the
Purchase Agreements without the prior express written consent of the other.
Notwithstanding this assignment or Lessor's exercise of any right
assigned hereunder, (a) Lessee shall at all times remain obligated to perform
all duties of the purchaser under the Purchase Agreements to the same extent
as if this assignment had not been made and (b) the obligation of Lessor to
disburse any part of the Purchase Price of any Unit is conditioned upon
Lessee's acceptance of the Unit and fulfillment of the conditions set forth
in Paragraph I.
B. PURCHASE PRICE; UTILIZATION PERIOD.
1. PURCHASE PRICE. "Purchase Price" with respect to each Unit means the
amount Lessor pays for the Unit. Without the prior written consent of Lessor:
(a) the Purchase Price of all Units shall not exceed $600,000 (the "Maximum
Purchase Price"); (b) the Purchase Price of each Unit shall not exceed, in the
case of Units delivered to Lessee not more than 90 days before the date hereof
("New Units"), the amount invoiced by Vendor therefor and, in the case of Units
delivered to Lessee more than 90 days before the date hereof ("Used Units"), the
fair market value for similar used equipment and, in either case, not more than
the amount set forth in the Purchase Agreements attached hereto; (c) the
aggregate amount of installation, transportation, any applicable sales, use or
similar front-end tax, any software costs or licensing fees and any similar
costs with respect to the aggregate of all Units shall not exceed 20% of its
total Purchase Price; and (d) Lessor shall not be obligated to make payments of
the Purchase Price of Units leased under this Schedule No. 1 more frequently
than once in each calendar month and in aggregate amounts on each such occasion
of less than $50,000.
Upon satisfaction of the relevant conditions, Lessor shall pay the
Purchase Price directly to the relevant Vendor, but if Lessee pays any
portion of the Purchase Price to the relevant Vendor or Lessee has already
acquired title to the Units, Lessor shall pay the relevant amount to Lessee.
2. UTILIZATION PERIOD. All Delivery Dates for Units leased hereunder must
occur between the date of this Schedule and March 31, 1997 (the "Utilization
Period").
C. INTERIM TERM AND BASE TERM. Rent for each Unit will accrue under the Lease
during its Interim Term and its Base Term and, during the period before the
Funding Date, on any advances. The "Funding Date" for each Unit is the date
Lessor disburses the final payment of its Purchase Price. The "Interim Term"
for each Unit will begin on, and include, its Funding Date and continue until,
and include, the day before its "Base Date". The "Base Term" for each Unit will
begin on, and include, its Base Date and continue for 36 months.
The "Base Date" for each Unit will be the first or fifteenth day of the
month during or immediately following the month in which the Funding Date
occurs, as specified by Lessor in the relevant Lease Schedule Certificate.
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D. RENT
1. INTERIM RENT. Lessee shall pay rent for each Unit ("Interim Rent") for
each day of its Interim Term. Interim Rent shall be computed on the full amount
of the Purchase Price of the Unit at a rate per annum equal to the Reference
Rate. Interim rent is determined, in part, on the basis of a 360-day year and
actual days elapsed which results in a higher rent than if a 365-day year is
used. Interim Rent is due and payable when billed by Lessor.
The "Reference Rate" is the rate of interest publicly announced from
time to time by Bank of America National Trust and Savings Association in San
Francisco, California ("Bank") as its Reference Rate, with any change in the
Reference Rate to take effect on the day specified in the public announcement
of such change. The Reference Rate is set by Bank based on various factors,
including Bank's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans.
Loans may be priced at, above or below the Reference Rate.
2. BASE RENT. Lessee shall pay Lessor rent ("Base Rent") for each Unit during
the Base Term in advance in 36 consecutive monthly installments, with the first
such installment due on the Base Date.
The Base Rent installments for each Unit will be in amounts sufficient
to amortize the Purchase Price for the Unit down to the purchase amount (the
"Purchase Amount") over the Base Term at the Implicit Interest Rate, assuming
each installment is applied first to interest at the Implicit Interest Rate
and then to the unamortized portion of the Purchase Price of the Unit. The
Implicit Interest Rate for each Unit will be established as of its Funding
Date. The amounts of the Base Rent installments for each Unit will be set
forth in the Lease Schedule Certificate.
E. IMPLICIT INTEREST RATE. The "Implicit Interest Rate" for each Unit is a
nominal rate per annum equal to 2.50 percentage points (the "Spread") in excess
of the Index Rate, compounded monthly and computed on the basis of a year of 360
days and 12 30-day months, which may result in more rent than if a 365-day year
were used. "Index Rate" with respect to each Unit means the bond-equivalent
yield per annum for U.S. Treasury obligations with an average life of 1.562
years, as in effect on the Unit's Funding Date.
For reference, the Index Rate as of October 2, 1996 was 5.778% per annum.
F. REPRESENTATIONS. Lessee represents and warrants that (a) Lessee has the
right to assign the Purchase Agreement without the Vendor's consent or, if
not assignable, consent has been obtained and a copy of which is attached
hereto, (b) the right, title and interest of Lessee in the Purchase Agreement
so assigned is and shall be free from all claims, liens, security interests
and encumbrances, (c) Lessee will warrant and defend the assignment against
claims and demands of all persons, (d) the Purchase Agreement contains no
conditions under which Vendor may reclaim title to any Unit after delivery,
acceptance and payment therefor, (e) the Purchase Agreement is in full force
and effect and enforceable in accordance with its terms and Lessee is not in
default thereunder, (f) there is no pending litigation, tax claims,
proceedings or disputes that may adversely affect its financial condition or
impair its ability to perform its duties under the Purchase Agreement or the
Lease and (g) THE UNITS WILL BE USED PRIMARILY IN LESSEE'S BUSINESS AND NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES.
G. LOCATION. The Units shall be located in the state of Washington unless
otherwise specified in the Acceptance Certificate. Lessee shall give Lessor at
least 10 days' prior written notice of any change in such location.
H. OTHER CHARGES.
1. LATE PAYMENT CHARGES. The interest rate on late payments shall be 16% per
annum computed daily on the basis of a 360-day year and actual days elapsed
which results in more interest than if a 365-day year is used.
2. EARLY TERMINATION CHARGES.
(a) INITIAL DIRECT COSTS. Lessee acknowledges that Lessor will incur
certain costs in establishing this transaction ("Initial Direct Costs") and
that Lessor will amortize the Initial Direct Costs over the scheduled full
term of the Lease. Lessor estimates those costs as, and establishes on its
books a reserve therefor, in an amount equal to 1% of the aggregate Fixed
Base Rent for the Units. If the Lease is terminated for any reason before
the scheduled expiration of the Base Term, whether upon a casualty occurrence
or a default, in addition to all other amounts to be paid by Lessee, Lessee
shall pay Lessor an amount equal to the unamortized portion of the Initial
Direct Cost.
I. CONDITIONS PRECEDENT. The obligation of Lessor to pay for each Unit is
subject to satisfaction of the following conditions precedent:
(1) the Delivery Date of the Unit shall be during the Utilization Period;
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(2) there shall exist no Event of Default nor any event that, with notice
or lapse of time or both, would become an Event of Default;
(3) no material adverse change in Lessee's or any guarantor's or general
partner of Lessee's financial condition shall have occurred since the date
hereof;
(4) satisfactory resolution of any environmental issues; and
(5) delivery to Lessor of the following documents, in form and substance
satisfactory to Lessor:
(a) the Lease, this Schedule, the Acceptance Certificate, and any
bill of sale therefor required under the Lease, signed by the President in
conjunction with the Chief Financial Officer;
(b) underwriters' certificates or other evidence acceptable to Lessor
that Lessee has complied with Section 7 of the Lease Agreement;
(c) UCC financing statements executed by Lessee together with, at
Lessor's option, certificates of filing officers as to the nonexistence of
any prior UCC filings and, in the case of a sale and leaseback, evidence
satisfactory to Lessor that each Unit is free and clear of all claims,
liens, security interests and encumbrances;
X (e) a guaranty of JENKON INTERNATIONAL, INC., A WASHINGTON
--- C-CORPORATION, AND JENKON INTERNATIONAL, INC., A DELAWARE
C-CORPORATION;
X (f) corporate resolutions evidencing any corporate guarantor's
--- authority to enter into and perform its obligations under the guaranty
and of the incumbency of the person or persons authorized to
execute and deliver the guaranty and any other agreement or document
required thereunder, including specimen signatures of such persons, in
a form acceptance to Lessor;
--- (g) statements and documents necessary to grant Lessor a prior
perfected purchase money security interest in the Units;
X
--- (h) lien searches in Washington on Lessee;
--- (i) an appraisal of the Units, by an independent appraiser acceptable
to Lessor;
X
--- (j) any other documents specified in this Schedule and such other
documents as Lessor may reasonably request.
J. PURCHASE PROVISION
At the end of the Base Term for a Unit, if the Lease has not been earlier
terminated with respect to the Unit, Lessee shall purchase the Unit for an
amount equal to $1.00 (the "Purchase Amount"). Upon Lessee's payment of the
Purchase Amount, Lessor shall execute and deliver, to Lessee, or its assignee or
nominee, a bill of sale (without representations or warranties except that the
Unit is free and clear of all claims, liens, security interests and other
encumbrances by or in favor of any person claiming by, through or under Lessor)
for the Unit, and such other documents as may be required to release the Unit
from the Lease and to transfer title thereto to Lessee or such assignee or
nominee, in such form as may reasonably be requested by Lessee, all at
Lessee's expense.
K. SALE-LEASEBACK
Section 1.1 of the Lease shall not be applicable with respect to any used
Units identified in Annex A to the Bill of Sale. The following provisions shall
govern the procurement, delivery and acceptance of such used Units;
1. On a date or dates to be agreed upon by Lessor and Lessee
(individually a "Delivery Date"), Lessor will purchase from and lease back to
Lessee for an amount equal to the agreed upon value of the Units identified
in ANNEX A to the Bill of Sale, and Lessee will sell to and lease back from
Lessor each Unit, but all Delivery Dates for such Units must be during the
Utilization Period set forth in this Appendix.
2. The obligation of Lessor to pay for each Unit is subject to the
following additional conditions:
(a) On or before its Delivery Date, Lessee shall execute and deliver to
Lessor a Bill of Sale in the form acceptable to Lessor with respect to the
Unit, dated as of the Delivery Date; and
(b) Lessor shall receive evidence, satisfactory to Lessor, that each Unit
is free and clear of all claims, liens, security interests and
encumbrances.
If any of the foregoing conditions is not met with respect to any such
Unit, Lessor shall have no
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<PAGE>
obligation to either Lessee or any third party to pay the purchase price for
such Unit.
Any attempted or purported sale of a Unit by Lessee to Lessor after its
Delivery Date shall not be effective whether or not accepted by Lessor and
Lessor shall not incur any obligations with respect to the Unit, including the
obligation to pay for the Unit.
3. Lessee represents, warrants and covenants with respect to each Unit
that (a) Lessee has the right to sell the Unit as set forth herein, (b) both the
Unit and Lessee's right, title and interest in the Unit are, or will be as of
its Delivery Date, free from all claims, liens, security interests and
encumbrances, (c) Lessee will defend the sale against claims and demands of all
persons and (d) the purchase price of the Unit is equal to its fair market value
at the time of the sale.
L. REPORTING COVENANTS
Lessee shall, and shall cause any guarantor to, provide the following
financial information and statements and such additional information as
required by Lessor from time to time:
1. Within 60 days of Lessee's fiscal year end, company prepared annual
financial statements;
2. Annual CPA audited financial statements of Jenkon International, Inc.
(Delaware) ("Jenkon") within 120 days of Jenkon's fiscal year end.
M. SECURITY DEPOSIT.
Lessee shall deposit with Seafirst Bank the sum of $300,000 under a
Certificate of Deposit ("Account") as security as soon as possible, but no later
than the first assignment by Lessee of a Purchase Agreement under the Lease. The
Account shall be reduced as set forth below in relation to the Lease Balance.
Lease Balance is defined as the unamortized portion of the aggregate Purchase
Price of all Units under this Lease.
<TABLE>
<CAPTION>
Balance of
Lease Balance Certificate of Deposit
-------------- ----------------------
<S> <C>
$500,000 - $600,000 $300,000
$400,000 - $499,999 $250,000
$300,000 - $399,999 $200,000
$200,000 - $299,999 $150,000
$0 - $199,999 $0
</TABLE>
Lessee shall pledge all rights, title and interest in the Account to Lessor
as security for Lessee's obligations under the Lease or any agreement between
Lessee and Lessor or Lessor's affiliates. Lessee shall execute and deliver to
Lessor a Security Agreement (Deposit Accounts) in the form acceptable to
Lessor. Seafirst Bank shall have no lien rights or right to set off against the
Account so long as Lessor's security interest therein shall continue. Any
interest accrued on the Account shall be payable to Lessee.
If there is an Event of Default Lessor may apply the security to cure such
default. After any such application by Lessor, Lessee shall upon demand restore
the security to the amount set forth above. Notwithstanding the above scheduled
reduction of balance of the Account, if there is an Event of Default, no
reduction of the Account will be permitted. The current balance of the Account
at the time of default shall remain until the default is cured. Upon the
expiration, or earlier termination of the Lease, if no Event of Default exists,
Lessor will return to Lessee any portion of such security that has not been
applied by Lessor.
N. CHATTEL PAPER COUNTERPARTS
Two counterparts of this Schedule have been executed by Lessor and
Lessee. One counterpart has been prominently marked "Lessor's Copy". One
counterpart has been prominently marked "Lessee's Copy". Only the counterpart
marked "Lessor's Copy" shall evidence a monetary obligation of Lessee.
The parties hereto have executed this SCHEDULE NO. 1 as of the day and
year first above written.
BA LEASING & CAPITAL CORPORATION SUMMIT V, INC.
By [ILLEGIBLE] By [ILLEGIBLE]
----------------------------- -----------------------------
Title VICE PRESIDENT Title CEO
--------------------------- ---------------------------
By By [ILLEGIBLE]
----------------------------- -----------------------------
Title Title CFO
--------------------------- ---------------------------
Address: 555 California Street, 4th floor Address: 4601 NE 77th Ave., Suite 300
San Francisco, CA 94104 Vancouver, WA 98662
4
<PAGE>
BANKAMERICA
LEASING & CAPITAL GROUP LEASE NO. 960171
- --------------------------------------------------------------------------------
LEASE INTENDED AS SECURITY
BA LEASING & CAPITAL CORPORATION ("Lessor") agrees to acquire and lease to
the Lessee whose signature appears below ("Lessee") and Lessee agrees to lease
and purchase from Lessor certain personal property (the "Units" and individually
a "Unit") described in one or more Schedules (the "Schedules") hereto. Each
Schedule shall be a part of this Lease intended as Security and all Schedules
and this Lease intended as Security are referred to herein and therein as the
"Lease".
SECTION 1. PROCUREMENT, DELIVERY AND ACCEPTANCE.
1.1 Lessee has ordered or shall order the Units pursuant to one or more
purchase orders or other contracts of sale ("Purchase Agreements") from one
or more vendors ("Vendors"). Lessee shall, on the date of each Schedule,
assign to Lessor all of Lessee's rights in the Unit's Purchase Agreement by
executing and delivering to Lessor the Schedule for the Unit.
1.2 Lessor's obligation to accept the assignment of any Purchase Agreement
and pay for the Units covered thereby is subject to satisfaction of
conditions specified in the Schedule or otherwise specified by Lessor.
1.3 Lessee shall execute and deliver to Lessor, within 15 days of the
Delivery Date of each Unit accepted by Lessee, Unit, an Acceptance
Certificate in a form satisfactory to Lessor (an "Acceptance Certificate")
confirming the Delivery Date of the Unit and Lessee's acceptance of the Unit
under this Lease as of its Delivery Date. The Delivery Date of each Unit is
the date of its Schedule, if Lessee receives title to or possession of the
Unit before that date. Otherwise, the Delivery Date of each Unit is the date
Lessee receives it or, if it requires installation and testing, when that is
completed. Each Acceptance Certificate shall be accompanied by the original
invoice relating to each Unit covered by the Acceptance Certificate.
SECTION 2. TERM, RENT AND PAYMENT.
2.1 The term of this Lease for each Unit (its "Lease Term") shall begin as set
forth on its Schedule and continue as set forth in its Schedule.
2.2 Lessee shall pay to Lessor rent for each Unit as described in the Schedule
in the amounts and at the times set forth in its Lease Schedule Certificate in a
form satisfactory to Lessor (a "Lease Schedule Certificate").
2.3 Rent and all other sums due Lessor hereunder shall be paid at the office of
Lessor set forth below, unless otherwise specified by Lessor.
2.4 THIS LEASE IS A NET LEASE AND LESSEE SHALL NOT BE ENTITLED TO ANY
ABATEMENT OR REDUCTION OF RENT OR ANY SETOFF AGAINST RENT, WHETHER ARISING BY
REASON OF ANY PAST, PRESENT OR FUTURE CLAIM OF ANY NATURE BY LESSEE AGAINST
LESSOR OR OTHERWISE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS
LEASE SHALL NOT TERMINATE, NOR SHALL THE OBLIGATIONS OF LESSOR OR LESSEE BE
OTHERWISE AFFECTED BY ANY CIRCUMSTANCE, including, without limitation, (a)
any defect in, damage to, loss of possession or use or destruction of any
Unit, however caused, (b) the attachment of any lien, encumbrance, security
interest or other right or claim of any third party to any Unit, (c) any
prohibition or restriction of or interference with Lessee's use of any Unit
by any person or entity, (d) the insolvency of or the commencement by or
against Lessee of any bankruptcy, reorganization or similar proceeding, or
(e) any other cause, whether similar or dissimilar to the foregoing, any
present or future law to the contrary notwithstanding. IT IS THE INTENTION
OF THE PARTIES THAT ALL RENT AND OTHER AMOUNTS PAYABLE BY LESSEE HEREUNDER
SHALL BE PAYABLE IN ALL EVENTS IN THE MANNER AND AT THE TIMES HEREIN PROVIDED
UNLESS LESSEE'S OBLIGATIONS IN RESPECT THEREOF HAVE BEEN TERMINATED PURSUANT
TO EXPRESS PROVISIONS HEREOF.
2.5 Payments shall be applied in the following order: (a) Lessor's expenses,
including without limitation those set forth in Sections 8.3 and 19; (b)
interest on late payments; and (c) rent and all other sums due hereunder.
Payments shall be conclusively evidenced by entries in records maintained by
Lessor.
SECTION 3. WARRANTIES.
LESSEE ACKNOWLEDGES AND AGREES THAT (a) EACH UNIT IS OF A SIZE, DESIGN,
CAPACITY AND MANUFACTURE SELECTED BY LESSEE, (b) LESSEE IS SATISFIED THAT THE
SAME IS SUITABLE FOR ITS PURPOSES, (c) LESSOR IS NOT A MANUFACTURER THEREOF
NOR A DEALER IN PROPERTY OF SUCH KIND AND (d) LESSOR HAS NOT MADE, AND DOES
NOT HEREBY MAKE, ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO THE
TITLE, MERCHANTABILITY, CONDITION, QUALITY, DESCRIPTION, DURABILITY, FITNESS
FOR PURPOSE OR SUITABILITY OF ANY UNIT IN ANY RESPECT OR IN CONNECTION WITH
OR FOR THE PURPOSES AND USES OF LESSEE. Lessor hereby assigns to Lessee, to
the extent assignable, any warranties, covenants and representations of
Vendor with respect to any Unit, but any action taken by Lessee by reason
thereof shall be at Lessee's expense and shall be consistent with Lessee's
obligations under Section 2.
SECTION 4. POSSESSION, USE AND MAINTENANCE.
4.1 Lessee shall not (a) use, operate, maintain or store any Unit improperly,
carelessly or in violation of any applicable law or regulation of any government
authority, (b) abandon any Unit, (c) sublease any Unit or permit its use by
anyone other than Lessee without the prior
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<PAGE>
written consent of Lessor, not to be unreasonably withheld, (d) permit any Unit
to be removed from the location or principal base, as the case may be, specified
in the relevant Schedule or permit any Unit that is a motor vehicle to be
registered in any state other than as specified in the relevant Schedule without
the prior written consent of Lessor, (e) affix or place any Unit to or on any
other personal property or any real property without first obtaining and
delivering to Lessor such waivers as Lessor may reasonably require to assure
Lessor's legal title and security interest and right to remove the Unit free
from any lien, encumbrance, right or claim asserted by any third party or (f)
sell, assign or transfer, or directly or indirectly create, incur or suffer to
exist any lien, encumbrance, right or claim, of any kind on any of its rights
hereunder or in any Unit.
4.2 Lessee shall at its expense maintain each Unit during its Lease Term in
good operating order, repair, condition and appearance and in accordance with
the manufacturer's recommended procedures.
4.3 Lessee shall not alter any Unit or install any accessory, equipment or
device on any Unit if that would impair any applicable warranty, the originally
intended function or use or of the value of the Unit. All repairs, parts,
accessories, equipment and devices installed on any Unit, excluding temporary
replacements, shall thereupon become subject to the security interest of Lessor.
4.4 If Lessor supplies Lessee with a label, plate or other marking stating each
Unit is leased from Lessor, Lessee shall affix and keep it on a prominent place
on each Unit during its Lease Term.
4.5 Upon prior notice to Lessee, Lessor and its designees shall have the right
at all reasonable times to inspect any Unit, observe its use and inspect records
related thereto.
SECTION 5. GENERAL TAX INDEMNITY.
5.1 Lessee shall pay or reimburse Lessor for, and indemnify and hold Lessor
harmless from, all fees (including, but not limited to, license,
documentation, recording or registration fees) and all sales, use, gross
receipts, property, occupational, value-added or other taxes, levies,
imposts, duties, assessments, charges or withholdings of any nature
whatsoever, together with any penalties, fines or additions to tax, or
interest thereon (each of the foregoing being hereafter referred to as an
"Imposition"), arising at any time before or during the term of this Lease,
or upon any termination of this Lease or return of the Units to Lessor, and
levied or imposed on Lessor, directly or otherwise, by any federal, state or
local government or taxing authority in the United States or by any foreign
country or foreign or international taxing authority on or with respect to
(a) any Unit, (b) the exportation, importation, registration, purchase,
ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, transportation, return, sale, transfer of title or other
disposition thereof, (c) the rents, receipts, or earnings arising from any
Unit or (d) this Lease or any payment made hereunder, excluding, however,
taxes measured by Lessor's net income imposed or levied by the United States
or any state thereof unless such taxes are in lieu of or in substitution for
any Impositions Lessee would otherwise have been obligated to pay, reimburse
or indemnify hereunder.
5.2 Lessee shall pay on or before the time or times prescribed by law any
Imposition for which Lessee is primarily responsible under applicable law and
any other Imposition (except any Imposition excluded by Section 5.1), but
Lessee shall have no obligation to pay an Imposition that Lessee is
contesting in good faith and by appropriate legal proceedings and the
nonpayment thereof does not, in the opinion of Lessor, adversely affect the
title, property, use, disposition or other rights of Lessor with respect to
the Units. If any Imposition (except an Imposition excluded by Section 5.1)
is charged or levied against Lessor directly and paid by Lessor, Lessee shall
reimburse Lessor on presentation of an invoice therefor.
5.3 If Lessor is not entitled to a corresponding and equal deduction with
respect to any Imposition Lessee is required to pay or reimburse under Section
5.1 or 5.2 and the payment or reimbursement constitutes income to Lessor, Lessee
shall also pay to Lessor the amount of any Imposition Lessor is obligated to pay
in respect of (a) such payment or reimbursement by Lessee and (b) any payment by
Lessee made pursuant to this Section 5.3.
5.4 Lessee shall prepare and file, in a manner satisfactory to Lessor, any
reports or returns required to be filed by Lessee. Lessee shall furnish on
Lessor's request copies of reports or returns so filed.
SECTION 6. RISK OF LOSS; CASUALTIES; INDEMNITY.
6.1 If any Unit is worn out, lost, stolen, destroyed or irreparably damaged,
from any cause whatsoever, or taken or requisitioned by condemnation or
otherwise (any such occurrence being hereinafter called a "Casualty Occurrence")
before or during its Lease Term, Lessee shall give Lessor prompt notice thereof.
On the first rent payment date after the Casualty Occurrence or, if there is no
such rent payment date, 30 days after the Casualty Occurrence, Lessee shall pay
to Lessor an amount equal to the then "Balance Due" (as hereinafter defined) for
the Unit and any "Other Charges" required under its Schedule. The Balance Due
for each Unit is the sum of
(a) any and all amounts with respect to such Unit which under the terms of
this Lease may be then due (other than any Other Charges) or which may have
accrued to such payment date (computing the rent for any number of days less
than a full rent period by multiplying the rent for such rental period by a
fraction of which the numerator is such number of days and the denominator is
the total number of days in such full rent period); plus
(b) before the Base Date for such Unit, as set forth in its Schedule, the
amount Lessor is obligated to pay for such Unit, and thereafter, the sum of (i)
the present value, as of such payment date, of the entire unpaid balance of all
rent for such Unit that would otherwise have accrued hereunder from such payment
date to the end of the term of this Lease as to such Unit and (ii) the present
value, as of such payment date, of the Purchase Amount therefor as defined in
its Schedule.
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<PAGE>
Present values are to be computed in each case by discounting at the applicable
Implicit Interest Rate set forth in the relevant Appendix.
Upon the making of such payment by Lessee in respect of any Unit, the rent
for the Unit shall cease to accrue, its Lease Term shall terminate and Lessee
shall be entitled to possession of such Unit. If Lessor receives the Balance
Due and Other Charges for a Unit, Lessee shall be entitled to the proceeds of
any recovery in respect of the Unit, from insurance or otherwise, and Lessor,
subject to the rights of any insurer insuring the Units as provided herein,
shall execute and deliver, to Lessee, or to its assignee or nominee, a bill
of sale (without representations or warranties except that the Unit is free
and clear of all claims, liens, security interests and other encumbrances by
or in favor of any person claiming by, through or under Lessor) for the Unit,
and such other documents as may be required to release the Unit from this
Lease and to transfer title thereto to Lessee or such assignee or nominee, in
such form as may reasonably be requested by Lessee, all at Lessee's expense.
Except as provided in this Section 6.1, Lessee shall not be released from its
obligations hereunder in the event of, and shall bear the risk of, any
Casualty Occurrence to any Unit before or during its Lease Term.
6.2 Lessee waives and releases any claim now or hereafter existing against
Lessor, any company controlled by, controlling, or under common control with
Lessor and all of their directors, officers, employees, agents, attorneys,
successors and assigns (each, an "Indemnified Person") on account of, and
shall indemnify, reimbursement and hold each Indemnified Person harmless
from, any and all claims (including, but not limited to, claims based on or
relating to copyright, trademark or patent infringement, environmental
liability, negligence, strict liability in tort, statutory liability or
violation of laws), losses, damages, obligations, penalties, liabilities,
demands, suits, judgements or causes of action (collectively, "Claims"), and
all legal proceedings, and any reasonable costs or expenses in connection
therewith, including reasonable attorneys' fees, including reasonable
allocated time charges of internal counsel, in each case imposed on, incurred
by or asserted against the Indemnified Person in any way relating to or
arising in any manner out of (a) the registration, purchase, taking or
foreclosure of a security interest in, or the ownership, delivery, condition,
lease, assignment, storage, transportation, possession, use, operation,
return, repossession, sale or other disposition of, any Unit, before or
during the term of this Lease as to the Unit, (b) any alleged or actual
defect in any Unit (whether arising from the material or any article used
therein, the design, testing, use, maintenance, service, repair, or overhaul
thereof or otherwise) regardless of when such defect is discovered or
alleged, whether or not the Unit is in Lessee's possession and no matter
where it is located or (c) this Lease or any other related document, the
enforcement hereof or thereof or the consummation of the transactions
contemplated hereby or thereby, other than any Claim resulting solely from
the gross negligence or willful misconduct of Lessor (unless covered by the
insurance Lessee is required to maintain hereunder), other than any gross
negligence or willful misconduct of another party imputed to Lessor.
SECTION 7. INSURANCE
Lessee, at its own cost and expense, shall keep each Unit insured against
all risks and in no event for less than the amount set forth in Section
6.1(b) with respect to such Unit, and shall maintain public liability
insurance against such risks and for such amounts as Lessor may require. All
such insurance shall be in such form and with such companies as Lessor shall
approve, shall specify Lessor and Lessee as insureds and shall provide that
such insurance may not be canceled as to Lessor or altered in any way that
would affect the interest of Lessor without at least 30 days prior written
notice to Lessor (10 days in the case of nonpayment of premium). All
insurance shall be primary, without right of contribution from any other
insurance carried by Lessor, shall contain a "breach of warranty" provision
satisfactory to Lessor, and shall provide that all amounts payable by reason
of loss or damage to the Units shall be payable solely to Lessor, unless
Lessor otherwise agrees. Lessee shall provide Lessor with evidence
satisfactory to Lessor of the required insurance.
SECTION 8. DEFAULTS; REMEDIES
8.1 The following shall constitute events of default ("Events of Default")
hereunder:
(a) Lessee fails to make any payments to Lessor when due under this Lease;
(b) any representation or warranty of Lessee contained herein or in any
document furnished to Lessor in connection herewith is incorrect or misleading
in any material respect when made;
(c) Lessee fails to observe or perform any other covenant, agreement or
warranty made by Lessee hereunder or under any document delivered pursuant
hereto and such failure continues for 10 days after written notice thereof to
Lessee;
(d) any default occurs under any other agreement for borrowing money or
receiving credit under which Lessee or any guarantor or general partner of
Lessee may be obligated as borrow, lessee or guarantor, if such default (i)
consists of the failure to pay any indebtness when due or perform any other
obligation thereunder and (ii) gives the holder of the indebtedness the right to
accelerate the indebtness;
(e) Lessee, any guarantor of this Lease or any general partner of Lessee
makes an assignment for the benefit of creditors or files any petition or action
under any bankruptcy, reorganization, insolvency or moratorium law, or any other
law or laws for the relief of, or relating to, debtors;
(f) any guarantor of this Lease breaches or fails to perform any covenant
in its guaranty, or any letter of credit required by this Lease expires or
terminates without Lessor's consent, or Lessor receives notice that the letter
of credit will not be renewed in accordance with its terms;
(g) any involuntary petition is filed under any bankruptcy statute against
Lessee, any guarantor of this Lease or any general partner of Lessee, or any
receiver,
3
<PAGE>
trustee, custodian or similar official is appointed to take possession of the
properties of Lessee, any guarantor of this Lease or any general partner of
Lessee, unless such petition or appointment is set aside or withdrawn or
ceases to be in effect within 60 days from the date of the filing or
appointment; or
(h) Lessee, any guarantor of this Lease or any general partner of Lessee
liquidates, dissolves, dies or enters into any partnership, joint venture (other
than in its ordinary course of business), consolidation, merger or other
combination, or sells, leases or disposes of a substantial portion of its
business assets.
8.2 If any Event of Default occurs, Lessor, at its option, may:
(a) proceed by appropriate court action or actions either at law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for the breach thereof; or
(b) by notice in writing to Lessee terminate this Lease, whereupon all
rights of Lessee to retain possession of and use the Units shall terminate, but
Lessee shall remain liable as hereinafter provided, and Lessor may, at its
option, do any one or more of the following: (i) declare the aggregate Balance
Due with respect to the Units and all Other Charges immediately due and payable
and recover any damages and expenses in addition thereto Lessor sustains because
of the breach of any covenant, representation or warranty contained in this
Lease other than for the payment of rent; (ii) enforce the security interest
given hereunder pursuant to the Uniform Commercial Code or any other law; (iii)
enter upon the premises where any of the Units may be and take possession of all
or any of such Units; and (iv) require Lessee to return the Units as provided in
Section 9.
8.3 Lessor shall have any and all rights given to a secured party by law,
and may, but is not required to, sell the Units in one or more sales. Lessor
may purchase the Units at such sale. Lessee acknowledges that sales for cash
or on credit to a wholesaler, retailer or user of the Units, or at public or
private auction, are all commercially reasonable. The proceeds of such sale
shall be applied in the following order: FIRST, to the reasonable expenses
of retaking, holding, preparing for sale and selling, including the allocated
time charges, costs and expenses of internal counsel for Lessor and any other
attorneys' fees and expenses incurred by Lessor; SECOND, to the amounts,
except those specified below, which under the terms of this Lease are due or
have accrued; THIRD, to late charges; and FOURTH, to the aggregate Balance
Due. Any surplus shall be paid to the person or persons entitled thereto.
If there is a deficiency, Lessee will promptly pay the same to Lessor.
8.4 Lessee agrees to pay all allocated time charges, costs and expenses of
internal counsel for Lessor and any other attorneys' fees, expenses or
out-of-pocket costs incurred by Lessor in enforcing this Lease.
8.5 The remedies herein provided in favor of Lessor shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all other
remedies in its favor existing at law or in equity.
8.6 If Lessee fails to perform any of its agreements contained herein, Lessor
may perform such agreement, and Lessee shall pay the expenses incurred by Lessor
in connection with such performance upon demand.
SECTION 9. RETURN OF UNITS.
If Lessor rightfully demands possession of any Unit pursuant to this Lease
or otherwise, Lessee, at its expense, shall forthwith deliver possession of
the Unit to Lessor, together with its manuals and maintenance records, in the
condition required by Section 4 and any additional return requirements
specified in the relevant Schedule by preparing and appropriately protecting
the Unit for shipment and, at the option of Lessor, (a) surrendering it to
Lessor at its location or base specified in the relevant Schedule or (b)
loading the Unit on board such carrier as Lessor shall specify and shipping
the same, freight collect, to Lessor at the place designated by Lessor in the
state where the Unit was located or based pursuant to the relevant Schedule.
SECTION 10. ASSIGNMENT.
Lessor may at any time assign or transfer all or any of the right, title or
interest of Lessor in and to this Lease, and the rights, benefits and
advantages of Lessor hereunder, including the rights to receive payment of
rent or any other payment hereunder, Lessor's title to the Units and any and
all obligations of Lessor in connection herewith. Lessor may disclose to any
potential or actual assignee or transferee any information in the possession
of Lessor or any of its affiliates relating to Lessee or this Lease. Any
such assignment or transfer shall be subject and subordinate to this Lease
and the rights and interests of Lessee hereunder. NO ASSIGNMENT OF THIS
LEASE OR ANY RIGHT OR OBLIGATION HEREUNDER MAY BE MADE BY LESSEE OR ANY
ASSIGNEE OF LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR.
SECTION 11. SECURITY INTEREST; FURTHER ASSURANCES.
Unless assigned by Lessor, or applicable law otherwise provides, title to and
ownership of the Units shall remain in Lessor as security for the obligations of
Lessee hereunder until Lessee has fulfilled all of its obligations hereunder.
Lessee hereby grants to Lessor a continuing security interest in the Units to
secure the payment of all sums due hereunder.
Lessee confirms there is no pending litigation, tax claim, proceeding or
dispute that may adversely affect its financial condition or impair its ability
to perform its obligations hereunder. Lessee will, at its expense, maintain
its legal existence in good standing and do any further act and execute,
acknowledge, deliver, file, register and record any further documents Lessor may
reasonably request in order to protect Lessor's title to the Units and Lessor's
rights and benefits under this Lease.
SECTION 12. LATE PAYMENTS.
Lessee shall pay to Lessor, on demand, interest at the rate set forth in the
relevant Schedule on the amount of any payment not made when due hereunder from
the date due until payment is made.
4
<PAGE>
SECTION 13. EFFECT OF WAIVER.
No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default of Lessee hereunder shall impair any such
right, power or remedy nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breach or default under this Lease
must be in writing specifically set forth.
SECTION 14. SURVIVAL OF COVENANTS.
All obligations of Lessee under Sections 1, 2, 4, 5, 6, 7, 8, 9, 11 and 12
hereof and under each Schedule shall survive the expiration or termination of
this Lease to the extent required for their full observance and performance.
SECTION 15. APPLICABLE LAW; SEVERABILITY.
This Lease shall be governed by and construed under the laws of
California, to the jurisdiction of which, and of federal courts in
California, the parties hereto submit. If any provision hereof is held
invalid, the remaining provisions shall remain in full force and effect.
SECTION 16. FINANCIAL INFORMATION.
Lessee shall, and shall cause any guarantor to, keep its books and
records in accordance with generally accepted accounting principles and
practices consistently applied and shall, and shall cause any guarantor to,
deliver to Lessor such financial statements and information as may be set
forth in the relevant Schedule or as Lessor may reasonably request. Credit
information relating to Lessee, any guarantor or any general partner of
Lessee may be disseminated among Lessor and any of its affiliates and any of
their respective successors and assigns.
SECTION 17. NOTICES.
All communications hereunder shall be in writing and shall be deemed
given when personally delivered, deposited in the mail, first class postage
prepaid, delivered to an express carrier, charges prepaid or sent by
facsimile transmission (with electronic confirmation of receipt) addressed to
Lessee at its address set forth in the Schedule and to Lessor at the
following address, or at such other address as may hereafter be furnished in
writing by either party to the other: BA Leasing & Capital Corporation, Four
Embacadero Center, Suite 1200, San Francisco, CA 94111, Attn: Contract
Administration #5811; Telecopier No. 415/765-7373.
SECTION 18. COUNTERPARTS.
Two counterparts of this Lease have been executed by the parties hereto.
One counterpart has been prominently marked "Lessor's Copy". One counterpart
has been prominently marked "Lessee's Copy". Only the counterpart marked
"Lessor's Copy" shall evidence a monetary obligation of Lessee.
SECTION 19. TRANSACTION COSTS.
Lessee will reimburse Lessor for any out-of-pocket costs or expenses
incurred in connection with the preparation and negotiation of the lease
documents, including but not limited to UCC searches, UCC filings,
appraisals, title searches and title insurance. If Lessor uses counsel in
connection with negotiating, drafting or altering this Lease or any related
documents, Lessee shall reimburse Lessor for any legal expenses of Lessor
(including allocated time charges of internal counsel for Lessor).
SECTION 2O. NONINTERFERENCE.
So long as no Event of Default or event that, upon giving of notice or
lapse of time, could become an event of default exists, Lessor will not
interfere with the rights of enjoyment and use of the Units by Lessee.
SECTION 21. EFFECT AND MODIFICATION OF LEASE.
This Lease exclusively and completely states the rights of Lessor and
Lessee with respect to the leasing of the Units and supersedes all prior
agreements, oral or written, with respect thereto. No variation or
modification of this Lease shall be valid unless in writing.
The parties hereto have executed this LEASE INTENDED AS SECURITY as of
November 26, 1996.
BY LEASING AND CAPITAL CORPORATION SUMMIT V, INC.
By [illegible] By [illegible]
-------------------------------- ---------------------------
Title Vice President Title CEO
----------------------------- ------------------------
By By [illegible]
-------------------------------- ---------------------------
Title Title CEO
----------------------------- ------------------------
Address: 555 California Street, 4th Floor Address: 4601 NE 77th Ave., Suite 300
San Francisco, CA 94104 Vancouver, WA 98662
5
<PAGE>
GUARANTY
WHEREAS, BA LEASING & CAPITAL CORPORATION ("Lessor"), as a condition
precedent to entering into a Lease Agreement dated as of November 26, 1996
(the "Lease") between Lessor and SUMMIT V, INC. ("Lessee") has requested that
JENKON INTERNATIONAL, INC. (Delaware) and JENKON INTERNATIONAL, INC.
(Washington) ("Guarantors") unconditionally guarantee the obligations of
Lessee under the Lease and under any other agreement executed in connection
with the Lease (the "Obligations").
NOW, THEREFORE, Guarantors unconditionally guarantee and promise to pay
to Lessor, or order, on demand any and all of the Obligations.
The liabilities of Guarantors are joint and several and separate and
independent of the Obligations, and a separate action may be brought and
prosecuted against Guarantors or any of them whether action is brought
against Lessee, whether Lessee is joined in any such action, whether recovery
upon such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become
otherwise unenforceable. Guarantors expressly and irrevocably waive the
benefit of any statute of limitations affecting their liability hereunder or
the enforcement thereof.
The liability under this Guaranty is exclusive of liability under any
other guaranties executed by Guarantors for the benefit of Lessor or any
company relate to Lessor.
Guarantors authorize Lessor, without notice or demand and without
affecting their liability hereunder, from time to time, to:
(a) renew, compromise, extend, accelerate or otherwise change the
time for payment of, or otherwise change the terms of the Obligations or any
part thereof;
(b) accept and hold security for the payment of this Guaranty or
the Obligations, and exchange, enforce, waive, release, fail to perfect, sell
or otherwise dispose of any such security;
(c) apply such security and direct the order and manner of sale
thereof as Lessor in its discretion may determine; and
(d) release or substitute any one or more of the endorsers or
guarantors.
Guarantors expressly and irrevocably waive any right to require Lessor
to (a) proceed against Lessee, (b) proceed against or exhaust any security
held from Lessee, or (c) pursue any other remedy Lessor's power whatsoever.
Guarantors expressly and irrevocably waive any defense arising by reason of
any disability or other defense of Lessee or by reason of the cessation from
any cause whatsoever of the liability of Lessee or any claim that Guarantor's
obligations exceed or are more burdensome than those of Lessee.
Guarantors expressly and irrevocably waive any right of subrogation,
reimbursement, indemnification and contribution (contractual, statutory or
otherwise), including without limitation, any claim or right of subrogation
under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor
statute, arising from the existence or performance of this Guaranty and
Guarantors expressly and irrevocably waiver any right to enforce any remedy
which Lessor now has or may hereafter have against Lessee, and expressly
and irrevocably waive any benefit of and any right to participate in any
security now or hereafter held by Lessor.
Guarantors expressly and irrevocably waive all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices
of dishonor, and notices of acceptance of this Guaranty and of the existence,
creation, or incurring of new or additional indebtedness.
If Lessee is a partnership and Guarantor is a general partner of that
partnership, then Guarantor shall not be liable under this Guaranty for any
indebtedness of Lessee that is secured by real property. But Guarantor shall
nevertheless remain liable under partnership law for all indebtedness of Lessee.
1
<PAGE>
Guarantors understand and acknowledges that if Lessor forecloses, either by
judicial foreclosure or by exercise of power of sale, any deed of trust securing
the Obligations, that foreclosure could impair or destroy any ability that
Guarantors may have to seek reimbursement, contribution or indemnification from
Lessee or others based on any right Guarantors may have of subrogation,
reimbursement, contribution or indemnification for any amounts paid by
Guarantors under this Guaranty. Guarantors further understand and acknowledge
that in the absence of this paragraph, such potential impairment or destruction
of Guarantors' rights, if any, may entitle Guarantors to assert a defense to
this Guaranty based on Section 580d of the California Code of Civil Procedure as
interpreted in UNION BANK V. GRADSKY, 265 Cal App. 2d. 40 (1968). By executing
this Guaranty, Guarantors expressly, freely, irrevocably and unconditionally:
(i) waive and relinquish that defense and agree that Guarantors will be fully
liable under this Guaranty even though Lessor may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
Obligations; (ii) agree that Guarantors will not assert that defense in any
action or proceeding that Lessor may commence to enforce this Guaranty; (iii)
acknowledge and agree that the rights and defenses waived by Guarantors in this
Guaranty include any right or defense that Guarantors may have or be entitled to
assert based upon or arising out of any one or more of Sections 580a, 580b, 580d
or 726 of the California Code of Civil Procedure or Section 2848 of the
California Civil Code; and (iv) acknowledges and agree that Lessor is relying on
this waiver in creating the Obligations, and that this waiver is a material part
of the consideration which Lessor is receiving for creating the Obligations.
Guarantors expressly and irrevocably waive all presentments, demands for
performance, notices of non-performance, protests, notices of protests, notices
of dishonor, and notices of acceptance of this Guaranty and of the existence,
creation, or incurring of new or additional Obligations. Guarantors expressly
and irrevocably waive any and all rights of subrogation, reimbursement and
contribution (contractual, statutory or otherwise), including without
limitation, any "claim" or right of subrogation under Title 11 of the U.S. Code,
against Lessee arising from the existence or performance of this guaranty or the
Lease and Guarantors expressly and irrevocably waive any right to enforce any
remedy Lessor now has or may hereafter have against Lessee, and expressly and
irrevocably waive any benefit of, and any right to participate in, any security
now or hereafter held by Lessor.
In addition to all liens upon, and rights of setoff against the moneys,
securities and other property of Guarantors given to Lessor by law, Lessor shall
have a lien upon and a right of setoff against all moneys, securities and other
property of Guarantors now or hereafter in the possession of or on deposit with
Lessor whether held in a general or special account or deposit, or for
safekeeping or otherwise, and every such lien and right of setoff may be
exercised without demand upon or notice to Guarantors. No lien or right of
setoff shall be deemed to have been waived by any act or conduct on the part of
Lessor, or by any neglect to exercise such right of setoff or to enforce such
lien, or by any delay in so doing, and every right of setoff and lien shall
continue in full force and effect until such right of setoff or lien is
specifically waived or released by an instrument in writing executed by Lessor.
Any obligations of Lessee to Guarantors, now or hereafter existing,
including but not limited to any obligations to Guarantors as subrogees of
Lessor or resulting from Guarantors' performance under this Guaranty, are hereby
subordinated to the Obligations and any other indebtedness of Lessee to Lessor.
Such Obligations of Lessee to Guarantors, if Lessor shall so request, shall be
enforced and performance received by Guarantors as trustees for Lessor and shall
be paid over to Lessor on account of the Obligations and any other indebtedness
of Lessee to Lessor, but without reducing or affecting the liability of
Guarantors under the other provisions of this Guaranty.
Guarantors understand and acknowledges that, by virtue of this Guaranty,
they have specifically assumed any and all risks of a bankruptcy or
reorganization case or proceeding with respect to Lessee. As an example and not
by way of limitation, a subsequent assignment, rejection or modification of the
Lease in any reorganization case concerning Lessee shall not affect the
obligation of Guarantors to pay the amounts in accordance with the Lease. If any
amount guaranteed hereunder is paid by Lessee and the payee is required by court
order to return such payment to Lessee or any trustee, receiver, custodian,
liquidator or other similar officer of either of them (and is so returned) then
Guarantor shall, notwithstanding any termination or cancellation of this
Guaranty, remain fully liable with respect to any such amount as if such amount
had not been paid by Lessee.
Guarantors agree to pay all allocated time charges, costs and expenses of
the Legal Department of Bank of America National Trust and Savings Association
and any other attorneys' fees, expenses or out-of-pocket costs and expenses
incurred by Lessor in enforcing this Guaranty.
2
<PAGE>
Guarantors acknowledge and agree that they shall have the sole
responsibility for obtaining from Lessee such information concerning Lessee's
financial condition or business operations as Guarantors may require, and that
Lessor has no duty at any time to disclose to Guarantors any information
relating to the business operations or financial condition of Lessee.
Lessor may, without notice to Guarantors and without affecting Guarantors'
obligations hereunder, assign the Obligations and this Guaranty, in whole or in
part. Guarantors agree Lessor may disclose to any prospective purchaser and any
purchaser of all or part of the Obligations any and all information in Lessor's
possession concerning Guarantors, this Guaranty and any security for this
Guaranty.
When a single Guarantor executes this Guaranty, all words used herein in
the plural shall be deemed to have been used in the singular where the context
and construction so require and when this Guaranty is executed by more than one
Guarantor, the words Guarantor shall mean all and any one or more of them.
Guarantors shall deliver to Lessor financial statements in such form and at
such times as Lessor may require.
If Lessee is a corporation or a partnership, Lessor shall have no duty to
inquire into the powers of Lessee or the officers, directors, partners, or
agents acting or purporting to act on its behalf and any obligations made or
created in reliance upon the professed exercise of such powers shall be
Obligations guaranteed hereunder.
Any married person who signs this Guaranty hereby expressly agrees that
recourse may be had against such person's separate property for all obligations
under this Guaranty.
This Guaranty shall be governed by and construed according to the laws of
California, to the jurisdiction of which the parties hereto submit.
IN WITNESS WHEREOF, the undersigned Guarantors have executed this GUARANTY
this 26th day of November, 1996.
JENKON INTERNATIONAL, INC. (Delaware)
- --------------------------
(Guarantor) Address:
By: /s/ D. A. Edwards 4601 NE 77th Ave., Suite 300
-------------------------------- -----------------------------------
Title: CEO Vancouver, WA 98662
----------------------------- -----------------------------------
JENKON INTERNATIONAL, INC. (Washington)
- --------------------------
(Guarantor) Address:
By: /s/ D. A. Edwards 4601 NE 77th Ave., Suite 300
-------------------------------- -----------------------------------
Title: CEO Vancouver, WA 98662
----------------------------- -----------------------------------
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jenkon International, Inc.
Vancouver, Washington
We hereby consent to the use in the Company's Registration Statements on Form
SB-2 of our report dated October 22, 1997, relating to the audit of the
consolidated financial statements of Jenkon International, Inc. as of June 30,
1996 and 1997 and the years then ended, which are contained in and incorporated
by reference to the Prospectus dated July 15, 1998 filed with the Securities and
Exchange Commission on July 15, 1998.
Los Angeles, California
July 15, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 283,486
<SECURITIES> 0
<RECEIVABLES> 1,278,353
<ALLOWANCES> (97,600)
<INVENTORY> 0
<CURRENT-ASSETS> 1,634,220
<PP&E> 1,464,164
<DEPRECIATION> (567,148)
<TOTAL-ASSETS> 2,849,199
<CURRENT-LIABILITIES> 2,526,972
<BONDS> 180,261
2,310,174
0
<COMMON> 1,956
<OTHER-SE> (2,170,164)
<TOTAL-LIABILITY-AND-EQUITY> 2,849,199
<SALES> 7,047,634
<TOTAL-REVENUES> 7,047,634
<CGS> 2,384,718
<TOTAL-COSTS> 4,120,627
<OTHER-EXPENSES> 28,118
<LOSS-PROVISION> 81,328<F1>
<INTEREST-EXPENSE> 87,044
<INCOME-PRETAX> 427,127
<INCOME-TAX> 15,577
<INCOME-CONTINUING> 411,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411,550
<EPS-PRIMARY> .23
<EPS-DILUTED> .12
<FN>
Provision for doubtful accounts is also included in total costs
</FN>
</TABLE>