<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999
REGISTRATION NO. 333-62703
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NEWGEN RESULTS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 33-0604378
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
12680 HIGH BLUFF DRIVE, SUITE 300
SAN DIEGO, CALIFORNIA 92130
(619) 481-7545
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------
GERALD L. BENOWITZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEWGEN RESULTS CORPORATION
12680 HIGH BLUFF DRIVE, SUITE 300
SAN DIEGO, CALIFORNIA 92130
(619) 481-7545
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
M. WAINWRIGHT FISHBURN, ESQ. FRANCIS S. CURRIE, ESQ.
LANCE W. BRIDGES, ESQ. NEIL WOLFF, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
4365 EXECUTIVE DRIVE, SUITE 1100 PROFESSIONAL CORPORATION
SAN DIEGO, CA 92121 650 PAGE MILL ROAD
(619) 550-6000 PALO ALTO, CA 94304
(650) 493-9300
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE 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, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 of 1933, 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 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 PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(1) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.001 par value........... 4,255,000 $14.00 $59,570,000 $17,522.46
</TABLE>
(1) Includes 555,000 shares that the underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee.
(3) A registration fee of $13,750 was previously paid by the Registrant. The
registration fee paid previously was calculated based on the applicable
filing fee on September 2, 1998.
------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE 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 MARCH 19, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
PROSPECTUS
3,700,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Newgen Results
Corporation. Of the 3,700,000 shares of common stock being sold in this
offering, 2,724,370 are being sold by Newgen and 975,630 are being sold by a
selling stockholder. Newgen will not receive any of the proceeds from the sale
of shares by the selling stockholder. The estimated initial public offering
price will be between $12.00 and $14.00 per share.
--------------
There is currently no public market for the common stock. The shares of
common stock have been approved for quotation on the Nasdaq National Market
under the symbol NWGN.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------------- ----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Newgen, before expenses......................... $ $
Proceeds to selling stockholder, before expenses............ $ $
</TABLE>
Newgen has granted the underwriters an option for a period of 30 days to
purchase up to 555,000 additional shares of common stock to cover any
over-allotments.
--------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS A DIVISION OF DAIN
RAUSCHER INCORPORATED
, 1999
<PAGE>
[INSIDE FRONT COVER]
THE NEWGEN SOLUTION
[DIAGRAM LISTING THE COMPANY'S DATABASE MARKETING SERVICES AND DEPICTING THE
RELATIONSHIP BETWEEN THE COMPANY, THE AUTOMOBILE DEALERSHIP AND THE DEALERSHIP'S
CUSTOMERS.]
<TABLE>
<S> <C> <C>
Increases Service Customers Increases Revenue Creates Customer
to Dealerships Per Customer Loyalty
</TABLE>
<TABLE>
<S> <C>
Increases Customer Differentiates
Satisfaction Dealership
</TABLE>
2
<PAGE>
[GATEFOLD]
THE RESULTS PROGRAM
[A diagram depicting the individual components of Newgen's RESULTS Program
presented in a flow-chart format with graphic arrows representing the
closed-loop system. The diagram begins with a photograph of a dealership
computer system with a caption: "Through Interface to Dealership Computer
System, Nightly Automatic Updating of Dealer Repair Order Information." The next
photograph depicts a bank of computers with a caption: "Database Purified by
Eliminating: Employees, Dealer Trades, Off-Make Vehicles, Fleets, Unreadable
VINS." An arrow then directs the reader to the next photograph of a report
containing Newgen's maintenance schedules with a caption: "Customer and Dealer
Specific Maintenance Schedules." The next photo is of a mailbox and a sample
letter with the caption: "Customer Receives Personalized Reminder Letter on
Digitized Dealership Letterhead."
The flow chart then splits. If a customer responds to a dealership letter the
next photo is of a car at a dealership with a caption: "Customer Arrives For
Maintenance." If a customer does not respond to a dealership letter, the next
photo is also of a car at a dealership, but with a diagonal line across the
picture and a caption: "Customer Does Not Arrive For Service." If a customer
does not arrive for service, the next photo in the sequence depicts a Newgen
teleservice representative telephoning the customer, with a caption: "Personal
Phone Call." Following a phone call, an arrow directs the reader to the next
photo, which depicts a computer keyboard with a caption: "Appointment is Made,
`Customer Opportunity' is Identified, or Database is Purified." The split chart
then merges and the next photograph is of a dealership employee at a computer
terminal with the caption: "Work Performed and Mileage Captured at Dealership."
The flow chart then splits again, with one photo showing a list of names and
addresses with a magnifying glass and a caption: "Management Reports Generated."
The other branch of the chart shows a photograph of Newgen's maintenance
schedules with a caption: "Schedule Next Notification Based on Updated Mileage."
An arrow then points back to the earlier photograph of a bank of computers.]
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................................... 5
Risk Factors................................................. 9
Forward-Looking Statements................................... 22
Use of Proceeds.............................................. 22
Dividend Policy.............................................. 22
Capitalization............................................... 23
Dilution..................................................... 24
Selected Consolidated Financial Data......................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 26
Business..................................................... 35
Management................................................... 50
Certain Transactions......................................... 60
Principal and Selling Stockholders........................... 62
Description of Capital Stock................................. 64
Shares Eligible for Future Sale.............................. 67
Underwriting................................................. 69
Legal Matters................................................ 71
Experts...................................................... 71
Additional Information....................................... 71
Index to Consolidated Financial Statements................... F-1
</TABLE>
Information contained on our Web site is not a part of this prospectus.
Newgen Results Corporation and Newgen Results Program are our
trademarks. This prospectus also includes trademarks and trade names of other
companies.
We were incorporated in California in February 1994 and we
reincorporated in Delaware in December 1998. Our executive offices are located
at 12680 High Bluff Drive, Suite 300, San Diego, California 92130 and our
telephone number is (619) 481-7545.
4
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION.
NEWGEN
Newgen is a leading provider of customized, outsourced database
management, direct marketing and related services for automobile dealerships'
service departments and automobile manufacturers. We combine our expertise in
database marketing and customer retention services, our focus on customer
service and our in-depth knowledge of service department operations to provide
highly targeted and customized solutions. We have grown our customer base from
177 dealerships at December 31, 1995 to 1,902 dealerships at December 31, 1998
and we currently solicit over four million dealership customers. Our services
are designed to:
- attract more service customers to dealerships from the dealerships'
customer base;
- increase dealership revenues per customer;
- promote customer loyalty and increase customer satisfaction;
- differentiate the dealership from its competition through improved
operations; and
- provide the benefits of a safer vehicle with an increased resale
value.
Historically, automobile dealerships have focused on sales of
automobiles, viewing the benefits of retaining customers for service-related
revenue as being secondary. Despite declining market share of service-related
spending at dealerships, the percentage of dealership profits generated from the
service and parts department has increased from 16% in 1985 to 59% in 1997.
Dealerships and manufacturers increasingly are realizing that the service
department represents an important component of dealership profitability.
Our RESULTS Program utilizes direct mail and outbound teleservice
follow-up to promote service business from within a dealership's customer base.
We estimate that approximately 25% to 30% of dealership customers solicited by
us return to the dealership for vehicle service. This contrasts with typical
response rates for direct mail marketing campaigns of between 1% and 3%. Our
closed-loop system is implemented using data provided by dealerships that is
processed, purified and combined with maintenance schedule databases and our own
proprietary databases and algorithms to develop customized solicitations
targeting service visits. Our internal studies indicate that dealership
customers we solicit will visit a dealership more than three times as often and
spend more than two and one-half times as much over the course of the year as
customers with similar demographic characteristics that we do not solicit.
We also leverage our expertise in the service department operations of
dealerships by providing consulting services to dealerships and manufacturers.
Our Consulting Division develops and implements new techniques and programs that
enable dealerships to grow their businesses and streamline inefficient
processes. We are also investing significant resources to develop and introduce
new and innovative services. We have recently introduced our Reservations
Program that provides dealerships with outsourced service appointment and shop
loading services. In addition, we recently introduced Welcome Home, a service
designed to recapture dealership service customers who have previously defected.
We maintain a close and strategic relationship with Ford Motor Company.
The key elements of our relationship with Ford include joint marketing programs
for deployment to Ford dealerships, private labeling by Ford of our database
marketing services and a consulting engagement involving Ford dealerships.
We intend to grow our business by providing services to more automobile
dealerships, increasing the number of active names per automobile dealership,
offering a broad range of customized direct marketing services, leveraging our
data management capabilities to provide data extraction and warehousing services
and utilizing the Internet as a delivery platform for our services.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Newgen............... 2,724,370 shares
Common Stock offered by the selling
stockholder.................................. 975,630 shares
Common Stock to be outstanding after this
offering..................................... 9,908,102 shares
Use of proceeds.............................. For repayment of short-term debt, the
purchase of certain infrastructure equipment,
and working capital and other general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... NWGN
</TABLE>
--------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES
(I) THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO COMMON
STOCK UPON THE COMPLETION OF THIS OFFERING, (II) THE FILING OF OUR RESTATED
CERTIFICATE OF INCORPORATION AUTHORIZING A CLASS OF UNDESIGNATED PREFERRED
STOCK, TO BE EFFECTIVE UPON THE COMPLETION OF THIS OFFERING, (III) THE EXERCISE
OF A WARRANT TO PURCHASE 7,576 SHARES BY THE SELLING STOCKHOLDER CONCURRENTLY
WITH THIS OFFERING AND (IV) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION. THE PRO FORMA WEIGHTED AVERAGE COMMON SHARES INCLUDE PREFERRED STOCK (ON
AN AS CONVERTED BASIS) AS WELL AS COMMON STOCK. PLEASE SEE "DESCRIPTION OF
CAPITAL STOCK" FOR A MORE COMPLETE DISCUSSION REGARDING NEWGEN'S CAPITAL STOCK,
OPTIONS, WARRANTS AND RELATED MATTERS.
6
<PAGE>
THE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA PRESENTED BELOW IS
DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF NEWGEN AND ITS
SUBSIDIARIES. THE FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS ENDED
DECEMBER 31, 1998 HAVE BEEN AUDITED BY INDEPENDENT PUBLIC ACCOUNTANTS.
ACTIVE NAMES ARE VEHICLE IDENTIFICATION NUMBERS CONTAINED IN OUR
PURIFIED DATABASE CORRESPONDING TO VEHICLE OWNERS SOLICITED BY US FOR VEHICLE
MAINTENANCE SERVICES ON A REGULAR BASIS. WE INVOICE OUR DEALERSHIP CUSTOMERS
BASED ON THE NUMBER OF ACTIVE NAMES FOR EACH DEALERSHIP. WE DID NOT TRACK THE
NUMBER OF ACTIVE NAMES IN 1994.
THE PRO FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET DATA SUMMARIZED
BELOW REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO
COMMON STOCK AND APPLICATION OF THE NET PROCEEDS FROM THE SALE OF THE 2,724,370
SHARES OF COMMON STOCK OFFERED BY NEWGEN AT THE ASSUMED INITIAL PUBLIC OFFERING
PRICE OF $13.00 AND AFTER DEDUCTING THE UNDERWRITING DISCOUNTS AND COMMISSIONS
AND ESTIMATED OFFERING EXPENSES, AND REPAYMENT OF $800,000 OF SHORT-TERM
INDEBTEDNESS.
--------------
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND SUPPLEMENTAL OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998
1994 ---------- ---------- ---------- ----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues.................................. $2,018 $ 3,614 $11,629 $26,414 $40,106
Gross profit (loss)............................. 195 (513) 1,478 6,017 10,843
Selling, general and administrative expenses.... 727 2,178 5,396 6,234 8,877
Net loss........................................ (596) (2,811) (4,691) (2,189) (3,203)
Pro forma basic and diluted net loss per
share......................................... (0.45)
Pro forma basic and diluted shares used in
computing net loss per share.................. 7,176
SUPPLEMENTAL OPERATING DATA (UNAUDITED):
Number of dealerships........................... 66 177 802 1,285 1,902
Number of active names.......................... 396,213 1,970,738 2,905,484 4,128,865
</TABLE>
SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
----------- ----------- ----------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues............... $ 4,962 $ 5,663 $ 6,828 $ 8,961 $ 9,274 $ 10,101 $ 9,834 $ 10,897
Gross profit................. 1,045 1,191 1,613 2,168 2,277 2,651 2,663 3,252
Net loss..................... (531) (599) (688) (371) (663) (647) (664) (1,229)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 817 $ 32,255
Working capital........................................................................ 2,558 34,796
Total assets........................................................................... 12,772 44,210
Long-term debt, less current maturities................................................ 874 874
Redeemable convertible preferred stock................................................. 16,050 --
Total stockholders' equity (deficit)................................................... (11,133) 37,155
</TABLE>
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, INCLUDING OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, AND COULD RESULT IN A COMPLETE
LOSS OF YOUR INVESTMENT.
WE HAVE A HISTORY OF LOSSES AND MAY EXPERIENCE FUTURE LOSSES
We incurred net losses of $4.7 million in 1996, $2.2 million in 1997 and
$3.2 million in 1998. As of December 31, 1998, we had an accumulated retained
deficit of $15.1 million. We have not achieved profitability and may incur net
losses in the future. We anticipate continuing to incur significant sales and
marketing, service development, technology, and general and administrative
expenses as we continue to develop and introduce new services, increase our
customer base, and extend our technology capabilities. As a result, we will need
to generate significantly higher revenues to achieve and sustain profitability.
Although our revenues have grown in recent quarters, we cannot be certain that
we will continue to achieve revenue growth or generate sufficient revenues to
achieve profitability. Our financial results would be harmed if our revenue does
not grow or grows more slowly than we anticipate, or if our operating or capital
expenditures exceed our expectations and cannot be adjusted accordingly.
OUR LIMITED OPERATING HISTORY PROVIDES LITTLE INFORMATION WITH WHICH TO EVALUATE
OUR BUSINESS AND PROSPECTS
We were incorporated in February 1994 and have a limited operating
history. Investors must consider our business and prospects in light of the
risks typically encountered by companies in their early stages of development.
Some of these risks, in addition to those risks discussed elsewhere in this
section, include:
- our evolving business model;
- the intensely competitive market for outsourced database management
and direct marketing services to automobile dealerships and
manufacturers;
- the risks relating to the timely introduction of new services;
- the risks associated with the expansion of our operational and
technology infrastructure;
- the challenges encountered in expanding our sales and customer support
organization; and
- our reliance on the cyclical auto industry.
We may not be successful in implementing any of our business strategies or in
addressing these risks or others. Even if we are successful, we still may not be
profitable in the future.
THERE ARE MANY FACTORS, INCLUDING SOME BEYOND OUR CONTROL, THAT MAY CAUSE
FLUCTUATIONS IN OUR QUARTERLY RESULTS
Our quarterly and annual revenues, gross margins and operating results
have fluctuated in the past and are likely to fluctuate in the future. The
various services we offer have different gross margins and, as a result, our
revenue mix will affect our total gross margin. In addition, some of our
operating expenses are relatively fixed and cannot be reduced in the short term
to compensate for unanticipated variations in revenue. Thus, our total gross
margin will be materially adversely affected in the event of any unexpected
revenue shortfall.
8
<PAGE>
Future fluctuations in our results of operations may be caused by
various factors, many of which are outside of our control. Some of these factors
include:
- our ability to attract new dealerships as customers;
- the cancellation of contracts;
- changes in our average revenues per customer;
- our ability to introduce new services;
- the introduction of alternative services by competitors;
- our ability to retain existing personnel and attract new personnel in
a timely and effective manner;
- changes in our pricing policies or those of our competitors resulting
from competitive pressures and other factors;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure,
including the rewrite of our database management and customer
retention software and upgrades to our computer and telephony
technology;
- our ability to effectively manage growth;
- increases in costs of services and supplies provided to us by third
parties, including the price of paper, toner and postage; and
- the cost of labor.
Historically, our quarterly fluctuations in revenue have been due
primarily to fluctuations in consulting revenues, which have consisted of a
small number of significant contracts. For example, in the fourth quarter of
1997, total revenues increased by $2.1 million to $9.0 million, primarily as a
result of an increase in consulting revenues. Consulting revenues as a
percentage of our total revenues for the eight quarterly periods ended December
31, 1998 ranged from 12% to 32%. In addition, our consulting business currently
depends entirely on Ford. Ford engages our consulting division to perform
discrete consulting projects. Our current consulting purchase order with Ford is
expected to be completed in August 1999. Ford is under no obligation to continue
to engage us for future projects. In the event that we are not engaged by Ford
to perform additional consulting services, our revenues from consulting services
will decrease significantly.
Due to these and other factors, quarterly revenues, expenses and results
of operations could vary significantly in the future, and period-to-period
comparisons should not be relied upon as indications of future performance. We
may not be able to increase our revenues in future periods or be able to sustain
our existing level of revenues or our rate of revenue growth on a quarterly or
annual basis. In addition, our annual or quarterly operating results may not
meet the expectations of securities analysts and investors. If this happens, the
trading price of our common stock could significantly decline.
WE ARE HIGHLY DEPENDENT ON OUR RELATIONSHIP WITH FORD MOTOR COMPANY
We derive a substantial portion of our revenues from Ford and Ford
dealerships. In 1998 sales of our RESULTS Program and other services to Ford
dealerships represented 54% of our revenues while consulting services provided
to Ford represented 23% of our revenues. We collect accounts receivable from a
majority of Ford dealerships directly from Ford. We expect that sales to Ford
and Ford dealerships will continue to comprise a significant percentage of our
revenues and accounts receivable for the foreseeable future.
9
<PAGE>
Due to a change in Ford's accounting system in late 1998, we were
temporarily unable to collect accounts receivable from Ford in a timely manner.
If in the future we are unable to collect accounts receivable from Ford in a
timely manner for any reason, this could reduce the amount of cash available to
us to operate our business. As a result, we could be required to use cash
reserves or increase our outstanding indebtedness in order to continue our
normal business operations.
Ford also has acted as a key reference in our solicitation of Ford
dealerships and other manufacturers as new customers. We expect that we will
need to continue to develop relationships with existing and future Ford
management in order to maintain strong ties with Ford and to continue to receive
Ford's endorsement of our services to Ford dealerships. Our relationship with
Ford could be damaged if our Executive Vice President, who has developed a
relationship with certain key Ford personnel, terminates his employment with
Newgen. We contract individually with Ford dealerships which are under no
obligation to use our services. Any change in our relationship with Ford or any
change in Ford's recommendation of our services could result in a significant
reduction in the number of customers we service and hinder our ability to
contract with new customers which could harm our business, financial condition
and results of operations.
IF OUR COMPUTER SOFTWARE REWRITE IS NOT COMPLETED IN A TIMELY MANNER WE WILL
INCUR SUBSTANTIAL EXPENSE OR BE REQUIRED TO MODIFY OUR CURRENT SOFTWARE
We have commissioned a substantial rewrite of our enterprise-wide
database management software that we expect to be completed in the fourth
quarter of 1999. The new software is being developed by Information and Graphic
Systems Inc., a company that merged with Bolder Heuristics Inc. (IGS). The
software rewrite was scheduled to be completed in the first quarter of 1999. We
have not yet received a version of the software that meets our business
requirements. The schedule for completion of the software rewrite has therefore
been revised and we now expect a completed version of the software to be
delivered to us in the fourth quarter of 1999. IGS may not be able to complete
the software development in a timely manner and the software may not perform
according to design specifications. We are incurring expenses of between $50,000
and $100,000 per month of additional operating costs and for revisions to our
existing software as a result of the delay in the completion of the software
rewrite. Further delays or failure in the completion of the software rewrite may
result in additional costs. In the event that IGS is unable to complete the
software rewrite in accordance with our specifications, we may rewrite our
enterprise-wide database management software using our own staff and resources.
If we elect to perform such a software rewrite internally, this may divert our
technology resources away from servicing our existing customers, or developing
new services. Any such diversion of resources may reduce our customers' level of
satisfaction with Newgen's existing services or in delays in the development or
introduction of new services. Our new enterprise-wide database management
software will be complex and may initially impair our ability to provide
satisfactory customer service. For example, it may result in the distribution of
incorrect data. In addition, our current hardware may be insufficient to support
the software rewrite. Our introduction of new services is dependent in part upon
the development and implementation of the new software. Other risks related to
the software rewrite include:
- the integration of the new software with our existing systems;
- the training of technical personnel to use and enhance the new system;
- cost overruns associated with development and implementation of the
system;
- lost productivity associated with testing and debugging the software,
unexpected defects or failures;
- credits to customers that may be required in connection with such
defects or failures and additional costs associated with converting to
and supporting the software rewrite; and
10
<PAGE>
- the inability to scale our existing software to support a substantial
increase in the number of customer dealerships without modifying our
existing software.
Any delay or failure to successfully complete or implement the software
could harm our business, financial condition and results of operations.
WE WILL NEED TO INTRODUCE NEW SERVICES TO EXPAND OUR BUSINESS
Our future growth will depend, in part, on our ability to enhance our
existing services with new features and to develop new services that address the
expanding needs of our customers. In addition, our future growth will also
depend on our ability to respond to technological advances and emerging industry
practices in a timely and cost-effective manner. Acceptance of our new services
depends on several factors, including dealerships' needs for these services,
demonstration of tangible benefits of the services, pricing and dealership
industry conditions and trends. We recently introduced our Reservations, Around
the Wheel and Welcome Home Programs. Our customers may not accept or contract
with us for any of our new services. In addition, several of our competitors
have substantially greater resources than we do. This may allow them to
introduce new services or features before we do or develop services or features
superior to our services. In the future, we may experience product development,
marketing and other difficulties that could delay or prevent our development,
introduction or marketing of new or enhanced services. A substantial portion of
the $2.3 million in technology and product development expenses we incurred in
1998 consisted of expenses related to the development of new services. In the
future, we will also have to incur substantial marketing expenses to encourage
the acceptance of our new services by our customers and any potential new
customers. If we are unable to develop and introduce new or enhanced services in
a timely or cost-effective manner, our business could be harmed.
OUR ABILITY TO SECURE NEW CONTRACTS WILL AFFECT OUR FUTURE GROWTH
If we are unable to expand our customer base or successfully market and
sell our services to dealerships, we may not be able to increase our revenues,
or our revenues may decline. In general, our ability to secure new contracts
depends upon several factors, including:
- the effectiveness of our sales and marketing personnel;
- the establishment of more automobile manufacturer relationships;
- the ability of our sales personnel to gain access to decision makers
at dealerships;
- the perceived value of our services; and
- our reputation among dealerships.
Newgen's growth is driven largely by increasing our dealership base. Our
customer base grew from 177 dealerships at December 31, 1995 to 1,902
dealerships at December 31, 1998. We may not be able to secure new contracts in
the future or successfully retain our existing contracts. We are also seeking to
develop relationships with automobile manufacturers as a means of securing
service contracts with dealerships. In the event we are unable to develop such
relationships, our ability to secure or retain service contracts with
dealerships may be hindered. We may not be successful in developing such
relationships and our competitors may use their greater financial and other
resources to preclude or hinder our efforts to develop such relationships. Our
failure to increase the number of dealerships we service would restrict our
future growth and would harm our business.
DEALERSHIP TURNOVER MAY HARM OUR BUSINESS
Our contracts with dealerships are of various durations, typically
ranging from six months to two years. All of our contracts may be terminated
upon the expiration of the contract term. In addition, during the contract term,
dealerships may choose to reduce the number of active names serviced by us,
which
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may result in reduced revenues to Newgen. Our ability to renew customer
contracts is dependent upon various factors including:
- the perceived value of our services;
- the ability of customer satisfaction representatives to deal
proactively with issues as they arise;
- the quality of our services;
- our ability to develop new services; and
- the pricing of our services.
Our inability to meet the expectations of our customers with respect to any of
these factors may result in cancellation of our services by such customers.
Although we have taken measures to reduce turnover, dealership turnover rates
may increase in the future. In 1998, 348 customers cancelled their contracts
after the expiration of their contract term. Because our contracts are subject
to risk of cancellation, the number of dealerships contracting for our services
at any given time may not be a reliable measure of our future revenues. Any
termination, significant reduction or modification of our business relationships
with a significant number of dealerships may harm our business.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY IN THE MARKET FOR OUTSOURCED SERVICES TO
AUTOMOBILE DEALERSHIPS AND MANUFACTURERS
We operate in a highly competitive business environment. We compete with
a variety of companies, including large national or multi-national companies
which have greater financial resources than us and smaller regional or local
companies that are involved to varying degrees in the same business as us. Our
three significant national competitors are Reynolds & Reynolds, Co. (R&R),
Automatic Data Processing, Inc. (ADP) and Moore Corporation Limited (Moore).
R&R's Service Systems Division offers automobile dealerships database management
and customer retention services that compete directly with our services. ADP's
automobile dealership services competes with us by providing customer retention
services similar to ours. Moore also delivers integrated business
communications, personalized direct marketing and other related services to
automobile dealerships and manufacturers. We believe that R&R and ADP each have
significantly more customers than we do. Moreover, R&R, ADP and Moore have
significantly greater financial resources and all of them actively compete
against us for dealership business. For example, in the past R&R has offered a
discount on customer retention systems to dealerships that purchase certain
hardware and software and ADP has offered free services for up to three months.
We also compete to a limited degree with other small customer retention service
providers and in-house customer retention systems. Dealerships may decide to
satisfy their database management and direct marketing needs internally rather
than outsourcing, especially as dealerships grow larger due to industry
consolidation.
R&R, ADP and Moore price their services on a per letter basis, although
certain customers of Moore may elect to be billed on the number of active names
in the customer database. Therefore, meaningful price comparisons between our
services and our competitors' are difficult. Dealerships may perceive that our
services are priced higher than those of our competitors. In addition, our
competitors may increase their emphasis on programs similar to those programs we
offer and new competitors may enter the market. Furthermore, dealerships or
automobile manufacturers themselves may introduce competing programs. If any of
these were to occur, we may be unable to compete effectively against them.
WE RELY ON CERTAIN SUPPLIERS
We depend on certain suppliers to enable us to deliver our services. For
example Anderson Print & Mail, Inc. (Anderson) and Delta Mailing, Inc. (Delta)
are currently the only sources for our
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printing and direct mail needs. In August 1998, we agreed to purchase a
significant portion of our printing requirements from Anderson. To date, we have
not experienced quality problems with Anderson. However, Anderson may not
continue to perform in a satisfactory manner or we may experience quality or
performance problems from Anderson in the future. From time to time, we have
experienced certain quality or performance problems with respect to Delta's
services. Examples of such problems include: letters stuffed in the wrong
dealership's envelopes, letters mailed out a few days behind schedule and
incorrect shades of color placed on dealership letterhead. To date, these
quality problems have been minor and we have been reimbursed by Delta for any
credits we issue to customers as a result of these problems. In 1998, these
credits totaled less than $20,000. A sudden unexpected loss of services provided
by key suppliers could adversely affect our results of operations and could
damage our relationships with affected dealerships. Our reliance on these
limited source vendors could result in performance shortfalls and limited
control over quality and costs. We may experience quality or performance
problems with any of our suppliers. Further, a significant increase in the price
of one or more of these services could harm our business.
WE RELY ON CERTAIN THIRD PARTIES TO ACCESS DEALERSHIP DATA
We depend on third parties for access to the data of a portion of our
dealership base. For example, Universal Computer Systems (UCS) is our sole
source for data updates from dealerships that use UCS dealership-services
software and we do not have a fixed-term contract with UCS to obtain such data.
Approximately 25% of dealership customers use UCS software. We obtain data
updates from most other dealerships by interfacing directly with the
dealership's computer system. A change in dealership computer hardware or
software may inhibit our access to dealership data and would inhibit our ability
to provide certain services to our customers. Implementation of Reservations,
CSI and ROAD at dealerships that use UCS dealership service software will
require an amendment to our existing agreement with UCS. We may not be able to
modify our agreement with UCS on satisfactory terms, and therefore, we may not
be able to offer Reservations, CSI and ROAD to our dealership customers using
UCS systems, which could reduce or limit our revenue growth and profitability.
WE ARE DEPENDENT ON THE PROFITABILITY OF THE AUTOMOBILE INDUSTRY AND ON GENERAL
ECONOMIC CONDITIONS
Our business depends on both the profitability of automobile dealerships
and the volume of sales of new automobiles, as well as general economic
conditions that may affect the service and maintenance habits of automobile
owners. The automobile industry is highly cyclical and historically has
experienced periods of reduced demand for new automobiles. When automobile sales
decline, dealerships have historically looked for ways to cut costs, including
reducing expenditures for certain marketing and outsourced functions. General
economic conditions directly impact the demand for new and used automobiles and
may affect the service and maintenance habits of automobile owners. During
periods of economic slowdown, automobile owners may have their vehicles serviced
less often. They may also be less inclined to have their vehicles serviced at
automobile dealerships, which generally have a reputation for being more
expensive than other automotive repair shops. We believe that a downturn in new
and used automobile sales or decreased dealership profitability could result in
contract cancellations, reduced revenues from our ongoing dealership
relationships and difficulty in attracting new dealership customers. In
addition, the automobile dealership industry has been undergoing consolidation.
This consolidation trend may result in decreased demand for our services if
large dealerships or dealership chains decide to implement their own data
management and marketing services rather than outsource those services to Newgen
and other third parties.
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WE ARE SUBSTANTIALLY DEPENDENT ON OUR MANAGEMENT AND KEY PERSONNEL AND SUCH
INDIVIDUALS MAY NOT REMAIN WITH NEWGEN IN THE FUTURE
Our continued success is largely dependent on the efforts and abilities
of our senior management and other key personnel, in particular our Chief
Executive Officer, Executive Vice President, Senior Vice President of Operations
and Senior Vice President and Chief Financial Officer. Our dependence on our
management is due to their individual and combined experience in the market for
outsourced services for automobile dealerships and manufacturers. This includes
their personal relationships, knowledge of Newgen's operations and technology,
and understanding of the competitive environment in which we operate. In
particular, our relationship with Ford could be damaged if our Executive Vice
President, who has developed a relationship with certain key Ford personnel,
terminates his employment with Newgen. We do not have employment agreements with
any of our key employees. Other than the Chief Executive Officer of Newgen, we
have not obtained key man life insurance on any of our officers. The loss of the
services of certain management and key personnel could harm our business.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED
We have experienced growth in revenues and expansion of our operations
that have placed significant demands on our management and facilities. Continued
growth will also require us to hire more sales, operations, technical and
administrative personnel. We have at times experienced, and continue to
experience, difficulty in recruiting and retaining qualified personnel, in
particular technical and sales personnel. For example, we have experienced
turnover in our sales personnel and we cannot assure you that this turnover will
decrease. Recruiting qualified personnel is an intensely competitive and time-
consuming process and we expect competition for such personnel to remain
intense. In addition, with our introduction of new products and services, the
pay scales for direct labor to support these new products and services may
change. The affected personnel may not find these changes satisfactory. We may
not be able to attract and retain the necessary personnel to accomplish our
growth strategies and we may experience constraints that will adversely affect
our ability to satisfy customer demand in a timely fashion or to support
satisfactorily our customers and operations. Our inability to attract and retain
key employees could harm our business.
INCREASES IN THE COST OF PAPER, TONER OR POSTAGE RATES MAY REDUCE OUR
PROFITABILITY
Our services require significant quantities of paper and toner to
generate and mail letters. The price of paper increased significantly during
1995 and the price of toner increased significantly in 1996. In addition, Delta
increased the price of its services in 1998 due to further increases in toner
prices. We generally have not been able to change our prices to our dealerships
to compensate for increases in paper and toner prices. The price of paper or
toner may increase in the future. Furthermore, although we have the right under
our dealership contracts to increase the prices of our services in response to
increases in postage rates, we may choose to absorb postage rate increases
rather than pass them on to dealerships for competitive reasons. Although we
adjusted our rates to reflect the January 1999 postage rate increase, we may not
be able to pass on future postage rate increases in our pricing. Any significant
increase in paper or toner prices or postage rates that are not reflected in our
pricing to dealerships could materially adversely affect our business, financial
condition and results of operations.
FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS MAY HARM OUR BUSINESS
Our rapid growth has placed significant demands on our managerial,
operational and financial resources. In order to address these demands, we
continue to hire new employees, invest in new equipment and make other capital
expenditures. In addition, if we increase the number of services offered to
automobile dealerships and the number of dealerships to which we provide
services, we will need to develop further financial and managerial controls and
reporting systems and procedures. We expect that we will need to expand into
additional facilities as we continue to grow. Our business may be harmed if
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we fail to expand any of the foregoing areas in an efficient manner or if we
otherwise are unable to manage growth effectively.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS, CAUSE US TO
INCUR DEBT AND ASSUME CONTINGENT LIABILITIES
We may seek to expand our operations and leverage our technology,
database management and dealership processes expertise by investing in or
acquiring businesses or technologies complementary to our existing operations.
From time to time, we engage in discussions with third parties with respect to
investments in or acquisitions of other businesses. However, we currently have
not made any commitments or entered into any agreements concerning any
investment in or acquisition of other businesses.
Our investment in or acquisition of businesses or technologies could
materially adversely affect
our operating results and the price of our common stock. Acquisitions also
entail numerous risks, including:
- difficulties in the assimilation of acquired operations, technologies
or products;
- unanticipated costs;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with suppliers and
customers;
- risks of entering markets where we have no or limited prior
experience; and
- potential loss of key employees.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we invest in or acquire in the future, and our
failure to do so could harm our business. In addition, future acquisitions may
require us to issue dilutive equity securities, incur substantial debt, or
assume contingent liabilities.
OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS COULD HARM OUR BUSINESS
Our success and ability to compete is dependent in part upon our
proprietary technology. The most critical element of our operations is our
sophisticated database management system. We rely primarily on a combination of
copyright and trademark laws, trade secrets and nondisclosure agreements to
protect our proprietary rights. We currently have no patents. We typically enter
into confidentiality and proprietary information agreements with our employees
and limit access to and distribution of our software, documentation and other
proprietary information. Our protection of this system has served as a barrier
to our competitors which have not been able to duplicate such a database
management system. If competitors were able to duplicate our database management
system, we would lose our competitive advantage and face increased competition.
Our confidentiality agreements and confidentiality procedures may not be
adequate to deter misappropriation or independent third-party development of our
technology or to prevent an unauthorized third party from obtaining or using
information that we regard as proprietary. For example, attempts may be made to
copy aspects of our technology or to obtain and use information that we regard
as proprietary. Accordingly, we may not be able to protect our proprietary
rights against unauthorized third-party copying or use. Any infringement of our
proprietary rights could materially adversely affect our future operating
results. Furthermore, policing the unauthorized use of our products is difficult
and litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could materially adversely
affect our future operating results.
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THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS
Third parties may assert infringement claims against us or our
customers. We believe that our technological processes do not infringe upon the
proprietary rights of others, but we cannot assure you that third parties will
not assert claims that we violate their rights. In addition, we believe that we
have the right to use the data we collect for our database, but we cannot assure
you that third parties will not assert claims that we violate their trade
secrets or copyrights. Although there has not been any claim of this type in the
past, any claims or litigation, should they occur, could subject us to
significant liability for damages or could result in invalidation of our rights.
In addition, even if we prevail, litigation could be time consuming and
expensive to defend, and could result in diversion of our time and attention.
Any claims or litigation from third parties may also result in limitations on
our ability to use the trademarks and other intellectual property subject to
these claims or litigation. We may be required to enter into arrangements with
the third parties responsible for the claims or litigation, which may be
unavailable on commercially reasonable terms, if at all.
SYSTEM FAILURE, INTERRUPTIONS OR SECURITY BREAKS IN THE TELECOMMUNICATIONS
INFRASTRUCTURE OR OUR COMPUTER AND TELEPHONY SYSTEMS MAY HARM OUR BUSINESS
Our operations are dependent on our ability to protect our computer and
telephony systems and databases against damage or system interruptions from
fire, earthquake, power loss, telecommunications failure, technical failure,
unauthorized entry or other events beyond our control. We receive data from
dealerships primarily via modem. In addition, a significant portion of our
business involves contacting dealership customers telephonically and our
mailings to dealership customers is dependent upon the data generated using our
computer systems. A significant amount of our computer and telephony equipment
is located at a single site in San Diego, California. In the future, we intend
to use the Internet as a platform for delivery of our services. Any actual or
perceived degradation in the performance of the Internet as a whole could
undermine the benefits of our services. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new technology required to accommodate increased levels of Internet activity or
due to increased government regulation. Unanticipated problems with our
computer, telephony or other communications systems may result in a significant
system outage or data loss, which could result in interruptions in our
operations. Despite implementing security measures, our infrastructure may also
be vulnerable to break-ins, computer viruses or other disruptions caused by our
customers or other third parties. Our business will be materially adversely
affected if there is any damage to our databases, failure of communication
links, security breach or other loss that causes interruptions in our
operations.
WE MAY DEPEND ON THE INTERNET AS A DELIVERY PLATFORM FOR SERVICES
Our growth strategy depends in part on providing database management and
direct marketing services for automobile dealerships and manufacturers over the
Internet. This may include delivering RESULTS Program reminder notices via
e-mail, providing certain information contained in our databases on an
outsourced basis to Web sites, providing dealerships and their customers with an
online appointment reservations system and providing dealerships access to our
database via the Internet. Development and implementation of any of these and
other services using the Internet is subject to substantial risks and
uncertainties.
We have limited experience providing database management and direct
marketing services over the Internet. We may need to hire additional personnel
and expend significant resources to develop these services. The manner in which
we intend to provide and charge for these services is new and unproven. We may
need to enter into agreements with third parties, such as Internet service
providers, to implement these services. Privacy concerns may cause consumers to
resist providing the personal data necessary to support these services in
development. For example, consumers may be unwilling to disclose their identity,
vehicle identification information or e-mail addresses. Moreover, our ability to
disseminate data generated
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from our databases may be limited by agreements with our customers. Various
system failures or delays may decrease our ability to effectively deliver
information contained in our databases to automobile dealerships, manufacturers,
dealership customers or Web sites. Our servers and network infrastructure may
not be able to handle the volume of data traffic generated as a result of the
deployment of these new services. Implementation of an Internet-based
reservations system will require us to interface with dealership service
department appointment calendars, which will be complex and may be prone to
errors. Our future services using the Internet may not be successfully developed
and implemented, widely accepted or result in future revenues.
The widespread acceptance and adoption of the Internet by automobile
dealerships and manufacturers to conduct business and exchange information is
likely to occur only if greater efficiencies and improvements in service can be
demonstrated to these dealerships and manufacturers. The recent growth in
Internet traffic has caused frequent periods of decreased performance and
reliability. Our ability to provide services over the Internet will be
ultimately limited by and dependent upon the speed and reliability of the
Internet. Additionally, the tax treatment of the Internet and e-commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local level and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities.
Furthermore, costs of communication over the Internet may increase substantially
if access fees are imposed on Internet service providers and online service
providers. If we are unable to adapt our business to meet changes in the
database management and direct marketing industry as a result of growth in the
Internet, our business may be harmed.
WE COULD BE ADVERSELY AFFECTED BY GOVERNMENTAL REGULATIONS
We are subject to varying degrees of federal, state and local
telemarketing regulation. The jurisdiction of the Federal Trade Commission (FTC)
and the Federal Communications Commission (FCC) extends to the telemarketing
industry, including some of the services we provide to our customers. The FTC
has issued regulations which prohibit certain types of deceptive or abusive
telemarketing acts or practices. Regulations issued by the FCC place limits on
the use of certain types of equipment used in telephone solicitation, require
telemarketing companies to provide certain identifying information, and require
the maintenance of a list of persons who do not wish to be called. We believe
that we are not currently engaging in, and we do not plan to engage in, any of
the activities prohibited by the FTC and FCC regulations. The FCC and FTC
regulations have, therefore, not materially restricted our operations. If future
regulations are adopted by the FCC and FTC or other regulatory bodies, our
business may be harmed. In addition, violations may occur in the future as a
result of human error, equipment failure or other causes. Our failure to comply
with applicable domestic and international regulations could also harm our
business. Furthermore, the media often publicizes perceived non-compliance with
consumer protection regulations and violations of notions of fair dealing with
consumers. Any such publicity is potentially damaging to our reputation, client
relationships and consumer acceptance and loyalty.
WE MAY BE UNABLE TO RAISE CAPITAL IN THE FUTURE
Various elements of our growth strategies will require additional
capital. We believe that our existing capital resources together with cash
generated from operations and amounts available under our line of credit will be
sufficient to meet our capital requirements for at least the next twelve months.
Additionally, the proceeds from this offering will provide additional liquidity
to Newgen. However, our capital requirements depend on several factors,
including market acceptance of our services, the ability to expand our customer
base, the development of new services, the expansion of our sales and marketing
capabilities, potential acquisitions and other factors. If capital requirements
vary materially from those currently planned, we may require additional
financing sooner than anticipated. Our credit facility with Silicon Valley Bank
expires in May 1999. If additional funds are raised through the issuance of
equity securities, our stockholders may experience additional dilution, or such
equity securities may have rights,
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preferences or privileges senior to those of the holders of our common stock.
Additional financing may not be available when needed on terms favorable to us
or at all. If adequate funds are not available we may be unable to develop or
enhance our services, take advantage of future opportunities or respond to
competitive pressures.
WE MAY BE EXPOSED TO RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
Currently, we provide services to automobile dealerships in the United
States and Canada. We may expand our database management, customized direct
marketing services and teleservices to automobile dealerships in foreign markets
other than Canada. We have had limited experience providing services outside the
United States. Conducting business outside of the United States is subject to
certain risks, including:
- longer accounts receivable collection cycles;
- difficulties in managing operations across disparate geographic areas;
- difficulties associated with enforcing agreements and collecting
receivables
- through foreign legal systems;
- changes in a specific country's or region's political or economic
conditions;
- trade protection measures;
- import or export licensing requirements;
- fluctuations in currency exchange rates;
- potential adverse tax consequences;
- unexpected changes in regulatory requirements; and
- reduced or limited protection of our intellectual property rights in
some countries.
In addition, we may be unable to successfully market, sell and deliver our
services in foreign markets and we cannot be certain that one or more of such
factors will not harm our future international operations.
YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
The use of computer systems and software products that rely on two-digit
date programs to perform computations and decision-making functions may cause
computer systems to malfunction in the Year 2000 and lead to significant
business delays and disruptions. We use a significant number of computer
software programs and operating systems in our operations and we are therefore
particularly sensitive to the problems which may be caused by the Year 2000
problem. We anticipate that a significant element of our exposure to Year 2000
problems created by noncompliance is in our information technology systems.
These systems include our data retrieval, purification, financial,
administrative and communication operations. We are currently evaluating our
exposure in all of these areas.
We have commissioned a substantial rewrite of our enterprise-wide
database management software. The rewritten enterprise-wide database management
software is designed to be Year 2000 compliant. We expect the software rewrite
to be completed in the fourth quarter of 1999. Because we expect to implement
our rewritten enterprise-wide database management software prior to the end of
1999, we have not undertaken a comprehensive review of our existing
enterprise-wide database management software to date. As a result, in the event
that the software rewrite is not completed on time or the software does not
perform according to design, we may face significant Year 2000 non-compliance
issues. We are in the process of conducting a comprehensive inventory and
evaluation of our other information systems used to run our business. Systems
which are identified as non-compliant will be or are
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in the process of being upgraded or replaced. For the Year 2000 non-compliance
issues identified to date, the cost of remediation is not expected to be
material in our operating results. We have not included the cost of our software
rewrite as a cost related to Year 2000 compliance matters. However, if
implementation of replacement systems is delayed, or if significant new
non-compliance issues are identified, we may incur significant additional
expenses related to Year 2000 issues.
Any failure of third-party networks, systems or services upon which our
business depends could harm our business. We rely on the telecommunications
infrastructure, our customers' computer systems and systems and services that
third parties provide to our customers. As a result, the success of our plan to
address Year 2000 issues depends in part on parallel efforts being undertaken by
third parties. We have begun to identify and initiate communications with third
parties whose networks, systems or services are critical to our business to
determine the status of their Year 2000 compliance. We cannot assure you that
all such parties will provide accurate and complete information, or that all
their networks, systems or services will achieve full Year 2000 compliance in a
timely fashion. The most reasonably likely worst-case scenario for us resulting
from Year 2000 issues is that third-party noncompliance would disrupt, reduce or
eliminate for a period of time our ability to service existing customers or to
solicit new customers. If such occurrences are frequent or long in duration,
they could harm our business. Where practicable, we will attempt to mitigate our
risks with respect to the failure of our suppliers to be prepared for any Year
2000 problems. However, such failures remain a possibility and could harm our
business.
OUR SENIOR MANAGEMENT WILL HAVE DISCRETION OVER THE USE OF PROCEEDS FROM THIS
OFFERING
The primary purposes of this offering are to obtain additional working
capital, create a public market for our common stock, to facilitate future
access to public equity markets and to increase our visibility. A significant
portion of the anticipated net proceeds of this offering has not been designated
for specific use. As a consequence, our management will have the discretion to
allocate this portion of the net proceeds of this offering to uses the
stockholders may not deem desirable. We may not be able to invest these proceeds
to yield a significant return. Substantially all of the proceeds of the offering
may be invested in short-term, interest-bearing, investment grade securities.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE OFFERING PRICE
There has previously not been a public market for our common stock. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. The trading price of our
common stock could be subject to wide fluctuations in response to factors such
as:
- actual or anticipated variations in quarterly operating results;
- changes in financial estimates by securities analysts;
- new services offered by us or our competitors;
- announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments by us or our competitors;
- announcements of technological innovations;
- additions or departures of key personnel;
- sales of common stock; and
- other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been
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unrelated or disproportionate to the operating performance of such companies.
The trading prices and multiples of many technology companies' stocks are at or
near historical highs. These trading prices and multiples may not be sustained.
These broad market and industry factors may materially adversely affect the
market price of our common stock, regardless of our actual operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class-action litigation has often been
instituted against such companies. Such litigation, if instituted, could result
in substantial costs and a diversion of management's attention and resources,
which would materially adversely affect our business, financial condition and
operating results.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO
INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND CERTAIN TRANSACTIONS
Upon completion of this offering, our principal stockholders, executive
officers, directors and affiliated individuals and entities (Controlling
Stockholders) together will beneficially own approximately 61.1% of the
outstanding shares of common stock (58.5% if the underwriters' over-allotment
option is exercised in full). Three of our directors are brothers. Their father
is also a director and our Senior Vice President and Chief Financial Officer is
their cousin (collectively, Related Stockholders). Together, these family
members will beneficially own approximately 22.5% of the outstanding shares of
our common stock (21.3% if the underwriters' over-allotment option is exercised
in full). These Controlling Stockholders and Related Stockholders, acting
together, or in some cases independently, will be able to influence
significantly and possibly control most matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combination transactions.
CERTAIN PROVISIONS IN OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKEOVER
ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK
Provisions in our Certificate of Incorporation, as amended and restated
upon the closing of this offering (the Restated Certificate) may have the effect
of delaying or preventing a change of control or changes in our management.
These provisions include:
- the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors;
- the ability of the board of directors to alter our bylaws without
getting stockholder approval;
- the requirement that at least 10% of the outstanding shares are needed
to call a special meeting of stockholders; and
- staggered terms for the members of the Board of Directors.
This could discourage potential takeover attempts and could adversely
affect the market price of our common stock. In addition, these provisions may
limit the ability of stockholders to remove our current management.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on shares outstanding as of December 31, 1998, upon
completion of this offering we will have outstanding 9,908,102 shares of common
stock (assuming no exercise of the underwriters' over-allotment option). Of
these shares, 3,700,000 will be eligible for sale in the public market. After
the lockup agreements with the underwriters of this offering expire 180 days
from the date of this prospectus, an additional 6,208,102 shares will be
eligible for sale in the public market.
20
<PAGE>
These share numbers exclude 1,033,118 shares subject to outstanding
options and warrants and 854,330 shares reserved for future issuance under our
1996 Equity Incentive Plan and 1998 Equity Incentive Plan as of December 31,
1998. See "Shares Eligible for Future Sale" and "Underwriting" for detailed
information about the ability of our stockholders, option holders and warrant
holders to sell their shares after this offering.
YOU WILL INCUR SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING
The initial public offering price is expected to be substantially higher
than the pro forma net book value per share of the outstanding common stock. As
a result, investors purchasing common stock in this offering will incur
immediate substantial dilution in the amount of $9.25. In addition, we have
issued options and warrants to acquire common stock at prices significantly
below the initial public offering price. To the extent these outstanding options
and warrants are exercised, there will be further dilution to investors in this
offering. Please see "Dilution" for detailed information on this dilution.
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are forward-looking statements. These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions, and other statements contained in this prospectus
that are not historical facts. When used in this prospectus, the words
"expects," "anticipates," "intends," "plans," "believes," "seeks" and
"estimates" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these forward
looking statements, including our plans, objectives, expectations and intentions
and other factors discussed under "Risk Factors."
21
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 2,724,370
shares of common stock will be approximately $32,238,000, at an assumed initial
public offering price of $13.00 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses. If the
underwriter's over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $38,948,000.
We intend to use the net proceeds from this offering for general
corporate purposes, including approximately $4.0 million for the purchase of
infrastructure equipment in connection with the upgrade of our computer and
telephony technology, $600,000 for the repayment of secured promissory notes to
a related party which bear interest at a rate of prime plus 2.0% (at March 1,
1999, the interest rate was 9.75%) and which will mature on December 31, 1999
and additional working capital. We may also use a portion of the net proceeds
from this offering to acquire or invest in businesses, technologies or services
that are complementary to our business. We currently have not made any
commitments or entered into any agreements with respect to any such
transactions. Pending such uses, we intend to invest the net proceeds from this
offering in short-term, interest-bearing, investment-grade securities. Newgen
will not receive any proceeds from the sale of common stock by the selling
stockholder.
DIVIDEND POLICY
To date, we have not declared or paid any cash dividends on our capital
stock. We currently intend to retain future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
22
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of Newgen as of
December 31, 1998 and the capitalization as of that date on a pro forma, as
adjusted basis to give effect to the conversion of each outstanding share of
preferred stock into common stock upon the completion of this offering and the
receipt by Newgen of the estimated net proceeds from the sale of 2,724,370
shares of common stock offered by Newgen at an assumed initial public offering
price of $13.00 per share and after deducting estimated underwriting discounts
and commissions and offering expenses.
The information set forth in the table below should be read in
conjunction with the Consolidated Financial Statements of Newgen and the Notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term obligations, including current maturities of long-term
obligations......................................................... $ 1,735 $ 935
--------- -----------
--------- -----------
Long-term obligations, less current maturities........................ 874 874
Redeemable Convertible Series A and B Preferred stock, $.001 par
value, 3,460,137 shares authorized, 3,408,741 issued and
outstanding, actual; no shares authorized, no shares issued and
outstanding, pro forma and as adjusted.............................. 16,050 --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value, 39,863 shares authorized, no
shares issued and outstanding, actual; 2,000,000 shares
authorized, no shares issued and outstanding, pro forma and as
adjusted.......................................................... -- --
Common Stock, $.001 par value, 15,000,000 shares authorized,
3,767,415 shares issued and outstanding, actual; 28,000,000 shares
authorized, 9,908,102 shares issued and outstanding pro forma, as
adjusted.......................................................... 4 10
Additional paid-in capital.......................................... 5,384 53,666
Deferred compensation............................................... (1,394) (1,394)
Retained deficit.................................................... (15,127) (15,127)
--------- -----------
Total stockholders' equity (deficit).............................. (11,133) 37,155
--------- -----------
Total capitalization............................................ $ 5,791 $ 38,029
--------- -----------
--------- -----------
</TABLE>
- ------------------------
The outstanding share information set forth in the table above excludes:
- 924,670 shares of common stock issuable upon the exercise of
outstanding options, at a weighted average exercise price of $2.31 per
share;
- 116,024 shares of common stock issuable upon exercise of outstanding
warrants, at a weighted average exercise price of $1.06 per share; and
- an aggregate 1,354,330 shares available for future grant under the
1998 Equity Incentive Plan, 1996 Equity Incentive Plan, Non-Employee
Stock Option Plan and Employee Stock Purchase Plan.
23
<PAGE>
DILUTION
The pro forma net tangible book value of Newgen as of December 31, 1998
was approximately $4,917,000 or $0.68 per share of common stock. The pro forma
net tangible book value per share represents the amount of Newgen's total
tangible assets less total liabilities, divided by the number of shares of
common stock outstanding, assuming conversion of all outstanding shares of
preferred stock into common stock. After giving effect to the receipt of the net
proceeds from the sale of the 2,724,370 shares of common stock offered by Newgen
(at an assumed initial public offering price of $13.00 per share, and after
deducting the estimated underwriting discounts and commissions and offering
expenses) the pro forma net tangible book value of Newgen as of December 31,
1998 would have been approximately $37,155,000 or $3.75 per share. This
represents an immediate increase in pro forma net tangible book value of $3.07
per share to existing stockholders and an immediate dilution of $6.87 per share
to new investors purchasing shares at the initial public offering price. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 13.00
Pro forma net tangible book value per share before the offering........ $ 0.68
Increase per share attributable to new investors....................... $ 3.07
---------
Pro forma net tangible book value per share after this offering.......... 3.75
---------
Dilution per share to new investors...................................... $ 9.25
---------
---------
</TABLE>
The following table summarizes as of December 31, 1998, on the pro forma
basis described above, the number of shares of common stock purchased from
Newgen, the total consideration paid and the average price per share paid by
existing stockholders and by investors purchasing shares of common stock in this
offering (before deducting the estimated underwriting discounts and commissions
and offering expenses):
<TABLE>
<CAPTION>
TOTAL CONSIDERATION(2)
SHARES PURCHASED
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)......... 7,183,732 72.5% $15,301,349 30.1% $ 2.13
New investors(1)................. 2,724,370 27.5 35,416,810 69.9 13.00
--------- ----- ---------- -----
Total.......................... 9,908,102 100.0% $50,718,159 100.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
The foregoing discussion and tables assume no exercise of any stock
options or warrants outstanding as of December 31, 1998. As of December 31,
1998, there were options and warrants to purchase a total of 1,040,694 shares of
common stock with a weighted average exercise price of $ per share. To the
extent these options or warrants are exercised or shares are granted, there will
be further dilution to new investors. See "Management" and Notes 7 and 12 of
Notes to Consolidated Financial Statements.
- ------------------------
(1) Sales by the selling stockholder in this offering will reduce the number of
shares held by existing stockholders to 6,200,026 or approximately 62.6%
(approximately 59.3% if the underwriters' over-allotment option is exercised
in full) and will increase the number of shares held by new investors to
3,700,000 or approximately 37.4% (4,255,000 shares or approximately 40.7% if
the underwriters' over-allotment option is exercised in full) of the total
number of shares of common stock outstanding after this offering. See
"Principal and Selling Stockholders." Includes 7,576 shares issuable upon
exercise of a warrant by the selling stockholder concurrently with the
closing of this offering.
(2) Excludes approximately $3,700,000 of capital contributions related to losses
funded by affiliates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998, are derived from our Consolidated Financial Statements that have been
audited by Arthur Andersen LLP, independent public accountants, which are
included elsewhere in this prospectus. The consolidated statement of operations
data for the year ended December 31, 1995 and the consolidated balance sheet
data at December 31, 1995 and 1996 are derived from our consolidated financial
statements which were also audited by Arthur Andersen LLP and which are not
included herein. The consolidated statements of operations data for the year
ended December 31, 1994 and the consolidated balance sheet data at December 31,
1994 are derived from our unaudited consolidated financial statements not
included herein. The unaudited financial statements reflect all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of the financial position and results of operations for
these periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND SUPPLEMENTAL OPERATING
DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Database marketing services................. $ 729 $ 1,824 $ 9,771 $20,974 $31,513
Consulting services......................... 1,289 1,790 1,858 5,440 8,593
---------- ---------- ---------- ---------- ----------
Total revenues............................ 2,018 3,614 11,629 26,414 40,106
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Costs of database marketing services........ 582 1,673 6,796 14,232 21,157
Costs of consulting services................ 1,144 1,798 1,699 4,233 6,695
Installation costs.......................... 97 656 1,656 1,932 1,411
---------- ---------- ---------- ---------- ----------
Total cost of revenues.................... 1,823 4,127 10,151 20,397 29,263
---------- ---------- ---------- ---------- ----------
Gross profit (loss)....................... 195 (513) 1,478 6,017 10,843
---------- ---------- ---------- ---------- ----------
Operating costs:
Selling, general and administrative
expenses.................................. 727 2,178 5,396 6,234 8,876
Technology and product development.......... 54 117 544 937 2,259
Software rewrite cost....................... -- -- -- 617 2,842
---------- ---------- ---------- ---------- ----------
Total operating costs..................... 781 2,295 5,940 7,788 13,977
---------- ---------- ---------- ---------- ----------
Loss from operations........................ (586) (2,808) (4,462) (1,771) (3,134)
Interest expense, net....................... (10) (3) (229) (418) (69)
---------- ---------- ---------- ---------- ----------
Net loss.................................... $ (596) $(2,811) $ (4,691) $ (2,189) $ (3,203)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma basic and diluted net loss per share
(1)......................................... $ (0.45)
----------
----------
Pro forma basic and diluted weighted average
common shares outstanding (1)............... 7,176
----------
----------
SUPPLEMENTAL OPERATING DATA (UNAUDITED):
Number of dealerships......................... 66 177 802 1,285 1,902
Number of active names........................ 396,213 1,970,738 2,905,484 4,128,865
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 16 $ -- $ 128 $ 4,630 $ 817
Working capital............................................... 69 (15) 484 6,291 2,558
Total assets.................................................. 450 1,190 5,492 12,302 12,772
Long-term debt, less current maturities....................... 23 24 1,264 435 874
Redeemable convertible preferred stock........................ -- -- 5,422 14,679 16,050
Total stockholders' equity (deficit).......................... (296) (477) (4,494) (6,815) (11,133)
</TABLE>
- ------------------------------
(1) Computed on the basis described in Note 2 of Notes to Consolidated Financial
Statements.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS OF NEWGEN AND THE NOTES THERETO INCLUDED
ELSEWHERE IN THIS PROSPECTUS. OUR DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS
BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. NEWGEN'S ACTUAL RESULTS AND
THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Newgen provides customized, outsourced database management, direct
marketing and related services for service departments of automobile dealerships
and automobile manufacturers. We have expertise both in database marketing and
customer retention services, as well as an in-depth knowledge of automobile
service department operations.
Newgen generates revenues from database marketing services and
consulting services. Our revenues from database marketing services are derived
primarily from our customer retention services, including the RESULTS Program.
Database marketing services comprised 79% of our total revenues in 1998. In
1998, our revenues from consulting services were derived from consulting
services provided to Ford Motor Company. Consulting services comprised 21% of
our total revenues in 1998. Over the past three years, we have increased our
customer base from approximately 177 dealerships at December 31, 1995 to 1,902
dealerships at December 31, 1998. Our revenues grew at a rate of 52% to $40.1
million in 1998 from $26.4 million in 1997.
Revenues for the RESULTS Program are based on the number of active names
in a dealership's database, typically a fixed number determined by the
dealership. We generally invoice each of our customers on a monthly basis in
advance. Revenues for our consulting services are based on a per diem rate for
the services we provide. We are also reimbursed for travel expenses and
associated costs we incur in providing consulting services, which are included
as revenue. Dealerships are charged a monthly fee for these books, and
dealerships receive up to two updates per year. We recognize all of our revenue
in the month during which we perform the related database marketing or
consulting services.
During 1998 we launched two new customer retention services, Around the
Wheel and Welcome Home. Around the Wheel is an extension of our RESULTS Program
that was designed to increase Ford dealership's brake and tire sales. Welcome
Home is a personalized coupon mailer that was designed to recapture a
dealership's lost customers. Revenues for Around the Wheel are reflected as an
additional charge to our basic RESULTS Program. Revenues for our Welcome Home
service are based upon the number of Welcome Home letters sent during a month.
We began to introduce these services to our dealership base in the third quarter
of 1998. In addition, in late 1998 we initiated customer pilots of our
Reservations Program, which provides outsourced service department appointment
scheduling and shop loading. We expect to price this service based on the number
of reservations that are kept.
We are investing significant resources in the development of other
services that draw upon our expertise in the service department operations of
automobile dealerships. In 1998, our technology and product development expenses
were $2.3 million. Most of our technology and product development expenses in
1998 were related to the development of new services.
We provide our database marketing services to automobile dealerships
under contracts that generally have an initial term of between six months and
two years. Most of our customers, however, continue to use our services beyond
the expiration of the initial term of our contracts. In order to maximize our
customer retention, we have established a customer satisfaction department,
improved our quality of operations and enhanced our commission structure to
encourage our sales force to promote one
26
<PAGE>
and two year contracts. To emphasize our commitment to improving the quality of
our operations, we have completed the certification process for ISO 9001, an
international quality standard established by the International Standards
Organization.
Although each Ford dealership utilizing our database marketing services
enters into a separate contract with us, collection of receivables from Ford
dealerships is centralized through Ford's accounting department. As a result, we
generally receive prompt payment of those invoices directly from Ford with a
minimum amount of collection effort. Our current consulting engagement with Ford
relating to implementation of the Around the Wheel Program is expected to be
completed in August 1999. We currently do not have a commitment from Ford for a
new consulting engagement beyond that approximate date. In 1998, all of our
consulting revenues were attributable to Ford. A majority of our database
marketing services are attributable to Ford dealerships. As a result, in 1998
approximately 23% of our revenues were attributable to Ford and 54% of our
revenues were attributable to Ford dealerships.
Our cost of revenues consist of our database marketing services costs,
consulting costs and installation costs. Costs of database marketing services
include the printing and mailing of letters, as well as the costs of the
teleservice contacts of dealership customers. The costs of database marketing
services also include all costs of managing and purifying the dealership
databases, as well as the costs of our customer service and satisfaction
departments. The costs of additional services, such as Welcome Home and Around
the Wheel, include only the direct costs of those services because no additional
costs associated with database management or customer service are incurred.
Costs of consulting include the direct costs of our consulting personnel, as
well as the cost of any independent consultants subcontracted by Newgen. Costs
of consulting also include costs of travel and associated costs incurred by our
Consulting Division. Installation costs include the direct costs of implementing
our program at dealerships and the costs of the initial download, setup and
purification of the dealership's customer database. These costs are expensed as
incurred and represent a one-time charge for each new dealership we add to our
customer base. As a result, these costs are expected to decrease as a percentage
of total revenues as our database marketing services revenues increase.
Installation costs are presented as a separate line item to illustrate our
investment in implementing new dealerships. For the purposes of calculating the
gross profit associated with database marketing services in Management's
Discussion and Analysis of Financial Condition and Results of Operations,
installation costs are added to cost of revenues for database.
Operating expenses consist of the fixed costs of our business, such as
selling, general and administrative expenses, technology and product development
costs, and the cost of the software rewrite of our core data management and
customer retention software system. We anticipate that our operating expenses
will increase as we develop and introduce new services and increase our customer
base. Historically, we have been able to leverage our operating expenses over a
growing revenue base, and to the extent that our business continues to grow we
expect that we will continue to do so. However, because we are generally unable
to significantly reduce expenses in the short term to compensate for any
unexpected revenue shortfall, any such shortfall would have an immediate adverse
effect on our business, results of operations and financial condition. Selling
costs include costs of our internal sales department, as well as commissions
earned by sales representatives. General and administrative costs include our
accounting, payroll and human resources functions. General and administrative
costs also include other non-allocated costs, such as professional fees and
general corporate services. Technology and product development costs include the
cost of programming personnel who enhance our current services and develop new
services. The cost of the software rewrite to our core database management
system includes all costs associated with the implementation of our
enterprise-wide software application by a third-party developer. The costs of
the software rewrite were expensed as they were incurred in 1998. Because of new
accounting standards, any costs incurred during 1999 may be capitalized and
amortized over an appropriate useful life. We do not expect these costs to be
material. Except for ongoing support that will be provided by our technology and
product development department, we currently expect that there will
27
<PAGE>
be no further costs associated with the software rewrite subsequent to the
completion of the project during the fourth quarter of 1999.
We have recorded deferred compensation charges of $901,000 related to
certain stock option grants in 1997. With respect to certain stock option grants
in July, October and December 1998, we recorded deferred compensation charges
aggregating $749,000. These amounts are initially recorded as deferred
compensation and amortized to cost of revenues and selling, general and
administrative expenses over the vesting periods of the options, generally four
to five years. We amortized $256,000 of the compensation charges in 1998. See
Note 7 of Notes to Consolidated Financial Statements.
As of December 31, 1998, we had net operating loss carryforwards for
federal income purposes of approximately $6.5 million. These net operating loss
carryforwards expire in various years beginning in 2009. The net deferred asset
is fully reserved because of uncertainty regarding its realizability.
We were incorporated in California in February 1994 and we
reincorporated in Delaware in December 1998. Certain of our officers, directors
and stockholders were officers, directors, stockholders and partners of Newgen
Services, Inc. and Newgen Services, L.P. In the past, Newgen Services, Inc.
provided services to Newgen Results Corporation and Newgen Services, L.P. Newgen
Services, Inc. and Newgen Services, L.P. commenced operations in 1991 and from
inception through December 31, 1993 these entities incurred losses of
approximately $7.0 million. Our financial data includes the consulting
operations of Newgen Services, Inc. from its inception until August 1996, at
which time we assumed the consulting activities of Newgen Services, Inc.
Revenues from Newgen Services, Inc. included in our results of operations for
1994, 1995 and 1996 were $1.3 million, $1.4 million, and $815,000, respectively.
Net income (loss) from Newgen Services, Inc. included in our results of
operations for 1994, 1995 and 1996 were $111,000, $(245,000) and $(14,000)
respectively. Prior to 1996, Newgen Services L.P. funded certain aspects of our
operations, which have been reflected in our historical financial data.
28
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues,
certain statement of operations data for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Database marketing services............................................. 84.0% 79.4% 78.6%
Consulting services..................................................... 16.0 20.6 21.4
--------- --------- ---------
Total revenues........................................................ 100.0 100.0 100.0
--------- --------- ---------
Cost of revenues:
Cost of database marketing services..................................... 58.4 53.9 52.8
Cost of consulting services............................................. 14.6 16.0 16.7
Installation costs...................................................... 14.2 7.3 3.5
--------- --------- ---------
Total cost of revenues................................................ 87.2 77.2 73.0
--------- --------- ---------
Gross profit.......................................................... 12.8 22.8 27.0
Operating costs:
Selling, general and administrative expenses............................ 46.4 23.6 22.1
Technology and product development...................................... 4.7 3.6 5.6
Software rewrite cost................................................... -- 2.3 7.1
--------- --------- ---------
Total operating costs................................................. 51.1 29.5 34.8
Loss from operations.................................................... (38.3) (6.7) (7.8)
Interest expense, net................................................... (2.0) (1.6) (0.2)
--------- --------- ---------
Net loss................................................................ (40.3)% (8.3)% (8.0)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Our total revenues increased by $13.7 million, or 52%, to
$40.1 million in 1998 from $26.4 million in 1997. Revenues from database
marketing services increased by $10.5 million, or 50%, to $31.5 million in 1998
from $21.0 million in 1997. The increase in database marketing services revenues
was primarily due to a net increase of over 600 customers. To a lesser extent,
the increase was due to our improved operations, which allowed us to eliminate
certain customer discounts and credits. Revenues from consulting services
increased by $3.2 million, or 58%, to $8.6 million in 1998 from $5.4 million in
1997. The increase in consulting services revenues was primarily due to the
continuation of the Around the Wheel Program for Ford throughout 1998.
GROSS PROFIT. Our gross profit increased by $4.8 million, or 80%, to
$10.8 million in 1998 from $6.0 million in 1997. As a percentage of total
revenues, gross profit increased to 27.0% in 1998 from 22.8% in 1997. Gross
profit from database marketing services increased by $4.1 million, or 86%, to
$8.9 million in 1998 from $4.8 million in 1997. This increase was primarily due
to leverage obtained by spreading new customer installation costs over a larger
revenue base and greater efficiency in operations. Gross profit from consulting
services increased by $700,000, or 57% to $1.9 million in 1998 from $1.2 million
in 1997. This increase was primarily due to our ability to fully utilize our
consulting personnel as a result of the Around the Wheel Program throughout
1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by $2.7 million, or 44%, to $8.9 million in
1998 from $6.2 million in 1997. The dollar increase was due primarily to the
establishment of the marketing department and the addition of sales personnel
and related
29
<PAGE>
infrastructure. To a lesser extent, the increase resulted from the write-off in
December 1998 of $600,000 in deferred expenses relating to our previously
delayed initial public offering and increased deferred compensation charges
related to stock options granted in 1997 and 1998. As a percentage of revenues,
selling, general and administrative expenses decreased to 22.1% in 1998 from
23.6% in 1997. This decrease was due primarily to our ability to leverage our
existing infrastructure across a larger revenue base. To the extent that
revenues from our RESULTS Program continue to grow, we expect that selling,
general and administrative expenses as a percentage of revenues will continue to
decrease in the future.
TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
expenses increased by $1.3, or 141%, to $2.3 million in 1998 from $937,000 in
1997. As a percentage of revenues, technology and product development expenses
increased to 5.6% in 1998 from 3.6% in 1997. The dollar increase and the
percentage increase were primarily due to the development of new services and
the addition of technical personnel and related infrastructure in preparation
for the completion of the software rewrite.
SOFTWARE REWRITE. Software rewrite expenses increased by $2.2 million
to $2.8 million in 1998 from $617,000 in 1997. This increase was due to the
continued rewrite of our core database management and customer retention
software system. The software rewrite commenced late in the second quarter of
1997. We expect that the majority of these costs will be eliminated when the
software rewrite is completed, in the fourth quarter of 1999.
INTEREST EXPENSE, NET. Interest expense decreased to $69,000 in 1998
from $419,000 in 1997. This decrease was primarily due to decreases in the
amount of our indebtedness and increases in interest income related to higher
cash balances resulting from our Series B Preferred Stock financing.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1997
REVENUES. Total revenues increased by $14.8 million, or 127%, to $26.4
million in 1997 from $11.6 million in 1996. Revenues from database marketing
services increased by $11.2 million, or 115%, to $21.0 million in 1997 from $9.8
million in 1996. The increase in database marketing services revenues was
primarily due to a net increase of approximately 400 customers, due in large
part to the addition of dealerships under the Quality Care Maintenance Program.
To a lesser extent, the increase was due to our elimination of certain discounts
and credits resulting from improved operations. Revenues from consulting
services increased by $3.5 million, or 193%, to $5.4 million in 1997 from $1.9
million in 1996. The increase in consulting services revenues was primarily due
to the implementation of the Quality Care Maintenance Program that began in July
1997.
GROSS PROFIT. Total gross profit increased by $4.5 million, or 307%, to
$6.0 million in 1997 from $1.5 million in 1996. As a percentage of total
revenues, gross profit increased to 22.8% in 1997 from 12.7% in 1996. Gross
profit from database marketing services increased by $3.5 million, or 265%, to
$4.8 million in 1997 from $1.3 million in 1996. This increase was primarily due
to the implementation of certain technologies to reduce labor costs and the
leverage obtained by spreading our new customer installation costs over a larger
revenue base, offset in part by the establishment of our customer satisfaction
department. Gross profit from consulting services increased by $1.0 million, or
659%, to $1.2 million in 1997 from $159,000 in 1996. This increase was primarily
due to our ability to fully utilize our consulting personnel as a result of the
Quality Care Maintenance Program in the latter part of 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by $838,000, or 16%, to $6.2 million in 1997
from $5.4 million in 1996. This dollar increase was primarily due to the
addition of sales personnel, increased rent expense related to our move to
larger premises, the addition of a human resources department, and additional
administrative infrastructure. As a percentage of revenues, selling, general and
administrative expenses decreased to 23.6% in 1997 from 46.4% in 1996. This
decrease was primarily due to our ability to leverage its existing
infrastructure across a larger revenue base.
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TECHNOLOGY AND PRODUCT DEVELOPMENT. Technology and product development
expenses increased by $393,000, or 72%, to $937,000 in 1997 from $544,000 in
1996. As a percentage of revenues, technology and product development expenses
decreased to 3.6% in 1997 from 4.7% in 1996. The dollar increase was primarily
due to adding technical personnel and related infrastructure in preparation for
the software rewrite, and secondarily due to the enhancement of our existing
services.
SOFTWARE REWRITE. Software rewrite expenses were $617,000 in the year
ended December 31, 1997. We did not incur software rewrite expenses in the year
ended December 31, 1996. We commenced the rewrite of our core database
management and customer retention software system late in the second quarter of
1997.
INTEREST EXPENSE, NET. Interest expense increased to $419,000 in 1997
from $229,000 in 1996. This increase was primarily due to increased borrowings
under our line of credit and capital lease obligations related to the purchase
of computing equipment.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statement of operations
data for each of our last eight quarters ended December 31, 1998, as well as
such data expressed as a percentage of our total revenues for the periods
indicated. This data has been derived from Newgen's unaudited financial
statements that, in management's opinion, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of such
information when read in conjunction with Newgen's audited Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Database marketing services revenues.... $4,349 $4,946 $5,562 $6,117 $6,908 $ 7,562 $8,124 $ 8,919
Consulting revenues..................... 613 717 1,266 2,844 2,366 2,539 1,710 1,978
-------- -------- --------- -------- -------- -------- --------- --------
Total revenues........................ 4,962 5,663 6,828 8,961 9,274 10,101 9,834 10,897
Gross profit............................ 1,045 1,191 1,613 2,168 2,277 2,651 2,663 3,252
Selling, general and administrative
expenses.............................. 1,363 1,411 1,559 1,901 1,854 1,893 2,045 3,085
Net loss................................ $ (531) $ (599) $ (688) $ (371) $ (663) $ (647) $ (664) $ (1,229)
PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------------------------------------
Gross profit............................ 21.1% 21.0% 23.6% 24.2% 24.6% 26.2% 27.1% 29.8%
Selling, general and administrative
expenses.............................. 27.5 24.9 22.8 21.2 20.0 18.7 20.8 28.3
Net loss................................ (10.7)% (10.6)% (10.1)% (4.1)% (7.1)% (6.4)% (6.8)% (11.3)%
</TABLE>
In the past we have experienced fluctuations in quarterly and annual
revenues, gross margins and operating results. We expect to continue to
experience such fluctuations in the future. Historically, these fluctuations
have been due primarily to fluctuations in consulting revenues, which consist of
a small number of significant contracts. For example, during the fourth quarter
of 1997, total revenues increased by $2.1 million, to $9.0 million, due to an
increase in consulting revenues. Consulting revenues as a percentage of total
revenues during the eight quarterly periods ended December 31, 1998 fluctuated
from 12% to 32%. Selling, general and administrative expenses fluctuated in the
third and fourth quarters of 1998 due to the write-off in December 1998 of
deferred expenses related to our previously delayed initial public offering and
increased deferred compensation charges related to stock options granted in 1997
and 1998.
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Our quarterly results of operations have varied in the past, and you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. Fluctuations in our results of
operations may be caused by various factors, many of which are beyond our
control as outlined in "Risk Factors."
In addition, our various services have different gross margins and, as a
result, our revenue mix may affect our total gross margin. Our revenue and
operating results depend on a variety of factors, many of which are beyond our
control. As a result, there is no certainty that we will realize revenue growth
or profitability in the future. In addition, our annual or quarterly operating
results may not meet the expectation of securities analysts and investors. If
this happens, the trading price of our common stock could significantly decline.
LIQUIDITY AND CAPITAL RESOURCES
Since 1996, we have financed our operations through borrowings under our
credit facility with Silicon Valley Bank and borrowings from the following
affiliates and parties related to affiliates: Abraham Simkin, Murray Simkin,
Gary Simkin, Bernard Simkin, Samuel Simkin and the Simkin Children Irrevocable
Trust. We have also financed our operations from the sale of preferred stock and
lease financing of capital expenditures. Sales of preferred stock have generated
an aggregate of $14.5 million, net of issuance costs. Cash provided by financing
activities was $6.9 million in 1996, $7.7 million in 1997 and $58,000 in 1998.
Cash used in operating activities was $5.5 million in 1996, $2.7 million
in 1997 and $2.4 million in 1998. In each period, cash used in operating
activities was primarily related to losses from operations and increases in
accounts receivable.
Cash used in investing activities was $1.3 million in 1996, $501,000 in
1997 and $1.5 in 1998. In each period, cash used in investing activities was
primarily related to purchases of property and equipment in connection with the
expansion of the business. We have financed our acquisitions of property and
equipment primarily through operating and capital leases. See Note 10 of Notes
to Consolidated Financial Statements.
Our credit facility with Silicon Valley Bank provides for borrowings of
up to the lesser of $4.5 million and 80% of qualified accounts receivables,
including a $1,000,000 sublimit for securing letters of credit. Borrowings under
this credit facility bear interest at the bank's prime rate plus 1.00% (8.75% at
March 1, 1999). This interest rate will be reduced to the bank's prime rate plus
0.5% if we have two consecutive fiscal quarters without a loss. The credit
facility is scheduled to expire in May 1999. Substantially all of our assets are
pledged as security under the Silicon Valley Bank credit facility and for
borrowings from related parties. As of December 31, 1998, we had a letter of
credit for $339,000 under the Silicon Valley Bank credit facility. The credit
facility contains certain covenants and restrictions, including a limitation on
indebtedness requiring Newgen, as of the last day of each month, to maintain a
ratio of quick assets to current liabilities of at least 1.75 to 1.0. In
December 1998, we were not in compliance with the limitation on indebtedness
covenant; however, we have since come into compliance and Silicon Valley Bank
has waived our earlier non-compliance. We also have a lease line of credit
totaling $1.0 million for equipment acquisitions that expires in May 1999.
Currently, $800,000 is available under that line of credit.
As of December 31, 1998 we had approximately $817,000 of cash and cash
equivalents and our outstanding receivables were particularly high due to a
temporary delay in our receipt of certain cash payments from Ford. We expect to
finance our short term obligations through lease financing, reduction of
receivables and use of cash on hand. We may also utilize our credit facility
with Silicon Valley Bank to meet our short term needs. We believe that our
existing capital resources together with cash generated from operations and
amounts available under our line of credit will be sufficient to meet our
capital
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requirements for at least the next twelve months. Additionally, the proceeds
from this offering will provide additional liquidity to Newgen.
We may use a portion of the net proceeds from this offering to acquire
or invest in businesses, technologies or services that are complementary to our
business. We currently have not made any commitments or entered into any
agreements with respect to any such transactions. In addition, future
acquisitions may require us to issue dilutive equity securities, incur
substantial debt, or assume contingent liabilities.
YEAR 2000 COMPLIANCE
The use of computer systems and software products that rely on two-digit
date programs to perform computations and decision-making functions may cause
computer systems to malfunction in the Year 2000 and lead to significant
business delays and disruptions. We use a significant number of computer
software programs and operating systems in our operations and we are therefore
particularly sensitive to the problems which may be caused by the Year 2000
problem. We anticipate that a significant element of our exposure to malfunction
created by noncompliance is in our information technology systems. These systems
include our data retrieval, purification, distribution, financial,
administrative and communication operations.
We have commissioned a substantial rewrite of our enterprise-wide
database management software. The rewritten enterprise-wide database management
software is designed to be Year 2000 compliant. We expect the software rewrite
to be completed in the fourth quarter of 1999. Because we expect to implement
our rewritten enterprise-wide database management software prior to the end of
1999, we have not undertaken a comprehensive review of our existing
enterprise-wide database management software to date. We have developed a
program to determine our exposure to other potential Year 2000 problems and to
develop plans to reduce or eliminate our exposure. We expect that all phases of
this program will be successfully completed by the end of 1999. In the first
phase of this program, we are making a detailed assessment of our computer
systems, other than the enterprise-wide database management software, to
identify those systems which have Year 2000 problems. We are currently
developing plans to correct systems critical to our business. Critical systems
will then be replaced or modified according to plan to eliminate the Year 2000
problems which were discovered. Finally, in the later part of 1999, we will
conduct a test of our internal systems to insure that they are ready for the
year 2000.
We have not spent a material amount to date in addressing Year 2000
problems. The funds used to address the Year 2000 problem to date have come from
our working capital. Additionally, we do not expect to spend material amounts
during 1999 to complete our assessment of our Year 2000 readiness. Unanticipated
costs associated with any Year 2000 compliance may exceed our present
expectations and harm our business. We are also assessing the Year 2000
readiness of our customers and suppliers. Any failure of third party networks,
systems or services upon which our business depends could have a material
adverse impact on our business. We also rely on other systems and services that
third parties provide to our customers. As a result, the success of our plan to
address Year 2000 issues depends in part on parallel efforts being undertaken by
other third parties. We have begun to identify and initiate communications with
third parties whose networks, systems or services are critical to our business
to determine the status of their Year 2000 compliance. We cannot assure you that
all such parties will provide accurate and complete information, or that all
their networks, systems or services will achieve full Year 2000 compliance in a
timely fashion. The most reasonably likely worst-case scenario for us resulting
from Year 2000 issues is that third-party noncompliance would disrupt, reduce or
eliminate for a period of time our ability to service existing customers or to
solicit new customers. If such occurrences are frequent or long in duration,
they could harm our business.
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Once we complete the first phase of our Year 2000 program, and are aware
of the nature of our potential exposure to Year 2000 related issues, we will
develop a contingency plan describing how we will handle Year 2000 problems
which would occur if our preparatory efforts are not successful. Despite our
Year 2000 program or other efforts, we cannot assure you that all problems have
been or will be foreseen and corrected or that no material disruption of our
business will occur. For instance, in the event that the software rewrite of our
enterprise-wide database management software is not completed on time or the
software does not perform according to design, it could result in significant
Year 2000 non-compliance issues for our operations, some of which may be
unforeseen at this time. Potential systems interruptions and expenditures of
significant financial or management resources to solve any Year 2000 issues may
have a material adverse effect on our business, financial condition and results
of operations. Furthermore, the failure of our customers and suppliers to
achieve Year 2000 compliance could result in a reallocation of our financial
resources to deal with the issue and reduce customers' ability to utilize
services, which could have a material adverse effect on our business, financial
condition and results of operation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE (SOP 98-1). This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal use software as well
as assists in determining when computer software is for internal use. SOP 98-1
is effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. The impact of the adoption of this SOP is highly
dependent upon the nature, timing and extent of future internal use software
development.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES. This
Statement of Position provides guidance on the financial reporting of start-up
costs and organization costs. It requires that the cost of start-up activities
and organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect adoption of this SOP to have a material adverse impact on the
financial statements.
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BUSINESS
OVERVIEW
Newgen is a leading provider of customized, outsourced database
management, direct marketing and related services for automobile dealerships'
service departments and automobile manufacturers. We combine our expertise in
database marketing and customer retention services, our focus on customer
service and our in-depth knowledge of automobile service department operations
to provide highly targeted and customized solutions. Our RESULTS Program employs
efficient and cost-effective technology to enable dealerships to increase their
number of service department customers as well as revenues per customer. In
addition, we believe our services improve the operations and processes of a
dealership's service department thereby differentiating the dealership from its
competition and creating enhanced customer satisfaction and loyalty. We have
grown our customer base from 177 dealerships at December 31, 1995 to 1,902
dealerships at December 31, 1998.
INDUSTRY BACKGROUND
Increasing competition has driven businesses to enhance their market
position by strengthening relationships with existing customers and targeting
new markets and customers. While technological advances, such as the Internet,
are making information more accessible and less expensive, the marketing costs
to reach and retain customers is increasing. As a result, businesses are trying
to use their marketing resources more efficiently and effectively to drive
customer retention and loyalty through the use of specialized information
products and data management services. Many businesses, however, lack the
technology infrastructure or expertise to implement these new marketing methods.
Businesses are increasingly electing to outsource key processes to service
providers that are able to apply advanced database systems to capture, process
and store customer and market information, and use this experience to provide
targeted and effective services.
The automobile industry is relatively mature. Over the past decade,
annual growth in the number of automobiles sold by dealerships has not grown
significantly. A number of industry and market trends, however, are affecting
the future structure of the industry. Over the next five years, the number of
automobile dealerships in the United States is expected to decrease, reflecting
the consolidation of the industry into fewer and larger dealerships. In
addition, margins on sales of new vehicles are decreasing because of the
emergence of megadealers and Internet-based comparison shopping. According to
the National Automobile Dealers Association (NADA), the average dealership
realized pre-tax income margins of only 1.4% in 1997. We believe that the
emergence of megadealers resulting from the industry's consolidation, together
with emerging sales and marketing channels such as the Internet, will lead to
greater professionalization of management at dealerships, and correspondingly,
more sophisticated approaches to increase dealership revenues and margins.
Automobile dealerships historically have focused on sales of
automobiles, viewing customer retention for service-related revenue as being
secondary. Customer dissatisfaction with dealership service combined with
increased competition from other service outlets, such as Sears Auto Center or
Jiffy Lube, has caused consumers to avoid returning to dealerships for vehicle
service or maintenance. Based on our experience, we believe that dealerships
perform approximately 15% of scheduled maintenance on the automobiles they sell.
Moreover, those that do return for service historically do not always receive
satisfactory customer service. Dealerships provide only a small portion of
service on all automobiles in the United States. For example, we believe that in
1996 U.S. consumers spent approximately $250 billion to service and repair their
vehicles while dealerships provided only $60.8 billion, or 24%, of those
services. Not only are dealerships performing a small portion of all service on
automobiles, but their revenue from warranty-related service is declining. The
reduction in revenues from warranty-related service is due to increased scrutiny
of warranty claims and higher quality manufacturing of automobiles. As a result,
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dealerships are being forced to rely more on customer pay labor and parts sales
in order to replace lost warranty-related service revenues.
Dealerships are realizing that their parts and service departments
represent an opportunity for increased revenues and profits. More importantly,
despite declining market share of service related spending by consumers at
dealerships, the percentage of dealership profits generated from the service and
parts department has increased from approximately 16% in 1985 to approximately
59% in 1997. Based on these trends, we believe that dealerships will increase
the portion of their marketing budgets dedicated to automobile service
department customer retention and loyalty programs.
PERCENTAGE OF DEALERSHIPS' PROFITS GENERATED FROM THE SERVICE AND PARTS
DEPARTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1985
<S> <C>
Service and Parts 16%
Sales and Other 84%
1997
Service and Parts 59%
Sales and Other 41%
Source: NADA
</TABLE>
Typically, automobile dealerships use general mass media advertisements,
bulk mail coupons or generic reminder notices to promote their services.
However, the effectiveness of these solicitation techniques is limited for
several reasons. First, because these forms of marketing often involve
untargeted mailings, many solicitations are sent to individuals who no longer
own their vehicle. In addition, these general marketing solicitations lack the
impact associated with a more focused marketing program. Furthermore, these
solicitation techniques have limited data gathering and storing capabilities and
do not allow dealerships to receive customer feedback. Because of the
deficiencies of these traditional marketing methods, such methods also tend to
be expensive when compared to the amount of revenue they generate for
dealerships. Some manufacturers have attempted to support their dealerships
through manufacturer sponsored marketing. However, manufacturers do not have
specific information about dealership customers nor do they track maintenance
activity at the dealerships. Consequently, manufacturers are unable to develop
effective nationwide programs to encourage customers to return to dealerships
for service.
The proper implementation of a targeted marketing campaign promoting
automobile service is highly complex. Maintenance schedules vary immensely from
vehicle to vehicle. At a typical Ford dealership, for example, there may be as
many as 2,500 different maintenance schedule combinations based on a vehicle's
model, year, engine and other characteristics. Matching the correct maintenance
schedule to each vehicle, while taking into account other factors such as the
owner's driving habits, service history of the car, seasonal and regional
variations, and any special maintenance programs offered by the dealership,
requires complex algorithms and advanced data management systems. Adding to this
complexity, dealerships need to manage and update their databases of service
customers in order to eliminate customers who should not be solicited and to
focus on customers who are most likely to return
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for service. Ensuring that the right maintenance reminder gets to the right
person at the right time requires sophisticated database marketing techniques
and the use of a system that continuously updates customer data and monitors the
results of the marketing campaign.
While advances in technology and information processing now permit
dealerships to engage in highly targeted marketing initiatives, these
initiatives are generally dependent upon complex and costly data management
processes. For example, dealerships require sophisticated systems that enable
the purification of databases that contain old or inaccurate data to effectively
market to customers. Dealerships are increasingly focusing on their core
competencies of selling and servicing automobiles and outsourcing to experts the
development and implementation of complex processes that support and enhance
their business objectives. Thus, automobile dealerships need outsourced services
that employ efficient and cost-effective technology to increase the number of
service department customers per dealership and dealership revenues per
customer. These services will also improve the operations and processes of the
dealership thereby differentiating the dealership from its competition and
creating increased customer satisfaction and loyalty.
THE NEWGEN SOLUTION
Newgen provides customized, outsourced database management, direct
marketing and related services for automobile dealerships' service departments
and automobile manufacturers. Our expertise in both database marketing and
customer retention services, as well as our in-depth knowledge of automobile
service department operations enables us to provide comprehensive and highly
targeted marketing solutions. Our RESULTS Program promotes automobile service
business from a dealership's customer base by using direct marketing campaigns
involving direct mail and outbound teleservice follow-up. We implement our
RESULTS Program for automobile dealerships using a dealership's own customer and
transaction data that we process and purify to ensure the data is current and
relevant. After downloading a dealership's database into our system, we combine
the data with maintenance schedule databases and our proprietary databases and
algorithms to develop customized solicitations targeting service visits. Our
closed-loop system tracks every dealership customer in order to update the
database appropriately throughout the solicitation process and to provide
feedback to the dealership. Our services are designed to:
- attract more service customers to dealerships from the dealerships'
customer base;
- increase dealership revenues per customer;
- promote customer loyalty;
- increase customer satisfaction;
- differentiate the dealership from its competition through improved
operations and processes; and
- provide dealership customers with the benefits of a safer vehicle with
increased resale value.
Our studies indicate that over the course of a year customers we solicit
for a dealership will visit that dealership more than three times as often, and
spend more than two and one-half times as much, compared to customers with
similar demographic characteristics not solicited by us.
Our RESULTS Program significantly reduces untargeted solicitations and
unnecessary expenses. This, in turn, increases a dealership's return on
investment compared with untargeted customer retention programs. As a result,
approximately 25% to 30% of dealership customers solicited by us return to the
dealership for vehicle service. This compares very favorably with response rates
for direct mail marketing campaigns, which typically range between 1% and 3%.
Through our teleservice department, we are able to forward dealership customer
concerns to the dealership before those customers defect. Dealerships can
address these concerns and significantly increase the satisfaction of their
customers. In addition, we provide dealerships with comprehensive monthly
management reports that track response rates and
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spending habits of solicited customers. Dealerships can therefore measure the
quantifiable financial and customer retention benefits attributable to our
services. We have an extensive customer support infrastructure to provide
assistance to dealership management in understanding the benefits of our
services. We also advise dealerships on methods of customized solicitation, such
as promotions, coupons and special targeted programs, and work closely with our
customers to accommodate their individual requests and needs. In providing all
of these services, we regularly visit most of our customers at their facility.
We have recently introduced a number of new services that utilize our
expertise in automobile service department operations and complement the RESULTS
Program. Our Reservations Program provides dealerships with a solution for the
challenges of scheduling service appointments with dealership customers and,
subsequently, loading the service department for maximum efficiency. Our Welcome
Home service is designed to recapture dealership customers who may have defected
to other service outlets. Such services, among others in development, leverage
our database marketing and customer retention skills to provide a range of
outsourced services to dealerships.
We maintain a close working and strategic relationship with Ford. We
strongly believe that our work with Ford supports our own marketing and product
development efforts as well as our credibility with dealerships. Ford also has
acted as a key reference account in our effort to develop relationships with
other manufacturers. The key elements of our relationship with Ford include:
- marketing programs developed jointly by us and Ford for deployment to
Ford dealerships nationwide;
- private labeling by Ford of our database marketing services as the
Quality Care Maintenance Reminder System; and
- a consulting engagement which puts us in contact with Ford
dealerships.
Our Consulting Division leverages its expertise in automobile service
department operations to develop and implement new techniques and programs that
enable dealerships to grow their business, streamline inefficient processes and
more effectively market their services. To date, our consulting services have
been provided primarily to Ford dealerships, although they are applicable to
dealerships of any make of vehicle. We believe that our consulting services
enhance our overall understanding of dealership needs and processes, and also
reinforce our business relationship with such dealerships. In addition, the
Consulting Division is a key generator of new service ideas that can be deployed
throughout our dealership base. For example, we recently introduced the Around
the Wheel Program and the Pricing Center, both of which were developed by our
Consulting Division and are now being implemented throughout our Ford dealership
base.
GROWTH STRATEGY
Newgen's objective is to be the leading provider of customized,
outsourced database management, direct marketing and related services for
automobile dealerships and manufacturers. Using our sophisticated database
management capabilities, personalized customer service and in-depth knowledge of
automobile service department operations, we have quickly and effectively
penetrated the automobile dealership and manufacturer industry. Our growth
strategy consists of the following key elements:
PROVIDE SERVICES TO MORE AUTOMOBILE DEALERSHIPS. We have experienced
significant growth in the number of dealerships we service. Our customer base
has grown from 177 dealerships at December 31, 1995 to 1,902 dealerships at
December 31, 1998. Our strategy to increase our share of the automobile
dealership market consists of the following elements:
- increasing the size of our direct field sales force;
- more actively marketing our services to dealerships;
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- continuing to expand our field force of customer satisfaction
representatives to service our dealership base;
- seeking to establish additional manufacturer relationships using the
Ford relationship as a model; and
- lengthening the term of our dealership contracts.
INCREASE THE NUMBER OF ACTIVE NAMES PER AUTOMOBILE DEALERSHIP. Our
revenues for the RESULTS Program are based on a monthly fee per active name in
our database. As a result, dealerships generally control the number of active
names in our database in order to control their expenses. Currently, we solicit
approximately two-thirds of our purified database. We seek to increase the
number of active names per dealership by demonstrating a tangible return on
investment to the dealership resulting from our programs. As we further
demonstrate the economic value of our services to our customer base, we believe
dealerships are likely to increase the number of active names that we solicit.
We are focused on developing tools and sales techniques designed to emphasize
the tangible financial benefits of our services. We recently engaged in a
marketing campaign to encourage dealerships to activate more dealership customer
names from their customer base, resulting in an increase of approximately
135,000 active names to date.
OFFER A BROAD RANGE OF CUSTOMIZED DIRECT MARKETING SERVICES TO
AUTOMOBILE DEALERSHIPS. We intend to cross-sell new services to satisfied
dealerships, as well as to sell broader lines of services to new customers. Our
Consulting Division serves as a key generator of new service ideas that can be
developed throughout our dealership base. For example, we recently introduced
three new targeted direct marketing programs:
- Reservations--designed to improve the efficiency of service department
appointment scheduling and shop loading;
- Welcome Home--designed to recapture dealership customers who have
previously defected; and
- Around the Wheel--designed to increase the sale of brakes and tires at
Ford dealerships.
In addition, we are currently developing several other innovative
services and programs. For example, we are currently developing an after visit
follow-up program involving teleservice calls to ascertain the level of
satisfaction from a customer's service experience following vehicle service and
a data delivery, query and fulfillment system over the Internet for our
customers.
LEVERAGE DATA MANAGEMENT CAPABILITIES. We intend to use our expertise
and resources in data management to provide data extraction and data warehousing
services. Our database contains comprehensive and detailed information regarding
virtually every repair order processed by a dealership since implementation of
the RESULTS Program. Because we are able to extract repair order information
from dealerships on a daily basis, we can provide statistical data to
manufacturers and dealerships in a variety of different formats. We can also
mine our data to search for trends that could be useful to manufacturers and
dealerships. We currently are working with Ford and Toyota Motor Sales to
provide such services. We believe that the benefits of such data management
services to manufacturers and dealerships include:
- creating manageable information regarding customer and vehicle service
patterns;
- providing information that supports customer promotions and recall
programs; and
- establishing the foundation for future direct marketing services.
UTILIZE THE INTERNET AS A DELIVERY PLATFORM FOR OUR SERVICES. We
believe that the Internet may provide a compelling platform to deliver our
database management and direct marketing services for
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automobile dealerships and manufacturers. We have begun to develop a number of
online services that complement and extend the capabilities of our current
services. We believe that e-mail may serve as an effective mechanism for
delivering service reminder notices. We are attempting to collect e-mail
addresses through our dealership customer contacts and develop the technology
necessary to deliver our RESULTS Program using e-mail. In addition, we intend to
promote our maintenance schedule database and our RESULTS Program on a private
label basis to specialized Web portals and other providers of Internet services
that may work with dealerships or manufacturers. We recently introduced our
Reservations Program which, in the future, we intend to make accessible over the
Internet such that dealership customers will be able to schedule service
appointments online. We are currently developing ROAD, a service that is
designed to allow dealerships to access, manipulate and query our database and
receive our management reports over the Internet. We intend to continue to
actively develop services that leverage the Internet's advantages as an
information and content delivery platform.
In addition, we may seek to expand our operations and use our technology
and process expertise by investing in or acquiring businesses or technologies
complementary to our existing operations. We cannot assure you that any future
acquisitions will be completed or that, if completed, any such acquisitions will
be effectively integrated with our operations. For a discussion of risks
associated with future acquisitions, see "Risk Factors -- We May Engage in
Future Acquisitions that Dilute our Stockholders, Cause Us to Incur Debt and
Assume Contingent Liabilities."
SERVICES
Newgen's services include (1) the RESULTS Program, (2) consulting
services, (3) other recently introduced services, and (4) services in
development. All of our services utilize our expertise in both database
marketing and customer retention services, as well as our knowledge of
automobile service department operations.
RESULTS PROGRAM
The RESULTS Program promotes automobile service business from a
dealership's own customer base by using direct marketing campaigns involving
direct mailing and outbound teleservice follow-up. We implement our RESULTS
Program on behalf of dealerships using dealership customer and transaction data
that we process and purify to ensure that the data is current and relevant. We
enhance the dealership's database by combining it with maintenance schedule
databases and our own proprietary databases and algorithms to develop customized
solicitations targeting service visits. Our closed-loop customer retention
system tracks the status of each dealership customer to enable targeted and
personalized interaction and follow-up with the customer at every phase of the
solicitation process. We monitor results daily and provide dealerships with
comprehensive monthly management reports that track maintenance, response rates
and spending habits of solicited customers.
DATABASE UPDATING, MAINTENANCE AND INTEGRATION. Our RESULTS Program is
based on sophisticated data management. The first phase of the RESULTS Program
is a download of a dealership's database of customer transaction data onto our
database management system. This initial data download is comprehensive, but
often inaccurate. To ensure our database is current, we also download customer
transaction data each time a dealership customer comes into the dealership. We
use this data to update the information and history relating to a particular
customer or vehicle. This data is compiled to develop a maintenance schedule for
each vehicle in the database. In order to maximize response rates, we purify
each dealership's initial database by eliminating:
- dealership employees;
- fleet customers performing their own maintenance;
- dealership trades;
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- database records with incomplete names, addresses, or missing or
incomplete vehicle identification numbers; and
- other vehicles that are inappropriate for dealership servicing (such
as a Dodge purchased at a Toyota dealership).
CUSTOM DATA MANAGEMENT. We use the purified, enhanced database and our
industry knowledge and expertise to design and execute a customized direct
marketing campaign for the dealership. After the data is analyzed, it is then
overlaid on other relevant databases such as maintenance schedules or zip code
exclusion tables. We consult with dealerships on a customized program that takes
into account maintenance schedules, geography, demographics and the dealership's
service operations. Once our database includes all of the necessary data, we are
able to execute the RESULTS Program and begin to provide direct marketing
services.
TARGETED DIRECT MAIL SOLICITATION. We send to each dealership customer
a personalized letter on that dealership's letterhead. The personalized letter
is tailored to each customer's car make, mileage and maintenance schedule,
indicating that the vehicle is due for service. The letter also describes the
suggested service required, as well as dealership contact information and hours
of operation. We can then monitor the response rate of our direct mail
solicitations through regular transaction downloads from dealerships, as well as
use the most current information to update and enhance our database for each
dealership. We are attempting to develop technology to enable us to e-mail
reminder notices and our goal is to add this capability to our RESULTS Program
in the future.
TELESERVICE FOLLOW-UP. If the regular transaction downloads show that
the vehicle owner did not visit the dealership within a specified time after the
personalized letter is sent, a telephone solicitation from Newgen is made on
behalf of the dealership, encouraging the dealership customer to bring the
vehicle to the dealership for service. Ideally, the Newgen teleservice
representative speaks directly to the dealership customer and is able to:
- confirm the vehicle's mileage;
- explain the type of service that is due;
- set an appointment for service of the vehicle; and
- obtain customer feedback for dealerships.
If an answering machine is reached, a message is left for the dealership
customer. Our research indicates that the response rate from solicitations by
telephone messages is approximately the same as solicitations by direct
telephone contact. If an appointment is scheduled, the dealership customer's
name returns to the database for future solicitation. If the dealership customer
is no longer appropriate for solicitation (for example, because the customer
sold the vehicle or moved away), the name is made inactive in the database and
no longer solicited. If Newgen's teleservice representatives receive a complaint
from a dealership customer, a "customer opportunity" form is created identifying
the reason for the dissatisfaction (for example, the customer experienced a rude
service advisor or the vehicle was not ready when promised). Each "customer
opportunity" form is immediately sent to the dealership via facsimile. These
forms provide an opportunity for dealerships to salvage fragile customer
relationships and improve customer retention. We believe that our teleservice
calls are effective because they are not made as sales calls. Rather, they are
simply reminder calls provided as a service to the vehicle owner.
CLOSED-LOOP SYSTEM. The RESULTS Program is a closed-loop system that
allows Newgen to know whether a dealership customer has responded to our direct
marketing services. By updating our database throughout the solicitation
process, our closed-loop system is designed to ensure that all dealership
customers experience appropriate and personalized interaction and follow-up. The
RESULTS
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Program is effective because we are able to maintain the most current record
possible for each dealership customer and vehicle. As a result, we minimize
inappropriate and ineffective solicitations.
COMPREHENSIVE MANAGEMENT REPORTS. Each month we produce comprehensive
management reports for each of our dealerships. These reports are sent to
dealerships shortly after the end of the month and contain specific,
quantifiable information about the results of their customized program. The
information in these reports includes data on customer spending habits, return
on the dealership's investment and database purification. These reports also
contain information on service advisor performance and other relevant feedback
enabling the dealership to improve its operations and processes.
CONSULTING SERVICES
Newgen leverages its industry expertise in the parts and service
departments operations of automobile dealerships through its Consulting
Division. To date, these services have been directed primarily to Ford
dealerships, although the programs are applicable to manufacturers and
dealerships of any make of vehicle. These services are designed to improve the
quality of the dealership's parts and service departments through process
improvement methodologies. These services are also intended to provide
dealerships with additional revenue opportunities. Our Consulting Division
serves as a key generator of new service ideas that can be deployed throughout
our customer base. At December 31, 1998 our Consulting Division consisted of 25
employees, including 15 consultants and 10 internal administrative and technical
staff. In June 1997, we initiated a consulting purchase order for the
implementation of the Quality Care Maintenance (QCM) Program, during which we
consulted to over 2,700 Ford dealerships. We have privately labeled a version of
our RESULTS Program as the Quality Care Management Reminder System to fulfill
the requirements of QCM. During the implementation of QCM, we provided
consulting services to each of the 2,700 Ford dealerships.
We currently have a separate consulting purchase order to help Ford
dealerships increase sales of tires and brakes. This program is called Around
the Wheel and is expected to be implemented in over 2,400 Ford dealerships by
August 1999. The Around the Wheel Program is designed to increase brake and tire
sales by including specialized graphs showing brake and tire wear in each
regular reminder letter we mail to a dealership customer. In addition, our
consultants help dealerships increase brake and tire sales by teaching effective
sales techniques and by improving distribution channels for these products.
RECENTLY INTRODUCED SERVICES
An important component of our growth strategy is to continue to
introduce new services to our dealerships. While we believe that our new
services represent an opportunity for future growth, to date these services have
generated limited revenues for Newgen.
RESERVATIONS. One of the most challenging processes for the service
department of an automobile dealership is the reservations process. The service
department is difficult for the dealership to staff appropriately, such that
service advisors often spend inadequate time with customers on the phone to
address service or maintenance concerns, especially at peak times such as Monday
mornings. Furthermore, service advisors may not check the dealership customer's
service history report to determine whether or not the customer is due for
additional maintenance that could result in additional revenue to the
dealership. Finally, service advisors generally are not trained in proper
service shop loading techniques, resulting in an inefficient system for
completing service orders.
Newgen's Reservations Program is designed to overcome these challenges.
When a dealership customer calls the dealer to set an appointment for service,
the call is transferred to Newgen's teleservice facility. Through our database,
the dealership customer's service history is accessed along with the
dealership's service calendar. Newgen service representatives are trained in a
decision tree process that enables them to accurately diagnose the problem with
the vehicle. At the same time, the teleservice representative can recommend
other needed maintenance or recall related service work. We then transmit
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the reservation information to the dealership's computer system. Through
Newgen's proprietary scheduling algorithm, the repair work is scheduled for a
mutually convenient time that is designed to load the service department for
maximum efficiency. Newgen currently has ten dealerships in pilot, and expects
to launch this service on a larger scale in June 1999.
DATA EXTRACTION AND DATA WAREHOUSING. We intend to leverage our
expertise and resources in data management to provide data extraction and data
warehousing services. We are currently working with Ford and Toyota to perform
data warehousing and mining services. Leveraging our expertise in dealership
data extraction, we will gather data from dealerships and utilize our database
expertise to transmit information back to a manufacturer in different and
customized formats. The manufacturer will then use that information for its own
marketing and research programs. We are currently introducing this service.
PRICING CENTER. The Pricing Center provides dealerships with a price
book outlining the required maintenance schedules and suggested maintenance
prices for every Ford vehicle. There are over 2,500 permutations of service
operations. The price book is used by dealerships to accurately determine prices
for maintenance packages and thereby better service their customers. Dealerships
are charged a monthly fee for these pricing books and receive up to two updates
per year.
WELCOME HOME. The Welcome Home Program is designed to recapture those
customers who may have defected from the dealership. When we initiate the
RESULTS Program with a customer, the dealership may choose to solicit only
vehicles that have visited the dealership for service within the last twelve
months. However, many of the dealership's customers that visited the dealership
prior to the last 12 months are still good prospects for service visitation.
We believe that the Welcome Home Program is an effective means for
dealerships to market their service to a larger group of potential customers. As
part of the Welcome Home Program, all potential customers are sent a four-color
mailing with a personalized message inviting the customer to return to the
dealership for service. The mailing includes personalized coupons as well as an
innovative "scratch-off" feature. The "scratch-off" feature provides the
customer with a chance to win a special gift from the dealership, such as a free
oil change or a discount on service. When the customer returns to the
dealership, the customer is added to our active database for regular
solicitation by that dealership. We introduced this service offering to our
customers during the third quarter of 1998 and we believe that the response rate
is substantially higher than response rates typically generated by direct mail.
SERVICES IN DEVELOPMENT
We believe we can continue to leverage our expertise in database
management, direct marketing and the service department operations of automobile
dealerships to introduce innovative new services to automobile dealerships. We
have several new service programs under development.
CSI. Many dealerships call their customers after a service visit to
inquire about the quality of their experience. We are well positioned to provide
this service through our CSI Program on an outsourced basis because we already
acquire the necessary data as part of our RESULTS Program. Our CSI Program is a
survey system that enables our dealerships to track their customer satisfaction.
This program allows us to leverage our existing teleservice expertise and
operational infrastructure. We initiated a pilot of our CSI Program during the
fourth quarter of 1998 and expect to introduce this service to our customers
during the first half of 1999. One element of this program will be a kiosk at
the service cashier's desk, at which a customer can input, on a touch screen,
responses to various questions regarding the service experience. The survey can
be supplemented by a telephone call a few days after the service, to ensure that
the vehicle is working properly. Feedback from both of these surveys is sent to
the dealer on a regular basis, with immediate notification to the dealer of any
responses that would warrant special handling.
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ROAD. ROAD is a service that is designed to provide dealerships with
immediate access over the Internet to the large amount of information contained
in our database and use such information for direct marketing or other purposes.
We intend to provide dealerships with a personal computer and an Internet
connection in order to allow them to receive management reports, to access our
database and to perform queries. For example, ROAD will be designed to enable a
dealership to determine the zip codes of its service customers and then display
their locations on a map. In addition, queries may be conducted to identify
customers with expiring leases, and dealers may direct Newgen to send a sales
promotion letter. We also intend to enhance the dealership data with demographic
data to enable the dealer to perform data mining.
For a discussion of risks associated with the introduction of new
services see "Risk Factors--We Will Need to Introduce New Services to Expand Our
Business."
SALES AND MARKETING
SALES
At December 31, 1998, we employed 35 sales professionals located in
major markets throughout the United States. The sales force is compensated
almost exclusively by commission. The commission is based on a salesperson's
implementation of the RESULTS Program at dealerships. In addition, at December
31, 1998, we had 11 customer satisfaction representatives located throughout the
United States. We believe their regular visits to our customers increase both
dealership awareness of our services and an appreciation of the benefits and
value of our services. Our experience has been that educated and satisfied
customers are more likely to provide us with referrals to other dealerships. In
addition, our attention to our customers has helped us increase the number of
active names in our database and the number of services that we provide to our
individual dealerships.
The continued consolidation of automobile dealerships has enabled us to
target our sales efforts more effectively. Because the larger dealerships are
able to derive the greatest benefit from our services and represent our greatest
potential source of revenue, our sales professionals focus primarily on these
dealerships.
Newgen uses two different strategies for selling services to automobile
dealerships. When a manufacturer or dealership group recommends our services,
our salesperson is able to more effectively contact the dealership principal.
Our salesperson also is able to make a sales presentation that is tailored to
the manufacturer or dealer group program. Manufacturers influence the decisions
made by dealerships through both financial and non-financial incentives and
support our sales efforts. For example, Ford's recommendation of our services
has been instrumental in securing appointments with Ford-affiliated dealership
principals. In turn, sales of our services to Ford dealerships has increased. In
addition, through Ford-sponsored dealership seminars, we have enrolled several
hundred dealerships in our Around the Wheel Program. Other benefits of a
manufacturer's recommendation include co-branded marketing materials and
administrative support with our management of receivables and the fee collection
process.
When a dealership is not affiliated with a manufacturer that recommends
our services, our sales representatives directly solicit the dealership. We
employ an active prospecting and sales management process intended to increase
direct sales by facilitating appointments with key decision makers at
dealerships. Regional market-support personnel address administrative
responsibilities for teams of salespeople. Word-of-mouth, cold-call prospecting
by market-support personnel, special mailings to dealerships and booths at local
and regional dealership exhibits create sales leads that are then responded to
by sales representatives. In addition, we have an internal database system that
electronically tracks our customer prospects throughout our solicitation of new
business.
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We believe that our credibility among automobile dealerships is based on
our ethical sales practices, demonstrated industry expertise, manufacturer
recommendations, leading edge technology and efficient back office operations.
MARKETING
Our marketing department is responsible for the introduction of new
services to our existing customer base. In addition, our marketing efforts focus
on enhancing Newgen's brand name recognition, developing an Internet strategy
and networking with prominent dealerships through a Dealership Advisory Board.
The marketing department is also responsible for our participation in the annual
National Automobile Dealers Association trade show, dealer association
presentations, as well as other smaller regional trade shows across the United
States that increase awareness of Newgen's services. The marketing department
also has two business development managers whose primary functions are to secure
new automobile manufacturer relationships.
OPERATIONS
We have developed broad expertise in the operational aspects of database
management, direct marketing and teleservice. Our core competencies include:
- developing and installing databases with dealership-specific
information;
- downloading dealership data through our highly automated computer
system;
- purifying and enhancing data;
- maintaining automobile maintenance schedules;
- providing systems for personalized customer solicitation through
direct mail and teleservice; and
- satisfying customers.
In December 1997, we completed the certification process for ISO 9001.
To become ISO 9001 certified, an independent certifying agency audited our
internal processes and certified that they met a set of specific international
quality standards established by the International Standards Organization. We
believe that ISO 9001 certification will allow Newgen to achieve special vendor
status with major manufacturers by signifying our attention to quality and
operational excellence. We believe that our operations expertise provides us
with a competitive advantage and is a key reason for the growth of our customer
base.
INSTALLATIONS. The installation department has the initial interaction
with a dealership in implementing the RESULTS Program. This department's
activities consist primarily of programming scripts to obtain dealership data
via modem, ensuring that all appropriate maintenance schedules and dealership
information are input to our database system and creating customized digital
letterhead for sending to dealership customers. In addition, the installation
department works with dealerships to develop customized dealership-specific
information for our database or other special dealership offerings, such as
"winterization" packages in Michigan or "desert protection" plans in Texas. The
installation department also creates letter templates for the direct marketing
component of our business.
COMPUTER OPERATIONS. The computer operations department downloads the
initial data from the dealership and is responsible for downloading data from
the dealership on a daily basis. For most dealerships, data is automatically
downloaded nightly containing a detailed list of dealership customers who have
come in for service or have purchased a vehicle. This highly automated system
allows us to know whether a contacted dealership customer has come in for
service or made an appointment. If the dealership customer has had his or her
vehicle serviced, the record is returned to the file for future
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solicitation. If the dealership customer does not come in for service within a
time frame specified by the dealership, the name is transferred to a phone list.
The computer operations department is also responsible for maintaining our
HP9000 computers. In addition, the computer operations department facilitates
the analysis of data for sale to manufacturers as part of our data warehousing
and mining services.
DATABASE OPERATIONS. Newgen is focused on maintaining a comprehensive
transaction database by concentrating on continuous database purification. The
database operations department prepares new records for processing by ensuring
that each dealership customer name has a proper salutation, proper address
(utilizing the National Change of Address Registry) and that each address is in
compliance with postal regulations. The database operations department also
processes the files that are used to generate letters and downloads these files
to our print vendors. Newgen's print vendors then utilize innovative
print-on-demand technology to generate customized letters on dealership
letterhead.
Dealerships are able to change the number of active customers in their
database at any time. New names are added to the database whenever an existing
active name is made inactive as part of the ongoing database purification
activities or when a new vehicle is sold. This process helps us maintain the
number of active names requested by the dealership. The database operations
department also develops the general and dealership-specific information for our
database. This database includes current information on virtually every make and
model of vehicle produced for sale in North America and their recommended
maintenance schedules. These standard maintenance schedules include a
combination of time parameters (for example, every six months) and mileage
parameters (for example, every 3,000 miles). Our proprietary software
individualizes these schedules by making adjustments for the driving habits of
each vehicle owner in our database.
TELESERVICE. The teleservice department contacts dealership customers
that do not respond to solicitation letters. At December 31, 1998, the
teleservice department had 154 full-time and 134 part-time employees. The
teleservice department currently contacts over 600,000 customers per month. When
a personal contact cannot be made, a message is left for the dealership's
customer. Our research indicates that the response rate from solicitations by
telephone messages is approximately the same as solicitations by direct
telephone contact. When a contact is made, the teleservice department either
makes an appointment for the dealership, or "closes the loop" by establishing
reasons for non-response. Teleservice representatives may also identify
dealership customers who are dissatisfied with the dealership and do not wish to
return for service. We believe that our teleservice calls are effective because
they are not made as sales calls. Rather, they are simply reminder calls
provided as a service to the vehicle owner.
CUSTOMER SERVICE. The customer service center ensures that the needs of
dealerships are addressed. This department answers questions from dealerships
and our own employees about all of our services. The customer service center
also implements changes to a dealership's program, such as letter changes and
maintenance schedule changes. We use the information we gather through our
customer service center to constantly improve our processes. This department
employed 20 persons at December 31, 1998 and is available to answer questions 24
hours a day, seven days a week.
CUSTOMER SATISFACTION. The mission of our customer satisfaction
department is to improve dealership satisfaction and retention. At December 31,
1998, the department consisted of 15 field representatives. Our field
representatives regularly visit our customers. During the field visits our
representatives proactively deal with any issues that may have arisen at the
dealership, such as management or operational changes. In addition, the field
representatives review management reports with dealership representatives and
explore new avenues for revenue enhancement with the dealership. The field
representatives are able to introduce new services to dealerships during their
visits, thereby supplementing the efforts of the sales department.
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TECHNOLOGY
We are a leader in applying advanced technology to database management
and direct marketing. Our current software and database systems have been
developed over several years, and we have increased their functionality as they
have grown. We have, where necessary, license agreements for the software we use
from third parties.
In order to take advantage of the most current advanced technology, we
are in the process of implementing a software rewrite to our core database
management and customer retention software system. We expect to complete this
rewrite by the fourth quarter of 1999. We expect to greatly enhance our core
computing and database management services through the implementation of the
software rewrite. We believe that the improvements in our operating processes as
a result of the software rewrite will produce a significant return on our
investment through cost savings. In particular, we believe the software rewrite
will:
- provide us with increased scalability as our customer base grows;
- result in a more flexible database that will enhance our ability to
provide new services and customized extract reports;
- enable us to introduce new products and services more quickly;
- increase our data processing efficiency;
- enhance our ability to utilize the Internet as part of future service
offerings;
- improve our customer service by providing more effective user
interfaces and information; and
- strengthen our ability to more effectively purify data, which will
greatly reduce labor and postage expense.
The new system will utilize Oracle database software and a graphical
user interface written in the Visual Basic 5 programming language. See "Risk
Factors -- If Our Software Rewrite Is Not Completed in a Timely Manner We Will
Incur Substantial Expense or Be Required to Modify Our Current Software."
In early 1999, we installed new telephony equipment for our teleservice
operations. We believe our updated telephony equipment will result in
significant improvements in our teleservice operations. In particular, we
believe the telephony equipment will increase the efficiency, consistency and
quality of our services, as well as provide increased feedback that will enable
us to better understand our business.
COMPETITION
We operate in a highly competitive business environment. We compete with
a variety of companies, including large national or multi-national companies
which have greater financial resources and smaller regional or local companies
that are involved to varying degrees in the same business as us. Our three
significant national competitors are Reynolds & Reynolds, Co. (R&R), Automatic
Data Processing, Inc. (ADP) and Moore Corporation Limited (Moore). R&R's Service
Systems Division offers automobile dealerships database management and customer
retention services that compete directly with our services. ADP's automobile
dealership services competes with us by providing customer retention services
similar to ours. Moore also delivers integrated business communications,
personalized direct marketing and other related services. We believe that R&R
and ADP each have significantly more customers than we do. Moreover, R&R, ADP
and Moore have significantly greater financial resources and all of them
actively compete against us for dealership business. For example, R&R has in the
past offered a discount on customer retention systems to dealerships that
purchase certain hardware and software. ADP has in the past offered free
services for up to three months in order to compete on price. We also compete to
a limited degree with other small customer retention service providers and
in-house customer retention
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systems. As the trend towards dealership consolidation continues, dealerships
will be able to create internal economies of scale, and could choose to satisfy
their database management and directed marketing needs internally rather than
outsourcing. Our potential customers may decide to internally develop database
management and direct marketing services. Our ability to compete effectively
will depend on a number of factors, including:
- our knowledge of dealership service department operations;
- the value of the services we offer;
- the state of our relationships with automobile manufacturers;
- the quality and breadth of our service;
- our ability to identify, develop and offer innovative services;
- our ability to overcome difficulties associated with replacing
incumbent service providers; and
- pricing and reputation among dealerships.
R&R, ADP and Moore price their services on a per letter basis, although
certain customers of Moore may elect to be billed on the number of active names
in the customer base. Therefore, meaningful price comparisons between our
services and our competitors' are difficult. Dealerships may perceive that our
services are priced higher than those of our competitors. In addition, our
competitors may increase their emphasis on programs similar to those programs we
offer and new competitors may enter the market. Furthermore, dealerships or
automobile manufacturers themselves may introduce competing programs. If any of
these were to occur, we may be unable to compete effectively against them.
TELEMARKETING REGULATIONS
We are subject to varying degrees of federal, state and local
telemarketing regulation. The jurisdiction of the Federal Trade Commission (FTC)
and the Federal Communications Commission (FCC) extends to the telemarketing
industry, including some of the services we provide to our customers. The FTC
has issued regulations which prohibit certain types of deceptive or abusive
telemarketing acts or practices. Regulations issued by the FCC place limits on
the use of certain types of equipment used in telephone solicitation, require
telemarketing companies to provide certain identifying information, and require
the maintenance of a list of persons who do not wish to be called. We do not
currently engage in, and have no plans to engage in, any of the activities
prohibited by the FTC and FCC regulations. The FCC and FTC regulations have,
therefore, not materially restricted our operations. If future regulations are
adopted by the FCC and FTC or other regulatory bodies, our business may be
materially adversely effected. In addition, violations may occur in the future
as a result of human error, equipment failure or other causes. Our failure to
comply with, applicable domestic and international regulations could have a
material adverse effect on our business, financial condition and results of
operations. The media often publicizes perceived non-compliance with consumer
protection regulations and violations of notions of fair dealing with consumers.
Any such publicity is potentially damaging to our reputation, client
relationships and consumer acceptance and loyalty.
EMPLOYEES
As of December 31, 1998, we had 537 employees, of whom 398 were
full-time and 139 were part-time (primarily teleservice personnel). From time to
time we also employ independent contractors within our consulting division. Our
employees are not represented by any collective bargaining organization and we
have never experienced a work stoppage. We believe that our relations with our
employees are good.
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PROPERTIES
We lease a facility in San Diego, California having approximately 28,000
square feet of space. The current lease for this facility expires in September
2001. In addition, we lease a second facility in San Diego, California having
approximately 7,000 square feet of space. This facility houses some of our
teleservice and database operations. The lease for this facility expires on
August 31, 1999. We also lease a facility in Hayward, California that has
approximately 2,500 square feet of space. The Hayward, California facility
houses our repair functions and some of our modems and dealership communications
equipment. The lease for this facility expires in July 2001.
LEGAL PROCEEDINGS
On January 29, 1999, Jefferey B. Davis, our former Vice President of
Sales, filed suit against Newgen in Superior Court in San Diego, California
(Case No. 727730). In August 1998, Mr. Davis' employment with us was terminated.
In his lawsuit, Mr. Davis alleges that he was unlawfully discharged from his
employment with Newgen and that he is owed certain compensation that was not
paid to him prior to termination of his employment. Mr. Davis is requesting
unspecified damages in connection with his lawsuit. While we intend to
vigorously defend this lawsuit, we cannot assure you that the costs of defending
his lawsuit or an unfavorable outcome of the case would not harm our financial
position or results of operations.
We may from time to time become a party to various other legal
proceedings arising in the ordinary course of our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides certain information with respect to the
executive officers and directors of Newgen as of December 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------
<S> <C> <C>
Gerald L. Benowitz........... 54 Chairman, President and Chief Executive
Officer
Samuel Simkin................ 43 Senior Vice President, Chief Financial
Officer and Secretary
Leslie J. Silver............. 47 President, Newgen Consulting Services and
Executive Vice President
James K. Roche............... 39 Senior Vice President, Operations
Mario Sanchez................ 43 Vice President and Chief Information Officer
Frederick Wallace............ 52 Vice President, Marketing
Eugene J. Fischer............ 52 Director
H. Robert Gill(1)............ 62 Director
Jess R. Marzak(2)............ 48 Director
John Moragne................. 41 Director
Abraham L. Simkin............ 76 Director
Bernard C. Simkin(1)(2)...... 49 Director
Gary Simkin.................. 51 Director
Murray Simkin(3)............. 45 Director
Todd A. Springer............. 32 Director
Bert Winemiller(2)........... 56 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Immediately following the closing of this offering, Murray Simkin will no
longer serve as a director of Newgen.
GERALD L. BENOWITZ has served as Chairman, President and Chief Executive
Officer of Newgen since our inception. From October 1984 to June 1991, Mr.
Benowitz served as Project Manager for Otay International Center, a 400-acre
multi-use industrial park. From May 1980 to August 1984, he served as President
and Chief Operating Officer of Harco Medical Electronic Devices, a medical
device company. Mr. Benowitz holds a B.S. from the University of Tennessee.
SAMUEL SIMKIN was named Senior Vice President of Newgen in August 1998.
Mr. Simkin has served as Vice President and Chief Financial Officer of Newgen
since our inception. From November 1986 to June 1991, Mr. Simkin served as
President of Morite Investments, Inc., a private investment company. From June
1978 to November 1986, Mr. Simkin served as Vice President and Secretary of
Rudacel Investment Company Limited where he was responsible for investing in and
managing various companies. Among the companies managed by Mr. Simkin were
Mostly Software, a software retailer, and Citation Software, a software
distributor. Mr. Simkin holds both a B.A. and an L.L.B. from the University of
Manitoba, and an M.B.A. from the University of Western Ontario. He is a member
of the Manitoba and California Bar Associations, and is also a Certified General
Accountant.
LESLIE J. SILVER was named Executive Vice President of Newgen in August
1998. Mr. Silver has served as President of Newgen Consulting Services since
Newgen's inception. From May 1982 until February 1994, Mr. Silver served in
various senior management capacities at Newgen Service Systems, Inc., and its
successor corporations, which developed and sold database management and
customer retention software to automobile dealerships, primarily in Canada. From
May 1976 to April 1982,
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Mr. Silver served as Vice President of the Western Canadian division of SHL
Systemhouse, Inc., an international software development and systems integration
company. Mr. Silver holds both a B.S. and an M.S. from the University of
Manitoba.
JAMES K. ROCHE was named Senior Vice President, Operations of Newgen in
August 1998. Prior to then, Mr. Roche served as our Vice President, Operations
of Newgen since our inception. Since 1983, Mr. Roche has held management
positions with several companies that were providing consulting and hardware and
software systems to the service departments of automobile dealerships. From May
1991 to September 1993, Mr. Roche served as the General Manager of United States
Support Services of Newgen Services, L.P. From September 1990 to April 1991, he
served as Director of International Operations of Newgen Services Systems
International. From September 1987 to August 1990, Mr. Roche served as Director
of United States Operations of Newgen Service Systems, Inc. Mr. Roche holds a
B.S. from St. Louis University.
MARIO SANCHEZ joined Newgen in May 1998 as Vice President and Chief
Information Officer. Mr. Sanchez is responsible for initiating, developing and
directing our information technology projects. From April 1997 to May 1998, Mr.
Sanchez served as Divisional Vice President, Information Technology for American
International Underwriters, a worldwide marketer of property-casualty products.
From 1996 to 1997, Mr. Sanchez served as Director of Information Technology for
Precision Response Corporation, a telephone-based marketing and customer service
company. From 1994 to 1996, Mr. Sanchez served as Director of Communications of
the High Performance Database Research Center at Florida International
University. Mr. Sanchez holds both a B.A. and an M.S. from Florida International
University.
FRED WALLACE joined Newgen in June 1998 as Vice President, Marketing.
From 1997 to June 1998, Mr. Wallace served as Vice President, Vehicle
Acquisition and Remarketing of AutoNation USA, a division of Republic
Industries, Inc., an automobile consolidator. From 1996 to 1997, Mr. Wallace
served as Director, Sales and Marketing of Fleetwood Enterprises, Inc., a
motorhome manufacturer. From 1990 to 1996, Mr. Wallace directed marketing and
promotional activities for Mazda Motor of America. From 1981 to 1990, Mr.
Wallace developed and directed marketing plans for Volkswagen of America. From
1968 to 1981, Mr. Wallace developed and coordinated the initial marketing launch
for Ford Motor Company's Extended Service Plan. Mr. Wallace holds a B.S. from
the University of Florida, Gainesville.
EUGENE J. FISCHER has been a Director of Newgen since August 1996. Since
July 1996, Mr. Fischer has been a Managing Member of Capstone Management L.L.C.,
a venture capital firm. Since October 1988, Mr. Fischer has been a general
partner of Pathfinder Venture Capital Funds, a venture capital firm, and a Vice
President of Pathfinder Ventures, Inc., its management company. Mr. Fischer is a
member of the Board of Directors of InnerDyne Inc. Mr. Fischer holds a B.S. from
the University of Minnesota and an M.S. from the University of California.
H. ROBERT GILL has been a Director of the Company since September 1996.
Mr. Gill has served as Chairman and Chief Executive Officer of MobileForce
Technologies, Inc., a computer systems and service provider, since May 1997.
From April 1996 to May 1997, Mr. Gill has served as President of the Topaz
Group, a consulting services company. From March 1995 to April 1996, he was
Senior Vice President of Frontier Corporation, a telecommunications company. Mr.
Gill is a member of the Board of Directors of QualMark Corporation, MOSAIX, Inc.
and Spatial Technologies, Inc. Mr. Gill holds a B.E.E. from Indiana Institute of
Technology, an M.S.E.E. from Purdue University and an M.B.A. from Pepperdine
University.
JESS R. MARZAK has served as a Director of Newgen since August 1996.
Since January 1994, Mr. Marzak has been a managing director of BankAmerica
Ventures, a venture capital firm. Prior to that, Mr. Marzak was a co-founder and
general partner of Paragon Partners and Paragon Venture Partners II, each a
venture capital firm. Mr. Marzak holds a B.A. from Occidental College and an
M.B.A. from The Wharton School at the University of Pennsylvania.
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<PAGE>
JOHN MORAGNE has been a Director of Newgen since December 1997. Since
1993, Mr. Moragne has been a Managing Director of Trident Capital Management,
LLC, a private investment firm which he helped found (Trident Capital). From
1989 to 1993, Mr. Moragne served as a principal of Information Partners, a
private equity firm, and from 1989 to 1993, he served as a principal of Bain
Capital, a leveraged-buyout firm. Mr. Moragne is also a director of DAOU
Systems, Inc. and Mapquest.com, Inc. Mr. Moragne holds a B.A. from Dartmouth
College, an M.S. from the Stanford Graduate School of Applied Earth Sciences and
an M.B.A. from Stanford Graduate School of Business.
ABRAHAM L. SIMKIN has served as a Director of Newgen since March 1994.
Since the late 1980s, Mr. Simkin has been active in founding and operating
SNS/Assure, Inc. ("SNS"), a Canadian company that provides electronic commerce
solutions to a variety of industries and electronically processes insurance
claims. Mr. Simkin serves as Chairman of the Board of SNS. Mr. Simkin holds an
L.L.B. from the University of Manitoba.
MURRAY SIMKIN has been a Director of Newgen since March 1994. He is
currently Chairman of the Board and Chief Executive Officer of Wordwide Roller
Hockey Facilities, LLC, a developer and operator of roller hockey facilities. He
is also President of Roma Ribs Ltd., a multi-location operator and developer of
Tony Roma Restaurants in Canada. In addition, he serves on the Board of
Directors of SNS. Mr. Simkin holds a Bachelor of Commerce degree from the
University of Manitoba.
GARY SIMKIN has served as a Director of Newgen since March 1994. Since
1972, Mr. Simkin has been an active private investor in information and
communication-based companies. Since the early 1990s, Mr. Simkin has served on
the Board of Directors of SNS. He also serves on the Board of Directors of
Doubleday Canada Limited, a publishing company. Mr. Simkin holds a Bachelor of
Commerce degree from the University of Manitoba.
BERNARD C. SIMKIN has served as a Director of Newgen since March 1994.
Since the early 1990s, Mr. Simkin has served on the Board of Directors of SNS.
Since 1997, Mr. Simkin has also served as Vice President and a member of the
Board of Directors of Westkin Properties, a real estate development company. Mr.
Simkin holds a B.A. and an L.L.B. from the University of Manitoba.
TODD A. SPRINGER has been a Director of Newgen since December 1997.
Since June 1998, Mr. Springer has been a Managing Director of Trident Capital.
From March 1996 to June 1998, Mr. Springer served as Vice President of Trident
Capital. From September 1994 to February 1996, Mr. Springer was an associate at
Jefferies and Company, Inc., an investment bank. Mr. Springer holds a B.S. from
The Wharton School at the University of Pennsylvania and an M.B.A. from Stanford
Graduate School of Business.
BERT WINEMILLER has served as a Director of Newgen since December 1997.
Mr. Winemiller is currently President, Chief Executive Officer, and serves on
the Board of Directors of PROS Strategic Solutions, Inc., a privately-held
software company. Mr. Winemiller is also a private investor and President of
Albert Winemiller, Inc. a privately-held consulting company focused on the
information processing industry. From 1996 to 1997, Mr. Winemiller served as
President and Chief Executive Officer of Research Ltd., an Internet investment
database and report publishing company. From 1994 to 1995, Mr. Winemiller served
as President and Chief Operating Officer of American Business Information, a
credit and business information provider. Mr. Winemiller holds a B.S. and an
M.A. from the University of Missouri and an M.B.A. from Harvard Business School.
Officers serve at the discretion of the Board of Directors. Gary Simkin,
Bernard C. Simkin and Murray Simkin are brothers. Abraham L. Simkin is their
father and Samuel Simkin is their first cousin.
In accordance with our Restated Certificate of Incorporation, upon the
completion of this offering our Board of Directors will be divided into three
classes, serving staggered terms of three years each. Any vacancies that occur
during the year may be filled by the Board of Directors for the remainder of the
full
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<PAGE>
term. Members of our Board of Directors serving in each class are described
below. For each class of directors we have also included the year during which
their current term will end.
<TABLE>
<CAPTION>
YEAR IN WHICH CURRENT
BOARD MEMBER CLASS TERM ENDS
- ------------------------------------ ----- ---------------------
<S> <C> <C>
Gerald L. Benowitz.................. I 2000
H. Robert Gill...................... I 2000
Murray Simkin....................... I 2000
Todd A. Springer.................... I 2000
Jess R. Marzak...................... II 2001
Gary Simkin......................... II 2001
Bert Winemiller..................... II 2001
Eugene J. Fischer................... III 2002
John Moragne........................ III 2002
Abraham L. Simkin................... III 2002
Bernard C. Simkin................... III 2002
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an Audit Committee and a Compensation Committee. The
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors and reviews the scope and results of the audit
and other services provided by our independent auditors. The Audit Committee
also reviews and evaluates our internal control functions. Following the
offering, the Audit Committee will consist of Bernard C. Simkin and H. Robert
Gill.
The Compensation Committee makes recommendations regarding our 1998
Equity Incentive Plan and makes recommendations concerning salaries and
incentive compensation for our employees and consultants. Following the
offering, the Compensation Committee will consist of Bernard C. Simkin, Jess R.
Marzak and Bert Winemiller.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for
services on the Board of Directors or any of our committees. However, directors
may be reimbursed for certain expenses in connection with attendance at Board
and committee meetings. All directors are eligible to participate in our 1998
Equity Incentive Plan. Non-employee directors receive automatic grants of
options under our Non-Employee Directors' Stock Option Plan as described below.
See "Management--Equity Incentive Plan" and "--Non-Employee Directors' Stock
Option Plan."
BOARD COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our Board of Directors or Compensation
Committee.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid for services rendered to Newgen in all capacities during 1998 by our
Company's Chief Executive Officer and our four other most highly compensated
executive officers (together, the Named Executive Officers).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(2)
- ------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gerald L. Benowitz ........................ 1998 $ 254,550 $ 6,000 24,750 $ 12,000
President and Chief Executive Officer
Samuel Simkin ............................. 1998 146,755 11,000 6,160 12,000
Senior Vice President, Chief Financial
Officer and Secretary
Leslie J. Silver .......................... 1998 166,620 418,390 22,500 18,000
President, Newgen Consulting Services,
Executive Vice President
James K. Roche ............................ 1998 118,408 22,400 10,300 12,000
Senior Vice President, Operations
Jefferey B. Davis(1) ...................... 1998 -- 202,455 -- 4,000
Vice President, Sales
</TABLE>
- ------------------------
(1) Effective August 1998, Mr. Davis was no longer employed by Newgen.
(2) Includes automobile expenses and miscellaneous reimbursable expenses.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each stock option grant during 1998 to
our Named Executive Officers. No stock appreciation rights were granted to these
individuals during 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM($)(3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED(#) 1998(%)(1) SHARE($)(2) DATE 5% 10%
- ------------------------------ ------------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gerald L. Benowitz............ 24,750 5.9% $ 4.50 12/1/08 $ 70,043 $ 177,503
Samuel Simkin................. 6,160 1.5% 4.50 12/1/08 17,433 44,179
Leslie J. Silver.............. 22,500 5.4% 4.50 12/1/08 63,676 161,366
James K. Roche................ 10,300 2.5% 4.50 12/1/08 29,149 73,870
</TABLE>
- --------------------------
(1) Based on options to purchase 416,270 shares granted to employees in 1998,
including the Named Executive Officers. 336,270 options were granted under
the 1998 Equity Incentive Plan and 80,000 options were granted outside of
the plans. The options vest 25% on the first anniversary of the vesting
commencement date and 25% on each anniversary thereafter. Each option
expires on the earlier of (i) 10 years from the date of grant or (ii) 90
days after termination of the optionee's services to Newgen.
(2) Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our Board of Directors.
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<PAGE>
(3) The potential realizable value is calculated based on the term of the option
(10 years) and is calculated by assuming that the fair market value of
common stock on the date of the grant as determined by the Board appreciates
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and the common stock received
therefor is sold on the last day of the term of the option for the
appreciated price. The 5% and 10% rates of appreciation are derived from the
rules of the Commission. The actual value realized may be greater than or
less than the potential realizable values set forth in the table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There were no exercises of options by any Named Executive Officer in the
fiscal year ended December 31, 1998.
1996 EQUITY INCENTIVE PLAN
We adopted the 1996 Equity Incentive Plan in August 1996. The Board of
Directors reserved 700,000 shares of common stock for issuance under the 1996
Equity Incentive Plan. The 1996 Equity Incentive Plan provides for the grant, to
our employees, directors and consultants, of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
nonstatutory stock options and rights to purchase restricted stock (each an
Award). The 1996 Equity Incentive Plan is administered by our Board of Directors
or a Committee appointed by the Board of Directors. Subject to certain
restrictions under the 1996 Equity Incentive Plan, our Board of Directors has
broad authority to grant awards to our employees, directors and consultants.
Subject to those same limitations, our Board of Directors also may determine to
whom Awards will be made, the number of shares to be covered by each Award, and
whether an option will be an incentive stock option or a nonstatutory stock
option. The Board of Directors also may determine the vesting schedule, if any,
that may apply to an Award, the option exercise or stock purchase price and
specify other terms of Awards in accordance with the 1996 Equity Incentive Plan.
The maximum term of options granted under the 1996 Equity Incentive Plan
is 10 years. Options granted under the 1996 Equity Incentive Plan generally are
non-transferable and expire three months after an optionee's service with Newgen
terminates. In general, if an optionee is permanently disabled or dies during
his or her service with Newgen, that person's option may be exercised up to 12
months following such disability or death.
The exercise price of options granted under the 1996 Equity Incentive
Plan is determined by the Board of Directors in accordance with the guidelines
set forth in the 1996 Equity Incentive Plan. The exercise price of an incentive
stock option cannot be less than 100% of the fair market value of the common
stock on the date of the grant. The exercise price of incentive stock options
granted to stockholders who hold our securities with more than 10% of our voting
power (10% Stockholders) must be at least equal to 110% of that value and the
term of such options cannot exceed five years. The exercise price of a
nonstatutory stock option cannot be less than 85% of the fair market value of
the common stock on the date of grant. Options granted under the 1996 Equity
Incentive Plan vest at the rate specified in an optionee's option agreement.
Options may be exercised prior to the full vesting of the option. Any unvested
shares purchased, however, are subject to our right to repurchase those shares
that have not yet vested.
Subject to certain limitations provided in the 1996 Equity Incentive
Plan, the Board of Directors also has broad authority to determine the form and
terms of any restricted stock purchase awards granted thereunder. The purchase
price under any restricted stock purchase agreement will not be less than 85% of
the fair market value of the common stock on the date of grant. However, in the
case of a sale to a 10% Stockholder, the purchase price will be not less than
100% of the fair market value of the common stock on the date of grant.
Restricted stock purchase agreements awarded under the 1996 Equity Incentive
Plan generally are non-transferable.
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<PAGE>
Shares subject to Awards that have expired or have otherwise terminated
without having been exercised in full become available again for grant under the
1996 Equity Incentive Plan. The Board of Directors have the authority to reprice
outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares.
Upon certain changes in control of Newgen, all outstanding Awards under
the 1996 Equity Incentive Plan shall either be assumed or substituted by the
surviving entity. If the surviving entity determines not to assume or substitute
those Awards, then the vesting of such Awards will accelerate in full, but if
the Awards are not exercised at or before the change of control, they will be
terminated.
As of December 31, 1998, options to purchase 512,800 shares of common
stock were outstanding under the 1996 Equity Incentive Plan. The 1996 Equity
Incentive Plan will terminate in August 2006 unless sooner terminated by the
Board of Directors.
1998 EQUITY INCENTIVE PLAN
In August 1998 our Board of Directors adopted the 1998 Equity Incentive
Plan. The 1998 Equity Incentive Plan was approved by stockholders in November
1998. The Board of Directors reserved 1,000,000 shares of the common stock for
issuance under the 1998 Equity Incentive Plan. An additional 500,000 shares may
be reserved for issuance under the 1998 Equity Incentive Plan to the extent that
options outstanding on the effective date of this offering under our 1996 Plan
are returned to the 1996 Plan. The 1998 Equity Incentive Plan will terminate in
August 2008, unless sooner terminated by the Board of Directors.
The 1998 Equity Incentive Plan permits the granting of incentive stock
options and nonstatutory stock options to employees, directors and consultants.
In addition, the 1998 Equity Incentive Plan permits the granting of Stock
Appreciation Rights (SARs) together with or independently of stock options, as
well as stock bonuses and rights to purchase restricted stock (collectively
Awards). No person is eligible to be granted stock options and SARs covering
more than 300,000 shares of common stock in any calendar year.
The 1998 Equity Incentive Plan is administered by the Board of Directors
or a committee appointed by the Board of Directors. Subject to certain
restrictions described in the 1998 Equity Incentive Plan, the Board of Directors
has broad authority to select the persons to whom Awards are to be made. Subject
to other restrictions under the 1998 Equity Incentive Plan, our Board of
Directors has broad authority to grant options and rights to purchase restricted
stock to our employees, directors and consultants. The Board of Directors also
may determine to whom Awards will be made, the number of shares to be covered by
each Award, and whether an option will be an incentive stock option or a
nonstatutory stock option. The Board of Directors may also determine the vesting
schedule, if any, that may apply to an Award, the option exercise or stock
purchase price and to specify other terms of Awards in accordance with the 1996
Equity Incentive Plan.
Stock options granted under the 1998 Equity Incentive Plan expire 10
years from their date of grant. Such stock options also generally are
non-transferable and expire 30 days after an optionee ceases providing service
to Newgen. However, in the case of the optionee's permanent disability, the
options generally may be exercised up to six months following such disability.
In the case of the optionee's death, the options generally may be exercised up
to 12 months thereafter.
The exercise price of stock options granted under the 1998 Equity
Incentive Plan is determined by the Board of Directors in accordance with the
guidelines set forth in the 1998 Equity Incentive Plan. The exercise price of an
incentive stock option cannot be less than 100% of the fair market value of the
common stock on the date of the grant. The exercise price of a nonstatutory
stock option cannot be less than 85% of the fair market value of the common
stock on the date of grant. Options granted under the 1998 Equity Incentive Plan
vest at the rate specified in the option agreement. The exercise price of
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<PAGE>
incentive stock options granted to any 10% stockholder must be at least 110% of
the fair market value of such stock on the date of grant and the term of such
incentive stock options cannot exceed five years.
Subject to certain limitations described in the 1998 Equity Incentive
Plan, the Board of Directors has broad authority to determine the form of and
the terms and conditions of any stock bonuses or restricted stock purchase
awards granted under the 1998 Equity Incentive Plan. The purchase price under
any restricted stock purchase agreement will not be less than 85% of the fair
market value of the common stock on the date of grant. Stock bonuses and
restricted stock purchase agreements awarded under the 1998 Equity Incentive
Plan are generally non-transferable.
Shares subject to Awards under the 1998 Equity Incentive Plan that have
expired or otherwise terminated without having been exercised in full again
become available for grant, but shares subject to SARs will not again become
available for grant. The Board of Directors has the authority to reprice
outstanding stock options and SARs and to offer optionees and holders of SARs
the opportunity to replace outstanding stock options and SARs with new stock
options or SARs for the same or a different number of shares.
Upon certain changes in control of Newgen, all outstanding Awards under
the 1998 Equity Incentive Plan must either be assumed or substituted by the
surviving entity. In the event the surviving entity does not assume or
substitute those Awards, the vesting of such Awards will accelerate in full, but
if the Awards are not exercised at or before the change of control, they will be
terminated.
As of December 31, 1998, options to purchase 332,370 shares of common
stock were outstanding under the 1998 Equity Incentive Plan.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In August 1998, the Board of Directors adopted our Non-Employee
Directors' Stock Option Plan (the Directors' Plan) to provide for the automatic
grant of options to purchase shares of common stock to non-employee directors of
the Company. The Directors' Plan was approved by stockholders in October 1998.
The Directors' Plan is administered by the Board of Directors, unless the Board
of Directors delegates administration to a committee of at least two
disinterested directors.
The Board of Directors has reserved 150,000 shares of common stock for
issuance from the exercise of stock options granted under the Directors' Plan.
Under the terms of the Directors' Plan: (i) each person who, on the effective
date of this offering, is a non-employee director of Newgen or, after the
effective date of this offering, for the first time becomes a non-employee
director of Newgen automatically will be granted, upon the effective date of
this offering or upon the date of his or her initial appointment or election to
be a non-employee director, as the case may be, a one-time option to purchase
6,000 shares of common stock (the Inaugural Option); and (ii) on the date of our
annual meeting of the stockholders in each year after the effective date of this
offering, each person who is elected at such annual meeting to serve as a
non-employee director (who was also a non-employee director prior to such annual
meeting) automatically will be granted an option to purchase 2,000 shares of
common stock.
No options granted under the Directors' Plan may be exercised after the
expiration of 10 years from the date it was granted. The Inaugural Option vests
monthly over a three year period. All other options granted under the Directors'
Plan vest monthly over a one-year period. The exercise price of options under
the Directors' Plan will equal 100% of the fair market value of the common stock
on the date of grant. Options granted under the Directors' Plan are generally
non-transferable. Unless otherwise terminated by the Board of Directors, the
Directors' Plan automatically terminates when all of our shares of common stock
reserved for issuance under the Directors' Plan have been issued. As of the date
of this prospectus, no options to purchase shares of common stock have been
granted under the Directors' Plan. Options granted under the Directors' Plan
vest in full upon certain changes in ownership or control of Newgen.
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<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
In August 1998, the Board of Directors approved our Employee Stock
Purchase Plan (the Purchase Plan). The Purchase Plan was subsequently approved
by our stockholders in November 1998. A total of 350,000 shares of common stock
are reserved for issuance under the Purchase Plan. The Purchase Plan is intended
to qualify as an employee stock purchase plan within the meaning of Section 423
of the Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the commencement of the Purchase Plan. The initial offering under the
Purchase Plan will commence on the effective date of this offering and terminate
27 months after the effective date of this offering.
Unless otherwise determined by the Board of Directors, employees are
eligible to participate in the Purchase Plan only if they are employed by Newgen
or one of our subsidiaries designated by the Board of Directors for at least 20
hours per week and are customarily employed by Newgen or one of our subsidiaries
designated by the Board of Directors for at least five months each calendar
year. Employees who participate in an offering may have up to 15% of their
earnings withheld under the Purchase Plan. The amount withheld is then used to
purchase shares of the common stock on specified dates determined by the Board
of Directors. The price of common stock purchased under the Purchase Plan will
be equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period and participation ends automatically on termination of
employment with Newgen or one of our subsidiaries, as the case may be.
In the event of a merger, reorganization, consolidation or liquidation
involving Newgen, the Board of Directors has discretion to provide that each
right to purchase common stock will be assumed or an equivalent right
substituted by the successor corporation or the Board of Directors may provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board of Directors
has the authority to amend or terminate the Purchase Plan, provided, however,
that no such action may adversely affect any outstanding rights to purchase
common stock.
401(k) PLAN
In January 1996, the Board of Directors adopted an employee retirement
savings plan (the 401(k) Plan) covering certain of our employees who have at
least one year of service with us and work a minimum of 1,000 hours during the
plan year. Eligible employees may make pre-tax contributions to the 401(k) Plan
of up to 20% of their eligible earnings, subject to a statutorily determined
annual limit. In addition, eligible employees may make roll-over contributions
to the 401(k) Plan from a tax-qualified retirement plan. The 401(k) Plan allows
us to make discretionary matching and additional profit sharing contributions to
an employee's account. In 1998, we made total contributions of $53,393 into the
401(k) Plan.
CHANGE IN CONTROL ARRANGEMENTS
Under Newgen's 1996 and 1998 Equity Incentive Plans, in the event of a
change in control transaction, all outstanding Awards under such Plans shall be
assumed or substituted by the surviving entity. If the surviving entity does not
assume or substitute the Awards, the vesting of such Awards will accelerate in
full. The Awards will terminate if they are not exercised at or before a change
in control event.
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LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
Our Restated Certificate of Incorporation limits the liability of our
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a director of a corporation will not be personally liable for monetary
damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law (DGCL)
regarding unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper
personal benefit.
As permitted by the DGCL, our Bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by the DGCL, provided that each indemnified officer and
director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to Newgen's best
interests;
- we must indemnify our other employees and agents to the same extent
that we indemnify our officers and directors, unless otherwise
required by law, our Restated Certificate of Incorporation, our Bylaws
or any agreements;
- we must advance expenses, as incurred, to our directors and officers
in connection with a legal proceeding to the fullest extent permitted
by the DGCL, subject to certain very limited exceptions; and
- the rights conferred in our Bylaws are not exclusive.
In addition to the indemnification required in our Restated Certificate
of Incorporation and our Bylaws, we have entered into indemnity agreements with
each of our current directors and officers. These agreements provide, among
other things, for the indemnification of our officers and directors for all
expenses and liabilities incurred in connection with any action or proceeding
brought against them, including liability under the Securities Act of 1933, by
reason of the fact that they are or were agents of Newgen. In addition, we
intend to obtain directors' and officers' insurance to cover our directors,
officers and certain employees for certain liabilities. We believe that these
indemnification provisions and agreements and this insurance are necessary to
attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
Restated Certificate of Incorporation and Bylaws may discourage stockholders
from bringing a lawsuit against directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though an action, if successful, might otherwise benefit us
and other stockholders. Furthermore, a stockholder's investment may be adversely
affected to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any
of our directors, officers or employees regarding which indemnification by
Newgen is sought, nor are we aware of any threatened litigation that may results
in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Newgen pursuant to the foregoing provisions, Newgen has been informed 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.
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<PAGE>
CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1996, to
which we have been a party, in which the amount involved in the transaction
exceeded $60,000 and in which any of our directors, executive officers or
holders of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements which are
otherwise required to be described under "Management."
In August and December 1996, we sold 1,250,137 shares of Series A
Preferred Stock at a purchase price of $4.40 per share, pursuant to a Series A
Preferred Stock Agreement dated August 7, 1996 (the Series A Agreement). The
shares of Series A Preferred Stock were sold in a private placement. See Note 6
of Notes to Financial Statements for a description of the Series A Preferred
Stock. Upon the closing of this offering, each share of Series A Preferred Stock
will automatically convert into one share of common stock. The following
directors and beneficial owners of more than 5% of our common stock (assuming
the conversion of all shares of preferred stock into common stock) acquired
beneficial ownership of Series A Preferred Stock pursuant to the Series A
Agreement:
<TABLE>
<CAPTION>
DIRECTORS/5% STOCKHOLDERS NUMBER OF SHARES
- --------------------------------------------------------- ----------------
<S> <C>
Eugene J. Fisher/Capstone Ventures....................... 397,775
Jess R. Marzak/Entities Affiliated with BankAmerica
Ventures............................................... 795,545
</TABLE>
In November 1997, we sold 2,158,604 shares of Series B Preferred Stock
at a purchase price of $4.52 per share (the Series B Financing), pursuant to a
Series B Preferred Stock Agreement dated November 26, 1997 (the Series B
Agreement). The shares of Series B Preferred Stock were sold in a private
placement. See Note 6 of Notes to Financial Statements for a description of the
Series B Preferred Stock. Upon the closing of this offering, each share of
Series B Preferred Stock will automatically convert into one share of common
stock. The following directors and beneficial owners of more than 5% of our
common stock (assuming the conversion of all shares of preferred stock into
common stock) acquired beneficial ownership of Series B Preferred Stock pursuant
to the Series B Agreement:
<TABLE>
<CAPTION>
DIRECTORS/5% STOCKHOLDERS NUMBER OF SHARES
- --------------------------------------------------------- ----------------
<S> <C>
John Moragne and Todd A. Springer/Entities Affiliated
with Trident Companies(1).............................. 1,592,921
Eugene J. Fischer/Capstone Ventures...................... 111,172
Jess R. Marzak/Entities Affiliated with BankAmerica
Ventures............................................... 294,246
Johari Investment Company Ltd............................ 36,873
Bernard Simkin........................................... 36,873
Murray Simkin............................................ 36,873
</TABLE>
- ------------------------------
(1) See "Principal and Selling Stockholders," Note 3.
In May and September 1997, we issued certain Convertible Unsecured
Promissory Notes (the Notes) in the aggregate amount of $2,332,500 (the Bridge
Financings) to certain of our directors and entities affiliated with such
directors. In connection with the Bridge Financings, we also issued warrants to
purchase an aggregate of 106,024 shares of our common stock (the Bridge
Warrants) to certain of our directors and to entities affiliated with those
directors. The participants in the Bridge Financings and their respective levels
of participation are described as follows: BankAmerica Ventures was issued Notes
in the amount of $1,197,000 and Bridge Warrants to purchase 54,409 shares of
common stock and BA Venture Partners II was issued Notes in the amount of
$133,000 and Bridge Warrants to purchase 6,046 shares of common stock.
BankAmerica Ventures and BA Venture Partners II are affiliated with Jess R.
Marzak. Johari Investment Company Ltd. was issued Notes in the amount of
$166,667 and Bridge Warrants to purchase 7,575 shares of common stock. Johari
Investment Company Ltd. is affiliated with Gary Simkin.
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<PAGE>
Capstone Ventures was issued Notes in the amount of $502,500 and Bridge Warrants
to purchase 22,842 shares of common stock. Capstone Ventures is affiliated with
Eugene J. Fisher. In addition, both Bernard C. Simkin and Murray Simkin were
each issued Notes in the amount of $166,667 and Bridge Warrants to purchase
7,576 shares of common stock. Notes were converted on November 26, 1997, in
connection with our Series B Financing, into shares of Series B Preferred Stock,
at a purchase price of $4.52 per share.
In January 1996, the Simkin Children Irrevocable Trust and Samuel
Simkin, our Senior Vice President, Chief Financial Officer and Secretary, loaned
us $220,000 and $380,000, respectively. The loans were made under secured
promissory notes. The principal amounts under such notes is due on the earlier
of the completion our initial public offering and December 31, 1999. Interest
was payable monthly and was charged at a rate equal to the prime rate plus 2.0%.
In addition, a bonus was payable annually to the noteholders at a rate of 1.7%.
We intend to use a portion of the proceeds received from the offering to repay
these promissory notes. See "Description of Capital Stock."
Between January and August 1996, Abraham Simkin, one of our directors,
loaned us various amounts. As of August 31, 1996 such amounts totaled $400,000
under a secured promissory note. Interest was charged at a rate equal to the
prime rate plus 2.0%. In addition, during the periods that the loan was
outstanding, a bonus was paid annually to Mr. Simkin at a rate of 1.7%. We
repaid this loan in full in December 1997.
In March 1994, we entered into an agency agreement with Newgen Services
L.P., a company owned by certain members of our Board of Directors. Pursuant to
the agency agreement, Newgen Services L.P. funded our operations and, as a
result, substantially all of our revenues and expenses were reported by Newgen
Services L.P. Those amounts have, however, been included in our consolidated
results of operations from our inception through the termination of the agency
agreement in January 1996.
Effective January 1, 1996, we entered into an administrative services
agreement with Newgen Services L.P. Under that agreement, we agreed to provide
administrative services for Newgen Services L.P. in exchange for the monthly
payment of $7,500, which is subject to adjustment. The term of this agreement
was for a period of one year, with automatic renewals for additional one year
periods, unless terminated earlier by the mutual consent of both parties to the
agreement. Amounts earned under this agreement totaled $43,000 for 1998. This
agreement was terminated as of January 1, 1999.
We entered into capital lease agreements for certain equipment with
parties related to one of our stockholders. In 1998, we made payments under one
of these leases totaling $7,000. The lease agreements expired in 1997 and 1998.
We entered into certain other agreements in connection with the Series A
Agreement and the Series B Agreement. Pursuant to one such agreement, certain
stockholders acquired registration rights. See "Description of Capital
Stock--Registration Rights."
We have entered into indemnification agreements with each of our
directors and executive officers. See "Management--Limitations on Directors' and
Executive Officers' Liability and Indemnification."
We have granted options to purchase shares of our common stock to
certain of our directors and executive officers.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock as of December 31, 1998 and as adjusted
to reflect our sale of shares and the sale of shares by the selling stockholder
in this offering for (i) each stockholder known to us to be the beneficial owner
of more than five percent of our common stock, (ii) each of our directors, (iii)
each of our Named Executive Officers, (iv) all directors and officers as a
group, and (v) the selling stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)(2)
---------------------- SHARES BEING ----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
John Moragne
Todd A. Springer
Entities Affiliated with
Trident Capital Management,
L.L.C.(3).......................... 1,592,921 22.2% -- 1,592,921 16.1%
Jess R. Marzak
Entities Affiliated with
BankAmerica Ventures(4).............. 1,150,346 15.9 -- 1,150,346 11.5
Gary Simkin
Johari Investment Company Ltd.(5).... 975,629 13.6 -- 975,629 9.8
Bernard C. Simkin(6)................... 975,630 13.6 -- 975,630 9.8
Murray Simkin(7)....................... 975,630 13.6 975,630 -- --
Eugene J. Fischer
Capstone Ventures(8)................. 531,789 7.4 -- 531,789 5.4
Gerald L. Benowitz(9).................. 377,185 5.2 -- 377,185 3.8
Samuel Simkin
K&S Imports, Inc.(10)................ 283,718 3.9 -- 283,718 2.9
Leslie J. Silver(11)................... 252,623 3.5 -- 252,623 2.5
James K. Roche(12)..................... 41,298 * -- 41,298 *
Jefferey B. Davis(13).................. 38,423 * -- 38,423 *
All directors and officers as a group
(11 persons)(14)...................... 7,195,192.. 97.8% 975,630 6,219,562 61.1%
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons and entities named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. Shares of common stock subject to options or
warrants that are currently exercisable or exercisable within 60 days of
December 31, 1998 are deemed to be outstanding and to be beneficially owned
by the person holding the options or warrants for the purpose of computing
the percentage ownership of that person or entity, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person or entity. Percentage of beneficial ownership is based on
7,176,156 shares of common stock outstanding on an as-converted basis as of
December 31, 1998 and 9,908,102 shares on an as-converted basis immediately
following the completion of the offering. Except as shown otherwise in the
table, the address of each stockholder listed is in care of Newgen, 12680
High Bluff Drive, Suite 300, San Diego, CA 92130.
(2) Assumes that the underwriters' over-allotment option to purchase up to
555,000 shares from Newgen is not exercised.
62
<PAGE>
(3) Of the total shares indicated as beneficially owned, Information Associates
- II, L.P. owns 923,430 shares which represent 12.9% and 9.3% of the total
shares before and after this offering, respectively. Information
Associates, L.P. owns 598,908 shares which represent 8.4% and 6.1% of total
shares before and after this offering, respectively. IA-II Affiliates Fund,
L.L.C. owns 53,869 shares and Information Associates, C.V. owns 16,714
shares, which in each case represent less than one percent of total shares
before and after this offering. The general partner of Information
Associates - II, L.P., Information Associates, L.P., IA-II Affiliates Fund,
L.L.C. and Information Associates, C.V. is Trident Capital Management,
L.L.C., a Delaware limited liability company (Trident Capital). Two of our
directors, John Moragne and Todd A. Springer, are members of Trident
Capital. Messrs. Moragne and Springer disclaim beneficial ownership of the
shares held by these entities, except to the extent of their pecuniary
interest in such shares arising from their interest in Trident Capital. The
address of Messrs. Moragne and Springer and each entity is 2480 Sand Hill
Road, Menlo Park, CA 94025.
(4) Of the total shares indicated as beneficially owned, BankAmerica Ventures
owns 980,812 shares, which represent 13.7% and 9.9% of total shares before
and after this offering, respectively. BA Venture Partners II owns 108,979
shares which represent 1.5% and 1.1% of total shares before and after this
offering, respectively. Such share amounts include 54,509 and 6,046 shares
issuable upon the exercise of warrants held by BankAmerica Ventures and BA
Venture Partners II, respectively. Jess R. Marzak, a director of Newgen, is
a managing director of BankAmerica Ventures and a general partner of BA
Venture Partners II. Mr. Marzak disclaims beneficial ownership of all
shares owned by BankAmerica Ventures and BA Venture Partners II except to
the extent of his proportionate general partnership interest in BA Venture
Partners II. The address of Mr. Marzak and each entity is 950 Tower Lane,
Suite 700, Foster City, CA 94404.
(5) Includes 7,575 shares issuable upon the exercise of warrants held by Johari
Investment Company Ltd. Gary Simkin, a director of Newgen, is the president
of Johari Investment Company Ltd. Mr. Simkin disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
(6) Includes 7,576 shares issuable upon the exercise of warrants held by
Bernard C. Simkin.
(7) Includes 7,576 shares issuable upon the exercise of warrants held by Murray
Simkin. Mr. Simkin, the selling stockholder, will exercise his warrant to
purchase 7,576 shares concurrently with this offering.
(8) Includes 22,842 shares issuable upon the exercise of warrants held by
Capstone Ventures. Eugene J. Fischer, a director of Newgen, is a managing
member of Capstone Management LLC, the general partner of Capstone
Ventures. Mr. Fischer disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest therein. The address of Mr. Fischer
and Capstone Ventures is 3000 Sand Hill Road, Building 3, Suite 325, Menlo
Park, CA 94025.
(9) Includes 327,185 shares held by the Gerald and Sandra Benowitz Trust dated
January 29, 1999, of which Gerald L. Benowitz and Sandra H. Benowitz are
co-trustees. Includes 50,000 shares subject to options exercisable within
60 days of December 31, 1998.
(10) Includes 271,218 shares held by K&S Imports. Mr. Simkin, our chief
financial officer, disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein. Includes 12,500 shares held
by Mr. Simkin subject to options exercisable within 60 days of December
31, 1998.
(11) Includes 232,623 shares held by the Silver Family Trust dated January 15,
1996, of which Leslie J. Silver and Francis Silver are co-trustees, and
7,500 shares held by Leslie J. Silver as custodian for Leigh Silver, Mason
Silver and Darcy Silver. Includes 12,500 shares subject to options
exercisable within 60 days of December 31, 1998.
(12) Includes 2,875 shares subject to options exercisable within 60 days of
December 31, 1998.
(13) Mr. Davis is no longer employed by Newgen effective August 1998. Mr.
Davis' address is 5180 Windsor Drive, Oceanside, CA 92109
(14) Includes 77,875 shares subject to options exercisable within 60 days of
December 31, 1998 and 106,124 shares subject to warrants. See Notes 4, 5,
6, 7, 8, 9, 10, 11, and 12.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized
capital stock of Newgen will consist of 28,000,000 shares of common stock,
$0.001 par value, and 2,000,000 shares of preferred stock, $0.001 par value.
COMMON STOCK
As of December 31, 1998, assuming the conversion of all outstanding
preferred stock into common stock, there were 7,176,156 shares of common stock
outstanding held of record by 30 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive out of funds legally available therefor dividends as our
Board of Directors may declare from time to time. Upon a liquidation,
dissolution or winding up of Newgen, holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
Certain holders of common stock are entitled to registration rights. See
"--Registration Rights."
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into 3,408,741 shares of common stock. Following such
conversion, our Certificate of Incorporation will be amended and restated to
delete all references to such shares of preferred stock. Under the Certificate
of Incorporation, as amended and restated upon the closing of this offering (the
Restated Certificate), the Board of Directors will have the authority, without
further action by stockholders, to issue up to 2,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges,
qualifications and restrictions granted to or imposed upon such preferred stock,
including dividend rights, conversion rights, voting rights, rights and terms of
redemption, liquidation preference and sinking fund terms, any or all of which
may be greater than the rights of the common stock. The issuance of preferred
stock could adversely affect the voting power of holders of common stock and
reduce the likelihood that such holders will receive dividend payments and
payments upon liquidation. Such issuance could have the effect of decreasing the
market price of the common stock. The issuance of preferred stock could have the
effect of delaying, deterring or preventing a change in control of Newgen. We
have no present plans to issue any shares of preferred stock.
WARRANTS
In November 1996, in conjunction with the execution of a Revolving Loan
and Security Agreement with Silicon Valley Bank, the Company issued to Silicon
Valley Bank a warrant to purchase up to 10,000 shares of our Series A Preferred
Stock. Upon the closing of this offering, this warrant shall become a warrant to
purchase 10,000 shares of common stock. The warrant has an exercise price of
$4.40 per share, subject to adjustment for stock dividends and splits, capital
exchanges, recapitalization, consolidation and diluting issuances, and expires
on November 27, 2001.
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<PAGE>
In May and September 1997, in connection with our Bridge Financings, we
issued Bridge Warrants to purchase an aggregate of 106,024 shares of our common
stock in the following amounts to the following persons and entities:
<TABLE>
<CAPTION>
NUMBER OF WARRANTS TO
NAME PURCHASE COMMON STOCK
- ---------------------------------------------------- -------------------------
<S> <C>
BankAmerica Ventures................................ 54,409
BA Venture Partners II.............................. 6,046
Capstone Ventures................................... 22,842
Johari Investment Company Ltd....................... 7,575
Bernard C. Simkin................................... 7,576
Murray Simkin....................................... 7,576
</TABLE>
The exercise price of the Bridge Warrants is $0.75 per share, subject to
adjustment for stock splits, reverse splits and stock dividends. The Bridge
Warrants may be exercised by applying the value of a portion of the Bridge
Warrants (equal to the number of shares issuable under the Bridge Warrant being
exercised multiplied by the fair market value of the security receivable upon
exercise of the Bridge Warrant, less the aggregate per share exercise price) in
lieu of payment of the exercise price per share. 30,770 of the Bridge Warrants
expire in May 2002, 61,618 expire in September 2002 and 13,636 will expire in
November 2002.
REGISTRATION RIGHTS
After this offering, the holders of 3,418,741 shares of common stock
will be entitled to certain rights with respect to the registration of such
shares under the Securities Act. The Restated Investor Rights Agreement provides
such rights to holders of 3,408,741 shares of common stock. Under the terms of
the Restated Investor Rights Agreement, if we propose to register any of our
securities under the Securities Act of 1933, as amended (the Securities Act),
either for our own account or for the account of other security holders
exercising registration rights, the holders having registration rights are
entitled to notice of such registration and are entitled, subject to certain
limitations, to include shares therein. The holders of common stock or rights to
acquire common stock may also require us to file a registration statement under
the Securities Act with respect to their shares, and we are required to use our
best efforts to effect such registrations. Furthermore, these holders of common
stock or rights to acquire common stock may require us to register their shares
on Form S-3 if that form becomes available to us. Generally, we are required to
bear all registration and selling expenses incurred in connection with any such
registrations. These rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration.
ANTI-TAKEOVER PROVISIONS
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sale or
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in control of Newgen.
Our Restated Certificate provides that the Board of Directors will be
divided into three classes of directors, with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Newgen. The classification system of directors may also
maintain the composition of the
65
<PAGE>
Board of Directors, as the classification of the Board of Directors generally
increases the difficulty of replacing a majority of directors. Our Restated
Certificate provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing. In addition, our
Bylaws provide that special meetings of our stockholders may be called only by
Newgen's Chairman of the Board of Directors, Chief Executive Officer or Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors or by the holders of 10% of Newgen's outstanding voting
stock. Our Restated Certificate also specifies that the authorized number of
directors may be changed only by resolution of the Board of Directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in the Restated Certificate and our Bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in control of Newgen or our management (including transactions
in which stockholders might otherwise receive a premium for their shares over
then current prices) and may limit the ability of stockholders to remove current
management of Newgen or approve transactions that stockholders may deem to be in
their best interests and, therefore, could adversely affect the price of our
common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, NY 10005.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock (including shares issued upon exercise of
outstanding options and warrants) in the public market could adversely affect
market prices prevailing from time to time. Furthermore, since only a limited
number of our shares will be available for sale shortly after this offering
because of certain contractual and legal restrictions on resale described below,
sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have 9,908,102 shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, the 3,700,000 shares of common stock sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless such shares are purchased by any of our "affiliates" as that term is
defined in Rule 144 under the Securities Act. The remaining 6,208,102 shares of
common stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act. Restricted shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 701 promulgated under the Securities Act,
which rules are summarized below. No shares will be available for sale in the
public market as of the effective date of this offering (the Effective Date)
without restriction pursuant to Rule 144(k), and no shares will be eligible for
sale beginning 90 days after the Effective Date without restriction pursuant to
Rule 701 and Rule 144.
Our officers, directors and stockholders have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, directly or
indirectly offer, sell, contract to sell or otherwise dispose of 6,208,102
shares of the restricted shares or any securities convertible into or
exercisable or exchangeable for common stock during the 180-day period
commencing on the Effective Date (the Lock-Up Agreement). We have also agreed
that we will not, without the prior written consent of Hambrecht & Quist LLC,
(i) directly or indirectly offer, sell, contract to sell or otherwise dispose of
any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock during such 180-day period except for the sale of
the shares of common stock in this offering, the issuance of options and shares
of common stock pursuant to our employee benefit plans and the issuance of
shares of common stock upon exercise of warrants or options presently
outstanding; provided, however, that, without the prior written consent of
Hambrecht & Quist LLC, such additional options shall not be exercisable during
such period or (ii) allow any security holder of Newgen subject to the Lock-Up
Agreement to sell, transfer or otherwise dispose any shares of common stock or
security exercisable for common stock without the prior written consent of
Hambrecht & Quist LLC. Any shares subject to the Lock-Up Agreement may be
released at any time by Hambrecht & Quist LLC.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 3,418,741 shares of
common stock or rights to acquire common stock, or their transferees, will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. After registration, these shares would become freely
tradable without restriction under the Securities Act (except for shares
purchased by our Affiliates). See "Description of Capital Stock--Registration
Rights."
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, an affiliate of Newgen, or a person (or
persons whose shares are aggregated) who has
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<PAGE>
beneficially owned restricted shares for at least one year but less than two
years, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding
(approximately 99,081 shares immediately after this offering); or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice of sale with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and has beneficially
owned the shares proposed to be sold for at least two years (including the
holding period of any prior owner except one of our affiliates) is entitled to
sell such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
STOCK OPTIONS
Within 90 days following this offering we intend to file a registration
statement under the Securities Act covering all shares of common stock reserved
for issuance under the 1996 Equity Incentive Plan, the 1998 Equity Incentive
Plan, the 1998 Employee Stock Purchase Plan and the 1998 Non-Employee Directors
Stock Option Plan. Based on the number of options outstanding and options and
shares reserved for issuance at December 31, 1998, such registration statement
would cover approximately 2,700,000 shares. The registration statement will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will, subject to Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market, unless
such shares are subject to vesting restrictions and the expiration of the
180-day lock-up period described above.
68
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
BancBoston Robertson Stephens Inc. and Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated (Dain Rauscher Wessels), have severally agreed to purchase
from Newgen and the selling stockholder the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- -----------
<S> <C>
Hambrecht & Quist LLC...........................................
BancBoston Robertson Stephens Inc...............................
Dain Rauscher Wessels...........................................
-----------
Total........................................................... 3,700,000
-----------
-----------
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in Newgen's business and the receipt of certain
certificates, opinions and letters from Newgen, the selling stockholder, his
counsel and the independent auditors. The nature of the underwriters' obligation
is such that they are committed to purchase all shares of common stock offered
hereby if any of such shares are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the underwriters.
Newgen has granted to the underwriters an option, exercisable no later
than 30 days after the date of this prospectus, to purchase up to 555,000
additional shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
Newgen will be obligated, pursuant to the option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of common stock offered hereby.
The following table summarizes the compensation and estimated expenses
Newgen and the selling stockholder will pay.
<TABLE>
<CAPTION>
TOTAL
----------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
------------- ------------- -------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
Newgen.......................................
Expenses payable by Newgen.....................
Underwriting discounts and commissions paid by
the selling stockholder......................
</TABLE>
69
<PAGE>
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Newgen and the selling stockholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the underwriters may be required
to make in respect thereof.
The selling stockholder and certain other stockholders of Newgen,
including the executive officers and directors, who will own in the aggregate
6,208,102 shares of common stock after the offering, have agreed that they will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable for or convertible into shares
of common stock owned by them during the 180-day period following the date of
this prospectus. Newgen has agreed that it will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock during
the 180-day period following the date of this prospectus, except that Newgen may
issue shares upon the exercise of options granted prior to the date hereof and
may grant additional options under its stock option plans, provided that,
without the prior written consent of Hambrecht & Quist LLC, such additional
options shall not be exercisable during such period.
Prior to the offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation among Newgen, the selling stockholder and the representatives of
the underwriters. Among the factors to be considered in determining the initial
public offering price are prevailing market and economic conditions, Newgen's
revenues and earnings, market valuations of other companies engaged in
activities similar to Newgen, estimates of the business potential and prospects
of Newgen, the present state of Newgen's business operations, Newgen's
management and other factors deemed relevant. The estimated initial public
offering price range set forth on the cover of this preliminary prospectus is
subject to change as a result of market conditions and other factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
Dain Rauscher Wessels is affiliated with Capstone Ventures. Capstone
Ventures holds 397,775 shares of Newgen's Series A Preferred Stock and 111,172
shares of Newgen's Series B Preferred Stock. The decision of Dain Rauscher
Wessels to underwrite this offering was made independently of Capstone Ventures,
which had no involvement in determining whether or when to underwrite this
offering or its terms. Dain Rauscher Wessels will not receive any benefit from
this offering other than its portion of the underwriting commission payable by
Newgen. However, since Capstone Venture's holdings represents more than 10% of
Newgen's preferred stock, this offering is being conducted pursuant to Rule
2720(c) of the NASD Conduct Rules. In accordance with this rule, Hambrecht &
Quist LLC has agreed to act as a qualified independent underwriter (QIU)
pursuant to the requirements of Rule 2720(c)(3) of the NASD Conduct Rules. In
connection with Rule 2720(c)(3), the initial public offering price of Newgen's
common
70
<PAGE>
stock will be set at a price that is no higher than recommended by Hambrecht &
Quist LLC, as a QIU. Moreover, Hambrecht & Quist LLC, as a QIU, has performed
due diligence investigations and has reviewed and participated in the
preparation of this prospectus.
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for Newgen and the Selling Stockholders by Cooley Godward LLP, San Diego,
California. Certain legal matters will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. As of the date of this prospectus, certain members and associates of
Cooley Godward beneficially own an aggregate of approximately 5,530 shares of
common stock through an investment partnership.
EXPERTS
The consolidated financial statements of Newgen Results Corporation as
of December 31, 1998 and 1997 and for the three years in the period ended
December 31, 1998 included in this prospectus or elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information with respect to Newgen
and the common stock, reference is made to the registration statement and the
exhibits and schedules thereto. You may read and copy any document we file at
the SEC's public reference rooms in Washington D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. Our SEC filings are also available to the
public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the Web site of the SEC referred to above.
71
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-3
Consolidated Statements of Operations For The Years Ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Stockholders' Deficit For The Years Ended December 31, 1996, 1997 and 1998...... F-5
Consolidated Statements of Cash Flows For The Years Ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newgen Results Corporation:
We have audited the accompanying consolidated balance sheets of NEWGEN
RESULTS CORPORATION (a Delaware corporation) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Newgen Results
Corporation and subsidiary as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Diego, California
March 18, 1999
F-2
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------- ------------- PRO FORMA
STOCKHOLDERS'
EQUITY (NOTE
2)
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 4,630,147 $ 816,753
Accounts receivable, net of allowance for doubtful accounts of
$114,000 and $299,000, respectively............................ 4,909,831 8,211,773
Prepaid expenses and other....................................... 645,559 376,636
------------- -------------
Total current assets........................................... 10,185,537 9,405,162
PROPERTY AND EQUIPMENT, net........................................ 2,046,662 2,931,836
OTHER ASSETS....................................................... 69,883 435,337
------------- -------------
Total assets................................................... $ 12,302,082 $ 12,772,335
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................................. $ 1,728,160 $ 2,787,802
Accrued and other current liabilities............................ 1,187,262 2,324,041
Notes payable to related parties................................. 600,000 800,000
Current portion of capital lease obligations..................... 379,498 935,256
------------- -------------
Total current liabilities...................................... 3,894,920 6,847,099
------------- -------------
LONG TERM LIABILITIES:
Long-term portion of capital lease obligations................... 434,619 874,147
Deferred rent.................................................... 108,876 134,481
------------- -------------
543,495 1,008,628
------------- -------------
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE PREFERRED STOCK, no par value, 3,500,000 shares
authorized:
Series A convertible, 1,250,137 shares issued and outstanding in
1997 and 1998, no shares pro forma (aggregate liquidation
preference of $9,386,229), stated at........................... 5,466,259 5,925,054
Series B convertible, 2,158,604 shares issued and outstanding in
1997 and 1998, no shares pro forma, (aggregate liquidation
preference of $16,649,157), stated at.......................... 9,212,612 10,124,726
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value in 1997 and $.001 par value in 1998,
15,000,000 shares authorized, 3,766,915 and 3,767,415 shares
issued and outstanding in 1997 and 1998, respectively, and
7,176,156 shares pro forma..................................... 4,639,084 3,767 $ 7,176
Additional paid-in capital....................................... -- 5,384,455 21,430,826
Deferred compensation............................................ (900,900) (1,393,968) (1,393,968)
Retained deficit................................................. (10,553,388) (15,127,426) (15,127,426)
------------- ------------- --------------
Total stockholders' equity (deficit)........................... (6,815,204) (11,133,172) $ 4,916,608
------------- ------------- --------------
--------------
Total liabilities and stockholders' equity (deficit)........... $ 12,302,082 $ 12,772,335
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Database marketing services....................................... $ 9,771,080 $ 20,974,032 $ 31,512,768
Consulting services............................................... 1,858,459 5,439,660 8,593,061
------------- ------------- -------------
Total revenues.................................................. 11,629,539 26,413,692 40,105,829
------------- ------------- -------------
COST OF REVENUES:
Cost of database marketing services............................... 6,795,534 14,231,960 21,156,695
Cost of consulting services....................................... 1,699,481 4,232,822 6,694,764
Installation costs................................................ 1,656,293 1,931,649 1,410,997
------------- ------------- -------------
Total cost of revenues.......................................... 10,151,308 20,396,431 29,262,456
------------- ------------- -------------
Gross profit.................................................... 1,478,231 6,017,261 10,843,373
------------- ------------- -------------
OPERATING COSTS:
Selling, general and administrative expenses...................... 5,396,402 6,234,096 8,876,608
Technology and product development................................ 543,909 937,252 2,258,892
Software rewrite costs............................................ -- 616,593 2,842,083
------------- ------------- -------------
Total operating costs........................................... 5,940,311 7,787,941 13,977,583
------------- ------------- -------------
Loss from operations............................................ (4,462,080) (1,770,680) (3,134,210)
------------- ------------- -------------
INTEREST INCOME (EXPENSE):
Interest income................................................... 15,811 44,660 143,381
Interest expense.................................................. (245,042) (463,322) (212,300)
------------- ------------- -------------
Interest expense, net........................................... (229,231) (418,662) (68,919)
------------- ------------- -------------
Net loss........................................................ (4,691,311) (2,189,342) (3,203,129)
Less: accretion of redeemable convertible preferred stock....... -- 132,236 1,370,909
------------- ------------- -------------
Loss applicable to common stockholders.......................... $ (4,691,311) $ (2,321,578) $ (4,574,038)
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted loss per share................................ $ (1.25) $ (0.62) $ (1.21)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares used in basic and diluted loss per share
calculation................................................... 3,766,915 3,766,915 3,767,415
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN DEFERRED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
---------- ------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995............. 3,766,915 $ 3,445,884 $ -- $ -- $ (3,540,499) $ (94,615)
Capital contribution................... -- 292,300 -- -- -- 292,300
Net loss............................... -- -- -- -- (4,691,311) (4,691,311)
---------- ------------ ------------ ------------- -------------- --------------
BALANCE, December 31, 1996............. 3,766,915 3,738,184 -- -- (8,231,810) (4,493,626)
Accretion of redeemable preferred
stock................................ -- -- -- -- (132,236) (132,236)
Deferred compensation related to
options granted...................... -- 900,900 -- (900,900) -- --
Net loss............................... -- -- -- -- (2,189,342) (2,189,342)
---------- ------------ ------------ ------------- -------------- --------------
BALANCE, December 31, 1997............. 3,766,915 4,639,084 -- (900,900) (10,553,388) (6,815,204)
Accretion of redeemable preferred
stock................................ -- -- -- -- (1,370,909) (1,370,909)
Deferred compensation related to
options granted...................... -- 748,825 -- (748,825) -- --
Amortization of deferred
compensation......................... -- -- -- 255,757 -- 255,757
Exercise of stock options.............. 500 313 -- -- -- 313
Reincorporation........................ -- (5,384,455) 5,384,455 -- -- --
Net loss............................... -- -- -- -- (3,203,129) (3,203,129)
---------- ------------ ------------ ------------- -------------- --------------
BALANCE, December 31, 1998............. 3,767,415 $ 3,767 $ 5,384,455 $(1,393,968) $ (15,127,426) $ (11,133,172)
---------- ------------ ------------ ------------- -------------- --------------
---------- ------------ ------------ ------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
NEWGEN RESULTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $ (4,691,311) $ (2,189,342) $ (3,203,129)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization..................................... 379,907 837,492 1,292,943
Deferred rent..................................................... 83,272 25,604 25,605
Deferred compensation............................................. -- -- 255,757
Loss on retirements of property and equipment..................... 66,243 -- --
Changes in assets and liabilities:
Accounts receivable............................................. (2,312,816) (2,086,897) (3,301,942)
Prepaid expenses and other...................................... 63,808 (460,833) 357,720
Accounts payable................................................ 980,483 335,690 1,059,642
Accrued and other current liabilities........................... (35,889) 864,607 1,136,779
------------ ------------ ------------
Net cash used in operating activities......................... (5,466,303) (2,673,679) (2,376,625)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................. (1,262,280) (500,467) (1,128,928)
Other assets........................................................ (38,929) (709) (365,454)
------------ ------------ ------------
Net cash used in investing activities......................... (1,301,209) (501,176) (1,494,382)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock transactions.................................... 5,713,839 9,125,096 313
Repayments of related party loans................................... (255,000) (400,000) --
Proceeds from related party loans................................... 1,255,000 -- 200,000
Repayment of notes payable to affiliate............................. (433,955) -- --
Payments on capital lease obligations............................... (118,609) (313,857) (735,134)
Decrease (increase) in restricted cash.............................. (566,105) 566,105 --
(Repayments) proceeds of/from lines of credit, net.................. 1,300,000 (1,300,000) 592,434
------------ ------------ ------------
Net cash provided by financing activities..................... 6,895,170 7,677,344 57,613
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 127,658 4,502,489 (3,813,394)
CASH AND CASH EQUIVALENTS, beginning of period........................ -- 127,658 4,630,147
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 127,658 $ 4,630,147 $ 816,753
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.............................................. $ 228,279 $ 452,886 $ 212,300
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered into for equipment................ $ 544,335 $ 661,931 $ 1,730,420
------------ ------------ ------------
------------ ------------ ------------
Accretion of redeemable preferred stock............................. $ -- $ 132,236 $ 1,370,909
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Newgen Results Corporation (Newgen) was incorporated in California on
February 16, 1994 and is a provider of customized, outsourced database
management, direct marketing and related services for automobile dealerships'
service departments and automobile manufacturers throughout the United States
and Canada. Newgen also provides consulting services to both automobile
manufacturers and individual dealerships. In December 1998, the Company
reincorporated in Delaware and established the par value of its preferred and
common stock at $0.001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
In 1998 Newgen formed Newgen Dealer Pricing Center, Inc. (NDPC). NDPC is
a wholly-owned subsidiary of Newgen. The consolidated financial statements
include the accounts of Newgen and NDPC and are collectively referred to as the
"Company." All significant intercompany accounts and transactions have been
eliminated in consolidation.
RISKS AND UNCERTAINTIES
The Company has a retained deficit of approximately $15,127,000 at
December 31, 1998 and has incurred losses of approximately $4,691,000,
$2,189,000 and $3,203,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. The Company's future success is dependent upon several factors
including the continued acceptance of the Company's services in the marketplace,
the Company's ability to expand and maintain its relationships with its major
customers and vendors, the Company's enhancement of its existing services and
the development of new services and technologies that address the changing needs
of its customers, the Company's continued employment and recruitment of key
personnel, the successful management of the Company's growth and the Company's
ability to maintain or obtain adequate financing.
UNAUDITED PRO FORMA CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) PRESENTATION
The unaudited pro forma consolidated stockholders' equity (deficit) is
presented to show the effects on the December 31, 1998 balance sheet of the
conversion of all outstanding shares of preferred stock into 3,408,741 shares of
common stock which will occur upon closing of the Company's proposed initial
public offering as if the conversion took place on December 31, 1998.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
other current assets, and accounts payable and accrued and other current
liabilities approximates fair value because of the short-
F-7
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
term nature of those instruments. Based on borrowing rates currently available
to the Company for credit arrangements with similar terms, the carrying amounts
of balances under notes payable and capital lease obligations approximate fair
value.
REVENUE RECOGNITION
The Company has standard agreements with its database marketing services
customers. Although the terms of each individual agreement may vary, most
agreements call for the Company to provide customized letters and telephone
contacts for its dealership customers, in exchange for the payment of a monthly
fee per active name in the automobile dealership's customer list. Most
agreements have an initial minimum 6 to 24 month term, with 30 day notice of
cancellation without penalty thereafter.
The Company recognizes revenue from both its database marketing services
and consulting services in the month that services are provided. In certain
instances, the Company's customers may pay an amount in advance for services to
be provided over a period of time. In other cases, customers may pay the Company
a fixed amount per month with the Company providing more services in certain
months than in others. Advance payments are reflected as deferred revenue.
CONCENTRATION OF CREDIT RISK
Certain of the database marketing services provided by the Company have
been recommended by its major customer, Ford Motor Company (Ford). However, the
Company contracts separately with each individual dealership, and uses the
corporate recommendation to generate business. For all periods presented,
substantially all of the Company's consulting business is with Ford. During the
years ended December 31, 1996, 1997 and 1998, approximately 67%, 75% and 77%,
respectively, of the Company's revenues were with Ford and Ford dealerships.
As of December 31, 1998, substantially all of the Company's accounts
receivable are due from Ford or its dealerships.
The Company invests its excess cash and has established guidelines
relative to diversification and maturities in an effort to maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1997 and 1998 consisted primarily of commercial paper and money
market accounts, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method by charges to
operations in amounts estimated to allocate the costs of the property or
equipment over the estimated useful lives. The estimated useful lives for
computer equipment, furniture and other is three years, and for leasehold
improvements is the shorter of the estimated useful life of the leaseholds or
the life of the lease. Periodically, the Company reviews for
F-8
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
possible impairment of its long-lived assets. Whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable, asset values are adjusted accordingly.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Computer equipment, furniture and other.......................... $ 3,284,054 $ 5,408,905
Leasehold improvements........................................... 271,056 324,322
------------ ------------
3,555,110 5,733,227
Accumulated depreciation and amortization........................ (1,508,448) (2,801,391)
------------ ------------
Property and equipment, net...................................... $ 2,046,662 $ 2,931,836
------------ ------------
------------ ------------
</TABLE>
Maintenance and repairs are charged to operations as incurred. When
assets are sold, or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, the Company accounts for its stock-based
compensation plans under the provisions of APB No. 25 under which compensation
cost is measured by the excess, if any, of the fair market value of the
Company's common stock at the date of grant over the exercise price of the
option.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred income taxes are recorded to
reflect the tax consequences on future years of temporary differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year end. If it is more likely than not that some portion or all of the net
deferred tax asset will not be realized, a valuation allowance is recognized.
DEFERRED RENT
Rent expense is recognized on a straight-line basis over the terms of
the leases. Accordingly, rent expense incurred in excess of rent paid is
reflected as deferred rent.
F-9
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT AND REWRITE COSTS
The Company has commissioned a substantial rewrite of its
enterprise-wide database management software. This rewrite is expected to be
completed in the fourth quarter of 1999. Through December 31, 1998, the
Company's policy has been to expense the cost of these rewrites as incurred.
During the years ended 1997 and 1998, the Company incurred software rewrite
costs of approximately $617,000 and $2,842,000, respectively.
Beginning January 1, 1999, the Company will adopt AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting
for the costs of computer software developed or obtained for internal use and
identifies characteristics of internal use software as well as assists in
determining when computer software is for internal use. The impact of the
adoption of SOP 98-1 will be highly dependent upon the nature, timing and extent
of future internal use software development.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The costs associated with the enhancement of its current products and
services and the development of new products and services are expensed as
incurred.
COMPUTATION NET LOSS PER SHARE
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS 128 requires
companies to compute basic and diluted per share data for all periods for which
a statement of operations is presented. Historical basic and diluted net loss
per share have been computed based on the weighted average shares outstanding
during the periods. Potentially dilutive securities have not been included as
their inclusion would be antidilutive.
Net loss per share on a pro forma basis would be $0.45 and is computed
by dividing the net loss by the sum of the weighted average number of common
shares outstanding during the year and the weighted average shares resulting
from the conversion of 3,408,741 outstanding shares of the redeemable
convertible preferred stock at the closing of the proposed initial public
offering. Potentially dilutive securities have not been included as their
inclusion would be antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" (SOP
98-5). SOP 98-5 provides guidance on the financial reporting of start-up costs
and organization costs. It requires that the cost of start-up activities and
organization costs to be expensed as incurred and is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect adoption of this SOP to have a material adverse impact on the
financial statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
F-10
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LINES OF CREDIT
The Company has a working capital line of credit with a bank that is
secured by substantially all assets. The total available amount of the line is
$4,500,000, with advances limited to 80% of qualified accounts receivable. In
March 1999, the line was extended to May 9, 1999. The Company has reduced its
available line of credit by allocating approximately $339,000 of the line of
credit to support a letter of credit collateralizing a facility lease (See Note
10). Interest on the borrowings is charged at the bank's prime rate plus 1.25%.
The line of credit agreement contains certain financial covenants including,
among others, minimum revenue requirements, minimum quick and profitability
ratios, as defined in the agreement, and limitations and restrictions on capital
expenditures and additional indebtedness. As of December 31, 1998, the Company
was not in compliance with certain of the financial covenants and has received a
waiver from the bank.
There were no borrowings outstanding under the line of credit at
December 31, 1997 or 1998. As of March 18, 1999, the Company had borrowed
approximately $2,115,000 under the line of credit.
4. INCOME TAXES
The net deferred tax asset results from the following temporary
differences:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Depreciation and amortization.................................... $ (11,797) $ (5,856)
Accrued and other current liabilities............................ 252,905 580,262
Net operating loss carryforwards................................. 2,102,438 2,473,182
Other............................................................ 28,492 382,599
------------ ------------
Total.......................................................... 2,372,038 3,430,187
Less valuation allowance....................................... (2,372,038) (3,430,187)
------------ ------------
Total............................................................ $ -- $ --
------------ ------------
------------ ------------
</TABLE>
As of December 31, 1998, the Company had net operating loss
carryforwards of approximately $6.5 million and $3.0 million for Federal and
California reporting purposes, respectfully. The differences between the federal
and the California losses are primarily attributable to the 50% limitation on
state carryforwards. The Federal loss carryforwards will begin expiring in 2009,
unless previously utilized, while the California losses will begin expiring in
1999. The Company has approximately $70,000 of Research and Development credits
which will begin expiring in 2012. Utilization of the Company's net operating
loss carryforwards may be limited as a result of certain changes in the
Company's ownership. The realization of the deferred tax asset is dependant upon
the Company generating sufficient taxable income prior to expiration of its
operating loss and credit carryforwards. Due to the uncertainty regarding
realization of the deferred tax asset, management has provided a full valuation
allowance against the net deferred tax asset.
5. CONVERTIBLE PROMISSORY NOTES PAYABLE
In 1997, the Company issued convertible subordinated unsecured
promissory notes to existing shareholders totaling $2,332,500. Automatic
conversion of these notes into preferred stock occurred in connection with the
issuance of Series B Preferred Stock in November 1997. Interest at 10% per annum
F-11
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CONVERTIBLE PROMISSORY NOTES PAYABLE (CONTINUED)
was paid at the time of conversion. In connection with the issuance of the
convertible notes, the Company issued 106,024 warrants to purchase common stock.
The Company has allocated no value to these warrants as the amount would be
immaterial.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 3,500,000 shares of preferred stock for
issuance. The Board of Directors designated 1,260,137 and 2,200,000 shares as
Series A Preferred Stock and Series B Preferred Stock, respectively. The
remaining 39,863 shares of preferred stock are undesignated. Both issuances of
preferred stock carry the following rights and privileges:
a) VOTING: The holder of each preferred share has a right to the number of
votes equal to the number of shares issuable upon conversion, as defined.
b) REDEMPTION: Beginning November 26, 2002, and in each year thereafter,
the Company is obligated to redeem, at the option of the preferred
stockholders, up to 25% of the aggregate number of shares outstanding.
The redemption value of each share shall equal the original issuance
price ($4.40 for Series A and $4.52 for Series B), plus any declared and
unpaid dividends and a premium of 8% per annum, compounded annually. In
the event that the Company does not redeem the required shares at each
redemption date, a premium of 12% per annum would be charged until the
shares are redeemed by the Company. In order to state the preferred stock
at redemption value, as of December 31, 1998, the Company has accreted
approximately $1,503,000, including amounts related to the 8% premium.
c) DIVIDENDS: The preferred stockholders are entitled to non-cumulative
dividends, when and if declared, at the same rate the dividends are paid
to the common stockholders.
d) LIQUIDATION: In the event of any merger, sale or reorganization in
which control transfers or in liquidation or dissolution, the preferred
stockholders have a liquidation preference over common stockholders. The
liquidation preference is an amount equal to a multiple of 1.5 times the
original purchase price.
e) CONVERSION: Each share of the preferred stock is generally convertible
at the option of the holder into one share of common stock and is subject
to certain anti-dilution provisions. The preferred stock automatically
converts into a certain number of common shares, as defined, upon the
closing of certain offerings, as defined, and upon the election of 75%
and 70% of the Series A Preferred Stock and the Series B Preferred Stock,
respectively.
In August 1996, the Company completed a private offering of 1,136,487
shares of Series A Preferred Stock at $4.40 per share resulting in net proceeds
of $4,921,479. In December 1996, the investors exercised an option for
additional 113,650 shares of Series A Preferred Stock resulting in additional
net proceeds of $500,060.
In November 1997, the Company completed a private offering of 2,158,604
shares of Series B Preferred Stock at $4.52 per share resulting in net proceeds
of $9,125,096.
The Board of Directors has the authority, without further action by the
shareholders, to issue any authorized but undesignated shares of preferred stock
in one or more series and to fix all the terms, including rights, preferences,
restrictions and redemptions.
F-12
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
At the closing of an initial public offering, all outstanding shares of
preferred stock will be converted into 3,408,741 shares of common stock.
7. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
The Company has authorized 15,000,000 shares of common stock of which
3,766,915 and 3,767,415 shares of common stock were outstanding as of December
31, 1997 and 1998. Outstanding shares of common stock have been issued to
officers and employees pursuant to agreements which entitle the Company, under
certain circumstances, the option to repurchase the shares at fair value in the
event of termination of employment. As of December 31, 1998, no shares have been
repurchased.
STOCK OPTION PLANS
In August 1996, the Company adopted the 1996 Equity Incentive Plan (the
Plan), under which incentive stock options, nonstatutory options and rights to
purchase restricted stock may be granted to employees, directors, consultants or
advisors of the Company. Options issued under the Plan vest over either four or
five years. No options granted under the Plan have a term in excess of ten years
from the date of grant. The exercise price of an incentive stock option may not
be less than 100% of the fair market value of the common stock on the date of
grant as determined by the Board of Directors. The exercise price of a
nonstatutory option cannot be less than 85% of the fair market value of the
common stock on the date of grant as determined by the Board of Directors. As of
December 31, 1998, 700,000 common shares have been reserved for issuance under
the Plan. As of December 31, 1998, 512,800 options are outstanding under the
1996 Plan.
1998 EQUITY INCENTIVE PLAN
In August 1998, the Board of Directors adopted the 1998 Equity Incentive
Plan (the 1998 Plan) and obtained stockholder approval in November 1998. The
1998 Plan permits the granting of incentive stock options, nonstatutory options,
stock appreciation rights and rights to purchase restricted stock. An aggregate
of 1,000,000 shares of the Company's common stock have initially been reserved
for issuance pursuant to the exercise of stock awards granted to employees,
directors and consultants under the 1998 Plan. An additional 500,000 shares may
be reserved for issuance under the 1998 Plan to the extent that options
outstanding on the effective date of the Company's initial public offering under
the Company's 1996 Plan are returned to the 1996 Plan. The exercise price of an
Incentive Stock Option cannot be less than 100% of the fair market value of the
common stock on the date of the grant. The exercise price of a nonstatutory
stock option cannot be less than 85% of the fair market of the common stock on
the date of grant. Options granted under the 1998 Plan vest at the rate
specified in the option agreement. As of December 31, 1998, 332,370 options are
outstanding under the 1998 Plan.
EMPLOYEE STOCK PURCHASE PLAN
In August 1998 the Board of Directors adopted the Employee Stock
Purchase Plan (Purchase Plan) and obtained stockholder approval in November
1998. The Company has reserved 350,000 shares of common stock for issuance under
the Purchase Plan. The Purchase Plan will enable eligible employees to purchase
common stock at 85% of the lower of the fair market value of the Company's
common stock on
F-13
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
the first day of each option purchase period, or the relevant purchase date. As
of December 31, 1998 no shares have been issued under the Purchase Plan.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In August 1998, the Board of Directors adopted and in November 1998 the
stockholders approved the Non-employee Director's Option Plan (Director Plan).
The Company has reserved 150,000 shares of common stock for issuance under the
Director Plan. The Director Plan provides an initial grant of options to
purchase 6,000 shares of common stock to each new eligible outside director of
the Company upon the effective date of an initial public offering or upon
election to the Board. In addition, such eligible outside directors will be
granted an option to purchase 2,000 shares of common stock at each annual
meeting of the stockholders after the effective date of an initial public
offering. The exercise price per share of all options granted under the Director
Plan will be equal to the 100% of fair market value of the Company's common
stock on the date of grant. Options granted expire after ten years and generally
vest monthly over a one-year period. The initial grant options vest monthly over
a three-year period. As of December 31, 1998, no options have been granted under
the Director Plan.
The following table summarizes stock option plan activity:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- ---------------------- ----------------------
WTD. AVG. WTD. AVG. WTD. AVG.
SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year..... -- -- 38,250 $ 0.50 641,100 $ 1.06
Granted.......................... 38,250 $ 0.50 616,250 1.09 416,270 4.12
Exercised........................ -- -- -- -- (500) 0.63
Terminated....................... -- -- (13,400) 0.73 (132,200) 1.97
--------- ----- --------- ----- --------- -----
Outstanding end of year............ 38,250 0.50 641,100 1.06 924,670 2.31
Exercisable, end of year........... -- -- 7,400 0.50 111,455 0.87
Weighted average fair value of
options granted................ -- $ 0.50 -- $ 2.32 -- $ 5.91
</TABLE>
As required by SFAS 123, the Company has determined the pro forma
information as if the Company had accounted for stock options under the minimum
value method of SFAS 123. The following weighted average assumptions were used;
risk-free interest rate ranging between 4.4% and 6.9%; dividend yield of zero;
expected market price volatility factor of zero; and a weighted average expected
life of the options of seven years. Had compensation cost for stock options
granted during the years ended December 31, 1996 and 1997 been determined
consistent with SFAS 123, the Company's net loss and related per share amounts
on a pro forma basis would not materially differ from the amounts reported in
the accompanying consolidated statements of operations for those periods. Had
compensation cost for stock
F-14
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
options granted during the year ended December 31, 1998 been determined
consistent with SFAS 123, the Company's net loss and related per share amount on
a pro forma basis would be as follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------ ------------
<S> <C> <C>
Loss applicable to common stockholders........................... $ (4,574,038) $ (4,753,424)
Basic and diluted net loss per share............................. $ (1.21) $ (1.26)
</TABLE>
The Company recorded $900,900 as deferred compensation related to
429,000 options granted in December 1997. The deferred compensation is being
amortized on a straight-line basis over the four or five year vesting period of
the underlying options.
In 1998, the Company issued an additional 416,270 options at exercise
prices ranging between $2.50 and $4.50 per share. The Company recorded deferred
compensation charges of $748,825 related to the grant of certain of these
options. The deferred compensation is being amortized over the four or five year
vesting period of the underlying options.
WARRANTS
As of December 31, 1998 the Company has outstanding warrants to purchase
10,000 shares of its Series A preferred stock. The warrants have an exercise
price of $4.40 per share and expire in November 2001.
As of December 31, 1998 the Company has outstanding warrants to purchase
106,024 shares of its common stock. The warrants have an exercise price of $0.75
per share and expire at various dates in 2002.
8. EMPLOYEE BENEFITS
The Company has a 401(k) Plan (the 401(k) Plan) covering substantially
all full-time employees. The 401(k) Plan is subject to the provisions of the
Employee's Retirement Income Security Act of 1974. The 401(k) Plan allows for
the Company to make matching contributions, up to a maximum of $750 per year per
employee. The contributions made by the Company were approximately $28,000,
$34,500 and $53,400 for the years ended December 31, 1996, 1997 and 1998,
respectively.
The Company has a bonus plan for certain members of management. The
bonuses earned are based upon factors such as meeting certain operating targets,
including defined results of operations.
During the years ended December 31, 1996, 1997 and 1998, the Company
granted discretionary bonuses to its officers and employees in the amount of
approximately $411,000, $834,000 and $928,000, respectively.
9. RELATED PARTY TRANSACTIONS
The Company has notes payable to related parties in the amount of
$600,000 and $800,000 at December 31, 1997 and 1998, respectively. These notes
are secured and subordinated to the bank line of credit and mature December 31,
1999. Interest is payable monthly and is charged at a rate of prime plus 2.0%.
In addition, a bonus is payable annually to the noteholders at a rate of
approximately 1.7% on the
F-15
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
outstanding balance. Interest expense related to these notes totaled
approximately $183,000, $101,000 and $73,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
Effective January 1, 1996, the Company entered into an administrative
service agreement with Newgen Services L.P., an affiliate, wherein the Company
agreed to provide administrative services for Newgen Services L.P., in exchange
for a monthly payment of up to $7,500, subject to adjustment. The agreement is
in effect for a period of one year, with automatic renewals, unless terminated
by the mutual consent of both companies. Amounts earned under this agreement
totaled $90,000 for each of 1996 and 1997 and $43,000 for 1998. This agreement
was terminated as of January 1, 1999. In addition, during 1996 the Company
repaid advances from this affiliate aggregating approximately $434,000. The
Company also performs consulting services for customers of this affiliate and
has earned approximately $219,000, $131,000 and $59,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has both operating and capital lease commitments for
facilities and certain equipment which expire through June 2003. Provisions of
the facility lease provide for abatement of rent during certain periods and
escalating rent payments during the lease term. The Company maintains a letter
of credit of $339,000 as collateral related to the facility lease. Collateral
requirements decline annually over the term of the lease.
The future lease commitments as of December 31, 1998, are summarized as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
1999.............................................................. $ 643,758 $ 1,084,296
2000.............................................................. 574,272 633,554
2001.............................................................. 430,015 306,687
2002.............................................................. -- 2,566
2003.............................................................. -- 676
Thereafter........................................................ -- --
------------ ------------
Total minimum lease payments...................................... $ 1,648,045 2,027,779
------------
------------
Less amount representing interest................................. (218,376)
------------
Present value of remaining minimum capital lease payments......... 1,809,403
Less amount due in one year....................................... (935,256)
------------
Long-term portion of obligations under capital leases............. $ 874,147
------------
------------
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $306,000, $574,000 and $813,000, respectively. At December 31,
1998, the net book value of assets subject to capital leases was $1,596,500.
In January 1999, the Company entered into a lease agreement to lease
telephony equipment. The lease is a four year lease that requires aggregate
payments of approximately $2,458,000.
F-16
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONTINGENCIES
In January 1999, a former officer of the Company filed a lawsuit
alleging he was unlawfully discharged from his employment with the Company and
that he is owed certain compensation. Damages of unspecified amounts are
requested in the lawsuit. The Company intends to vigorously defend this lawsuit
and, while the ultimate outcome is uncertain, management, based on advice of
counsel, does not believe its resolution will have a material adverse effect on
the Company's financial position or its results of operations.
PROCESSING AGREEMENTS
The Company has an annual agreement with a third party, whereby the
Company was given the rights to purchase dealership customers names to whom it
provides services, for a fixed rate and a percentage of the Company's revenue
from those dealers. Although the Company is under no obligation to purchase any
data from this company at any time, the Company continues to exercise its rights
under this agreement and incurred costs of approximately $671,000, $1,552,000
and $1,498,000 during the years ended December 31, 1996, 1997 and 1998,
respectively.
The Company has a month to month agreement with a third party whereby it
purchases postage and services relating to the production of letters for the
Company's customers. Costs incurred related to this agreement during the years
ended December 31, 1996, 1997 and 1998, were approximately $994,000, $4,304,000
and $6,666,000, respectively.
11. OTHER FINANCIAL STATEMENT DATA
Accrued and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Compensation and benefits...................................... $ 606,664 $ 699,162
Deferred revenue............................................... 375,498 694,128
Other.......................................................... 205,100 930,751
------------ ------------
$ 1,187,262 $ 2,324,041
------------ ------------
------------ ------------
</TABLE>
In December 1998, the Company wrote off to general and administrative
expense approximately $600,000 of previously deferred costs related to its
delayed 1998 proposed initial public offering.
12. SEGMENT INFORMATION
The Company's revenues are substantially derived from two service
segments: database marketing and consulting operations.
The database marketing segment provides outsourced database management,
direct marketing and related customer retention services for the service
department of automobile dealerships and manufacturers.
F-17
<PAGE>
NEWGEN RESULTS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SEGMENT INFORMATION (CONTINUED)
The consulting segment develops and implements new techniques and
programs that enable automobile dealerships to grow their business, streamline
inefficient processes and more effectively market their services.
The following table summarizes segment information for the years ended
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------------------------------------ ------------------------------------------
DATABASE DATABASE
MARKETING CONSULTING CONSOLIDATED MARKETING CONSULTING CONSOLIDATED
------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Segment revenues............. $ 20,974,032 $ 5,439,660 $ 26,413,692 $ 31,512,768 $ 8,593,061 $ 40,105,829
Segments cost of revenues.... 16,163,609 4,232,822 20,396,431 22,567,692 6,694,764 29,262,456
------------- ------------ ------------- ------------- ------------ -------------
Segment gross profit....... $ 4,810,423 $ 1,206,838 $ 6,017,261 $ 8,945,076 $ 1,898,297 $ 10,843,373
------------- ------------ ------------- ------------- ------------ -------------
------------- ------------ ------------- ------------- ------------ -------------
DEPRECIATION:
Segment depreciation......... $ 781,377 $ 56,115 $ 837,492 $ 1,189,564 $ 103,379 $ 1,292,943
ASSETS:
Segment assets............... 10,246,762 2,055,320 12,302,082 10,957,700 1,814,635 12,772,335
Capital expenditures......... 286,663 214,513 501,176 1,423,923 70,459 1,494,382
</TABLE>
F-18
<PAGE>
[INSIDE BACK COVER]
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,700,000 SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
------------------
, 1999
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK IN THAT JURISDICTION. PERSONS
WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED
STATES ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS
AS TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT
JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All the amounts
shown are estimates except for the Commission registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 17,522
NASD filing fee................................................... 6,457
Nasdaq Stock Market Listing Application fee....................... 90,000
Blue Sky qualification fees and expenses.......................... 5,000
Printing and engraving expenses................................... 175,000
Legal fees and expenses........................................... 175,000
Accounting fees and expenses...................................... 175,000
Transfer agent and registrar fees................................. 10,000
Miscellaneous..................................................... 46,021
---------
Total........................................................... $ 700,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the Delaware
Law) , the Registrant has broad powers to indemnify its Directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and Bylaws include
provisions to (i) eliminate the personal liability of its Directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by Section 102(b)(7) of the Delaware Law and (ii) require the Registrant to
indemnify its Directors and officers to the fullest extent permitted by Section
145 of the Delaware Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a
corporation generally has the power to indemnify its present and former
Directors, officers, employees and agents against expenses incurred by them in
connection with any suit to which they are or are threatened to be made a party
by reason of their serving in such positions so long as they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action, they had
no reasonable cause to believe their conduct was unlawful. The Registrant
believes that these provisions are necessary to attract and retain qualified
persons as Directors and officers. These provisions do not eliminate the
Directors' duty of care, and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware Law. In addition, each Director will continue to be subject to
liability for breach of the Director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for acts or omissions that the Director believes to
be contrary to the best interests of the Registrant or its stockholders, for any
transaction from which the Director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the Director's duty to the
Registrant or its stockholders when the Director was aware or should have been
aware of a risk of serious injury to the Registrant or its stockholders, for
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the Director's duty to the Registrant or its
stockholders, for improper transactions between the Director and the Registrant
and for improper distributions to stockholders and loans to Directors and
officers. The provision also does not affect a Director's responsibilities under
any other law, such as the federal securities law or state or federal
environmental laws.
II-1
<PAGE>
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful. The indemnification agreements also
set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and
Directors of the Registrant with respect to certain liabilities, including
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Registrant has sold and issued the following
unregistered securities:
(a) Since January 1, 1995, the Company has issued a total of 1,070,770
options for shares of its common stock at exercise prices ranging from $0.50
to $6.50. As of December 31, 1998, optionees have exercised 250 options at
an exercise price of $0.50 per share, 250 options at an exercise price of
$0.75, and 924,670 options are outstanding (145,600 options having been
cancelled), 111,455 of which are vested. The Registrant relied on the
exemption provided by Rule 701 under the Securities Act.
(b) In August and December 1996, the Registrant issued and sold
1,250,137 shares of its Series A Preferred Stock to certain accredited
investors for an aggregate purchase price of $5,500,603, or $4.40 per share
to the following accredited investors in the following respective amounts:
Capstone Ventures, a Delaware Limited Partnership: 397,775; BankAmerica
Ventures: 715,990; BA Venture Partners II: 79,555; SF Growth Fund: 5,682;
Duncan Naylor: 5,682 and Elaine McKay Revocable Trust: 45,453. Upon the
closing of this offering, the shares of Series A Preferred Stock will
automatically convert into 1,250,137 shares of common stock. The Registrant
relied on the exemption provided by Section 4(2) under the Act. See "Certain
Transactions."
(c) In November 1996, in conjunction with the execution of a Revolving
Loan and Security Agreement with Silicon Valley Bank (SVB), the Company
issued to SVB a warrant to purchase up to 10,000 shares of Series A
Preferred Stock. Upon the closing of this offering, this warrant shall
become a warrant to purchase 10,000 shares of common stock. This warrant has
an exercise price of $4.40 per share and expires on November 27, 2001. The
Registrant relied on the exemption provided by Section 4(2) under the Act.
(d) In May and September 1997, the Company entered into certain
Convertible Unsecured Promissory Notes (the Notes) in the aggregate amount
of $2,332,500 (the Bridge Financings) with directors of the Company and
entities affiliated with directors of the Company as follows: BankAmerica
Ventures ($1,197,000) and BA Venture Partners II ($133,000), affiliated with
Jess R. Marzak; Johari Investment Company Ltd. ($166,667), affiliated with
Gary Simkin; Bernard C. Simkin ($166,667); Murray Simkin ($166,667); and
Capstone Ventures ($502,500), affiliated with Eugene J. Fisher. All Notes
were converted on November 26, 1997, in connection with the Company's Series
B Financing, into shares of the Company's Series B Preferred Stock, at a
purchase price of $4.52 per share.
II-2
<PAGE>
In connection with the Bridge Financings, the Company issued warrants to
purchase an aggregate of 106,024 shares of its common stock (the Bridge
Warrants) in the following amounts to the following entities: 54,409 to
BankAmerica Ventures, 6,046 to BA Venture Partners II, 22,842 to Capstone
Ventures, 7,576 to each of Bernard C. Simkin and Murray Simkin and 7,575 to
Johari Investment Company, Ltd. The exercise price of the Bridge Warrants is
$0.75 per share. The Bridge Warrants may be exercised by applying the value
of a portion of the Bridge Warrants (equal to the number of shares issuable
under the Bridge Warrant being exercised multiplied by the fair market value
of the security receivable upon exercise of the Bridge Warrants, less the
aggregate per share exercise price) in lieu of payment of the exercise price
per share. 30,770 of the Bridge Warrants expire in May 2002, 61,618 expire
in September 2002 and 13,636 will expire in November 2002. The Registrant
relied on the exemption provided by Section 4(2) under the Act. See "Certain
Transactions."
(e) In November 1997, the Registrant issued and sold 2,158,604 shares of
Series B Preferred Stock to an aggregate purchase price of $9,756,890, or
$4.52 per share (includes the shares from the conversion of the Unsecured
Convertible Promissory Notes) to the following accredited investors as
follows:
<TABLE>
<CAPTION>
INVESTORS NAME SHARES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Information Associates, L.P........................................................ 598,908
Information Associates, C.V........................................................ 16,714
Information Associates--II, L.P.................................................... 923,430
IA--II Affiliates Fund, L.L.C...................................................... 53,869
Capstone Ventures.................................................................. 111,172
BankAmerica Ventures............................................................... 264,822
BA Venture Partners II............................................................. 29,424
BancBoston Robertson Stephens Inc.................................................. 15,929
GC&H Investments................................................................... 5,530
Johari Investment Company Ltd...................................................... 36,873
Bernard Simkin..................................................................... 36,873
Murray Simkin...................................................................... 36,873
Bayview Investors, Ltd............................................................. 28,187
</TABLE>
Upon the closing of this offering the shares of Series B Preferred Stock
will automatically convert into 2,158,664 shares of common stock. The Registrant
relied on the exemption provided by Section 4(2) under the Act. See "Certain
Transactions."
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
3.3 Restated Certificate of Incorporation, to be filed and become effective
upon closing of this offering.(1)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.(1)
4.2 Specimen Stock Certificate.
5.1 Opinion of Cooley Godward LLP. (2)
10.1 1996 Equity Incentive Plan (the 1996 Plan).(1)
10.2 Form of Stock Option Agreement of Registrant pursuant to the 1996 Plan.(1)
10.3 1998 Equity Incentive Plan, as amended (the 1998 Plan).(1)
10.4 Form of Stock Option Agreement of Registrant pursuant to the 1998 Plan.(1)
10.5 1998 Non-Employee Directors Stock Option Plan.(1)
10.6 1998 Employee Stock Purchase Plan.(1)
10.7 Restated Investor Rights Agreement by and among the Company and certain
stockholders of the Company, dated as of November 26, 1997.(1)
10.8 Restated Right of First Refusal and Co-Sale Agreement between the Company
and certain investors, dated as of November 26, 1997.(1)
10.9 Master Equipment Lease No. 0053 between the Company and Phoenix Leasing
Incorporated, dated as of December 15, 1996.
10.10 License Agreement between the Company and Service Systems Development
Limited Partnership, dated as of October 11, 1995.(1)
10.11 Amended and Restated Security Agreement between the Company and Silicon
Valley Bank, dated March 10, 1998.(1)
10.12* Data Distribution Agreement between the Company and Universal Computer
Services, dated as of May 15, 1996.(1)
10.13 Office Lease between the Company and WCB II Limited Partnership, dated as
of July 31, 1996.(1)
10.14 Office Lease between the Company and Plaza Holdings, Inc., dated as of
April 6, 1998.(1)
10.15* Purchase Agreement between the Company and Geomel Enterprises, Inc., dated
September 4, 1998.
10.16 Form of Warrant, dated September 2, 1997, between the Company and the
following directors and entity affiliated with a director: Bernard C.
Simkin, Murray Simkin and Johari Investment Company, Ltd.
10.17 Promissory Note, as amended, between the Company as borrower and Sam
Simkin as lender.(1)
10.18 Promissory Note, as amended, between the Company as borrower and Jack
Simkin, as Trustee for Simkin Children Irrevocable Trust, as lender.(1)
10.19 General Services Agreement between the Company and Bolder Heuristics,
Inc., dated December 25, 1996.(1)
10.20 Ford Purchase Order No. 2460 293627 for Consulting Services.
10.21 Ford Purchase Order No. A50 P099 002382 for Data Extraction Services.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.(2)
24.1 Power of Attorney. Reference is made to page II-5.(1)
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Previously filed.
(2) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant
pursuant to provisions described in Item 14 or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange
Act)(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated
by reference in the Registration Statement 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.
(2) That, for purposes of determining any liability under the Act, 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
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act, 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
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, County of San Diego, State of California, on March 19, 1999.
<TABLE>
<S> <C> <C>
By: /s/ SAMUEL SIMKIN
-----------------------------------------
Samuel Simkin
Chief Financial Officer, Senior Vice
President and Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ President, Chief Executive March 19, 1999
Gerald L. Benowitz Officer and Director
/s/ SAMUEL SIMKIN Chief Financial Officer,
- ------------------------------ Senior Vice President March 19, 1999
Samuel Simkin and Secretary
*
- ------------------------------ Director March 19, 1999
Eugene Fischer
*
- ------------------------------ Director March 19, 1999
H. Robert Gill
*
- ------------------------------ Director March 19, 1999
Jess Marzak
*
- ------------------------------ Director March 19, 1999
John Moragne
*
- ------------------------------ Director March 19, 1999
Abraham Simkin
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director March 19, 1999
Bernard C. Simkin
*
- ------------------------------ Director March 19, 1999
Murray Simkin
*
- ------------------------------ Director March 19, 1999
Gary Simkin
*
- ------------------------------ Director March 19, 1999
Todd A. Springer
*
- ------------------------------ Director March 19, 1999
Bert Winemiller
/s/ SAMUEL SIMKIN
- ------------------------------
*Samuel Simkin March 19, 1999
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
DESCRIPTION OF DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Form of Underwriting Agreement (1)................................................ 1.1
Certificate of Incorporation (1).................................................. 3.1
Amended and Restated Bylaws (1)................................................... 3.2
Restated Certificate of Incorporation, to be filed and become effective upon
closing of this offering (1).................................................... 3.3
Reference is made to Exhibits 3.1, 3.2 and 3.3 (1)................................ 4.1
Specimen Stock Certificate........................................................ 4.2
Opinion of Cooley Godward LLP. (2)................................................ 5.1
1996 Equity Incentive Plan (the 1996 Plan) (1).................................... 10.1
Form of Stock Option Agreement of Registrant pursuant to the 1996 Plan (1)........ 10.2
1998 Equity Incentive Plan, as amended (the 1998 Plan) (1)........................ 10.3
Form of Stock Option Agreement of Registrant pursuant to the 1998 Plan (1)........ 10.4
1998 Non-Employee Directors Stock Option Plan (1)................................. 10.5
1998 Employee Stock Purchase Plan (1)............................................. 10.6
Restated Investor Rights Agreement by and among the Company and certain
stockholders of the Company, dated as of November 26, 1997 (1).................. 10.7
Restated Right of First Refusal and Co-Sale Agreement between the Company and
certain investors, dated as of November 26, 1997 (1)............................ 10.8
Master Equipment Lease No. 0053 between the Company and Phoenix Leasing
Incorporated, dated as of December 15, 1996. ................................... 10.9
License Agreement between the Company and Service Systems Development Limited
Partnership, dated as of October 11, 1995 (1)................................... 10.10
Amended and Restated Security Agreement between the Company and Silicon Valley
Bank, dated March 10, 1998 (1).................................................. 10.11
Data Distribution Agreement between the Company and Universal Computer Services,
dated as of May 15, 1996 (1).................................................... 10.12*
Office Lease between the Company and WCB II Limited Partnership, dated as of
July 31, 1996 (1)............................................................... 10.13
Office Lease between the Company and Plaza Holdings, Inc., dated as of April 6,
1998 (1)........................................................................ 10.14
Purchase Agreement between the Company and Geomel Enterprises, Inc., dated
September 4, 1998............................................................... 10.15*
Form of Warrant, dated September 2, 1997, between the Company and the following
directors and entity affiliated with a director: Bernard C. Simkin, Murray
Simkin and Johari Investment Company, Ltd. ..................................... 10.16
Promissory Note, as amended, between the Company as borrower and Sam Simkin as
lender (1)...................................................................... 10.17
Promissory Note, as amended, between the Company as borrower and Jack Simkin, as
Trustee for Simkin Children Irrevocable Trust, as lender (1).................... 10.18
General Services Agreement between the Company and Bolder Heuristics, Inc., dated
December 25, 1996 (1)........................................................... 10.19
Ford Purchase Order No. 2460 293627 for Consulting Services....................... 10.20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
DESCRIPTION OF DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Ford Purchase Order No. A50 P099 002382 for Data Extraction Services.............. 10.21
Subsidiaries of the Registrant (1)................................................ 21
Consent of Arthur Andersen LLP, Independent Public Accountants.................... 23.1
Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1. (2).............. 23.2
Power of Attorney. Reference is made to page II-5 (1)............................. 24.1
Financial Data Schedule........................................................... 27
</TABLE>
- ------------------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Previously filed.
(2) To be filed by amendment.
<PAGE>
COMMON STOCK COMMON STOCK
NUMBER [LOGO] SHARES
NG
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP
This Certifies that
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
------------------- ----------------
----------------------- NEWGEN RESULTS CORPORATION ---------------------
------------------- ----------------
transferrable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
signed in facsimile by its duly authorized officers and a facsimile of
its corporate seal.
Dated:
/s/ Sam Simkin [SEAL] /s/ Gerald Benowitz
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof
and the qualifications, limitations or restrictions of such preferences
and/or rights. Such requests shall be made to the Corporation's Secretary at
the principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR
DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ................. Custodian ................
(Cust) (Minor)
under Uniform Gifts to Minors
Act.........................................
(State)
UNIF TRF MIN ACT -- ................ Custodian (until age ......)
(Cust)
..................... under Uniform Transfers
(Minor)
to Minors Act ...............................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
X ________________________________________
X ________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ____________________________________________________
THE SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-16.
<PAGE>
EXHIBIT 10.9
MASTER EQUIPMENT LEASE NO. 0053
Under this Master Equipment Lease No. 0053 (the "Lease"), dated as of
December 15, 1996, Phoenix Leasing Incorporated, a California corporation
("Lessor"), hereby leases to Newgen Results Corporation, a California
corporation ("Lessee"), and Lessee hereby leases from Lessor, the equipment
(herein called "Equipment") which is described on the schedule attached
hereto or any subsequently-executed schedule entered into by Lessor and
Lessee and which incorporates this Lease by reference. Any such schedules
shall hereinafter individually be referred to as a "Schedule" and
collectively be referred to as the "Schedules." Lessor hereby leases the
Equipment to Lessee upon the following terms and conditions:
1. TERM OF AGREEMENT. The term of this Lease begins on the date
set forth above and shall continue thereafter and be in effect so long as and
at any time any Schedule entered into pursuant to this Lease is in effect.
The Initial Term and rent payable with respect to each leased item of
Equipment shall be as set forth in and as stated in the respective
Schedule(s). The terms of each Schedule hereto are subject to all conditions
and provisions of this Lease as it may at any time be amended. Each Schedule
shall constitute a separate and independent lease and contractual obligation
of Lessee and shall incorporate the terms and conditions of this Master
Equipment Lease and any additional provisions contained in such Schedule. In
the event of a conflict between the terms and conditions of this Lease and any
additional provisions of such Schedule, the additional provisions of such
Schedule shall prevail with respect to such Schedule only.
2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be
cancelled or terminated except as expressly provided herein. This Lease
(including all Schedules to this Lease) constitutes a net lease and Lessee
agrees that its obligations to pay all rent and other sums payable hereunder
(and under any Schedule) and the rights of Lessor and assignee in and to such
rent and other sums, are absolute and unconditional and are not subject to
any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims
which Lessee may have against Lessor, any assignee, the manufacturer or
seller of the Equipment, or against any person or any reason whatsoever.
3. LESSOR COMMITMENT. So long as no Event of Default or event
which with the giving of notice or passage of time, or both, could become an
Event of Default has occurred or is continuing, Lessor agrees to lease to
Lessee the groups of Equipment described on each Schedule, subject to the
following conditions: (i) that in no event shall Lessor be obligated to lease
Equipment to Lessee hereunder where the aggregate purchase price of all
Equipment leased to Lessee hereunder would exceed $1,500,000 ("Commitment")
of which amount Lessor may purchase custom use equipment, installation and
delivery costs, purchase tax, tooling, software, and items generally
considered fungible or expendable ("Soft Cost Equipment") for lease to Lessee
having an aggregate purchase price not exceeding an amount equal to 20% of
the Commitment; (ii) the amount of Equipment purchased by Lessor at any one
time shall be at least equal to $25,000 except for a final advance which may
be less than $25,000, provided that the ratio of aggregate Soft Cost to
non-Soft Cost Equipment theretofore purchased by Lessor as of each funding
shall not exceed 1 to 5; (iii) Lessor shall not be obligated to purchase
Equipment hereunder after December 31, 1997; (iv) all Lease documentation
except for Schedule documentation required by Lessor has been executed by
Lessee or provided by Lessee no later than December 31, 1996; (v) the
equipment described on the Schedule is reasonably acceptable to Lessor; (vi)
with respect to each funding Lessee has provided to Lessor each of the
closing documents and other items described in Exhibit A hereto (which
documents shall be in form and substance acceptable to Lessor) and which list
may be modified for each subsequent
-1-
<PAGE>
funding; (vii) there is no material adverse change in Lessee's condition,
financial or otherwise, as determined by Lessor, and Lessee so certifies,
from (yy) the date of the most recent financial statements delivered by
Lessee to Lessor prior to execution of this Lease, to (zz) the date of the
proposed lease of the Equipment; (viii) Lessee is performing in a manner not
adversely material to its business plan referred to as "Newgen Results
Corporation: Projected Balance Sheets, Projected Income Statement, Projected
Cash Flow Statement from August to December 1996, and Projected Balance
Sheets, Projected Income Statements, Projected Cash Flow Statement from
January to December 1997," not dated as may be amended from time to time in
form and substance acceptable to Lessor ("Business Plan"); (ix) Lessor or its
agent has inspected and placed identification labels on the Equipment; (x)
Lessee shall offer to Lessor, on an exclusive basis, all lease transactions
for equipment contemplated by Lessee until expiration of all Schedules;
however if Lessor declines to finance any such transaction or Lessee and
Lessor cannot agree upon terms, then Lessee shall be free to seek such
financing from any other third party; and (xi) Lessor has received in form
and substance acceptable to Lessor: (a) Lessee's interim financial statements
signed by a financial officer of Lessee; and (b) evidence of Lessee's
$1,499,455 cash position as of August 31, 1996.
4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the
Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is
to purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO
ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR,
LESSEE LEASES THE EQUIPMENT "AS IS" AND WITH ALL FAULTS. (b) If the Equipment
is not properly installed, does not operate as represented or warranted by
Vendor or is unsatisfactory for any reason, Lessee shall make any claim on
account thereof solely against Vendor and shall, nevertheless, pay Lessor all
rent payable under this Lease, Lessee hereby waiving any such claims as
against Lessor. Lessor hereby agrees to assign to Lessee solely for the
purpose of making and prosecuting any said claim, to the extent assignable,
all of the rights which Lessor has against Vendor for breach of warranty or
other representation respecting the Equipment. Lessor shall have no
responsibility for delay or failure to fill the order. (c) Lessee understands
and agrees that neither the Vendor nor any salesman or other agent of the
Vendor is an agent of Lessor. No salesman or agent of Vendor is authorized to
waive or alter any term or condition of this Lease, and no representation as
to the Equipment or any other matter by the Vendor shall in any way affect
Lessee's duty to pay the rent and perform its other obligations as set forth
in this Lease. (d) Lessee hereby requests Lessor to purchase Equipment from
Vendor and to lease Equipment to Lessee on the terms and conditions of the
Lease set forth herein. (e) Lessee hereby authorizes Lessor to insert in this
Lease and each Schedule hereto the serial numbers and other identification
data of the Equipment when determined by Lessor.
5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and
warrants that (a) it is a corporation in good standing under the laws of
the state of its incorporation, and duly qualified to do business, and will
remain duly qualified during the term of this Lease, in each state where the
Equipment will be located, as specified on each Schedule hereto; (b) it has
full authority to execute and deliver this Lease and perform the terms
hereof, and this Lease has been duly authorized and constitutes valid and
binding obligations of Lessee enforceable in accordance with its terms; (c)
this Lease will not contravene any law, regulation or judgment affecting
Lessee or result in any breach of any agreement or other instrument binding
on Lessee; (d) no consent of Lessee's shareholders or holder of any
indebtedness, or filing with, or approval of, any governmental agency or
commission, is a condition to the performance of the terms hereof; (e) there
is no action or proceeding pending or threatened against Lessee before any
court or administrative agency which might have a materially adverse effect
on the business, financial condition
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or operations of Lessee; (f) no deed of trust, mortgage or third party
interest arising through Lessee will attach to the Equipment or the Lease;
(g) the Equipment will remain at all times under applicable law, removable
personal property, free and clear of any lien or encumbrance in favor of
Lessee or any other person, notwithstanding the manner in which the Equipment
may be attached to any real property; (h) all credit, financial and any other
information submitted to Lessor herewith or any other time is true and
correct; and (i) Lessee has provided, or will provide if requested, Lessee's
tax identification number.
6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing,
rigging, transportation and installation charges for the Equipment and Lessor
may separately invoice Lessee for such charges. Lessee has selected the
Equipment itself and shall arrange for delivery of Equipment so that it can
be accepted in accordance with Section 7 hereof. Lessee hereby agrees to
indemnify and hold Lessor harmless from any claims, liabilities, costs and
expenses, including reasonable attorneys' fees, incurred by Lessor arising
out of any purchase orders or assignments executed by Lessor with respect to
any Equipment or services relating thereto.
7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and
dated Acceptance Notice attached to each Schedule hereto (a) acknowledging
the Equipment has been received, installed and is ready for use and (b)
accepting it as satisfactory in all respects for the purposes of this Lease.
Lessor is authorized to fill in the Rent Start Date on each Schedule in
accordance with the foregoing.
8. LOCATION; INSPECTION; LABELS. Equipment shall be delivered to and
shall not be removed from the Equipment "Location" shown on each Schedule
without Lessor's prior written consent, which "Location" shall in all events
be within the United States. Lessor shall have the right to inspect Equipment
at any reasonable time. Lessee shall be responsible for all labor, material
and freight charges incurred in connection with any removal or relocation of
such Equipment which is requested by the Lessee and consented to by Lessor,
as well as for any charges due to the installation or moving of the
Equipment. The rental payments shall continue during any period in which the
Equipment is in transit during a relocation. Lessor or its agent shall mark
and label Equipment, which labels shall state Equipment is owned by Lessor,
and Lessee shall keep such labels on the Equipment as labeled by Lessor or
its agent.
9. EQUIPMENT MAINTENANCE. (a) GENERAL. Lessee will locate or base each
item of Equipment where designated in an Acceptance Notice and will
reasonably permit Lessor to inspect such item of Equipment and its
maintenance records. Lessee will at its sole expense comply with all
applicable laws, rules, regulations, requirements and orders with respect to
the use, maintenance, repair, condition, storage and operation of each item
of Equipment. Except as required herein, Lessee will not make any addition or
improvement to any item of Equipment that is not readily removable without
causing material damage to any item or impairing its original value or
utility. Any addition or improvement that is so required or cannot be so
removed will immediately become the property of Lessor. (b) SERVICE AND
REPAIR. Lessee shall have the Equipment certified for the Vendor's standard
maintenance agreement prior to delivery to Lessor upon expiration of this
Lease. With respect to any other Equipment, Lessee will, at its sole expense,
maintain and service, and repair any damage to, each item of Equipment in a
manner consistent with prudent industry practice and Lessee's own practice so
that such item of Equipment is at all times (i) in the same condition as when
delivered to Lessee, except for ordinary wear and tear, (ii) in good
operating order for the function intended by its manufacturer's warranties
and recommendations.
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10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the
Equipment through use, operation or otherwise. Lessee hereby indemnifies and
holds harmless Lessor from and against all claims, loss of rental payments,
costs, damages, and expenses relating to or resulting from any loss, damage or
destruction of the Equipment, any such occurrence being hereinafter called a
"Casualty Occurrence." On the first rental payment date following such
Casualty Occurrence, or, if there is no such rental payment date, thirty (30)
days after such Casualty Occurrence, Lessee shall (i) repair the Equipment,
returning it to good operating condition or (ii) replace the Equipment with
identical equipment in good condition and repair, the title to which shall
vest in Lessor and which thereafter shall be subject to the terms of this
Lease; or (iii) pay to Lessor (a) any unpaid accrued amounts relating to such
Equipment due Lessor under this Lease up to the date of the Casualty
Occurrence, and (b) a sum equal to the Casualty Value as set forth in the
Casualty Value table attached to each Schedule hereto for such Equipment.
Upon the making of such payment, the term of this Lease as to each unit of
Equipment with respect to which the Casualty Value was paid shall terminate.
11. GENERAL INDEMNITY. Lessee will protect, indemnify and save
harmless Lessor from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses, imposed upon or
incurred by or asserted against Lessor or any assignee of Lessor by Lessee or
any third party by reason of the occurrence or existence (or alleged
occurrence or existence) of any act or event relating to or caused by the
Equipment, including but not limited to, consequential or special damages of
any kind, or any failure on the part of Lessee to perform or comply with any
of the terms of this Lease. In the event that any action, suit or proceeding
is brought against Lessor by reason of any such occurrence, Lessee, upon
request of Lessor, will at Lessee's expense resist and defend such action,
suit or proceeding or cause the same to be resisted and defended by counsel
designated and approved by Lessor. Lessee's obligations under this Section 11
shall survive the expiration of this Lease with respect to acts or events
occurring or alleged to have occurred prior to the return of the Equipment to
Lessor at the end of the Lease term.
12. INSURANCE. Lessee at its expense shall keep the Equipment
insured for the entire term and any extensions of this Lease against all
risks for at least the replacement value of such Equipment and shall provide
for a loss payable endorsement to Lessor or any assignee of Lessor. Lessee
shall maintain comprehensive general public liability insurance with respect
to loss or damage for personal injury, death or property damage in an amount
not less than $2,000,000 per occurrence, naming Lessor and Lessor's assignee
as additional insured. Such insurance shall contain insurer's agreement to
give thirty (30) days written notice to Lessor before cancellation or
material change of any policy of insurance. Lessee will provide Lessor and
any assignee of Lessor with a certificate of insurance from the insurer
evidencing Lessor's or such assignee's interest in the policy of insurance.
Such insurance shall cover any Casualty Occurrence to any unit of Equipment.
Notwithstanding anything in Section 10 or this Section 12 to the contrary,
this Lease and Lessee's obligations hereunder and under each Schedule shall
remain in full force and effect with respect to any unit of Equipment which
is not subject to a Casualty Occurrence. If Lessee fails to provide or
maintain insurance as required herein, Lessor shall have the right, but shall
not be obligated to obtain such insurance. In that event, Lessee shall pay to
Lessor the cost thereof.
13. TAXES. Lessee agrees to reimburse Lessor for, (or pay directly
if instructed by Lessor), and agrees to indemnify and hold Lessor harmless
from, all fees (including, but not limited to, license, documentation,
recording and registration fees), and all sales, use, gross receipts,
personal property, occupational, value added or other taxes, levies, imposts,
duties, assessments, charges, or withholdings of any nature whatsoever,
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together with any penalties, fines, additions to tax, or interest thereon
(all of the foregoing being hereafter referred to as "Impositions") except
same as may be attributable to Lessor's income, arising at any time prior to
or during the term of this Lease, or upon termination or early termination of
this Lease and levied or imposed upon Lessor directly or otherwise by any
Federal, state or local government in the United States or by any foreign
country or foreign or international taxing authority upon or with respect to
(i) the Equipment, (ii) the exportation, importation, registration, purchase,
ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, return, sale, transfer of title, or other disposition
thereof, (iii) the rentals, receipts, or earnings arising from the Equipment,
or any disposition of the rights to such rentals, receipts, or earnings, (iv)
any payment pursuant to this Lease, and (v) this Lease or the transaction or
any part thereof. Lessee's obligations under this Section 13 shall survive
the expiration of this Lease with respect to acts or events occurring or
alleged to have occurred prior to the return of the Equipment to Lessor at
the end of the Lease term.
14. PAYMENT BY LESSOR. If Lessee shall fail to make any payment or
perform any act required hereunder, then Lessor may, but shall not be
required to, after such notice to Lessee as is reasonable under the
circumstances, make such payment or perform such act with the same effect as
if made or performed by Lessee. Lessee will upon demand reimburse Lessor for
all sums paid and all costs and expenses incurred in connection with the
performance of any such act.
15. SURRENDER OF EQUIPMENT. Upon termination as a result of a
default of this Lease, with respect to each group of Equipment, Lessee will
forthwith surrender the Equipment to Lessor delivered in as good order and
condition as originally delivered, reasonable wear and tear excepted. Lessor
may, at its sole option, arrange for removal and transportation of the
Equipment provided that Lessee's obligations under Sections 10, 11 and 12
shall not be released. Lessee shall bear all expenses of delivering (which
include, but are not limited to, the de-installation, insurance, packaging and
transportation of) the Equipment to Lessor's location or other location
within the United States as Lessor may request. In the event Lessee fails to
deliver the Equipment as directed above, all obligations of Lessee under this
Lease, including rental payments, shall remain in full force and effect until
Lessee delivers the Equipment to Lessor.
16. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUCH
CONSENT NOT TO BE UNREASONABLY WITHHELD, LESSEE SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, EQUIPMENT,
OR ANY INTEREST THEREIN, OR (b) SUBJECT OR LEND EQUIPMENT OR PERMIT IT TO BE
USED BY ANYONE OTHER THAN LESSEE OR LESSEE'S EMPLOYEES, CONTRACTORS OR
AGENTS. LESSOR MAY ASSIGN THIS LEASE OR GRANT A SECURITY INTEREST IN ANY OR
ALL EQUIPMENT, OR BOTH, IN WHOLE OR IN PART TO ONE OR MORE ASSIGNEES OR
SECURED PARTIES WITHOUT NOTICE TO LESSEE. If Lessee is given notice of such
assignment it agrees to acknowledge receipt thereof in writing and Lessee
shall execute such additional documentation as Lessor's assignee shall
require. Each such assignee and/or secured party shall have all of the
rights, but none of the obligations, of Lessor under this Lease, unless such
assignee or secured party expressly agrees to assume such obligations in
writing. Lessee shall not assert against any assignee and/or secured party
any defense, counterclaim or offset that Lessee may have against Lessor.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lessor, or its assignees, secured parties, or
their agents or assigns, shall not interfere with Lessee's right to quietly
enjoy use of Equipment subject to the terms and conditions of this Lease.
Subject to the foregoing, this Lease inures to the benefit of and is binding
upon the successors and assignees of the parties hereto. Lessee acknowledges
that any such assignment by Lessor will not materially change Lessee's duties
or obligations under the Lease or increase any burden of risk on Lessee.
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17. DEFAULT. (a) EVENT OF DEFAULT. Any of the following events
or conditions shall constitute an "Event of Default" hereunder: (i) Lessee's
failure to pay any monies due to Lessor hereunder or under any Schedule
beyond the fifth (5th) day after the same is due; (ii) Lessee's failure to
comply with its obligations under Section 12 or Section 16; (iii) Lessee's
failure to comply with or perform any term, covenant, condition, warranty or
representation of this Lease or any Schedule hereto or under any other
agreement between Lessee and Lessor or under any lease of real property
covering the location of Equipment if such failure to comply or perform is
not cured by Lessee within thirty (30) days of receipt of notice thereof;
(iv) seizure of the Equipment under legal process; (v) the filing by or
against Lessee of a petition for reorganization or liquidation under the
Bankruptcy Code of any amendment thereto or under any other insolvency law
providing for the relief of debtors; (vi) the voluntary or involuntary making
of an assignment of a substantial portion of its assets by Lessee, or any
guarantor ("Guarantor") under any guaranty executed in connection with this
Lease ("Guaranty"), for the benefit of its creditors, the appointment of a
receiver or trustee for Lessee or any Guarantor for any of Lessee's or
Guarantor's assets, the institution by or against Lessee or any Guarantor of
any formal or informal proceeding for dissolution, liquidation, settlement of
claims against or winding up of the affairs of Lessee or any Guarantor,
PROVIDED that in the case of all such involuntary proceedings, same are not
dismissed within sixty (60) days after commencement; or (vii) the making by
Lessee or any Guarantor of a transfer of all or a material portion of
Lessee's or Guarantor's assets or inventory not in the ordinary course of
business.
(b) REMEDIES. If any Event of Default shall have occurred:
(i) Lessor may 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 therefor; or
(ii) Lessee will, without demand, on the next rent payment date
following the Event of Default, pay to Lessor as liquidated damages which the
parties agree are fair and reasonable under the circumstances existing at the
time this Lease is entered into, and not as a penalty, an amount equal to the
Casualty Value of the Equipment set forth in Exhibit C together with any rent
or other amounts past due and owing by Lessee hereunder; and
(iii) Lessor may, without notice to or demand upon Lessee;
(a) Take possession of the Equipment and lease or sell the same
or any portion thereof, for such period, amount, and to such entity as Lessor
shall elect. The proceeds of such lease or sale will be applied by Lessor (A)
first, to pay all costs and expenses,including reasonable legal fees and
disbursements, incurred by Lessor as a result of the default and the exercise
of its remedies with respect thereto, (B) second, to pay Lessor an amount
equal to any unpaid rent or other amounts past due and payable plus the
Casualty Value, to the extent not previously paid by Lessee,and (C) third, to
reimburse Lessee for the Casualty Value to the extent previously paid. Any
surplus remaining thereafter will be retained by Lessor.
(b) Take possession of the Equipment and hold and keep idle the
same or any portion thereof.
Lessee agrees to pay all internal and out-of-pocket costs
of Lessor related to the exercise of its remedies, including direct costs of
its in-house counsel
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and out-of-pocket legal fees and expenses. At Lessor's request, Lessee shall
assemble the Equipment and make it available to Lessor at such location as
Lessor may designate. Lessee waives any right it may have to redeem the
Equipment.
Repossession of any or all Equipment shall not terminate
this Lease or any Schedule unless Lesser notifies Lessee in writing. Any
amount required to be paid under this Section shall be increased by a service
charge at the rate of 2.0% per month, or the highest rate of interest
permitted by applicable law, whichever is less, accruing from the date the
Casualty Value or other amounts are payable hereunder until such amounts are
paid.
None of the above remedies is intended to be exclusive, but
each is cumulative and in addition to any other remedy available to Lessor,
and all may be enforced separately or concurrently.
18. LATE PAYMENTS. Lessee shall pay to Lessor an amount equal to
the greater of 10% of all amounts owed Lessor by Lessee which are not paid
when due or $100, but in no event an amount greater than the highest rate
permitted by applicable law. If such funds have not been received by Lessor
at Lessor's place of business or by Lessor's designated agent by the date
such funds are due under this Lease, Lessor shall bill Lessee for such
charges. Lessee acknowledges that invoices for rentals due hereunder are sent
by Lessor for Lessee's convenience only. Lessee's non-receipt of an invoice
will not relieve Lessee of its obligation to make rent payments hereunder.
19. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and
expenses including reasonable attorney's fees and the fees of the collection
agencies, incurred by Lessor in enforcing any of the terms, conditions or
provisions hereof.
20. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall be and remain
personal property of Lessor, and Lessee shall have no right, title or
interest therein or thereto except as expressly set forth in this Lease,
notwithstanding the manner in which it may be attached or affixed to real
property, and upon termination or expiration of the Lease term, Lessee shall
have the duty and Lessor shall have the right to remove the Equipment from
the premises where the same be located whether or not affixed or attached to
the real property or any building, at the cost and expense of Lessee.
21. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall
be made to the Equipment without Lessor's prior written consent, which shall
not be given for changes that will affect the reliability and utility of the
Equipment or which cannot be removed without damage to the Equipment, or
which in any way affect the value of the Equipment for purposes of resale or
re-lease.
22. FINANCING STATEMENT. Lessee will execute financing statements
pursuant to the Uniform Commercial Code. Lessee authorizes Lessor to file
financing statements signed only by Lessor (where such authorization is
permitted by law) at all places where Lessor deems necessary.
23. MISCELLANEOUS. (a) Lessee shall provide Lessor with such
corporate resolutions, financial statements and other documents as Lessor
shall reasonably request from time to time. (b) Lessee represents that the
Equipment is being leased hereunder for business purposes. (c) Time is of the
essence with respect to this Lease. (d) Lessee shall keep its books and
records in accordance with generally accepted accounting principles and
practices consistently applied and shall deliver to Lessor its annual audited
financial statements, unaudited monthly financial statements to include any
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financial information given to Lessee's Board of Directors, and signed by an
officer of Lessee and such other unaudited financial statements as may be
reasonably requested by Lessor.
24. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service and shall be directed, as the
case may be, to Lessor at 2401 Kerner Boulevard, San Rafael, California
94901, Attention: Account Management and to Lessee at 12680 High Bluff Drive,
Suite 300, San Diego, California 92130, Attention: Peter Kies, copy to Sam
Simkim.
25. ENTIRE AGREEMENT. Lessee acknowledges that Lessee has read this
Lease, understands it and agrees to be bound by its terms, and further agrees
that it and each Schedule constitute the entire agreement between Lessor and
Lessee with respect to the subject matter hereof and supersedes all previous
agreements, promises, or representations. The terms and conditions hereof
shall prevail notwithstanding any variance with the terms of any purchase
order submitted by the Lessee with respect to any Equipment covered hereby.
26. AMENDMENT. This Lease may not be changed, altered or modified
except by an instrument in writing signed by an officer of the Lessor and the
Lessee.
27. WAIVER. Any failure of Lessor to require strict performance by
Lessee or any waiver by Lessor of any provision herein shall not be construed
as a consent or waiver of any other breach of the same or any other provision.
28. SEVERABILITY. If any provision of this Lease is held invalid, such
invalidity shall not affect any other provisions hereof.
29. JURISDICTION AND WAIVER OF JURY TRIAL. This Lease shall be
governed by and construed under the laws of the State of California. It is
agreed that exclusive jurisdiction and venue for any legal action between the
parties arising out of this Lease shall be in the Superior Court for Marin
County, California, or, in cases where Federal diversity jurisdiction is
available, in the United States District Court for the Northern District of
California. LESSEE, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS
RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS
LEASE, ANY SCHEDULE, OR ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH.
30. NATURE OF TRANSACTION. Lessor makes no representation whatsoever,
express or implied, concerning the legal character of the transaction
evidenced hereby, for tax or any other purpose.
31. SECURITY INTEREST. (a) One executed copy of the Lease will be
marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Lease constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the lease may be created in any
documents other than the "Original." (b) There shall be only one original of
each Schedule and it shall be marked "Original," and all other counterparts
will be duplicates. To the extent, if any, that any Schedule(s) to this Lease
constitutes chattel paper (or as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction) no security
interest in any Schedule(s) may be created in any documents other than the
"Original."
32. SUSPENSION OF OBLIGATIONS. The obligations of Lessor hereunder will
be suspended to the extent that it is hindered or prevented from complying
therewith because
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of labor disturbances, including but not limited to strikes and lockouts, acts
of God, fires, storms, accidents, failure of the manufacturer to deliver
any item of Equipment, governmental regulations or interference, or any cause
whatsoever not within the sole and exclusive control of Lessor.
33. SOFTWARE. For the term of this Lease, and so long as no Event
of Default has occurred and is continuing, Lessor hereby assigns to Lessee
all of Lessor's rights under any License Agreement executed by Lessor in
connection with the Equipment (except for any right of Lessor to be
reimbursed for the License Fee). Lessee agrees to be bound by the provisions
of any such License Agreement and to perform all obligations of Lessor
(except Lessor's payment obligations) thereunder. Lessee acknowledges that
all of Lessee's obligations under the Lease with respect to the Equipment
will apply equally to the software, including but not limited to Lessee's
obligation to pay rent to Lessor.
34. COMMITMENT FEE. Lessee has paid to Lessor a commitment fee
("Fee") of $15,000. The Fee shall be applied by Lessor first to reimburse
Lessor for all out-of-pocket UCC search costs, inspections and appraisal fees
incurred by Lessor, and then proportionally to the first month's rent for
each Schedule hereunder in the proportion that the purchase price of the
Equipment leased pursuant to the Schedule bears to Lessor's entire
commitment. However, the portion of the Fee which is not applied to rental
shall be non-refundable except if Lessor defaults in its obligations pursuant
to Section 3.
35. FINANCE LEASE. The parties agree that this lease is a "Finance
Lease" as defined by Section 10-103(a)(7) of the California Commercial Code
(Cal.Com.C.). Lessee acknowledges either (a) that Lessee has reviewed and
approved any written Supply Contract (as defined by Cal.Com.C. Section
10-103(a)(25)) covering Equipment purchased from the "Supplier" (as defined
by Cal.Com.C. Section 10-103(a)(24)) thereof for lease to Lessee or (b) that
Lessor has informed or advised Lessee, in writing, either previously or by
this Lease of the following: (i) the identity of the Supplier; (ii) that the
Lessee may have rights under the Supply Contract; and (iii) that the Lessee
may contact the Supplier for a description of any such rights Lessee may have
under the Supply Contract. Lessee hereby waives any rights and remedies
Lessee may have under Cal.Com.C. Sections 10-508 through 522.
36. END OF LEASE POSITION. At the expiration of the Initial Term
of each Schedule to the Lease, Lessee shall choose a final purchase or
renewal option or requirement ("End of Lease Position") as specified in such
Schedule, and that choice shall be an election of Lessee's End Position for
all, but not less than all, of the Equipment under such Schedule to the Lease.
Any Equipment Purchase election shall be a purchase of the Equipment, AS-IS,
WHERE-IS. Upon Lessor's receipt of the purchase price, Lessor shall issue to
Lessee an equipment bill of sale, transferring the Equipment's title to the
Lessee without any representation or warranty whatsoever. Lessee shall be
responsible for all applicable taxes in connection with any Equipment
purchase.
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Fair market or rental value shall be determined for the Equipment under all
Schedules prior to the Initial Term's expiration.
Lessee shall be responsible for all applicable taxes in connection with any
purchase of Equipment by Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
PHOENIX LEASING INCORPORATED NEWGEN RESULTS CORPORATION
By: By: /s/ Sam Simkin
----------------------------- -----------------------------
Title: V.P. Title: CFO
--------------------------- --------------------------
Headquarters Location:
12680 High Bluff Drive
--------------------------------
Street
San Diego, CA 92130
--------------------------------
City, State Zip Code
San Diego
--------------------------------
County
Exhibit A - Closing Memorandum
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Exhibit A
to MASTER EQUIPMENT LEASE
Dated December 15, 1996
CLOSING MEMORANDUM
------------------
1.* Duly executed Master Equipment Lease marked "Original."
2. Duly executed Schedule marked "Original."
3. Duly executed Certificate of Acceptance.
[EXECUTE UPON ACCEPTANCE OF EQUIPMENT]
4. Insurance Certificates.
5.* Resolutions of Lessee's Board of Directors, including an incumbency
certificate.
6.* Copy of Lessee's articles of incorporation including all amendments,
certified by the Secretary of Lessee as being true and complete and in
full force and effect.
7.* Certificate from the Secretary of State of Lessee's state of
incorporation, from the state in which Lessee's chief executive office
is located, if different, and from each state where Lessee is qualified
to do business, stating Lessee is in good standing or is authorized to
transact business, as the case may be, dated not more than thirty days
prior to the first purchase of Equipment.
8. Real Property Waiver.**
9. UCC Financing Statements.
10. Bill of Sale (for Sale-Leaseback Equipment).
11. UCC search.
12. Equipment List, in form and substance satisfactory to Lessor.
13. Lessee's most recent financial statements.
14. Certificate of Chief Financial Officer stating that no event of default
has occurred, there is no adverse change in the financial condition of
Lessee and that the Equipment is free of any encumbrances.
15. See Section 3 of Master Equipment Lease for additional preconditions to
closing.
* First Schedule Only.
** Required if any Equipment is a fixture, i.e., attached to real
property, or located in certain states.
<PAGE>
SCHEDULE
--------
Schedule No. 1 to Lease
Dated as of December 15, 1996
between NEWGEN RESULTS CORPORATION
and PHOENIX LEASING INCORPORATED
A. DESCRIPTION AND PURCHASE PRICE OF EQUIPMENT
<TABLE>
<CAPTION>
Description of
Equipment
(quantity, model Purchase Mfr./ (Street Address
and serial number) Price Rent Vendor City, State and County)
- ------------------ --------- ------ ------ -----------------------
<S> <C> <C> <C> <C>
See Exhibit A attached hereto. 12680 High Bluff Drive
Suite 300
San Diego, CA 92130
Total: $324,438.58 $10,382.03
</TABLE>
B. TERMS
Initial Term: The Initial Term shall commence on the date the Equipment
is received, installed and accepted for use, as shown on
the Acceptance Notice, and continue for 36 full months
after the "Rent Start Date."
Rent Start Date: This shall be the first day of the month following the
month during which the Initial Term commences; provided,
however, that if the Equipment is accepted on the first
day of the month, the Rent Start Date shall commence on
the same day that the Initial Term commences.
Lease Rate Factor (expressed as a percentage of Equipment's original Purchase
Price): 3.20%.
Monthly Rental Payments in advance.
Initial Rent Due: Payable on the Rent Start Date shall be (1) the Rental
Amount including any sales or use tax, (2) an amount
equal to 1/30th of the monthly rental amount multiplied
by the number of days, if any, between (and including)
the date the Initial Term commences and (but not including)
the Rent Start Date, and (3) last month's rent.
C. INVOICE INFORMATION: Lessee's and Lessor's addresses for invoice
purposes for the Equipment on the Schedule shall be as follows:
Lessee's Invoice Address: Remit Monthly Rental Amount To:
Newgen Results Corporation Phoenix Leasing Incorporated
12680 High Bluff Drive, Ste. 300 P.O. Box 200432
San Diego, CA 92130 Dallas, TX 75320-0432
Attention: Peter Kies
-1-
<PAGE>
Schedule No. 1 to Lease
Dated as of December 15, 1996
Between NEWGEN RESULTS CORPORATION
and PHOENIX LEASING INCORPORATED
D. CASUALTY VALUES: See attachment hereto.
E. SPECIAL PROVISIONS: 1. Lessor's payment for Equipment hereunder is
conditioned on Lessor's satisfaction that there has been no adverse change in
Lessee's financial condition subsequent to initial credit approval, 2. Sale
Leaseback Addendum, and 3. End of Lease Position Requirement Rider.
LESSOR AND LESSEE AGREE THAT THIS SCHEDULE SHALL CONSTITUTE A LEASE OF THE
EQUIPMENT DESCRIBED ABOVE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS
SCHEDULE AND OF THE MASTER EQUIPMENT LEASE DATED DECEMBER 15, 1996 BETWEEN
LESSEE AND LESSOR. THE TERMS AND CONDITIONS OF SUCH MASTER EQUIPMENT LEASE
ARE HEREBY INCORPORATED BY REFERENCE AND MADE A PART HEREOF TO THE SAME EXTENT
AS IF SUCH TERMS AND CONDITIONS WERE SET FORTH IN FULL HEREIN.
PHOENIX LEASING INCORPORATED NEWGEN RESULTS CORPORATION
By: By: /s/ Sam Simkin
-------------------------- ---------------------------
Title: Title: C.F.O., V.P.
----------------------- ------------------------
Date: Date: Feb. 20/97
----------------------- ------------------------
-2-
<PAGE>
PHOENIX LEASING INCORPORATED
FUNDING REQUEST
Lessee: Newgen Results Corporation
-------------------------------------
Location Address: 12680 High Bluff Drive, Ste. 300
-------------------------------------
San Diego, CA 92130
-------------------------------------
Master Contract: 0053 Schedule: 01
------------------------------------- --------
<TABLE>
<CAPTION>
No entry required
------------------
Net Net
L Invoiced Amt Tax Pd $ Amt. $ Amt.
Vendor Name Invoice Brief Description Eqp. Serial 0 Net of Amt Paid Vendor? Check Transact Due Due
(abbreviation OK) No. of Item Cod Number 0 Sales Tax By Lessee (Y/N) No. Date Lessee Vendor
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Express I 405 224/Ppr.Mgr. Doc Tray 6 1 3,725.57 3,725.57 y 6592 1/15/97 $3,725.57 $0.00
56/Binder File Caddy 6 1 556.25 556.25 y 6592 1/15/97 $556.25 $0.00
75/Adj. Keyboard Arm 6 1 8,645.18 8,645.18 y 6592 1/15/97 $8,645.18 $0.00
Keyboard Clamp Spr Ast. 6 1 1,729.04 1,729.04 y 6592 1/15/97 $1,729.04 $0.00
Low shelf 60w 6 1 53.82 53.82 y 6592 1/15/97 $53.82 $0.00
48 Task Lights 10 1 2,160.32 2,160.32 y 6592 1/15/97 $2,160.32 $0.00
Work Areas(desks,shelf) 6 1 162,144.60 162,144.60 y 6592 1/15/97 $162,144.60 $0.00
6 1 y AmEx 1/15/97 $0.00 $0.00
6 1 y AmEx 1/15/97 $0.00 $0.00
6 1 y 7439 1/15/97 $0.00 $0.00
Drawer Files 6 1 10,828.82 10,828.82 y 7439 1/15/97 $10,828.82 $0.00
6 1 y 8419 1/15/97 $0.00 $0.00
Installation 26 1 15,250.00 15,250.00 y 8419 1/15/97 $15,250.00 $0.00
Sales Tax 27 1 16,324.83 16,324.83 y 8419 1/15/97 $16,324.83 $0.00
Price Adjustment 6 1 $0.00 $0.00
Hall-Mark Computer 53782080 K420 Server 1 3629A17679 1 33,804.00 33,804.00 n AmEx 9/18/96 $33,804.00 $0.00
1 24R189026 1 $0.00 $0.00
CD-Rom Drive 650MB 1 A5612340696 1 25,920.00 25,920.00 n AmEx 9/18/96 $25,920.00 $0.00
1 A56102340767 1 $0.00 $0.00
1 A56102342099 1 $0.00 $0.00
128MB Hi-Den ECC Mem 1 A56401522787 1 6,444.00 6,444.00 n AmEx 9/18/96 $6,444.00 $0.00
32MB ECC Memory Mod 1 A56400429101 1 1,368.00 1,368.00 n AmEx 9/18/96 $1,368.00 $0.00
DDS DatDrive+4-16GB 1 GB00503344 1 1,941.00 1,941.00 n AmEx 9/18/96 $1,941.00 $0.00
Console 800 Series 1 UST3190934 1 389.00 389.00 n AmEx 9/18/96 $389.00 $0.00
4GB 2 Disk Drive + Fld 1 K8182830 1 6,624.00 6,624.00 n AmEx 9/18/96 $6,624.00 $0.00
1 K8184807 1 $0.00 $0.00
1 K8186695 1 $0.00 $0.00
1 K8197049 1 $0.00 $0.00
9000HP-BP Centr Adapter 1 40SM9V975 1 789.00 789.00 n AmEx 9/18/96 $789.00 $0.00
Page 1 of 4
<PAGE>
Phoenix Leasing Incorporated
Funding Request
Comp Racks & Cabinets 1 1 7,296.00 7,296.00 n AmEx 9/18/96 $7,296.00 $0.00
1.8KVA RackMt PwrTrust 1 D96GD00112 1 2,052.00 2,052.00 n AmEx 9/18/96 $2,052.00 $0.00
4GB 2 Disk in CC Rack 1 SG30003685 1 3,456.00 3,456.00 n AmEx 9/18/96 $3,456.00 $0.00
4GB 2 Disk in CC Upgrd 1 SG33014021 1 3,802.00 3,802.00 n AmEx 9/18/96 $3,802.00 $0.00
SG33014026 1 $0.00 $0.00
4GB DDS Data Drive 1 GB00492312 1 2,396.00 2,396.00 n AmEx 9/18/96 $2,396.00 $0.00
HP-UX 10 User License 25 1 375.00 375.00 n AmEx 9/18/96 $375.00 $0.00
Shipping Charge 27 1 312.15 312.15 n AmEx 9/18/96 $312.15 $0.00
P154204- First Year System Support 25 1 5,303.00 5,303.00 AmEx 9/18/96 $5,303.00 $0.00
2851 Media Updates 23 1 749.00 749.00 AmEx 9/18/96 $749.00 $0.00
TOTAL AMOUNT DUE TO LESSEE $324,438.58
TOTAL AMOUNT DUE TO VENDOR $0.00
TOTAL DRAW $324,438.58
</TABLE>
Lessee Signature: Date: Feb. 20, 1997
------------------ -------------
Page 2 of 4
<PAGE>
Attachment to Equipment Schedule No. 1
CASUALTY VALUES
<TABLE>
<CAPTION>
Month of % of Original Equipment Month of % of Original Equipment
Lease Term Purchase Price Lease Term Purchase Price
- ------------ ----------------------- ----------- ------------------------
<S> <C> <C> <C>
1 125.00 19 73.57
2 122.14 20 70.71
3 119.29 21 67.86
4 116.43 22 65.00
5 113.57 23 62.14
6 110.71 24 59.29
7 107.86 25 56.43
8 105.00 26 53.57
9 102.14 27 50.71
10 99.29 28 47.86
11 96.43 29 45.00
12 93.57 30 42.14
13 90.71 31 39.29
14 87.86 32 36.43
15 85.00 33 33.57
16 82.14 34 30.71
17 79.29 35 27.85
18 76.43 36 25.00
Thereafter 25.00
</TABLE>
Lessor's Lessee's
Initials Initials
--------- --------
<PAGE>
Rider No. 1
to Schedule No. 2
of MASTER EQUIPMENT LEASE
Dated December 15, 1996
Between NEWGEN RESULTS CORPORATION
and PHOENIX LEASING INCORPORATED
END OF LEASE POSITION REQUIREMENTS
Provided no Event of Default has occurred and is continuing and
notwithstanding anything to the contrary in the Lease, Lessee is required to
elect one of the following alternatives at the Schedule's Initial Term
expiration. Lessee shall make its election by giving Lessor at least 90 days'
written notice thereof prior to such expiration.
Alternative No. 1: Purchase the Equipment for 15% of the Equipment's
original purchase price.
Alternative No. 2: Extend the Schedule's Initial Term for an additional
12 months ("Renewal Term") at a monthly rate of 1.85%
of the Equipment's original purchase price. At the
expiration of the Renewal Term, Lessee shall purchase
the Equipment for $1.
In the event Lessee does not provide 90 days' prior written notice, Lessee
shall be deemed to have elected No. 1 above.
Lessor's Lessee's
Initials Initials
--------- ---------
<PAGE>
Sale Leaseback Addendum
to Schedule No. 1
of MASTER EQUIPMENT LEASE
Dated December 15, 1996
Between NEWGEN RESULTS CORPORATION
and PHOENIX LEASING INCORPORATED
This Addendum to Master Equipment Lease is made and entered into as of Feb
20/97, between Phoenix Leasing Incorporated ("Lessor") and Newgen Results
Corporation ("Lessee").
Notwithstanding anything to the contrary contained in the Lease referenced
above, Lessor and Lessee agree as follows:
1. Lessee shall sell the Equipment to and lease the Equipment from Lessor
and Lessor shall purchase the Equipment from and lease the Equipment to
Lessee upon the terms and conditions of the Bill of Sale attached hereto
as Attachment 1.
2. Lessee represents and warrants that:
(a) Lessee has the right to sell the Equipment as set forth herein,
(b) the Equipment and Lessee's right, title and interest in such
Equipment is, as of the date of the Bill of Sale, free from all claims,
liens, security interests and encumbrances,
(c) Lessee will defend the sale against lawful claims and demands of
all persons, and
(d) the purchase price of the Equipment is equal to the fair market
value of such Equipment at the time of sale.
PHOENIX LEASING INCORPORATED NEWGEN RESULTS CORPORATION
By By /s/ Sam Simkin
-------------------------- ------------------------
Title Title V.P., C.F.O.
----------------------- --------------------
<PAGE>
ATTACHMENT 1
BILL OF SALE
For valuable consideration Newgen Results Corporation ("Seller") sells to
Phoenix Leasing Incorporated ("Buyer"), the property listed on Exhibit A
hereof (the "Equipment").
Seller covenants and warrants that:
(1) It is the owner of, and has absolute title to, the Equipment which is
free and clear of all claims, liens and encumbrances.
(2) It has not made any prior sale, assignment, or transfer of the Equipment.
(3) It has the present right, power, and authority to sell the Equipment to
Buyer.
(4) All action has been taken which is required to make this Bill of Sale a
legal, valid and binding obligation of Seller.
Seller shall forever warrant and defend the sale of Equipment to Buyer, its
successors and assigns, against any person claiming an interest in the
Equipment.
This Bill of Sale is binding on the successors and assigns of Seller and
inures to the benefit of the successors and assigns of Buyer.
Executed on Feb. 20, 1997.
NEWGEN RESULTS CORPORATION
By: /s/ Sam Simkin
------------------------
Title: V.P., C.F.O.
---------------------
<PAGE>
ACCEPTANCE NOTICE
SCHEDULE NO. 1
Reference is made to the Master Equipment Lease dated as of December 15, 1996
between Phoenix Leasing Incorporated as Lessor and Newgen Results Corporation
as Lessee (the "Lease").
Lessee confirms that the following Equipment has been received, installed and
is ready for use by Lessee. The Equipment is satisfactory in all respects for
the purposes of this Lease as of the date Lessee executes this Notice below.
Description of
Equipment
(quantity, model Purchase Mfr./ (Street Address
and serial number) Price Rent Vendor City, State and County)
- ------------------ -------- ---- ------ -----------------------
12680 High Bluff Drive
See Exhibit A attached hereto. Suite 300
San Diego, CA 92130
Total: $324,438.58 $10,382.03
THE LEASE MAY NOT BE CHANGED, ALTERED OR MODIFIED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY AN OFFICER OF LESSOR AND A DULY AUTHORIZED REPRESENTATIVE
OF LESSEE.
IN WITNESS WHEREOF, Lessee has executed this Acceptance Notice as of
______________, 199__.
NEWGEN RESULTS CORPORATION
By: /s/ Sam Simkin
------------------------
Name: Sam Simkin
----------------------
Title: V.P., C.F.O.
---------------------
<PAGE>
OFFICER'S CERTIFICATE
---------------------
The undersigned, Sam Simkin, hereby certifies that:
i) I am the Treasurer/Chief Financial Officer of NEWGEN RESULTS
CORPORATION, a California corporation;
ii) as such officer, I am familiar with the terms and conditions of that
certain Master Equipment Lease (the "Lease") dated as of December 15,
1996 between NEWGEN RESULTS CORPORATION ("Lessee") and PHOENIX LEASING
INCORPORATED ("Lessor);
iii) this certificate is delivered in connection with the leasing of certain
equipment under a Schedule with Lessor, the equipment is described in the
Schedule and the equipment is free and clear from any and all liens,
charges, security interests or other encumbrances which may affect
Lessor's right, title or interest in and to the equipment;
iv) there has been no material adverse change in the financial condition of
Lessee from the date of its most recent financial statements, true
copies of which have been delivered to Lessor; and
v) no event which, with the giving of notice or passage of time, or both,
could become an Event of Default under the Lease has occurred and is
continuing.
vi) Lessee is performing according to Lessee's business plan described in
Section 3 of the Lease, a true copy of which business plan has been
delivered to Lessor;
vii) the representations and warranties in Section 3 of the Lease are true
and correct as of the date hereof.
IN WITNESS WHEREOF, I hereby execute this certificate on this 20th day of
February, 1997.
/s/ Sam Simkin
-------------------------------
<PAGE>
[LETTERHEAD OF PHOENIX GROWTH CAPITAL CORP.]
November 5, 1996
Mr. Peter Kies
Newgen Results Corporation
12680 High Bluff Road, Ste. 300
San Diego, CA 92130
Dear Peter:
We are pleased to submit this commitment for a NON-WARRANT equipment lease
line under the following terms and conditions.
FACILITY
- --------
Finance Lease
PARTIES TO THE TRANSACTION
- --------------------------
1. LESSEE: Newgen Results Corporation
2. LESSOR: Phoenix Growth Capital Corp. (PGCC), its Affiliates or Assigns.
EQUIPMENT
- ---------
1. TOTAL COST: Up to $1,500,000
2. EQUIPMENT DESCRIPTION: High-end computers, furniture. Up to 20% of the
utilized line may be comprised of soft costs consisting of items
listed as exclusions below.
a. EXCLUSIONS: Custom use equipment, installation and delivery costs,
purchase tax, tooling, software, and items generally considered
fungible or expendable.
b. USED EQUIPMENT: Lessor will provide lease financing for acceptable
used equipment. Equipment purchased by Lessee prior to 90 days
before completion of lease documentation is subject to adequate
depreciation allowances.
3. DELIVERIES: All equipment to be purchased by Lessor must be delivered,
accepted and funded no later than December 31, 1997.
4. EQUIPMENT LOCATION: Same as above.
<PAGE>
Mr. Peter Kies
November 5, 1996
Page 2
TRANSACTION STRUCTURE
- ---------------------
The Lessor will purchase the equipment from the Lessee or the vendor
(after delivery) and simultaneously lease the equipment to the Lessee.
A finance lease document will evidence the agreement between the Lessor
and Lessee. It is anticipated that the lease will be a Master Lease with
schedules evidencing takedowns. All base Master Lease documentation must
be completed within four weeks of the date a commitment letter has been
signed by both parties.
LEASE INFORMATION
- -----------------
1. BASE LEASE TERM COMMENCEMENT DATE: The Base Lease Term will commence on
the first of the month. If funding is other than the first of the
month, commencement date will be the first of the following month.
2. BASE LEASE TERM(S): The Base Lease Term will be 36 months from the
Base Lease Term Commencement Date.
3. DELIVERY AND ACCEPTANCE: All equipment delivered and placed in service
will be acknowledged and accepted by the Lessee per a written
Acceptance Notice.
4. FINANCIAL CLOSING DATE(S): The equipment will be paid for by the
Lessor on a monthly basis in aggregate amounts not less than $25,000.
5. INTERIM RENT: An interim Lease term will run from the date each
equipment schedule is funded by the Lessor until the Base Lease Term
Commencement Date.
6. LEASE RATE FACTOR: 36 months at 3.20%, last payable in advance.
7. END OF LEASE POSITION: At lease expiration, the Lessee will either (a)
purchase the equipment for not less than 10% nor more than 15% of
Total Cost or, (b) renew the Lease for an additional 12 months at
1.85% per month and then own the equipment for payment of $1.00.
8. CASUALTY VALUES (STIPULATED LOSS VALUES): In the event the equipment
is destroyed or otherwise rendered permanently unfit for service, and
is not repaired or replaced by Lessee or its insurance carrier, the
Lessee will pay a Casualty Value. The Casualty Values will be
calculated at the outset of the transaction and will dictate the
amount of the Lessee's casualty insurance coverage.
<PAGE>
Mr. Peter Kies
November 5, 1996
Page 3
OTHER CONSIDERATIONS
- --------------------
1. NET LEASE: The lease will be net to the Lessor. Lessee will be
responsible for all expenses in connection with the equipment,
including taxes (except taxes based on the income of the Lessor),
franchise taxes, charges in lieu of taxes, assessments, insurance
premiums, all costs of operations, repair, maintenance and rebuilding,
and all of the charges related to the equipment or its operation.
2. TRANSACTION EXPENSE: Each party shall bear its own expenses, including
fees and expenses of counsel and accountants, incurred in connection
with the documentation and preparation of this lease transaction,
except UCC, equipment identification and appraisal costs, which will
be borne by Lessee. However, if this transaction is not funded because
Lessee (a) fails to execute final documents with Lessor, (b) chooses
not to use the committed lease amounts, or (c) sustains a material
adverse change in its financial condition, Lessor shall retain the
commitment fee as compensation for expenses.
3. STOCK WARRANTS: None.
4. ADDITIONAL COLLATERAL: None.
5. COMMITMENT FEE: Lessee has paid to Lessor a commitment fee of $15,000.
The fee shall be applied by Lessor first to reimburse any Transaction
Expenses shown above and then proportionally to the first payment due
for each schedule hereunder.
6. FINANCIAL INFORMATION: Lessee must provide interim financial
information (balance sheet, income statement, funds flow and changes
to projections) when available monthly after a commitment letter has
been signed by both parties.
7. CONDITIONS PRECEDENT: No material adverse performance to plan.
If you are in agreement with the foregoing, please sign and date one copy of
this committment letter and return it to my attention by FAX at 415-485-4663.
Sincerely, Acknowledge and Agreed To:
/s/ Thomas K. Morrison By:
------------------------------------
Thomas K. Morrison
Vice President Its:
-----------------------------------
Date:
----------------------------------
<PAGE>
[LETTERHEAD OF PHOENIX GROWTH CAPITAL CORP.]
July 1, 1998
Mr. Peter Kies
Newgen Results Corporation
12680 High Bluff Road, Ste. 300
San Diego, CA 92130
Dear Peter:
We are pleased to submit this proposal for an extension of your equipment
lease line under the following terms and conditions.
FACILITY
- --------
Finance Lease
PARTIES TO THE TRANSACTION
- --------------------------
1. LESSEE: Newgen Results Corporation
2. LESSOR: Phoenix Growth Capital Corp. (PGCC), its Affiliates or Assigns.
EQUIPMENT
- ---------
1. TOTAL COST: Up to $1,000,000 additional for a total of $2,500,000
2. EQUIPMENT DESCRIPTION: High-end computers, furniture. Up to 20% of the
utilized line may be comprised of soft costs consisting of items
listed as exclusions below.
a. EXCLUSIONS: Custom use equipment, installation and delivery costs,
purchase tax, tooling, software, and items generally considered
fungible or expendable.
b. USED EQUIPMENT: Lessor will provide lease financing for acceptable
used equipment. Equipment purchased by Lessee prior to 90 days
before completion of lease documentation is subject to adequate
depreciation allowances.
3. DELIVERIES: All equipment to be purchased by Lessor must be delivered,
accepted and funded no later than July 31, 1999.
4. EQUIPMENT LOCATION: Same as above.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.406 * INDICATES OMITTED
MATERIAL THAT IS THE SUBJECT OF
CONFIDENTIAL TREATMENT REQUEST
THAT IS FILED SEPARATELY WITH THE
COMMISSION
DATA DISTRIBUTION AGREEMENT
THIS AGREEMENT IS SUBJECT TO ARBITRATION.
This Agreement is made and entered into this 15th day of May, 1996, by
and between Newgen Results Corporation ("Newgen") with offices located at
12526 High Bluff Drive, Suite 150, San Diego, California 92130, and Universal
Computer Services, Inc. ("UCS"), Universal Computer Consulting, Ltd. ("UCC"),
and Ford Dealer Computer Services, Inc. ("FDCS"), (UCS, UCC, and FDCS
collectively referred to as "Supplier"), with offices located at 6700
Hollister, Houston, Texas 77040.
WHEREAS, UCC, UCS and FDCS provide computer services and support to
automobile dealerships in the United States, for, respectively, the UCS In-House
Computer System and the FDCS In-Dealership Computer System;
WHEREAS, Newgen desires Supplier's assistance with its Service Results
program and other related services or products which are for the
merchandising and sale of service and parts business to vehicle owners;
WHEREAS, Newgen desires to obtain historical customer pay repair order
information, recurring customer pay repair order information, historical
warranty repair order information, recurring warranty repair order
information, historical vehicle service file information, historical vehicle
sales file information, newly sold vehicle information, and newly serviced
vehicle information, in tape format from the UCS In-House Computer System or
the FDCS In-Dealership Computer System of participating automobile dealers;
WHEREAS, Newgen and Supplier desire, by this Agreement to provide for the
terms and conditions under which Supplier will provide this information to
Newgen.
NOW, THEREFORE, In consideration of the mutual promises and obligations
contained in this Agreement, Newgen and Supplier agree to enter into this
Data Distribution Agreement on the following terms and conditions:
SECTION 1
DEFINITIONS
For the purpose of this Agreement, the following words will have the
meanings ascribed to them as follows:
1.1 ANALYSIS REPORT - Report generated by Supplier which shows the number of
different vehicles which visited a potential Dealer's service department or
were sold by Dealer during the three (3), six (6), nine (9), twelve (12),
eighteen (18), and twenty-four (24) months prior to Newgen's request for
the report.
1.2 COMPUTER SYSTEM - Either the UCS In-House Computer System or the FDCS 7000
MP In-Dealership Computer System.
1.3 DEALER - Automobile dealer as designated by Newgen in accordance with
Section 4.6 as a participating dealer under this Agreement, who uses either
the UCS In-House Computer System or the FDCS In-Dealership Computer System.
1.4 DEALER AGREEMENT - Agreement between Dealer and either UCS, UCC, or FDCS
for support of Dealer's Computer System.
1.5 [***] - The [***] information, the [***] information, the [***]
information, the [***] information, the [***] information, the [***]
information, the
* Confidential Treatment Requested
1
<PAGE>
[***] information, and the [***] information contained on Dealer's
Computer System which Dealer has licensed to Supplier for the purposes
described in this Agreement.
1.6 FDCS IN-DEALERSHIP COMPUTER SYSTEM - The 7000 MP integrated computer system
for automobile dealerships supported by FDCS. This does not include any
DX-10, UNIX, or Rainbow computer systems which may be supported by FDCS.
1.7 NEWGEN'S REVENUE - The monthly gross revenue Newgen generates from all
services and products Newgen provides to Dealers and other entities each
month, including any special charges or surcharges, which were derived
from or used the Dealer Data provided to Newgen by Supplier.
1.8 UCS IN-HOUSE COMPUTER SYSTEM - The integrated computer system for
automobile dealerships supported by UCS.
SECTION 2
TITLE AND LICENSE OF DATA
2.1 TITLE. Except as a licensee of Dealer Data pursuant to the Dealer Agreements
and this Agreement, Supplier and Newgen each acknowledge that all rights, title
and interest in Dealer Data will remain vested in each individual Dealer.
2.2 LICENSE. Supplier hereby grants Newgen a personal, non-exclusive,
non-transferable sublicense to use that Dealer Data which has been provided
by Supplier to Newgen for the sole purpose of assisting Newgen in providing
to Dealers Newgen's Service Results program and other related services or
products which are for the merchandising and sale of service and parts
business to vehicle owners, pursuant to this Agreement.
SECTION 3
RESPONSIBILITIES OF SUPPLIER
3.1 DEALER DATA COPIES. Supplier will provide Newgen with a tape(s) of the
Dealer Data collected from each Dealer's Computer System once per week for all
Dealers. Supplier will provide the Dealer Data in the format specified in
Exhibit B.
3.2 ANALYSIS REPORTS. Upon request by Newgen, Supplier will provide to Newgen an
Analysis Report.
3.3 OPERATION CODES. Supplier will provide to Newgen, at no charge, on a one
time basis, the Dealer's operation codes. The specifications for the Dealer
operation codes are set forth in Exhibit B.
SECTION 4
RESPONSIBILITIES OF NEWGEN
4.1 AMENDMENT TO DEALER AGREEMENT. Newgen acknowledges that every Dealer will be
required to execute an amendment to Dealer's Agreement whereby Dealer grants to
Supplier a royalty-free license to use and distribute Dealer Data to Newgen for
the purpose of facilitating Newgen's internal use of the Dealer Data. Supplier
will provide to Newgen blank forms of said amendment which will incorporate the
provisions of Exhibit A. Supplier authorizes Newgen to present to Dealers said
form amendment for execution by Dealer. Newgen agrees to have every Dealer
execute said amendment. Upon receipt by Newgen of an executed amendment from a
Dealer, Newgen shall immediately forward the original of said executed amendment
to Supplier. Newgen agrees that said amendment may not be altered in any
manner, and that said amendment is not deemed effective and binding unless and
until it is executed by an officer of Supplier. Newgen acknowledges that they
are not granted any other authority by Supplier other than to present said
amendments for execution and the collection of said executed amendments.
* Confidential Treatment Requested
2
<PAGE>
4.2 PAYMENT FOR DATA AND REPORTS. Newgen agrees to pay Supplier for the Dealer
Data and Analysis Reports as described in Section 5 of this Agreement.
4.3 EXPENSES. Newgen agrees to pay $[****] to Supplier within thirty (30)
days of the execution date of this Agreement, for the creation of the
software program(s) necessary to produce the Dealer Data tape. In addition,
if Newgen requires modifications to any such software program(s), Newgen
agrees to pay to Supplier any and all costs and expenses associated with such
modification. Newgen agrees to pay $[****] to Supplier within thirty (30)
days of the execution date of this Agreement for the creation of the software
program(s) necessary to produce the Analysis Report.
It is anticipated that the development time to create the software program(s)
necessary to produce the Dealer Data tape will be thirty (30) to sixty (60)
days. However, should Supplier be unable to create the software program(s)
necessary to produce the Dealer Data tape within one hundred twenty (120)
days, Supplier will refund to Newgen the $[****] amount Newgen paid to
Supplier pursuant to Section 4.2 above, and this Agreement will be terminated.
It is anticipated that the development time to create the software program(s)
necessary to produce the Analysis Report will be thirty (30) to sixty (60)
days. However, should Supplier be unable to create the software program(s)
necessary to produce the Analysis Report within one hundred twenty (120)
days, Supplier will refund to Newgen the $[****] Newgen paid to Supplier
pursuant to Section 4.2 above, and Supplier will have no further obligation
to produce any Analysis Reports. Newgen acknowledges that such a failure by
Supplier to create the software program(s) necessary to produce the Analysis
Report shall not constitute a default under this Agreement.
4.4 DEALER DATA TAPE FORMAT. The specifications for the Dealer Data are listed
in Exhibit B.
4.5 AUTHORIZATION FOR REPRESENTATIONS, WARRANTIES OR GUARANTEES. Newgen
shall refrain from making any representations, warranties or guarantees to
any third parties regarding the Dealer Data supplied by Supplier to Newgen,
except as specified herein or as expressly authorized in writing by Supplier,
such authorization not to be unreasonably withheld.
4.6 DEALER DESIGNATION. Newgen shall provide to Supplier, within thirty (30)
days of the execution of this Agreement, a written list of the Dealers which
Newgen wants to participate under this Agreement. Newgen shall give Supplier
written notice of any new Dealers whom Newgen wants to participate under this
Agreement. Newgen acknowledges that Supplier makes no guarantees on the length
of time it will take to set up a Dealer in the program.
Newgen shall provide to Supplier written notice of a Dealer's termination from
the program within ten (10) days after the Dealer's termination date from the
program.
4.7 INVOICING INFORMATION. In order that Supplier may generate an invoice to
Newgen, Newgen shall, at no charge, provide to Supplier no later than the 5th
calendar day of the month following the month to be invoiced, or within three
(3) calendar days of the date Newgen provides the billing tape or hard copy
of the billing information to Ford Motor Company, whichever comes first, a
copy of the billing tape or hard copy of the billing information which Newgen
supplies to Ford Motor Company to enable Ford Motor Company to bill Dealers
for the services and products Newgen provides Dealers. Newgen shall, at no
charge to Supplier, provide Supplier with data specifications and cooperate
with Supplier to assist Supplier in reading the billing tape. If Supplier is
unable to read the billing tape or if there is no billing tape, Newgen shall
provide Supplier the billing information in hard copy format.
For all non-Ford and non-Lincoln-Mercury Dealers, Newgen shall, at no charge,
provide to Supplier, no later than the 5th calendar day of the month
following the month to be invoiced, a billing tape or hard copy of the billing
information of what Newgen invoiced Dealers for the services and products
Newgen provided the Dealers.
3
* Confidential Treatment Requested
<PAGE>
Section 5
PRICES AND COMPENSATION
5.1 [***] CHARGE FOR [***]. Newgen agrees to pay Supplier a charge per [***]
, [***], [***], and [***], included on each [***] provided to Newgen. This
charge will be $[****] per [***], $[****] per [***], $[****] per [***], and
$[****] per [***] provided to Newgen. The [***] charge for [***], as
described in this Section 5.1, for any [***]will not exceed $[****]. This
$[****] [***] will apply to each [***] by a [***], not to a [***] by a [***].
Where a [***] more than [***], the [***] for [***] will be as follows:
<TABLE>
NUMBER OF [***] [***] Charge for
[***] [***] FOR THE [***]
---------------------- ----------------------------------
<S> <C>
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****]
[***] $ [****] [***]
[***]
[***]
</TABLE>
Supplier may increase this charge at any time after twelve (12) months from
the date of execution of this Agreement by an amount based on the percentage
rate of price increases for all goods and services as determined by the
Bureau of Labor Statistics of the U.S. Department of Labor (Consumer Price
Index).
5.2 PAYMENT OF [***] CHARGE FOR [***]. The [***] charges for [***]
described in Section 5.1, for each [***], may be paid by Newgen in [***]
payments. Each payment shall be in an amount equal to [***] of the total [***]
charges for [***] for the [***]. Newgen will not be charged interest on the
[***] of the [***] charges for [***] should Newgen elect to pay these charges
as described herein. However, should Newgen fail to pay the [***] in a timely
manner, Newgen will be charged interest as described in Section [***].
Supplier will not invoice Newgen for the [***] charges for [***] prior to the
date that the [***] the [***] is shipped to Newgen.
5.3 [***] CHARGE FOR [***]. Newgen agrees to pay Supplier a charge for [***]
, [***], [***], and [***]. The charge shall be based on the [***] and [***],
as defined in [***], during that month. The charge shall be as follows:
<TABLE>
[***] CHARGE
------------ ------
<S> <C>
[***] [****]% of [***]
[***] [****]% of [***]
[***] [****]% [***]
[***] [****]% [***]
</TABLE>
(for example, if there are [***], the [***] Charge would be
[****]% of [***] for each [***].)
For [***] who start after the first of the month, Newgen will be
charged in accordance with this Section 5.3, based on [***]
received by Newgen from that [***]for the partial month.
* Confidential Treatment Requested
4
<PAGE>
5.4 ANALYSIS REPORT CHARGE. Newgen agrees to pay Supplier a charge per
Analysis Report. This charge will be $[****] per Analysis Report produced.
Supplier may increase this charge at any time after twelve (12) months from
the date of execution of this Agreement by an amount based on the percentage
rate of price increases for all goods and services as determined by the
Bureau of Labor Statistics of the U.S. Department of Labor (Consumer Price
Index).
5.5 FREIGHT AND TAPE CHARGES. Newgen agrees to pay to Supplier a charge for
each physical data tape sent to Newgen at Supplier's then current rate.
Newgen shall be responsible for freight and insurance charges for all
shipments to or from Newgen, including but not limited to all shipments of
Dealer Data tapes.
5.6 INVOICING. Supplier will invoice Newgen each month for all amounts due
to Supplier under this Agreement. Newgen agrees to make payment to Supplier
within thirty (30) days of the date of the invoice. In the event that payment
is not received by the 30th day of the month following the month for which
the invoice is dated, Newgen will be in default of this Agreement and
Supplier may invoke any and all remedies available, in law or in equity.
Interest calculated at the lesser of 1 1/2% per month or the maximum
non-usurious rate currently permitted by law, will be charged to Newgen on
all invoices unpaid after thirty (30) days from the date of the invoice.
Section 6
DELIVERY
6.1 MANNER OF DELIVERY. Supplier will deliver all Dealer Data tapes to
Newgen utilizing the shipping service selected by Newgen. Newgen accepts the
risk of loss for the Dealer Data tapes upon shipment from Supplier's
location. Newgen shall be responsible for and pay all shipping and handling
costs for delivery of the Dealer Data tapes and reports from Supplier to
Newgen.
Section 7
WARRANTIES AND LIMITATION OF LIABILITY
7.1 WARRANTIES. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THERE ARE NO
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE MADE BY
SUPPLIER WITH RESPECT TO THE DEALER DATA OR OTHER TRANSACTIONS OR SERVICES
CONTEMPLATED HEREIN. This Agreement states the entire obligation of Supplier
in connection with the license and provision of Dealer Data to Newgen.
7.2 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED HEREIN, SUPPLIER SHALL NOT UNDER ANY CIRCUMSTANCES, BE LIABLE TO
NEWGEN OR ITS DEALERS FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, EVEN IF
SUPPLIER HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
FURTHERMORE, SUPPLIER SHALL NOT BE LIABLE TO NEWGEN OR ITS DEALERS FOR DAMAGE
OR LOSS OF ANY NATURE. WHATSOEVER, AND NEWGEN'S OR ITS DEALERS' SOLE AND
EXCLUSIVE REMEDY HEREUNDER SHALL BE THE RIGHT TO HAVE SUPPLIER REPLACE ANY
DEFECTIVE TAPE MEDIA CONTAINING THE DEALER DATA WHICH WAS PROVIDED TO NEWGEN.
IN ANY EVENT, SUPPLIER SHALL NOT BE LIABLE TO NEWGEN FOR ANY AMOUNT GREATER
THAN THE AMOUNT OF THE MONTHLY CHARGES PAID BY NEWGEN TO SUPPLIER FOR THE
MONTH IN WHICH THE LIABILITY AROSE.
Section 8
TAXES
8.1 Newgen agrees to pay all taxes, other than those taxes based on
Supplier's income, or provide appropriate exemptions, including personal
property, sales, use or excise taxes, which may be imposed by any taxing
authority as a result of Supplier's sublicense and distribution of the Dealer
Data to Newgen.
* Confidential Treatment Requested
5
<PAGE>
Section 9
ARBITRATION
9.1 ARBITRATION. All disputes, claims, controversies and other matters in
question between the parties to this Agreement, arising out of, or relating
to this Agreement, or to the breach thereof, including any claim in which
either party is demanding monetary damages of any nature including
negligence, strict liability or intentional acts or omissions by either
party, and which cannot be resolved by the parties, shall be settled by
arbitration. Except as provided otherwise in this Section 9, the arbitration
shall be administered in accordance with the commercial arbitration rules of
the American Arbitration Association. Arbitrators shall be chosen from a
panel of persons with knowledge of electronic data processing industry
practices, contracts, and data processing systems. If the parties cannot
agree on arbitrators within fifteen (15) days of receipt of the arbitration
demand, then the arbitrators shall be chosen in accordance with the
commercial arbitration rules of the American Arbitration Association. The
arbitration proceeding will be held in Houston, Texas. In no event shall the
demand for arbitration be made more than one (1) year after the claim or cause
of action arises. The award of the arbitrator or arbitration panel shall be
final and binding, and there shall be no appeal therefrom. Judgment upon the
award rendered by the arbitrator or arbitration panel may be entered in any
court having jurisdiction. The Federal Arbitration Act (9 U.S.C. sections 1
et seq.) shall govern the interpretation and application of this Section 9.
Section 10
TERM AND TERMINATION
10.1. INITIAL TERM. The initial term of this Agreement is two (2) years
("Initial Term"), commencing on the date Supplier ships to Newgen the first
Dealer Data tape, such date to be conclusively determined by Supplier.
10.2 RENEWAL TERM(S). This Agreement shall be automatically renewed after
the Initial Term for consecutive periods of twelve (12) months each ("Renewal
Terms"), unless and until terminated by Supplier or Newgen delivering to the
other written notice of their intent to terminate the Agreement at least one
hundred twenty (120) days prior to the end of the Initial Term or any
subsequent Renewal Term.
10.3 TERMINATION OF AGREEMENT. If Newgen materially breaches any obligation
of Newgen under this Agreement, except any obligation to make payment to
Supplier, Newgen shall have thirty (30) days after receipt of written notice
of such default within which to cure such default, and if such default is not
cured within such period of time, then Supplier shall have the right without
further notice to terminate this Agreement. If Newgen fails to make any
payment to Supplier when due, Newgen shall have ten (10) days after receipt
of written notice of such payment default within which to cure such payment
default, and if such payment default is not cured within such period of time,
then Supplier shall have the right without further notice, at Supplier's
option, to suspend the delivery of Dealer Data until such payment default is
cured, or terminate this Agreement. If Supplier materially breaches any
obligation of Supplier under this Agreement, Supplier shall have thirty (30)
days after receipt of written notice of such default within which to cure
such default, and if such default is not cured within such period of time,
then Newgen shall have the right without further notice to terminate this
Agreement.
10.4 BANKRUPTCY. If either party becomes the subject of any voluntary
proceeding, or any involuntary proceeding which remains undismissed for sixty
(60) days, relating to bankruptcy, insolvency, liquidation, receivership,
composition of or assignment for the benefit of creditors ("Bankrupt Party"),
the other party may, at its option, terminate this Agreement upon giving
Bankrupt Party thirty (30) days written notice of its intention to terminate.
10.5 SURVIVAL OF OBLIGATIONS. The termination of this Agreement shall not
terminate, affect or impair any rights, obligations or liabilities of either
party hereto which may accrue prior to such termination. Supplier and Newgen
specifically agree that the obligations provided in the following sections:
Sections 2.1, 2.2, 4.4, 7.1, 7.2, 8.1, 9.1, 12.1, 13
shall remain in effect and survive termination.
6
<PAGE>
SECTION 11
EXCUSE FOR NONPERFORMANCE
11.1 Supplier shall not be held responsible for any delay or failure to
perform hereunder where such delay or failure is due to any cause beyond
Supplier's direct control including, but not limited to, Acts of God, fire,
explosion, flood, strikes or other labor dispute, riot, communications or
power supply failure, delay in delivery, failure or malfunction of equipment,
lack of or inability to obtain Dealer Data from Dealers, or any other causes,
contingencies or circumstances which prevent or hinder performance hereunder
or make such performance hereunder impracticable.
SECTION 12
INDEMNIFICATION
12.1 Newgen agrees to indemnify, defend and hold Supplier, its officers,
directors, employees, and agents harmless from and against any and all
obligations, liabilities, costs, damages and expenses (including reasonable
attorney's fees) incurred or arising out of or relating to the provision of
Dealer Data by Supplier to Newgen and the use of such Dealer Data by Newgen.
12.2 Supplier agrees to indemnify, defend and hold Newgen, its officers,
directors, employees, and agents harmless from and against any and all
obligations, liabilities, costs, damages and expenses (including reasonable
attorney's fees) incurred or arising out of or relating to the use or
distribution of Dealer Data by Supplier.
12.3 A party seeking indemnification will give prompt written notice to the
party from whom such indemnification is sought (the "Indemnifying Party") of
each claim for indemnification hereunder, specifying the amount and nature of
the claim, and of any matter which in the opinion of the Indemnified Party is
likely to give rise to an indemnification claim under this Agreement.
Indemnified Party will have the right to participate at its own expense in
the defense of any such matter or in this settlement. The Indemnifying Party
shall use its best efforts consistent with sound business practice to defend
any claim or cause of action, and to mitigate the damages, liabilities,
losses and expenses giving this to any claim for indemnity pursuant to this
Section 12.
SECTION 13
MISCELLANEOUS
13.1 NONCOMPETITION. Once Newgen notifies Supplier, as set forth in Section
4.6, that a Dealer is participating under this Agreement. Supplier agrees it
will not solicit for a period of one hundred twenty (120) days, that Dealer
on any of Supplier's products or services which are for the merchandising and
sale of service and parts business to vehicle owners. However, should a
Dealer who is participating under this Agreement contact Supplier regarding
Supplier's products or services for the merchandising and sale of service and
parts business to vehicle owners, this section 13.1 shall not restrict
Supplier in any way from selling those products or services to that Dealer.
Newgen acknowledges that any Dealer which currently uses any of Supplier's
products or services for the merchandising and sale of service and parts
business to vehicle owners must fulfill its contractual commitments to
Supplier. Further, Newgen agrees that Newgen shall not allow a Dealer to
begin on the Newgen Results program prior to the termination of Dealer's
contract with Supplier.
13.2 BILLING AUDIT. Newgen shall allow Supplier, at Supplier's own expense,
to audit Newgen's billing and accounting records up to four (4) times per
year, provided that said audits will be during Newgen's normal business hours
and will not cause significant disruption to Newgen's business. Newgen shall
cooperate fully with Supplier throughout the audit, and provided to Supplier,
in a timely manner, any and all documents necessary to conduct such an audit.
13.3 PUBLICITY; USE OF TRADEMARKS. A party may not use the registered
trademarks, service marks, logo, name or any other proprietary designations of
the other party without that party's prior written consent, and shall submit
to the other party for prior approval any advertising or promotional
materials in which such trademarks, service marks or logos are to used, which
approval shall not unreasonably be withheld or delayed. Neither party will
issue or
7
<PAGE>
permit to be issued any publicity, advertisement or other public statement
concerning the subject matter of this Agreement without the prior written
consent of the other party.
13.4 ASSIGNMENT. Neither party may assign any rights or delegate any duties
under this Agreement to any person or entity, except an affiliate of such
party, unless the other party has given its prior written consent such
consent not to be unreasonably withheld, and any attempt to do so without
that consent will be void. However, if either party sells all or
substantially all of its assets or a majority interest in its capital stock
to a non-affiliated company ("Purchasing Company"), then the other party will
allow the assignment of this Agreement to the Purchasing Company. This
Agreement will bind and inure to the benefit of the parties and their
respective successors and assigns as permitted in this Agreement.
13.5 RELATIONSHIP OF THE PARTIES. Supplier and Newgen agree that each party
shall undertake performing their responsibilities pursuant to this Agreement
as an independent contractor. Nothing contained herein or done pursuant
hereto shall make either party or its agents or employees legal
representative, agent or employee of the other for any purpose whatsoever.
Neither Supplier nor Newgen (nor any of their agents or employees) shall have
any right, power or authority to assume, create or incur, in writing or
otherwise, any expense, liability or obligation in the name, or in the
behalf, of the other party. Neither Supplier nor Newgen will state or imply
the contrary to any third party.
13.6 NOTICES. All notices, requests and approvals required by this
Agreements (i) shall be in writing, (ii) shall be addressed to the parties as
indicated below unless notified in writing of a change in address, and (iii)
shall be deemed to have been delivered either when personally delivered or,
if sent by mail, in which event it shall be sent postage prepaid, thereof
three (3) business days after mailing, or, if sent by telex, upon delivery
thereof. The addresses of the parties are as follows:
To Newgen: Newgen Results Corporation
12526 High Bluff Drive, Suite 150
San Diego, CA 92130
Attention: Sam Simkin
Copy to: Newgen Results Corporation
330 St. Mary Avenue, Suite 620
Winnipeg, Canada R3C3Z5
Attention: Alan Cantor, Q.C.
To Supplier: Universal Computer Services, Inc.
6700 Hollister
Houston, TX 77040
Attention: Dan Agan
Copy to: Universal Computer Services, Inc.
6700 Hollister
Houston, TX 77040
Attention: Legal Department
13.7 HEADINGS. The Headings contained herein are for convenience of
reference only and are not intended to define, limit, expand, or describe the
scope or intent of any provision of this Agreement.
13.8 ENFORCEABILITY. This Agreement shall be governed by the laws of the
state of Texas. If a part of this Agreement is found invalid or unenforceable,
it will be enforced to the maximum extent permitted by law, and other parts
of this Agreement will remain in force.
13.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original instrument and all
of which together shall constitute the same instrument.
8
<PAGE>
13.10 ENTIRE AGREEMENT, MODIFICATIONS AND CHANGES. This Agreement, together
with any exhibits attached hereto, constitutes the entire Agreement between
the parties relating to the subject matter herein. This Agreement may only be
amended by a written document signed by all parties.
13.11 ACTIONS. No action (including arbitration), regardless of form,
arising out of transactions under this Agreement, shall be brought by either
party more than one year after the cause of action occurred.
13.12 EXECUTION OF AGREEMENT. This Agreement will be effective and binding
only when accepted in Houston, Texas by Supplier, and obligations and
undertakings of each of the parties to this Agreement shall be performable in
Harris County, Texas.
13.13 NO WAIVER. No waiver will be implied from conduct or failure to
enforce rights. No waiver will be effective unless in a writing signed on
behalf of the party claimed to have waived.
13.14 INJUNCTIVE RELIEF. Either party may have injunctive, preliminary or
other equitable relief to remedy any actual or threatened unauthorized
disclosure of trade secrets or unauthorized use, copying, marketing,
distribution or sublicensing of trade secrets or other proprietary rights.
13.15 ATTORNEYS' FEES; COSTS. In any suit to enforce this Agreement, the
prevailing party will have the right to request the award of costs and
reasonable attorneys' fees and expenses, including costs, fees, and expenses
on appeal from the arbitrator(s).
13.16 TERMS OF THIS AGREEMENT. Neither party shall, without prior written
consent of the other party, such consent not to be unreasonably withheld,
disclose to any third party, the terms of this Agreement except as may be
necessary to establish or assert rights hereunder or as required by law.
Newgen, however, is permitted to disclose to Ford Motor Company, the pricing
terms of this Agreement. Further, Newgen agrees that it will not refer to or
cite, to any Dealer or other third party, Supplier as the cause of any
pricing increases, including any surcharges, Newgen institutes in its pricing
of products and services to Dealers.
13.17 RIGHTS OUTSIDE OF AGREEMENT. Nothing contained in this Agreement
shall be construed as limiting rights that any party may enjoy outside the
obligations set forth or created herein, or in any way preclude any party
from independent development or marketing of any product.
13.18 PARTIES. Wherever the reference is made in this Agreement to
"parties", this shall be understood to refer to Supplier as one party and
Newgen as the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of this 15th day of May 1996.
NEWGEN RESULTS CORPORATION UNIVERSAL COMPUTER SERVICES, INC.
12526 HIGH BLUFF DRIVE, SUITE 150 6700 HOLLISTER
SAN DIEGO, CA 92130 HOUSTON, TX 77040
By: /s/ Sam Simkin By:
---------------------------------- ------------------------------
Name: Sam Simkin Name:
--------------------------------- -----------------------------
Title: Vice President/CFO Title:
------------------------------- ----------------------------
UNIVERSAL COMPUTER CONSULTING, LTD. FORD DEALER COMPUTER SERVICES, INC.
BY U.C. CONSULTING, INC., GENERAL PARTNER 6700 HOLLISTER
6700 HOLLISTER HOUSTON, TX 77040
HOUSTON, TX 77040
By: By:
-------------------------------------- -------------------------------
Name: Name:
----------------------------------- -----------------------------
Title: Title:
---------------------------------- ----------------------------
9
<PAGE>
EXHIBIT A
TERMS TO BE PRESENT IN AMENDMENT TO
DEALER AGREEMENT FOR LICENSE OF DEALER DATA
Dealer acknowledges that Dealer is participating in Newgen's service
reminder programs. This program is for the merchandising and sale of service
and parts business to vehicle owners.
Dealer grants to UCC [UCS] [FDCS] a royalty-free license to use and
distribute to Newgen historical customer pay repair order information, recurring
customer pay repair order information, historical warranty repair order
information, recurring warranty repair order information, historical vehicle
service file information, historical vehicle sales file information, newly sold
vehicle information, and newly serviced vehicle information ("Dealer Data")
contained on Dealer's Computer System.
Dealer acknowledges and agrees that UCC [UCS] [FDCS] shall not be liable to
Dealer in any way, including but not limited to actual, consequential or
incidental damages, for any use of the Dealer Data by Newgen, or any failure by
Newgen to use the Dealer Data or provide services to Dealer of which the Dealer
Data is a part.
Dealer hereby waives and releases all claims of any nature whatsoever
against UCC [UCS] [FDCS] and relieves UCC [UCS] [FDCS] of all liabilities due to
errors, omissions, and delays in the provision of the Dealer Data to Newgen.
This amendment contains the entire understanding between the parties and
will be effective and binding only when executed by an officer of UCC [UCS]
[FDCS] denoting its acceptance.
10
<PAGE>
Exhibit B
DATA FROM UCS/FDCS SYSTEMS 5/9/96
SPECIFICATIONS
1. Line sequential ASCII file.
2. Files and fields to be fixed length, not variable.
3. Repair orders to be included are customer pay and warranty, no internal
repair orders.
4. Tape format is 8mm.
5. Newly added vehicle records and RO history data are to be sent weekly to
Newgen.
6. All alpha fields should be left justified, upper case and filled with
spaces to the right.
7. All numeric fields will be right justified and filled with zeros.
8. The only FDCS clients which data can be provided for are 7000 MPs.
9. On the initial data file, the last 2 years of vehicles sold and the last 2
years of vehicles serviced will be sent. This file is called the SOLD
VEHICLE AND SERVICE VEHICLE INFORMATION FILE. Thereafter, the only data
which will be sent in the SOLD VEHICLE AND SERVICE VEHICLE INFORMATION FILE
are;
A. Those vehicles (new and used) which have been sold in the last week or
newly serviced in the past week, and
B. Any previously sold or serviced vehicle which had a change to one
of the address fields.
These records, for both the initial SOLD VEHICLE AND SERVICE VEHICLE
INFORMATION FILE and the weekly SOLD VEHICLE AND SERVICE VEHICLE
INFORMATION FILE will be on a separate tape from the REPAIR ORDER HISTORY
FILE and the OPERATION CODE FILE.
10. The past 12 months REPAIR ORDER HISTORY FILE will be on a separate tape
from the current week's REPAIR ORDER HISTORY FILE. In some cases,
dealerships may not have 12 months of RO history, and in those situations,
UCS will provide whatever amount of history a dealership has.
11. All RO's closed in the past week will be sent. This file is called the
REPAIR ORDER HISTORY FILE. The weekly REPAIR ORDER HISTORY FILE records
will be on a separate tape from that of the weekly SOLD VEHICLE AND SERVICE
VEHICLE INFORMATION FILE.
<PAGE>
12. The Operation Codes and Descriptions table will only be sent one time and
will be on a separate tape. This file is called the OPERATION CODE FILE.
The Operation Codes can be duplicated within the UCS/FDCS System, and
duplicate Operation Codes are only distinguishable by VIN prefixes.
Therefore, a table will be needed by Operation Code and VIN prefix, to
distinguish duplicate Operation Codes. (ie. Operation Code 200, may be an
alignment for a Taurus and an oil change for a Pickup.)
13. On the initial processing for each dealership, three tapes will be sent for
each dealership. They are;
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION FILE (2 years)
REPAIR ORDER HISTORY FILE (last 12 months if available)
OPERATION CODE FILE
If 5 new dealerships begin in one week 15 tapes will be sent.
14. On every processing thereafter, only two tapes will be sent. They are;
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION FILE (current week's)
REPAIR ORDER HISTORY FILE (current week's)
All dealerships' data (for the same type of data) will be on the same tape.
Meaning if 10 dealerships' data is being sent, 2 tapes will be sent, not
20, (assuming they all fit on two tapes).
15. Customer Pay RO's and Warranty RO's will each be on a separate record on
the initial REPAIR ORDER HISTORY FILE tape containing the 12 months of
history. Customer Pay RO's and Warranty RO's will each be contained in the
same record on the weekly REPAIR ORDER HISTORY FILE tape.
16. Because of the large amount of data stored and the difficulty involved in
any retroactive processing or collection of data, Newgen must inform UCS
within 3 days of the receipt of any Data tape, if an error or omission was
found.
<PAGE>
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION 5/9/96
<TABLE>
<CAPTION>
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
---------------------- ---------- ------- ------- ------------------------------
<S> <C> <C> <C> <S>
1. Dealer Number A/N 6 1 This is the six digit internal
UCS account number for the
dealership. UCS will provide
the dealerships' names and
corresponding account numbers.
2. Name (Customer) A/N 35 1 UCS to provide name exactly as
it appears in the field on the
dealerships' computer, usually
"Last, First". UCS is to do no
field editing.
3. Address 1 A/N 30 1
4. Address 2 A/N 30 1
5. City A/N 20 1
6. State A 2 1
7. Zip A/N 9 1 Left justify, fill with spaces.
8. Customer Home N 10 1 Include area code. If no area
Phone code, first three
characters will be spaces.
9. Customer Work N 10 1 Include area code. If no area
Phone code, first three
characters will be spaces.
10. VIN Number A/N 17 1
11. [****] A/N 8 1
12. [****] A/N 8 1
13. New/Used A 1 1 Either "N" or "U"
14. Car Year N 2 1 Year can come from the VIN
15. Car Make A/N 10 1 Make can come from the VIN
16. Car Model A/N 10 1 Make can come from the VIN
* Confidential Treatment Requested
<PAGE>
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION (cont) 5/9/96
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
---------------------- ---------- ------- ------- ------------------------------
<S> <C> <C> <C> <C>
17. [****] A/N 10 1
18. [****] N 6 1 [****]
19. Sold Date N 6 1 [****]
20. [****] N 3 1 [****]
21. Original Miles N 7 1 Original mileage when sold.
22. [****] A/N 10 1 [****]
23. [****] A/N 9 1 [****]
24. [****] A/N 6 1 [****]
25. Service Advisor A/N 8 1 Left justify, fill with spaces.
Number The permanent assigned advisor.
26. [****] N 6 1 [****]
27. Last Service N 7 1 As of the date the car was
Miles serviced. Right justify and
fill with zeros.
28. [****] N 6 1 [****]
29. Sales Type A/N 1 1 UPS field SALETYPE
30. [****] A/N 35 1
31. [****] A/N 4 1
32. [****] N 6 1 [****]
33. [****] N 6 1 [****]
* Confidential Treatment Requested
<PAGE>
SOLD VEHICLE AND SERVICE VEHICLE INFORMATION (cont) 5/9/96
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
---------------------- ---------- ------- ------- ------------------------------
<S> <C> <C> <C> <C>
34. [****] A/N 15 1
35. [****] A/N 1 1
36. [****] A/N 1 1
37. [****] A/N 1 1
38. [****] A/N 3 1 [****]
39. [****] A/N 15 1 [****]
40. Record A/N 2 1 Can be a linefeed or carriage
Terminator return linefeed.
</TABLE>
* Confidential Treatment Requested
<PAGE>
Repair Order History File 5/9/96
- -------------------------
<TABLE>
<CAPTION>
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
------------------ --------- ------ ------ -------------------------------
<S> <C> <C> <C> <C>
1. Dealer Number A/N 6 1 This is the six digit internal
UCS account number for the
dealership. UCS will provide
the dealerships' names and
corresponding account numbers.
2. VIN Number A/N 17 1
3. Repair Order A/N 8 1 Left justify, fill with spaces.
Number
4. Date RO was N 6 1 Format is
Closed YYMMDD(year,month,day)
5. Service Writer A/N 8 1 Left justify, fill with spaces.
Number
6. Car Miles N 6 1 As of the date the car was
serviced. Right justify and
fill with zeros.
7. Invoice Charges N 7 1 Format is DDDDDCC(dollar,cents)
for Customer Pay No decimal point. Right
justify and fill with zeros.
8. Invoice Charges N 7 1 Format is DDDDDCC(dollar,cents)
for Warranty No decimal point. Right
justify and fill with zeros.
9. Invoice Charges N 7 1 Format is DDDDDCC(dollar,cents)
(Total of Customer No decimal point. Right
Pay and Warranty) justify and fill with zeros.
10. Operation Codes A/N 16 40 The first 40 operation codes
Table used will be identified, along
with the following information.
10A. Operation Code A/N 15 1 Operation Code, left justify
10B. Customer Pay, A 1 1 C = Customer Pay, W = Warranty,
Warranty or
11. Record A/N 2 1 Can be a linefeed or carriage
Terminator return linefeed.
</TABLE>
<PAGE>
Operation Code File 5/9/96
-------------------
SPECIFICATIONS
- --------------
1. Operation Codes will be on a separate tape from the repair order data.
2. The operation code file will only be submitted a single time.
3. The following format will be repeated for the number of operation codes
the dealership has.
Operation Code Format
- ----------------------
<TABLE>
<CAPTION>
Alpha-A
Numeric-N
Data in Field Both-A/N Length Occurs Comments
----------------- --------- ------ ------ -------------------------------
<S> <C> <C> <C> <C>
1. Dealer Number A/N 6 1 This is the six digit UCS
account number for the
dealership.
2. Operation Codes A/N 15 1 The dealership's operation
code.
3. VIN Prefix Mask A/N 8 1 VIN prefixes which relate to
this operation code. Any dash
is a wild card.
4. Description A/N 40 1 The dealership's operation
code description.
5. Record A/N 2 1 Carriage return linefeed.
Terminator
</TABLE>
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.406 * INDICATES OMITTED
MATERIAL THAT IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST
THAT IS FILED SEPARATELY WITH THE
COMMISSION
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is entered into as of
September 4, 1998 (the "Effective Date") by and between NEWGEN RESULTS
CORPORATION ("Newgen") and GEOMEL ENTERPRISES, INC., ("Anderson").
RECITALS
WHEREAS, Newgen provides integrated database management, personalized
direct-marketing and related services to automobile manufacturers and
dealerships (e.g. Newgen offers personalized vehicle maintenance reminders to
a dealership's customers);
WHEREAS, Anderson possesses experience and expertise in commercial
printing and mailing; and
WHEREAS, Newgen desires to purchase from Anderson, and Anderson desires
to sell to Newgen, the Products (as defined below) on the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the parties hereto hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "[****]" means a [****] and [****] the [****].
1.2 "PRODUCT SPECIFICATIONS" means the product specifications set forth
on Exhibit A attached hereto.
1.3 "PRODUCTION SCHEDULE" means the schedule for the production of
Products set forth on Exhibit B attached hereto.
2. PURCHASE OF PRODUCTS
2.1 PURCHASE AND SALE. In accordance with the terms and subject to the
conditions set forth in this Agreement, Newgen hereby orders and agrees to
purchase from Anderson, and Anderson hereby accepts and agrees to sell to
Newgen, Products at the price set forth herein.
2.2 PRODUCT SPECIFICATIONS. Products supplied pursuant to this
Agreement shall comply with the applicable Product Specifications.
3. PURCHASE PRICE AND PAYMENT; VOLUME REQUIREMENTS
3.1 PURCHASE PRICE. Newgen shall pay to Anderson $[****] for each
Product purchased under this Agreement for each month Newgen purchases
greater than [****]
1.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Products. The purchase price will depend upon volume and shall remain fixed
for the term of this Agreement, as set forth on Exhibit C. Notwithstanding
the foregoing, in the event the cost of paper from time to time is in excess
of [****]% of the cost of paper in effect on the date of this Agreement (such
cost of paper in effect on the date of this agreement hereinafter referred to
as "Initial Paper Cost" and set out in Exhibit D hereto) for [****]
consecutive months, Newgen agrees to pay Anderson the difference between the
paper cost at the end of such [****] month period and [****]% of the Initial
Paper Cost. Anderson will notify Newgen within 30 days of the date on which
the cost of paper exceeds [****]% of the Initial Paper Cost.
3.2 PAYMENT. Anderson will invoice Newgen twice each month, and Newgen
shall pay all undisputed invoices amounts issued under this Agreement within
30 days from the date of invoice, unless otherwise mutually agreed upon in
writing by Newgen and Anderson. Time is of the essence herein.
3.3 VOLUME. As of the Effective Date, Newgen operates its business such
that its volume requirements equal approximately [****] Products per month.
After the Effective Date, Newgen expects its volume requirements to initially
equal at least [****] Products per month, but there can be no assurance that
Newgen's volume requirements will be consistent or meet any particular
threshold level.
3.4 REQUIREMENTS. During the term of this Agreement, Newgen shall
purchase from Anderson, so long as Anderson is in compliance herewith, at
least [****]% of its Product volume requirements; and Anderson shall supply
to Newgen each Product in the amount of such requirements. In the event
Newgen's requirements exceed Anderson's capacity for such Product Newgen
shall have the right to purchase such excess Product (or substitute products)
from third parties without any obligation to Anderson; provided, however, in
all other respects this contract shall remain in full force and effect.
4. PRODUCTION; SHIPMENT; PACKAGING; TITLE AND RISK OF LOSS
4.1 PRODUCTION.
(a) Newgen shall provide to Anderson in a timely manner all data
necessary for Anderson to produce the Products in accordance with the
Production Schedule. Newgen shall send such data to Anderson by computer
mail or other electronic means or on a diskette; and
(b) Anderson shall produce the Products in accordance with the
Production Schedule.
4.2 SHIPMENT. A presort bureau designated by Newgen will arrange for
pick-up at its sole cost and expense of any and all finished Products, within
a reasonable period following completion thereof.
4.3 PACKAGING. Anderson shall package and deliver each Product in bulk
containers that are standard for such Product.
* CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE>
4.4 TITLE AND RISK OF LOSS. Title and risk of loss for Products
purchased hereunder shall transfer to Newgen upon delivery of such Products
by Anderson to a common carrier or a third party intermediary approved by
Newgen (including a presort bureau).
5. REPRESENTATIONS AND WARRANTIES
5.1 CORPORATE POWER. Each party hereby represents and warrants that it
is duly organized, validly existing and in good standing under the laws of
the state or country of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof.
5.2 DUE AUTHORIZATION. Each signatory hereto represents and warrants
that such person is duly authorized to execute and deliver this Agreement and
to perform its obligations hereunder.
5.3 BINDING AGREEMENT. Each party hereby represents and warrants that
this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a
party or by which it may be bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency having authority
over it.
5.4 WARRANTY. ANDERSON WARRANTS THAT THE PRODUCTS SUPPLIED TO NEWGEN
SHALL COMPLY WITH THE APPLICABLE PRODUCT SPECIFICATIONS AND SHALL BE FREE
FROM DEFECTS IN MATERIALS AND WORKMANSHIP.
5.5 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE ENTITLED TO
RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR THE PRODUCTS PURCHASED
HEREUNDER.
6. CONFIDENTIALITY
6.1 CONFIDENTIAL INFORMATION. Each party acknowledges that all
information relating to any marketing, business plan or financial matter
relating to the other party, its present or future products, sales,
suppliers, customers, employees, operations, investors or business, whether
in oral, written, graphic or electronic form, constitutes confidential or
proprietary information of the other party (collectively, "Confidential
Information"); PROVIDED, HOWEVER, that Confidential Information shall not
include any information which the receiving party can prove by competent
evidence (a) is now, or hereafter becomes, through no act or failure to act
on the part of the receiving party, generally known or available in the
public domain, (b) is known by the receiving party at the time of receiving
such information, as evidenced by its records, or (c) is hereafter furnished
to the receiving party by a Third Party, as a matter of right and without
restriction on disclosure.
6.2 NONDISCLOSURE. During the term of this Agreement and for a period
of five years thereafter, each party will maintain all Confidential
Information of the other party as confidential and will not disclose any
Confidential Information of the other party to any Third Party or use
3.
<PAGE>
any Confidential Information of the other party for any purpose, except (a)
as expressly authorized by this Agreement, (b) as required by law, rule,
regulation or court order (provided that the disclosing party shall use
commercially reasonable efforts to obtain confidential treatment of any such
information required to be disclosed), or (c) to its affiliates, employees,
agents, consultants and other representatives (including third party support
vendors), to accomplish the purposes of this Agreement so long as such
persons are under an obligation of confidentiality no less stringent than as
set forth herein; and without limiting the generality of the foregoing
exceptions, Newgen may disclose Confidential Information to the extent deemed
necessary, in its reasonable discretion, to the Securities and Exchange
Commission. Each party may use such Confidential Information only to the
extent required to accomplish the purposes of this Agreement. Each party
will use at least the same standard of care as it uses to protect its own
Confidential Information to ensure that its affiliates, employees, agents,
consultants and other representatives do not disclose or make any
unauthorized use of Confidential Information of the other party. Each party
will promptly notify the other upon discovery of any unauthorized use or
disclosure of the Confidential Information of the other party.
7. TERM AND TERMINATION
7.1 TERM. This Agreement shall commence as of the date of delivery of
the first Product pursuant hereto and shall continue for three years
thereafter, unless terminated earlier as provided herein.
7.2 TERMINATION. Either party may terminate this Agreement prior to
the expiration of the term of this Agreement upon the occurrence of any of
the following:
(a) Upon or after the bankruptcy, insolvency, dissolution or
winding up of the other party (other than dissolution or winding up for the
purposes of reconstruction or amalgamation); or
(b) Upon or after the breach of any material provision of this
Agreement by the other party if the breaching party has not cured such breach
within 30 days after written notice thereof by the non-breaching party.
7.3 TERMINATION BY NEWGEN. Newgen shall have the right to terminate
this Agreement prior to the expiration of the term of this Agreement at any
time following Anderson's third failure to meet the Product Specifications
within 60 days as required herein.
7.4 EFFECT OF TERMINATION. Expiration or termination of this Agreement
shall not relieve the parties of any obligation accruing prior to such
expiration or termination. The provisions of Sections 1, 6.1, 6.2, and 7
shall survive termination or expiration of this Agreement.
8. GENERAL PROVISIONS
8.1 FORCE MAJEURE. Neither party shall be held liable or responsible
to the other party nor be deemed to have defaulted under or breached this
Agreement for failure or delay in fulfilling or performing any term of this
Agreement when such failure or delay is caused by or results from causes
beyond the reasonable control of the affected party, including, without
4.
<PAGE>
limitation, fire, floods, earthquakes, natural disasters, embargoes, war,
acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, acts of God or
acts, omissions or delays in acting by any governmental authority or the
other party. If Anderson is unable to perform its obligations hereunder due
to one of the foregoing events, Newgen shall have the right to purchase
Products (or substitute products) from third parties without any obligation
to Anderson.
8.2 ASSIGNMENT. Except as expressly provided hereunder, neither this
Agreement nor any rights or obligations hereunder may be assigned or
otherwise transferred by either party without the prior written consent of
the other party (which consent shall not be unreasonably withheld); provided,
however, that Newgen may assign this Agreement and its rights and obligations
hereunder without Anderson's consent to any affiliate of Newgen. The rights
and obligations of the parties under this Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the parties.
Any assignment not in accordance with this Agreement shall be void. Newgen
shall remain liable for payment of all outstanding invoices and charges
accrued up to the date of any valid assignment hereunder.
8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the
exhibits attached hereto) sets forth all of the covenants, promises,
agreements, warranties, representations, conditions and understandings
between the parties with respect to the subject matter hereof, and supersedes
and terminates all prior agreements and understanding between the parties
with respect to the subject matter hereof. There are no covenants, promises,
agreements, warranties, representations conditions or understandings with
respect to the subject matter hereof, either oral or written, between the
parties other than as set forth herein. No subsequent alteration, amendment,
change or addition to this Agreement shall be binding upon the parties hereto
unless reduced to writing and signed by the respective authorized officers of
the parties.
8.4 HEADINGS. The captions contained in this Agreement are not a part
of this Agreement, but are merely guides or labels to assist in locating and
reading the several Sections hereof.
8.5 NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be mailed by first-class, registered
or certified mail, postage paid, or delivered personally, by overnight
delivery service or by facsimile, computer mail or other electronic means,
with confirmation of receipt, addressed as follows:
IF TO NEWGEN: NEWGEN RESULTS CORPORATION
12680 High Bluff Drive
San Diego, CA 92130
Attn: Chief Financial Officer
Fax No. (619) 481-1299
IF TO ANDERSON: GEOMEL ENTERPRISES, INC.
7831 Ostrow St.
San Diego, CA 92111-3602
Attn: President
Fax No. (619) 694-0555
5.
<PAGE>
Either party may by like notice specify or change an address to which
notices and communications shall thereafter be sent. Notices sent by
facsimile, computer mail or other electronic means shall be effective upon
confirmation of receipt, notices sent by mail or overnight delivery service
shall be effective upon receipt, and notices given personally shall be
effective when delivered.
8.6 INDEPENDENT CONTRACTORS. It is expressly agreed that Anderson and
Newgen shall be independent contractors and that the relationship between the
two parties shall not constitute a partnership, joint venture or agency of
any kind. Neither party shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which
shall be binding on the other, without the prior written consent of the other
party.
8.7 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
8.8 WAIVER. Except as specifically provided for herein, the waiver
from time to time by either of the parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a
continuing waiver of the same rights or remedies or of any other of such
party's rights or remedies provided in this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed 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.
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above set forth.
NEWGEN RESULTS CORPORATION GEOMEL ENTERPRISES, INC.
By: /s/ SAM SIMKIN By: /s/ JIM LEE
--------------------------------- ---------------------------------
Name: SAMUEL SIMKIN Name: JIM LEE
------------------------------- -------------------------------
Senior Vice President and
Title: Chief Financial Officer Title: President
------------------------------ ------------------------------
PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
PRODUCT SPECIFICATIONS
[****]
LETTERS
SIZE: [****]
PRINT: [****]
[****] AND [****]
[****]
PAPER: [****]
COLORS -- [****] OF [****]
ENVELOPES
[****] -- [****] OF TOTAL ENVELOPES
SIZE: [****]
PRINT: [****]
PAPER: [****]
COLORS -- [****] OF [****]
[****] -- [****] OF [****] ENVELOPES
SIZE: [****]
PRINT: [****]
PAPER: [****]
MAIL PREPARATION
[****] AND [****] INTO APPROPRIATE [****]
INSERT [****] UPON REQUEST [****] OF [****] AND
[****] THE [****]
SUBMIT TO [****]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT B
[****] AND [****]
- - Provide [****] to [****]
- - Facilitate [****] from [****] to [****] to [****]
- - Provide a [****] that [****]
as [****]
- - Provide [****] and [****] of [****] in [****]
- - Meet [****] in the [****] and [****]:
[****]
[****]
[****] of [****], [****] and [****]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
<TABLE>
<CAPTION>
[****] [****] [****] [****] [****]
------- ------- --------- -------- --------
<S> <C> <C> <C> <C>
[****] [****] [****] [****] [****]
and with [****] into [****]
[****] [****] that [****] are
to [****] [****] [****]
[****] [****]
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
[****] OF [****]
- - [****] will be [****] the [****], with the [****].
- - Each [****] will be [****] of [****], with
these [****] having been [****] to [****] on [****].
- - There are some [****] and [****] or [****] of these [****].
- - The total [****] making up [****] will [****].
- - The [****] will be [****] the [****].
- - There will be [****] with [****], as is [****] the
[****].
- - [****] will be [****] to [****] in [****] ([****]
and [****]). The [****] will be [****] from [****] to [****].
- - Each [****] will be [****] by a [****] the [****]
and [****] for [****].
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
[****] AT [****] & [****] THE [****] THE
[****] FROM [****] ARE [****] AND [****] FOR [****].
- - It is [****] that a [****] was [****] with the [****].
- - It is [****] that [****] is [****] on the [****].
- - It is [****] whether, for [****] on the [****], a [****].
- - It is [****] that for [****] is a [****].
- - [****] that are [****] are [****] to a [****] to
[****].
- - [****] is [****] of any [****] to [****] by
the [****].
- - The [****] are [****] in
[****] with their [****] and [****].
[****] ARE [****] TO [****] AND [****].
- - [****] are [****] by [****] to [****]
and [****]. [****] are [****] and
[****] by the [****].
- - Each [****] the [****].
- - [****] are [****] and [****] at [****], [****], and
[****].
- - [****] do a [****] of a [****]
of [****] as it is [****] the
[****]:
[****]
[****]
[****]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
- - As [****] are [****] are [****] on [****] and [****]
for [****]. There will be [****] at a [****] at one time.
- - When a [****] of a [****] has [****], that [****] is
[****] to a [****] in the [****].
- - A [****] be [****] from the [****] the [****]
for each [****] that [****]. The [****] will be
[****] the [****].
[****]
[****] - [****] ALL [****] ARE [****] TO [****] THE [****].
- - [****] are [****] on [****] and [****] as [****]
to [****] in the [****]. [****] will [****].
- - The [****] will [****]
and [****].
- - [****] for [****] are [****] and [****]
the [****]. [****] are [****] an [****].
- - Any [****] are [****] and [****] to a [****].
- - The [****] and [****] to be [****] are [****] by
[****].
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
[****] [****] OF [****] IS [****] BY GROUP TO [****].
- - Each [****] will [****].
- - At any given time, only [****] of [****] is [****] at [****].
- - At [****] the [****] will [****] with the [****]
and both will [****] and [****] .
- - [****] will periodically (approximately [****]) [****]
and [****].
- - [****] will be [****] with the [****].
- - [****] for each [****] are [****] by the [****]. [****] are
[****] an [****].
- - Any [****] are [****] out and [****] to a [****].
- - The [****] and any [****] to be [****] are left for [****] by
the [****].
- - [****] will be [****] to a [****].
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
ALL [****] ARE [****]. THESE [****] ARE THEN
[****] WITH THEIR [****] IN THE [****].
- - Any [****] arising from [****] are
[****]. The [****] these [****] before the [****] is [****].
- - The [****] all [****] from the [****], [****] that it is [****]
and [****]. It is seen that all [****] has been [****] to the [****].
- - [****] are [****] to [****] to be [****] for [****].
- - The [****] does a [****] that the [****] and [****] of
the [****] are [****].
- - The [****] the [****] to the [****].
[****]
[****] TO [****].
[****]
THE [****] WILL [****] OF [****] TO [****]. THESE [****]
WILL BE [****] AND [****] THE [****].
[****] WITH [****], [****] AND [****]
WILL BE [****] TO [****].
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]: Date: July 9, 1998
------------------------------------------ --------------------
[****]:
---------------------------------------
<TABLE>
<CAPTION>
[****] [****]
<S> <C> <C>
[****]
------------------- -------------------
[****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****]
------------------- -------------------
[****]
------------------- -------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[****] [****] [****]
<S> <C> <C> <C> <C> <C>
8:00 am (S)
----------- ----------- ----------- ----------- -----------
8:00 am (O)
----------- ----------- ----------- ----------- -----------
10:00 am (S)
----------- ----------- ----------- ----------- -----------
10:00 am (O)
----------- ----------- ----------- ----------- -----------
1:00 pm (S)
----------- ----------- ----------- ----------- -----------
1:00 pm (O)
----------- ----------- ----------- ----------- -----------
3:00 pm (S)
----------- ----------- ----------- ----------- -----------
3:00 pm (O)
----------- ----------- ----------- ----------- -----------
* CONFIDENTIAL TREATMENT REQUESTED
</TABLE>
<PAGE>
[****]: Date: July 9, 1998
------------------------------------------ --------------------
[****]:
---------------------------------------
<TABLE>
<CAPTION>
[****] [****]
<S> <C> <C>
[****] [****]
------------------- -------------------
[****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****] [****]
------------------- -------------------
[****]
------------------- -------------------
[****]
------------------- -------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[****] [****] [****] [****]
<S> <C> <C> <C> <C> <C>
8:00 am (S)
----------- ----------- ----------- ----------- -----------
8:00 am (O)
----------- ----------- ----------- ----------- -----------
10:00 am (S)
----------- ----------- ----------- ----------- -----------
10:00 am (O)
----------- ----------- ----------- ----------- -----------
1:00 pm (S)
----------- ----------- ----------- ----------- -----------
1:00 pm (O)
----------- ----------- ----------- ----------- -----------
3:00 pm (S)
----------- ----------- ----------- ----------- -----------
3:00 pm (O)
----------- ----------- ----------- ----------- -----------
* CONFIDENTIAL TREATMENT REQUESTED
</TABLE>
<PAGE>
[****]: Date: July 9, 1998
--------------------------------------- --------------------
[****]:
---------------------------------------
<TABLE>
<CAPTION>
[****] [****]
<S> <C> <C>
[****] [****]
------------------- -------------------
[****]
------------------- -------------------
[****] [****]
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[****] [****]
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[****] [****]
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[****]
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[****]
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</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[****] [****] [****] [****] [****]
<S> <C> <C> <C> <C> <C>
8:00 am (S)
----------- ----------- ----------- ----------- -----------
8:00 am (O)
----------- ----------- ----------- ----------- -----------
10:00 am (S)
----------- ----------- ----------- ----------- -----------
10:00 am (O)
----------- ----------- ----------- ----------- -----------
1:00 pm (S)
----------- ----------- ----------- ----------- -----------
1:00 pm (O)
----------- ----------- ----------- ----------- -----------
3:00 pm (S)
----------- ----------- ----------- ----------- -----------
3:00 pm (O)
----------- ----------- ----------- ----------- -----------
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[****]
Date:
---------------------------------------------------------------
[****]:
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[****]:
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[****]:
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<TABLE>
<CAPTION>
[****]:
- --------------------
<S> <C> <C>
[****].......................... / /
- ------------------------------
[****].......................... / /
- ------------------------------
[****].......................... / /
- ------------------------------
[****].......................... / /
[****].......................... / /
- ------------------------------
[****].......................... / /
- ------------------------------
[****].......................... / /
- ------------------------------
[****].......................... / /
- ------------------------------
</TABLE>
[****]:
---------------------------------------------
[****]:
-----------------------------------------------------
[****]:
------------------------------------------------
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT C
[****] FOR NEWGEN RESULTS
<TABLE>
<CAPTION>
[****]
<S> <C> <C>
[****] - PLUS $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] - [****] $[****]
[****] $[****]
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT D
INITIAL PRICE OF PAPER
THE INITIAL PRICE OF PAPER IS $[****] PER '000.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
No. _____ Void After ___________, 2002
Date: ______________, 1997
NEWGEN RESULTS CORPORATION
WARRANT TO PURCHASE COMMON STOCK
This Warrant is issued to _________________ (the "Holder") by Newgen
Results Corporation, a California corporation (the "Company") for consideration
in the amount of $0.01 per share.
1. PURCHASE OF SHARES. Subject to the terms and conditions hereinafter
set forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the Holder hereof in writing), to purchase ______________ shares of
Common Stock of the Company (the "Common Stock"). The purchase price shall be
$0.75 per share, subject to adjustment as provided herein (the "Exercise
Price"). The number of shares of Common Stock issuable pursuant to this Section
1 (the "Warrant Shares") shall be subject to adjustment as provided herein.
This Warrant is one of a series of warrants issued as of even date herewith.
2. EXERCISE PERIOD. Except as otherwise provided herein, this Warrant is
exercisable only until and including the fifth anniversary of the date hereof at
5:00 p.m. (California Time) (the "Exercise Period").
3. METHOD OF EXERCISE. While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed copy
of the form of subscription attached hereto, to the Secretary of the Company at
its principal offices; and
<PAGE>
(b) the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Warrant Shares being purchased.
4. NET ISSUE EXERCISE.
(a) In lieu of exercising this Warrant by payment of cash, Holder may
elect to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with notice of such election, in which event the Company
shall issue to Holder a number of shares of Common Stock computed using the
following formula:
X=Y(A-B)
--------
A
Where X= The number of shares of Common Stock to be issued to Holder.
Y= The number of shares of Warrant Shares.
A= The fair market value of one share of the Common Stock to be
issued upon exercise of this Warrant.
B= The Exercise Price (as adjusted to the date of such
calculations).
(b) If upon the expiration of the Exercise Period Holder has not
exercised this Warrant, this Warrant shall automatically convert into the number
of shares of Common Stock calculated pursuant to Section 4(a) above, provided
that the Holder is able to and does make the representations set forth in
Section 9 hereof and agrees to be bound by the provisions of Sections 9 and 14
hereof.
(c) For purposes of this Section, the Board of Directors of the
Company shall determine the fair market value of the Common Stock in its good
faith.
5. CERTIFICATES FOR WARRANT SHARES. Upon the exercise of the purchase
rights evidenced by this Warrant, one or more certificates for the number of
Warrant Shares so purchased shall be issued as soon as practicable thereafter,
and in any event within thirty (30) days of the receipt of the subscription
notice.
6. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times keep available such number of authorized shares of its Common Stock
issuable upon exercise of this Warrant free from all preemptive rights with
respect thereto, which will be sufficient to permit the exercise of this Warrant
for the full number of Warrant Shares specified herein. The Company further
covenants that such Warrant Shares, when issued pursuant to the exercise of this
Warrant, will be duly and validly
2.
<PAGE>
issued, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof.
7. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. If the
Company shall at any time prior to the expiration of this Warrant, subdivide its
capital stock by split or otherwise, or combine its capital stock, or issue
additional securities as a dividend with respect to any shares of its capital
stock, the number of Warrant Shares issuable on the exercise of this Warrant
shall forthwith be proportionately increased in the case of a subdivision or
stock dividend, or proportionately decreased in the case of a combination.
Appropriate adjustments shall also be made to the Exercise Price payable per
share, but the aggregate purchase price payable for the total number of Warrant
Shares purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 7 shall become effective at the close of business
on the date the subdivision or combination becomes effective, or as of the
record date of such dividend, or in the event that no record date is fixed, upon
the making of such dividend. When any such adjustment is required to be made,
the Company shall promptly notify the Holder of such event and of the number of
shares, the adjusted Exercise Price and the type of securities or property
thereafter purchasable upon exercise of the Warrant.
8. EARLY TERMINATION IN THE EVENT OF MERGER, ETC. In the event of, at
any time during the Exercise Period, an initial public offering of securities of
the Company registered under the Act, or any capital reorganization, or any
reclassification of the capital stock the Company (other than a change in par
value or from par value to no par value or no par value to par value or as a
result of a stock dividend or subdivision, split or combination of shares), or
the consolidation or merger of the Company with or into another corporation, or
the sale or other disposition of all or substantially all the properties and
assets of the Company in its entirety to any other person, the Company shall
provide to the Holder fifteen (15) days advance written notice of such public
offering, reorganization, reclassification, consolidation, merger or sale or
other disposition of the Company's assets, during which period the Holder may
purchase any and all shares then available for purchase. This Warrant shall
terminate unless exercised prior to the date the registration statement related
to such public offering is declared effective or the closing of such
reorganization, reclassification, consolidation, merger or sale or other
disposition of the Company's assets.
9. REPRESENTATIONS OF HOLDER.
9.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents
and warrants that it is acquiring the Warrant solely for its account for
investment and not with a view to or for sale or distribution of said Warrant or
any part thereof. The Holder also represents that the entire legal and
beneficial interests of the Warrant and Warrant Shares is being acquired for,
and will be held for, its account only.
3.
<PAGE>
9.2 SECURITIES ARE NOT REGISTERED.
(a) The Holder understands that this Warrant has not been registered
under the Securities Act of 1933, as amended (the "Act"), on the basis that no
distribution or public offering of the stock of the Company is to be effected.
The Holder realizes that the basis for the exemption may not be present if,
notwithstanding its representations, it has in mind merely acquiring the
securities for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. The Holder has no such
intention.
(b) The Holder recognizes that this Warrant and Warrant Shares being
acquired by it must be held indefinitely unless they are subsequently registered
under the Act or an exemption from such registration is available. The Holder
recognizes that the Company does not have any obligation to register this
Warrant or the Warrant Shares or to comply with any exemption from such
registration.
(c) The Holder is aware that neither this Warrant nor the Warrant
Shares may be sold pursuant to Rule 144 adopted under the Act unless certain
conditions are met and until the Holder has held the Warrant Shares for at least
one year. Among the conditions for use of Rule 144 is the availability of
current information to the public about the Company. The Holder understands
that the Company has not made such information available and has no present
plans to do so.
9.3 The Holder represents and warrants that it is an "accredited investor"
as such term is defined in Rule 501(a) under the Act. Specifically, the Holder
represents and warrants that it is either a corporation or partnership, not
formed for the specific purpose of acquiring securities of the Company, with
total assets in excess of $5,000,000.
9.4 DISPOSITION OF WARRANT AND WARRANT SHARES.
(a) The Holder further agrees not to make any disposition of all or
any part of this Warrant or the Warrant Shares in any event unless and until:
(i) The Company shall have received a letter secured by the
Holder from the Securities and Exchange Commission stating that no action will
be recommended to the Commission with respect to the proposed disposition; or
(ii) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(iii) The Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, the Holder shall have
furnished the
4.
<PAGE>
Company with an opinion of counsel for the Holder to the effect that such
disposition will not require registration of such Warrant or shares under the
Act, and such opinion of counsel for the Holder shall have been concurred in
by the Company's counsel and the Company shall advise the Holder of such
concurrence.
(iv) Notwithstanding the provisions of paragraphs (i), (ii) and
(iii) above, no such Securities and Exchange Commission letter, registration
statement or opinion of counsel shall be required (i) for any transfer of this
Warrant or any shares issuable upon exercise of this Warrant in compliance with
SEC Rule 144 or 144A, or (ii) for any transfer of this Warrant or shares
issuable upon exercise of this Warrant by a Holder that is a partnership or a
corporation to (A) a partner of such partnership or shareholder or affiliate of
such corporation, (B) a retired partner or shareholder, or (iii) for the
transfer by gift, will or intestate succession by any Holder to his or her
spouse or lineal descendants or ancestors or any trust for any of the foregoing.
(b) The Holder understands and agrees that all certificates
evidencing the shares to be issued to Holder may bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
10. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price of this Warrant then in
effect.
11. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
12. NO STOCKHOLDER RIGHTS. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a stockholder with respect to the Warrant
Shares, including (without limitation) the right to vote such Warrant Shares,
receive dividends or other distributions thereon, exercise preemptive rights or
be notified of stockholder
5.
<PAGE>
meetings, and such Holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company.
13. LOSS OR DESTRUCTION OF WARRANT. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of such loss, theft or destruction
of this Warrant, on delivery of indemnity reasonably satisfactory to the Company
or, in the case of mutilation, on surrender and cancellation of the Warrant, the
Company at its expense will execute and deliver to the Holder, in lieu thereof,
a new Warrant of like tenor and denomination.
14. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it shall
not, to the extent requested by the Company or an underwriter of securities of
the Company, sell or otherwise transfer or dispose of any Common Stock or other
shares of stock of the Company then owned by such Holder (other than to donees
or partners of the Holder who agree to be similarly bound) for up to 180 days
following the effective date of a registration statement of the Company filed
under the Act; PROVIDED HOWEVER, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to securities sold
pursuant to such registration statement; and
(b) all executive officers, directors and holders of at least one
percent (1%) of the Company's then outstanding voting securities enter into
similar agreements.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the Common Stock and such other shares of stock of each Holder (and the shares
or securities of every other person subject to the foregoing restriction) until
the end of such period.
15. SUCCESSORS AND ASSIGNS.
(a) The terms and provisions of this Warrant shall inure to the benefit
of, and be binding upon, the Company and the Holders and their respective
successors and assigns.
(b) A Holder may transfer in whole or in part the purchase rights
evidenced hereby to any third party to whom such rights may be transferred
without registration or qualification under federal or state securities laws,
provided: (a) the transferee or assignee receives a Warrant to purchase at
least twenty percent (20%) of the Warrant Shares; (b) the Company is, within a
reasonable time after such transfer or assignment,
6.
<PAGE>
furnished with written notice of the name and address of such transferee or
assignee; (c) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Warrant; and (d) the
transferor shall have delivered to the Company, if reasonably requested by
counsel to the Company, an opinion of counsel substantially to the effect
that the transfer or assignment can be effected without registration or
qualification under applicable federal or state securities laws.
16. AMENDMENTS AND WAIVERS. Any term of this Warrant may be amended and
the observance of any term of this Warrant may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holder.
17. GOVERNING LAW. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
as of the date first written above.
NEWGEN RESULTS CORPORATION
By: ___________________________
Sam Simkin, Vice President
ACKNOWLEDGED AND AGREED:
________________________
By: _______________________________
_______________________________
WARRANT TO PURCHASE COMMON STOCK
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: NEWGEN RESULTS CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder:
CHECK ONE BOX ONLY
/ / 1. _________________________ (______) (1) shares of Common Stock of
Newgen Results Corporation and herewith makes payment of
________________________ Dollars ($______) therefor; OR
/ / 2. The number of shares of Common Stock of Newgen Results
Corporation issuable pursuant to Section 4 of the within Warrant upon
cancellation of the right to exercise ____________(1) shares of Common
Stock of Newgen Results Corporation under the within Warrant, which
cancellation shall hereby occur.
The Undersigned requests that the certificates for such shares be issued in
the name of, and delivered to, ____________________________________, whose
address is _________________________________________________.
The Undersigned (i) makes, as of the date hereof, the representations set
forth in Section 9 of the within Warrant with respect to the shares of Common
Stock acquired hereby and (ii) agrees to be bound by the provisions of Sections
9 and 14 of the within Warrant.
DATED: _______________ ______________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
______________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for additional
Common Stock or any other stock or other securities or property or cash which,
pursuant to Section 7 of the Warrant, may be deliverable upon exercise.
<PAGE>
<TABLE>
<S> <C> <C>
[LOGO] PURCHASE NOTIFICATION SHOW THESE NUMBER ON SHIPPING AND BILLING DOCUMENTS
--------------------------------------------------------------------------------
Blanket order number (if any) Purchase Order number, or Release Authorization
when blanket order is entered at left.
/X/ Release / / Purchase Order / / Requisition No. 2460 293627
- -----------------------------------------------------------------------------------------------------------------------------------
/ / Ford Motor Company, A Delaware corporation DELIVERY Date of order
/ /
------------------------------------------- Type and place ------------------------------------------
------------------------------------------- / / FOB carrier seller's plant Delivery date
(Buyer) will purchase and receive and / / FOB destination
/ /
NEWGEN RESULTS CORPORATION ---------------------------- ------------------------------------------
12680 HIGH BLUFF DR. STE 300 Supplier's code Payment for transportation Payment terms (other)
SAN DIEGO, CA 92130 C30068995 / / Collect / / Prepaid / / Net 15th/30th / /
Prox.
Routing ------------------------------------------
/ / Destination traffic Shipping point
Seller will sell and deliver the supplies and / / Seller's delivery
services specified herein in accordance with
Buyer's standard terms and conditions
(Form No. FGT26, rev. 4/97) which have been
provided separately. Additional copies are
available from Buyer.
- -----------------------------------------------------------------------------------------------------------------------------------
* Ship to: *Invoice to:
- -----------------------------------------------------------------------------------------------------------------------------------
* Quantity *Code Show on all shipping orders * Description of supplies or services Unit Unit Price
- -----------------------------------------------------------------------------------------------------------------------------------
PROFESSIONAL FEES FOR "AROUND THE WHEEL" INSTALLATIONS AS ATTACHED LOT NTE $4,668,905
TRAVEL AND EXPENSES FOR "AROUND THE WHEEL" INSTALLATIONS AS ATTACHED NTE $6,542,425
TOTAL $6,211,830
----------
- ----------------------------- -----------------------------------------------------------
Confirming reference: to-date *For additional information contact: Name-Phone No.
Bob [Illegible] 516-2416 By
- ----------------------------- ----------------------------------------------------------- ---------------------------
</TABLE>
<PAGE>
[LOGO]
GLOBAL TERMS AND CONDITIONS
These terms and conditions and associated documents are issued on behalf of
the Ford company identified on the face of a Purchase Order or Release as the
"Buyer" and will apply to all orders issued to you as the Seller for parts
and materials for production and non-production goods and services
("Supplies"). Purchase Orders and other associated purchasing documents will
be valid without signature if issued by Buyer through its computer system or
other electronic means. The reference to Purchase Order herein shall include
a Release or a Tooling Purchase Order issued by Buyer to Seller.
1. OFFER, ACCEPTANCE
(a) A Purchase Order or Release against a blanket Purchase Order is an offer
to Seller by Buyer to enter into the purchase and supply agreement it
describes. Seller's commencement of work thereunder will constitute
acceptance of the offer.
(b) Once accepted, such Purchase Order together with these terms and
conditions will be the complete and exclusive statement of the purchase
agreement. Any modifications proposed by Seller are not part of the
agreement in the absence of Buyer's written acceptance.
2. MODIFICATIONS
(a) Buyer, at any time, by way of written notice to Seller, may change the
design (including drawings, materials and specifications), processing, method
of packing and shipping, and the date or place of delivery of the Supplies.
(b) If any such change affects cost or timing, Buyer will adjust the purchase
price and delivery schedules equitably.
(c) Seller will not make any change in the design, processing, packing,
shipping or date or place of delivery of the Supplies unless done pursuant to
Buyer's instructions or with Buyer's written approval.
3. SAMPLES
Seller will supply samples in accordance with Buyer's quality standard QS9000
and/or its applicable supplements.
4. BAILED PROPERTY
Seller bears all responsibility for loss of and damage to any property owned
by Buyer and possessed by Seller for use in performing a Purchase Order,
including responsibility for loss and damage which occur despite Seller's
exercise of reasonable care, but excluding normal wear and tear. Seller will
(i) properly house and maintain such property on Seller's premises, (ii)
prominently mark it Property of Buyer, (iii) refrain from commingling it with
the property of Seller or with that of a third party, and (iv) adequately
insure such property against loss or damage. Buyer will have the right to
enter Seller's premises at reasonable times to inspect such property and
Seller's records pertaining thereto. Where permitted by law, Seller waives
any lien which Seller might otherwise have on any of Buyer's property for
work done thereon or otherwise. Seller will assign to Buyer any claims Seller
has against third parties with respect to Buyer's property. Upon request,
Seller immediately will deliver such property at Buyer's option F.O.B.
Carrier Seller's facility (Ex Works Loaded) or F.O.B. Buyer's premises (CIF
Buyer Plant/Delivered Buyer Plant), properly packed and marked in accordance
with the requirements of the carrier and Buyer.
5. DELIVERY DATES, RELEASES
If delivery dates are not specified in a Purchase Order, Seller will procure
materials and fabricate, assemble, and ship Supplies or
1 of 10
<PAGE>
provide services only as authorized in shipment releases issued to Seller by
Buyer. Buyer may return overshipments to Seller at Seller's risk and expense
for all packing, handling, sorting, and transportation. Buyer, at any time
may change or temporarily suspend shipping schedules specified in a Purchase
Order or shipment release or other written instructions issued by Buyer
pursuant to this Section. For Supplies shipped to a European destination, the
Buyer's Material Planning Guide will apply and for Supplies shipped to North
American destinations, Buyer's Material Shipping Guide will apply.
6. PACKING, MARKING, AND SHIPPING
(a) Seller will pack, mark and ship Supplies in accordance with all
applicable packaging standards of Buyer and, as appropriate, the carrier
transporting such Supplies. For Supplies shipped to European destinations,
the applicable standards are contained in Buyer's Supplier Packaging guide
(EU1750) and for Supplies shipped to North American destinations, Buyer's
Ford Packaging Guidelines (MFG ENG 1750) shall apply. Buyer's standards for
Supplies shipped to all other destinations are available upon request. Seller
will ensure that any third parties who supply packaging for Buyer's Supplies
agree to comply with such standards Seller will reimburse Buyer for all
expenses incurred by Buyer as a result of unproper packing, marking, routing,
or shipping.
(b) Upon request, Seller will assist Buyer with regard to packing, marking,
routing, and shipping that will enable Buyer to secure the most economical
transportation rates.
(c) Seller will not charge separately for packing, marking, or shipping, or
for materials used therein unless Buyer specifies in writing that it will
reimburse Seller for such charges.
(d) Buyer may require shipment of any of the Supplies by a more expeditious
method of transportation if Seller fails to meet the shipping requirements of
a Purchase Order and Seller will bear the cost difference of such
transportation unless such failure is due to an excusable delay as specified
in Paragraph 22.
7. SHIPPING DOCUMENTS
(a) For Supplies shipped to European destinations: (i) Bills of Lading and
Advice Notes must accompany each material shipment. In all other respects
Seller shall conform to Buyer's applicable Material Shipping Guide.
(ii) Applicable delivery terms and title transfer are as shown in Buyer's
Material Shipping Guide unless agreed otherwise in writing between the
parties. The delivery term applying to each Purchase Order will be stated
thereon and on any other such documents as are referenced on the relevant
order.
(b) For Supplies shipped to North American destinations, (i) Seller will
obtain a straight bill of lading from the carrier of the Supplies and will
include on each packing slip and bill of lading the number of the relevant
Purchase Order and the destination address.
(ii) Seller will include a numbered master packing slip with each shipment.
For shipments of less than a full carload or truckload, the slip will be
included in one of the packages which will be marked "Packing Slip Inside."
In full carload and truckload shipments the master packing slip will be
enclosed in an unsealed envelope that is affixed near the door on the inside
of the freight vehicles.
(iii) Seller will retain the original bill of lading for three years from the
date of shipment unless otherwise directed by the Traffic Manager at the
destination facility.
(iv) For each international shipment, Seller will comply with the customs
invoicing and documentation requirements of the destination country. Seller
will include a priced invoice (if required) with the master packing slip and
upon request will furnish all other documentation required for export from
Seller's country or import into Buyer's country. Any and all benefits or
credits resulting from a Purchase Order with Buyer including but not limited
to trade credits, export credits, customs drawbacks, rebate of taxes, fees,
etc. will belong to Buyer (unless otherwise stated on a Purchase Order or a
country's practice is to let credits remain with Seller). Seller upon
request will furnish all documents required to obtain the foregoing benefits
and credits and will identify the country of origin of the materials used in
the Supplies and the value added thereto in each country. Additional
customs information is available upon request from Buyer's customs department
in the destination country.
8. INSPECTION
Buyer at its option may reject and return at Seller's risk and expense, or
retain and correct. Supplies that fail to conform to the
2 of 10
<PAGE>
requirements of a Purchase Order even if the nonconformity does not become
apparent until the manufacturing or processing stage. If Buyer elects to
correct the Supplies, it will consult with Seller on the method of
correction. Seller will reimburse Buyer for all reasonable expenses resulting
from rejection or correction.
9. INVOICES, PAYMENT
(a) Seller will operate in accordance with all applicable payment guidelines
provided by Buyer which cover both invoiced items and those handled by
Buyer's Evaluated Receipt System (ERS).
(b) Payment terms will be as specified in the relevant Purchase Order.
(c) Seller agrees that all its accounts with Buyer will be administered on a
net settlement basis and that Buyer may set off debits and credits against
any of Seller's accounts regardless of the Purchase Orders or contracts from
which such debits or credits arise.
10. SERVICE AND REPLACEMENT PARTS
(a) At Buyer's request, Seller will sell to Buyer (i) the Supplies of a
Purchase Order for production parts or components necessary to fulfill
Buyer's current model service and replacement requirements for such Supplies
at the prices specified in the Purchase Order plus any actual cost
differential for packaging, and (ii) if such Supplies are assemblies, service
and replacement parts of the assemblies at prices such that the total price
of all parts of the assembly does not exceed the price of the assembly less
assembly costs, plus any actual cost differential for packaging. Seller shall
comply with Buyer's FCSD Service Parts Guide for such Supplies.
(b) At Buyer's request during the ten-year period after Buyer completes
current model purchases, Seller will sell to Buyer Supplies to fulfill
Buyer's past model service and replacement requirements at the prices
specified in a Purchase Order plus actual cost differentials for packaging
and manufacturing. During the tenth year of such period, Buyer and Seller
will negotiate in good faith with regard to Seller's continued manufacture of
service and replacement Supplies.
11. APPLICABLE TAXES
(a) The total price specified for Supplies on a Purchase Order will include
all elements of freight, duty and tax as specified in the relevant delivery
term with the exception of value added tax (VAT), if applicable, which will
be shown separately on Seller's invoice.
(b) For Supplies to be provided to U.S. destinations by U.S. suppliers, most
purchases will be covered by clauses 11(c), (d) and (e). If not covered by
such provisions, Seller must include sales or use tax if Seller is licensed
to do so by the tax authorities of the destination state. Seller must
identify the sales or use tax on Seller's invoice as a separate item.
(c) For production Supplies shipped to U.S. destinations or services to be
provided in the U.S., Seller will not charge to Buyer state or local sales or
use taxes on such production Supplies and services. Buyer will use such
Supplies and services for resale or in industrial processing or manufacturing
or will attach them to taxable goods for sale.
(d) Seller will not charge to Buyer sales or use taxes on purchases of
prototype, experimental or non-production Supplies or services that are
delivered to Buyer in states in which Buyer has a direct pay permit. Those
destinations and the applicable permit numbers are:
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FORD MOTOR COMPANY
<TABLE>
<CAPTION>
STATE DESTINATION/PLANT PERMIT NO.
<S> <C> <C>
Indiana Indianapolis 003280365-001-5
Georgia Atlanta Assy 060-30-03517-4
Kentucky Kentucky Truck 8448
Louisville Assy 29370
Michigan All Destinations 38-0549190
Minnesota Twin Cities Assy 1032
Missouri Kansas City Assy 10352287
St. Louis Assy 10795952
New Jersey Edison Assembly DP-038-0549190-002
New York Buffalo Stamping 38-0549190C
(DP-000045)
Ohio Batavia 98-001992
Canton 98-000546
Cleveland Casting 98-000548
Cleveland Engine #1 & #2 98-000551
Walton Hills Stamping 98-000554
Sharonville 98-000550
Lima Engine 98-000552
Lorain Assembly 98-000545
and Ohio Truck Plants
Maumee Stamping 98-001860
Sandusky 98-000553
Ford Customer Service and 98-001877
All Other Destinations
Tennessee Nashville Glass 2-380549190-003-8
Virginia Norfolk Assembly 998168-3
</TABLE>
FORD ELECTRONICS & REFRIGERATION CORPORATION
<TABLE>
<CAPTION>
STATE DESTINATION/PLANT PERMIT NO.
<S> <C> <C>
Indiana Bedford 003298086-002-0
Connersville 003298086-001-4
Pennsylvania North Penn Plant 89-11068-3
</TABLE>
(c) Illinois and Oklahoma exempt from sales or use taxes most goods and
services that are used or consumed in manufacturing products for sale. Seller
must not include sales or use taxes for Supplies shipped to the destinations
listed below when a Purchase Order designates that the Supplies are exempt.
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<PAGE>
<TABLE>
<CAPTION>
STATE DESTINATION/PLANT PERMIT NO.
<S> <C> <C>
Illinois Chicago Assembly Plant 0069-1801
Chicago Stamping Plant 759-220-5
Oklahoma Tulsa Glass Plant 127240
</TABLE>
12. WARRANTY
(a) Seller warrants that Supplies under a Purchase Order will, during the
warranty period specified below, conform to the applicable drawings,
specifications, or other description furnished pursuant to the Purchase
Order, and regulations in force in countries where the Supplies or Buyer's
vehicles equipped with the Supplies are to be sold, free of defects in design
(to the extent that Seller furnished the design), materials, and workmanship
and be suitable for the purpose intended.
(b) Seller will indemnify and hold Buyer harmless in respect of the cost of
recall campaigns and other corrective service actions that, in Buyer's
reasonable judgment, are required to rectify nonconformities in the Supplies
that are the result of a breach of the foregoing warranty.
(c) The warranty period for Supplies installed on new vehicles produced by
Buyer will continue for the same period as the new vehicle warranty period
offered by Buyer to its customers in the country in which the vehicle is
sold. For Supplies purchased by Buyer as service and replacement parts, the
warranty period will be the greater of twelve months from delivery to Buyer's
customer or the remainder of the warranty period on the vehicle on which the
part is installed as a service or replacement part. Buyer will provide the
list of countries in which the vehicles will be sold and applicable warranty
periods to Seller upon request.
(d) The warranty period for non-production Supplies shall be the greater of
one year after final acceptance by Buyer, or the period specified on Buyer's
Purchase Order.
13. DEFENSE AND INDEMNITY
(a) At Buyer's request, Seller will defend all claims (including lawsuits,
administrative claims, and other proceedings to recover for personal injury
or death, property damage, or economic losses) that are related in any way to
Seller's performance or obligations under a Purchase Order, including claims
based on Seller's breach of warranty; claims arising out of or related to
work performed by Seller, its employees or subcontractors on Buyer's
premises; and claims for any related violations of any law, ordinance or
regulation. To the full extent permitted by applicable law, Seller will
indemnify Buyer, its directors, officers and employees and authorized dealers
for all expenses (including attorney fees, settlements, and judgments)
incurred by Buyer in connection with such claims. Seller's obligation to
defend and indemnify under this Section will apply regardless of whether the
claim arises in tort, negligence, contract, warranty, strict liability or
otherwise except for claims that arise as a result of the sole negligence of
Buyer.
(b) If Seller provides services to Buyer on Buyer's premises, Seller will
examine the premises to determine whether they are safe for such services and
will advise Buyer promptly of any situation it deems to be unsafe. Seller's
employees, contractors and agents will not possess, use, sell or transfer
illegal drugs, medically unauthorized drugs or controlled substances, or
unauthorized alcohol, and will not be under the influence of alcohol or drugs
on Buyer's premises. For services performed on Buyer's premises in Canada,
Seller must furnish, prior to payment, evidence of compliance with the
Worker's Compensation Act.
14. TITLE AND ENGINEERING DRAWINGS, SPECIFICATIONS
(a) Any documents produced or acquired by Seller under a Purchase Order will
belong to Buyer. Any engineering drawing that Seller is required to prepare
and furnish to Buyer will conform to the requirements of the local Computer
Aided Design standards of the Buyer.
(b) All drawings, know-how, and confidential information supplied to Seller
by Buyer and all rights therein will remain the property of Buyer and will be
kept confidential by Seller in accordance with Section 16(f). Seller is
licensed to use Buyer's drawings, know-how, and confidential information only
for the purpose of fulfilling its obligations under a Purchase Order. In
addition to the obligations of Section 16(f), Seller will not disclose such
drawings to third parties unless this is required for Seller to fulfill its
duties under a Purchase Order. Seller will inform Buyer in writing of any
third parties to whom Seller subcontracts any of the work required under a
Purchase Order specifying in detail the work which has been subcontracted to
such third party. Seller will ensure that any third party to whom Seller
subcontracts any of the work hereunder is bound by all the terms and
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conditions relating to such work to which Seller is bound under a Purchase
Order.
15. INFRINGEMENT AND PROPRIETARY RIGHTS
(a) Seller at its expense will indemnify and hold Buyer harmless with
respect to every claim that may be brought against Buyer or others that use
the Supplies of a Purchase Order on behalf of Buyer, for any alleged
infringement of any present or future patent, copyright, industrial design
right or other proprietary right based on Seller's activity under a Purchase
Order, or the manufacture, sale, or use of the Supplies (i) alone, (ii) in
combination by reason of their content, design or structure, or (iii) in
combination in accordance with Seller's recommendations. Seller will
investigate and defend or otherwise handle every such claim, and at Buyer's
request, assist Buyer in Buyer's investigation, defense, or handling of any
such claim. Seller will pay all expenses and damages or settlement amounts
that Buyer and others selling Buyer's products or using the Supplies of a
Purchase Order on behalf of Buyer may sustain by reason of each such
indemnified claim. Seller's obligations will apply even though Buyer
furnishes all or any portion of the design and specifies all or any portion
of the processing used by Seller.
(b) Seller grants to Buyer a nonexclusive, royalty free, permanent, paid-up,
irrevocable license with a right to grant a sublicense to any of its
Associated Companies to rebuild and have rebuilt the Supplies of a Purchase
Order. Associated Company means Ford Motor Company (U.S.) (if it is not the
Buyer under a Purchase Order) and any company in which Ford Motor Company
(U.S.) owns, directly or indirectly, twenty-five percent or more of the
capital or voting stock.
(c) Seller will neither assert nor transfer to another a right to assert
against Buyer and/or any of its Associated Companies, or dealers or customers
or suppliers thereof, any intellectual property right of Seller that is
applicable to any works of authorship furnished to Buyer or any of Buyer's
Associated Companies in the course of Seller's activity hereunder.
(d) Seller will not sell or otherwise dispose of any product that
incorporates any trademark, patentable invention, copyright work, industrial
design or other matter the subject of any intellectual property right of
Buyer or any of its Associated Companies to any party other than Buyer except
where specifically authorized by Buyer in writing.
16. INFORMATION AND DATA
(a) Seller will furnish to Buyer, or another party designated by Buyer,
without restrictions on use or disclosure, all information and data Seller
acquires or develops in the course of Seller's activities under a Purchase
Order. At Buyer's request, Seller also will discuss with Buyer or another
party designated by Buyer, without restrictions on use or disclosure, any
potential design, quality or manufacturing problems with Supplies Seller
worked on or produced pursuant to a Purchase Order.
(b) At Buyer's request, Seller will furnish to Buyer all other information
and data of Seller which Buyer deems necessary to understand the operation and
to maintain the goods delivered under a Purchase Order, and to understand and
apply the information and data of Section 16(a) hereof, with no restrictions
on use other than Seller's patent rights.
(c) With respect to inventions which Seller conceives or first reduces to
practice in the course of Seller's activities under a Purchase Order, Seller
grants to Buyer a permanent, paid-up, nonexclusive, worldwide license, with a
right to sublicense others, to make, have made, use, have used and sell
manufactures, compositions and machines, and use and have used processes,
covered by patents on such inventions.
(d) Seller grants to Buyer a permanent, paid-up, nonexclusive, worldwide
license, including a license to any operating software incorporated into the
Supplies with a right to grant a sublicense to any of its Associated
Companies, to make, have made, use, have used and sell the Supplies of a
Purchase Order or derivatives thereof under any other patents now or hereafter
owned or controlled by Seller which are deemed necessary by Buyer to exercise
the license of Section 16(c) in the manufacture, use or sale of vehicles
manufactured by or for Buyer or any of its Associated Companies.
(e) Seller grants to Buyer and agrees to grant to any Associated Company
designated by Buyer a nonexclusive license, on reasonable terms and
conditions, to make, have made, use, have used and sell under any other
patents now or hereafter owned or controlled by Seller which cover any
application of the technology embodied in the information or data Seller
acquires or develops in the course of Seller's activities under a Purchase
Order.
(f) Unless otherwise indicated in writing by Buyer, Seller will use
reasonable care to prevent disclosing to others and will use only for the
benefit of Buyer, (i) the technical information and data furnished by Buyer
or developed or acquired by Seller in its work under a Purchase Order, prior
development agreement or early sourcing agreement for Supplies related to or
using such technical information or data, and (ii) information relating to
any portion of Buyer's business that Seller may acquire in the course of
Seller's
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activities under a Purchase Order, prior development agreement or early
sourcing agreement. This obligation shall continue so long as any Purchase
Order for Supplies related to or using such technical information or data is
in effect and for a period of two years thereafter. This obligation will not
apply to information that is or becomes publicly known through no fault of
Seller. Nevertheless, Seller may disclose the information and data of
subsections (f)(i) and (f)(ii) hereof to third parties if this is required
for Seller to fulfill its duties under a Purchase Order and such third
parties have agreed to conditions at least as stringent as those contained
herein.
(g) All technical information and data disclosed heretofore and hereafter by
Seller to Buyer in connection with Supplies of a Purchase Order are disclosed
on a nonconfidential basis.
(h) In the event that Seller, either now or in the future, sells to Buyer or
any of its Associated Companies directly or through another party Supplies
which are related to Seller's experimental or development work under a
Purchase Order in production quantities for at least two of Buyer's or the
Associated Company's model years, the rights and licenses of Section 16(e)
will become paid up and irrevocable. The licenses granted under Section 16(c)
and 16(d) will survive completion or termination of a Purchase Order under
which they are granted.
17. COPYRIGHTS
(a) Any work of authorship created by Seller or Seller's employees under a
Purchase Order which is specially ordered or commissioned by Buyer will be
considered as a "work made for hire" and all copyrights for such works of
authorship will belong to Buyer.
(b) In the event any portion of any work of authorship created by the Seller
in performing the services under a Purchase Order does not qualify as "work
made for hire", Seller hereby assigns or, if Seller has failed to previously
secure ownership of all copyrights in such portion, will obtain title and
assign all copyrights to such work to Buyer.
(c) All such works of authorship will bear a valid copyright notice
designating Buyer as the copyright owner, for example, "Copyright -C- 199X,
Ford Motor Company".
(d) Seller hereby grants to Buyer a permanent, nonexclusive, paid-up,
worldwide license, with a right to grant a sublicense to any of its
Associated Companies, under each copyright it owns and controls or has the
right to license, in each work of authorship fixed in any tangible medium of
expression furnished by Seller to Buyer or its designee pursuant to a
Purchase Order, to use such work, to reproduce such work, to prepare
derivative works, to distribute copies of such work to the public, and to
perform and display such work publicly.
18. SUBCONTRACTS
In each subcontract of Seller's work performed pursuant to a Purchase Order,
Seller will obtain for Buyer the rights and licenses granted in Sections 14,
16, and 17, and, if applicable, Section 29.
19. ADVERTISING
Any reference to Buyer or any of its Associated Companies or use of Buyer's
trade marks or logos by Seller in Seller's advertising or publicity materials
will comply with Buyer's Publicity/Advertising Guidelines (MSP10-150).
20. AUDIT RIGHTS
Buyer will have the right at any reasonable time to send its authorized
representatives to examine all pertinent documents and materials in the
possession or under the control of Seller relating to any of Seller's
obligations under a Purchase Order or any payments requested by Seller
pursuant to a Purchase Order. Seller shall maintain all pertinent books and
records relating to a Purchase Order for a period of two years after
completion of services or delivery of Supplies pursuant to that Purchase
Order.
21. ASSIGNMENT
Seller will not assign all of its substantive duties under a Purchase Order
without Buyer's written approval. Seller will provide Buyer with reasonable
advance written notice of any assignment of Seller's right to receive payment
under a Purchase Order. Any such assignment shall not prohibit Buyer from
enforcing any of its rights against the assignee. Buyer will have the right
to assign
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any benefit or duty under a Purchase Order to any third party upon notice to
Seller.
22. EXCUSABLE DELAYS
Neither Buyer nor Seller will be liable for a failure to perform that arises
from causes or events beyond its reasonable control and without its fault or
negligence, including labor disputes. The party claiming the excusable delay
shall give notice in writing as soon as possible after the occurrence of the
cause relied on and after termination of the condition. In the event of an
excusable delay in performance, Buyer at its option may acquire possession of
all finished goods, work in process, and parts and materials produced or
acquired for the work under a Purchase Order, and Seller will deliver such
articles to Buyer, at Buyer's option. Seller's facility (Ex Works Loaded) or
F.O.B. Buyer's facility (CIF Buyer Plant/Delivered Buyer's Plant). Buyer may
also obtain the Supplies covered by a Purchase Order elsewhere for the
duration of the impediment and a reasonable period thereafter. Prior to the
expiration of any directly related labor contract of Seller, Seller at its
expense will take such actions as Seller may reasonably determine to ensure
the uninterrupted production of supplies for a period of 30 days for Buyer
during any anticipated labor disruption or slowdown resulting from the
expiration of the labor contract.
23. REMEDIES, WAIVER
The individual remedies reserved in a Purchase Order will be in addition to
any remedies provided by law. No waiver of any breach of any provision of a
Purchase Order will constitute a waiver of any other breach of such or any
other provisions.
24. TERMINATION
(a) Unless a Purchase Order specifically states otherwise, Buyer may
terminate its purchase obligations under a Purchase Order, in whole or in
part, at any time by a written notice of termination to Seller. Buyer will
have such right of termination notwithstanding the existence of an Excusable
Delay in Section 22.
(b) Upon receipt of the notice of termination, Seller, unless otherwise
directed by Buyer, will (i) terminate promptly all work under a Purchase
Order; (ii) transfer title and deliver to Buyer the finished work, the work
in process, and the parts and materials which Seller produced or acquired in
accordance with a Purchase Order and which Seller cannot use in producing
goods for itself or for others; (iii) verify/settle all claims by
subcontractors for actual costs that are rendered unrecoverable by such
termination and provided the recovery of materials in Seller's possession is
ensured; and (iv) take actions reasonably necessary to protect property in
Seller's possession in which Buyer has an interest until disposal instruction
from Buyer has been received.
(c) Upon termination by Buyer under this Section, Buyer's obligation to
Seller will be (i) the Purchase Order price for all finished work and
completed services which conform to the requirements of a Purchase Order;
(ii) Seller's actual cost of the work in process and parts and materials
transferred to Buyer in accordance with subsection (b)(ii) hereof; (iii)
Seller's actual costs of settling the claims by subcontractors of subsection
(b)(iii) hereof; and (iv) Seller's actual cost of carrying out its
obligations of subsection (b)(iv) hereof, but Buyer's obligations will not
exceed those Buyer would have had to Seller in the absence of termination.
(d) Seller will furnish to Buyer, within one month after the effective date
of termination, Seller's termination claim, which will consist exclusively
of the items of Buyer's obligation to Seller that are listed in subsection
(c) hereof. Buyer may audit Seller's records, before or subsequent to
payment, to verify amounts requested in Seller's termination claim.
(e) Buyer will have no obligation to Seller under (b), (c), or (d) above if
Buyer terminates its purchase obligations of a Purchase Order because of a
default by Seller.
25. COMPLIANCE WITH LAW
(a) Ford Motor Company (Ford U.S.) serves from time to time as a contractor
for the United States government. The policy of the United States government
expressed in Pub. L. 95-507, that small business concerns and small
disadvantaged business concerns will have the maximum practicable opportunity
to participate in performing contracts of the United States government, and
its clause entitled "Utilization of Small Business Concerns and Small
Business Concerns Owned and Controlled by Socially and Economically
Disadvantaged Individuals," apply to Ford U.S. and its U.S. suppliers. A copy
of the foregoing clause is available from Ford U.S. upon request.
(b) If Ford U.S. is the Buyer, and Seller is a U.S. entity, Seller will
comply with federal laws, rules, and regulations applicable to subcontractors
of government contractors, including those relating to contracting with small
disadvantaged business concerns
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(Pub. L. 95-507), equal employment opportunity and affirmative action in the
employment of minorities (Executive Order 1246), women (Executive Order
11375), the handicapped (29 USC 793), and certain veterans (38 USC 2012),
contracting with business concerns operating in areas of surplus labor (41
CFR 1-1 805); and contracting with women-owned business concerns (Executive
Order 12138).
(c) For Supplies shipped to European destinations Seller will notify Buyer of
the 'Classification of Dangerous Goods' in conformity with the "European
Agreement concerning the International Carriage of Dangerous Goods" prior to
the first delivery of such Supplies.
26. APPLICABLE LAW AND ARBITRATION
(a) A Purchase Order shall be governed by the law of Buyer's principal place
of business without regard to conflict of laws provisions thereof, and
litigation on contractual causes arising from a Purchase Order shall be
brought only in that jurisdiction For Ford Motor Company, a Delaware
corporation and any U.S. subsidiary, joint venture or other operation located
in the U.S., the principal place of business will be deemed to be Michigan.
The UN Convention for the International Sale of Goods is expressly excluded.
(b) If either party initiates litigation on such contractual causes, the
other party shall have the right to initiate mediation and binding
arbitration in accordance with the following: (i) In the case of Ford Motor
Company or any of its U.S. subsidiaries, joint ventures or other operations
located in the U.S., the Model Procedure for Mediation of Business Disputes
of the Center for Public Resources and, in the case of arbitration, the CPR
Rules for Non-Administered Arbitration of Business Disputes ("CPR"). (ii) In
the case of any Ford Company subsidiary, joint venture or other operation
located in Europe, with the then-current Model Procedure for Mediation of
Business Disputes of the CPR Institute for Business Resolution or the
mediation procedures of the Centre for Dispute Resolution ("CEDR") in London
and, in the case of arbitration, the Rules of the London Court of
International Arbitration. Each party will bear equally the costs of the
mediation and arbitration.
(1) The parties will jointly appoint a mutually acceptable mediator or
arbitrator, seeking assistance in such regard from CPR or CEDR, as appropriate,
if they have been unable to agree upon such appointment within 20 days.
(2) The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of 30 days. If the parties are not
successful in resolving the dispute through the mediation, then the parties
agree to submit the matter to binding arbitration by a sole arbitrator in
accordance with the CPR Rules for Non-Administered Arbitration of Business
Disputes, or, where the mediation procedures of CEDR have been adopted, in
accordance with the Rules of the London Court of International Arbitration.
(3) Unless otherwise agreed by the parties in writing, mediation or
arbitration involving Ford Motor Company and any U.S. subsidiary, joint
venture or other operation located in the U.S. shall take place in the City
of Dearborn, Michigan and this clause 26 is subject to the Federal
Arbitration Act, 9 U.S.C.A. Section 1 et seq. and judgment upon the award
rendered by the Arbitrator, if any, may be entered by any U.S. court having
jurisdiction thereof.
Mediation or arbitration involving any Ford Company, subsidiary, joint
venture or other operation located in Europe shall take place in London and
the language shall be English. Equitable remedies shall be available in any
arbitration. Punitive and exemplary damages shall not be awarded.
SUPPLEMENTAL PROVISIONS APPLICABLE TO TOOLING
27. TOOLING ORDER
If Buyer issues a Tooling Purchase Order, Seller will design and fabricate,
rework, or acquire from such sources as Buyer has given prior approval, and
install the tools, dies, fixtures, molds, or patterns, described in such
Tooling Order ("Tooling"), subject to the terms and conditions contained
herein.
28. SAMPLES, STATUS
Seller shall, at its own expense, manufacture a reasonable number of sample
parts on the Tooling for inspection and/or testing by Buyer to ensure the
capability of the Tooling to produce parts which meet Buyer's quality
standard QS9000. In addition to Seller's obligations under Section 12(a), to
the extent technically feasible, the Tooling shall be designed and fabricated
to be sufficiently durable to support the manufacture of all production and
service requirements through the production lifetime of the part and also
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permit the production of Buyer's subsequent service-only requirements. The
Tooling will be deemed to be completed when the necessary samples have been
submitted and approved by Buyer. Buyer may request Seller to furnish
semimonthly (or more frequently at Buyer's option) status reports on the
construction and acquisition of the Tooling. Each status report shall
identify the Tooling, identify the subcontractors working on the Tooling, and
designate the percentage of completion of the work. Seller will notify Buyer
immediately upon becoming aware that the Tooling may not be completed by the
completion date specified on the Tooling Purchase Order and Seller shall
furnish to Buyer a schedule of the actions that Seller will take, at Seller's
expense, to achieve completion on the specified completion date.
29. TITLE, IDENTIFICATION
All right, title, and interest in and to any part of the Tooling shall pass
to Buyer as soon as it is acquired or fabricated in accordance with a Tooling
Purchase Order. All Tooling in the possession of Seller shall be deemed to be
Bailed Property. Seller will (i) properly house and maintain such property on
Seller's premises, (ii) prominently mark it Property of Buyer, (iii) refrain
from commingling it with the property of Seller or with that of a third
party, and (iv) adequately insure it against loss or damage. Seller shall
indemnify Buyer against any claim adverse to Buyer's ownership of the Tooling,
except as such claims may result from any acts or omissions of Buyer. To the
extent permitted by law, Seller waives its right to object to the
repossession of the Tooling by Buyer in the event Seller is involved in
bankruptcy proceedings. While in its possession, Seller, at Seller's expense,
shall maintain the Tooling in first class condition and immediately replace
any items which are lost or destroyed or become worn out. All repaired or
replaced Tooling shall be the property of Buyer. Wear and repair of the
Tooling is Seller's responsibility. None of the Tooling shall be removed from
Seller's premises without Buyer's written consent. Seller shall keep such
records in relation to the Tooling as Buyer may reasonably require. None of
the Tooling shall be used in the production, manufacture or design of any
goods or materials except to the order of Buyer. Seller shall not sell or
otherwise dispose of any product using Buyer's Tooling to any party other
than Buyer except where specifically authorized by Buyer in writing. Seller's
responsibility continues beyond the expiry date of the related parts Purchase
Order. If the Tooling is not utilized to produce any parts for Buyer for a
period of two years, Seller shall so notify Buyer and request instructions as
to the disposition of the Tooling. If Seller subcontracts all or any portion
of the manufacture of the Tooling, Seller shall so notify Buyer in advance
and obtain for Buyer all of the rights contained in this Section 29 from each
such subcontractor used by Seller.
30. TOOLING INVOICES, PAYMENT
(a) Payment for Tooling will be made in accordance with Buyer's
standard/normal payment terms unless stated otherwise on the Tooling Purchase
Order. Seller shall comply with Buyer's Claims Guidelines contained in
Buyer's applicable Tooling Guide.
(b) If a Tooling Purchase Order designates that it is noncompetitively placed
or based on affordable targets, Buyer's payment obligation shall be no more
than the specified maximum, if any, for (i) Seller's actual costs for
purchased materials and services (including purchased Tooling and portions
thereof), and (ii) Seller's actual cost for direct labor and overhead. Seller
shall establish a reasonable accounting system that enables ready
identification of Seller's cost.
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[ILLEGIBLE]
Contact: JAMES P. ZIETY
Published on 07/11/1997. Expires 07/01/1998
-C- Copyright 1995-97, Ford Motor Company
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[LOGO] PURCHASE ORDER
ORIGINAL
Buyer agrees to purchase and receive
Ship To:
MARKETING & SALES OPERATIONS S AF1FB
300 REN CEN BOX 43368 RM 1676
DETROIT , MI 48243
ATTN: JOE RETZBACH
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* THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS
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Blanket Order Number
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Purchase Order Number or Release Authorization when Blanket Order
Number is entered
A50 P099 002382
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Title Transfer Point (FOB) Date of Order
DESTINATION 02/05/99
- ----------------------------------------------------------------------------
Transportation Terms Delivery Date
PREPAID (BY SELLER) 12/01/99
- ----------------------------------------------------------------------------
Payment Terms
NET 15TH & 30TH PROX
- ----------------------------------------------------------------------------
Routing Funds
SELLER'S DELIVERY U.S. DOLLAR
- ----------------------------------------------------------------------------
000007-000010 01-01
NEWGEN RESULTS CORP AL4NA
12680 HIGH BLUFF DR ST 300
SAN DIEGO , CA 92130
(SELLER) will sell and deliver the supplies and services specified herein in
accordance with Buyer's standard terms and conditions (Form No. FGT26, rev
4/97) which have been provided separately. Additional copies are available
from Buyer.
- ----------------------------------------------------------------------------
Taxes *Invoice To
See Buyers Standard Terms and DO NOT INVOICE
Conditions ERS CODE 2
Permit No. SEE INSTRUCTIONS BELOW
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LINE NO.* ITEM NUMBER* QUANTITY* U/M* UNIT PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
001 PLANT PART # - MISC 801715 1 SERVICE 973,500.00000
CONTRACT FOR DEVELOPMENT, INITIAL SET-UP AND COLLECTION OF DEALER DATA FOR
A PERIOD OF NINE MONTHS. SUPPLIER: NEWGEN RESULTS CORPORATION
DO NOT INVOICE. FORD'S PAYMENT OBLIGATION IS AS SPECIFIED
IN PURCHASE ORDER. IF A PRICE IS NOT CORRECT, SEND PRICE
ADVICE WITHIN 10 CALENDAR DAYS OF SHIPMENT. MAIL OR FAX
PRICE ADVICE TO: FORD MOTOR COMPANY, P.O. BOX 6015,
DEARBORN, MI 48121, FAX: (734) 458-0153. IF PAYMENT
DOES NOT AGREE WITH PRICE ADVICE, CONTACT PRICE ADVICE ADMINISTRATION
AT (734) 458-0162. IF PAYMENT IS NOT RECEIVED OR PAYMENT
REFLECTS INCORRECT QUANTITY, CONTACT REQUESTER SHOWN ON THIS ORDER.
IF ORDER SPECIFIES PREPAID AND SUMMARY FREIGHT, INVOICE FREIGHT TO
P.O. BOX 6015. DIRECT EVALUATED RECEIPT SETTLEMENT (ERS) OR PAYMENT
INQUIRIES TO (313) 248-4860.
TOTAL $ 973,500.00
</TABLE>
REQUESTOR: JOE RETZBACH - 3139999999
BUYER: DENNIS GLINSKI #4707 - (313)-337-5218
REQUISITION NO.: RQ98356R06
PAGE 1 OF 1 LINE ITEM TOTAL=1
<PAGE>
[LOGO] PURCHASE ORDER
ORIGINAL
Buyer agrees to purchase and receive
Ship To:
FORD CUSTOMER SERVICE DIV FCSD AF52R
OWNER RELATIONS OPERATIONS
300 REN CEN/S LOBBY DCK/RM 1270
DETROIT , MI 48243
ATTN: ELENA BARRON
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
* THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS
- ----------------------------------------------------------------------------
Blanket Order Number
- ----------------------------------------------------------------------------
Purchase Order Number or Release Authorization when Blanket Order
Number is entered
FO2 P099 857428
- ----------------------------------------------------------------------------
Title Transfer Point (FOB) Date of Order
ORIGIN: CARRIER SELLER'S PLANT 02/24/99
- ----------------------------------------------------------------------------
Transportation Terms Delivery Date
COLLECT 02/11/99
- ----------------------------------------------------------------------------
Payment Terms
NET 15TH & 30TH PROX
- ----------------------------------------------------------------------------
Routing Funds
BY DESTINATION TRAFFIC U.S. DOLLAR
- ----------------------------------------------------------------------------
000007-000010 01-01
NEWGEN RESULTS CORP AL4NA
12680 HIGH BLUFF DR ST 300
SAN DIEGO , CA 92130
(SELLER) will sell and deliver the supplies and services specified herein in
accordance with Buyer's standard terms and conditions (Form No. FGT26, rev
4/97) which have been provided separately. Additional copies are available
from Buyer.
- ----------------------------------------------------------------------------
Taxes *Invoice To
See Buyers Standard Terms and DO NOT INVOICE
Conditions ERS CODE 1
Permit No. SEE INSTRUCTIONS BELOW
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LINE NO.* ITEM NUMBER* QUANTITY* U/M* UNIT PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
001 PLANT PART # - MISC 900400 1 EACH 175,500.00000
DEVELOP MODULE
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LINE NO.* ITEM NUMBER* QUANTITY* U/M* UNIT PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
002 PLANT PART # - MISC 900401 1 EACH 25,000.00000
INCIDENTALS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LINE NO.* ITEM NUMBER* QUANTITY* U/M* UNIT PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
003 PLANT PART # - MISC 900411 1 SERVICE 9,000.00000
BUILD LIBRARY
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LINE NO.* ITEM NUMBER* QUANTITY* U/M* UNIT PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
004 PLANT PART # - MISC 900412 1 SERVICE 90,000.00000
EXCEPTION REPORTING
</TABLE>
REQUESTOR: KAREN KEYLON - 3134467663
BUYER: GREG HOLOWICKI (4732) - (313)-337-1879
REQUISITION NO.: RQ99042R10
PAGE 1 OF 2 LINE ITEM TOTAL=5
<PAGE>
[LOGO] PURCHASE ORDER
ORIGINAL
- ----------------------------------------------------------------------------
* THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS
- ----------------------------------------------------------------------------
Blanket Order Number
- ----------------------------------------------------------------------------
Purchase Order Number or Release Authorization when Blanket Order
Number is entered
F02 P099 857428
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LINE NO.* ITEM NUMBER* QUANTITY* U/M* UNIT PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
005 PLANT PART # - MISC 900414 1 SERVICE 12,000.00000
SUPPORT
DO NOT INVOICE OR SEND PRICE ADVICE.
FORD'S PAYMENT OBLIGATION IS AS SPECIFIED IN THE PURCHASE ORDER. IF PRICE
SHOWN ON THIS DOCUMENT IS NOT CORRECT, CONTACT BUYER SHOWN ON THIS ORDER
BEFORE SHIPMENT. IF PAYMENT IS NOT RECEIVED OR PAYMENT REFLECTS INCORRECT
QUANTITY, CONTACT REQUESTOR SHOWN ON THIS ORDER.
IF ORDER SPECIFIES PREPAID AND SUMMARY FREIGHT, INVOICE FREIGHT TO P.O. BOX
6015, DEARBORN, MI 48121. DIRECT EVALUATED RECEIPT SETTLEMENT (ERS) OR
PAYMENT INQUIRIES TO (313) 248-4860.
TOTAL $ 311,500.00
</TABLE>
PAGE 2 OF 2 LINE ITEM TOTAL=5
<PAGE>
<TABLE>
<S> <C> <C>
[LOGO] PURCHASE NOTIFICATION SHOW THESE NUMBER ON SHIPPING AND BILLING DOCUMENTS
--------------------------------------------------------------------------------
Blanket order number (if any) Purchase Order number, or Release Authorization
when blanket order is entered at left.
/X/ Release / / Purchase Order / / Requisition No. 2460 293627
- -----------------------------------------------------------------------------------------------------------------------------------
/ / Ford Motor Company, A Delaware corporation DELIVERY Date of order
/ /
------------------------------------------- Type and place ------------------------------------------
------------------------------------------- / / FOB carrier seller's plant Delivery date
(Buyer) will purchase and receive and / / FOB destination
/ /
NEWGEN RESULTS CORPORATION ---------------------------- ------------------------------------------
12680 HIGH BLUFF DR. STE 300 Supplier's code Payment for transportation Payment terms (other)
SAN DIEGO, CA 92130 C30068995 / / Collect / / Prepaid / / Net 15th/30th / /
Prox.
Routing ------------------------------------------
/ / Destination traffic Shipping point
Seller will sell and deliver the supplies and / / Seller's delivery
services specified herein in accordance with
Buyer's standard terms and conditions
(Form No. FGT26, rev. 4/97) which have been
provided separately. Additional copies are
available from Buyer.
- -----------------------------------------------------------------------------------------------------------------------------------
* Ship to: *Invoice to:
- -----------------------------------------------------------------------------------------------------------------------------------
* Quantity *Code Show on all shipping orders * Description of supplies or services Unit Unit Price
- -----------------------------------------------------------------------------------------------------------------------------------
PROFESSIONAL FEES FOR "AROUND THE WHEEL" INSTALLATIONS AS ATTACHED LOT NTE $4,668,905
TRAVEL AND EXPENSES FOR "AROUND THE WHEEL" INSTALLATIONS AS ATTACHED NTE $6,542,425
TOTAL $6,211,830
----------
- ----------------------------- -----------------------------------------------------------
Confirming reference: to-date *For additional information contact: Name-Phone No.
Bob [Illegible] 516-2416 By
- ----------------------------- ----------------------------------------------------------- ---------------------------
</TABLE>
<PAGE>
[LOGO]
GLOBAL TERMS AND CONDITIONS
These terms and conditions and associated documents are issued on behalf of
the Ford company identified on the face of a Purchase Order or Release as the
"Buyer" and will apply to all orders issued to you as the Seller for parts
and materials for production and non-production goods and services
("Supplies"). Purchase Orders and other associated purchasing documents will
be valid without signature if issued by Buyer through its computer system or
other electronic means. The reference to Purchase Order herein shall include
a Release or a Tooling Purchase Order issued by Buyer to Seller.
1. OFFER, ACCEPTANCE
(a) A Purchase Order or Release against a blanket Purchase Order is an offer
to Seller by Buyer to enter into the purchase and supply agreement it
describes. Seller's commencement of work thereunder will constitute
acceptance of the offer.
(b) Once accepted, such Purchase Order together with these terms and
conditions will be the complete and exclusive statement of the purchase
agreement. Any modifications proposed by Seller are not part of the
agreement in the absence of Buyer's written acceptance.
2. MODIFICATIONS
(a) Buyer, at any time, by way of written notice to Seller, may change the
design (including drawings, materials and specifications), processing, method
of packing and shipping, and the date or place of delivery of the Supplies.
(b) If any such change affects cost or timing, Buyer will adjust the purchase
price and delivery schedules equitably.
(c) Seller will not make any change in the design, processing, packing,
shipping or date or place of delivery of the Supplies unless done pursuant to
Buyer's instructions or with Buyer's written approval.
3. SAMPLES
Seller will supply samples in accordance with Buyer's quality standard QS9000
and/or its applicable supplements.
4. BAILED PROPERTY
Seller bears all responsibility for loss of and damage to any property owned
by Buyer and possessed by Seller for use in performing a Purchase Order,
including responsibility for loss and damage which occur despite Seller's
exercise of reasonable care, but excluding normal wear and tear. Seller will
(i) properly house and maintain such property on Seller's premises, (ii)
prominently mark it Property of Buyer, (iii) refrain from commingling it with
the property of Seller or with that of a third party, and (iv) adequately
insure such property against loss or damage. Buyer will have the right to
enter Seller's premises at reasonable times to inspect such property and
Seller's records pertaining thereto. Where permitted by law, Seller waives
any lien which Seller might otherwise have on any of Buyer's property for
work done thereon or otherwise. Seller will assign to Buyer any claims Seller
has against third parties with respect to Buyer's property. Upon request,
Seller immediately will deliver such property at Buyer's option F.O.B.
Carrier Seller's facility (Ex Works Loaded) or F.O.B. Buyer's premises (CIF
Buyer Plant/Delivered Buyer Plant), properly packed and marked in accordance
with the requirements of the carrier and Buyer.
5. DELIVERY DATES, RELEASES
If delivery dates are not specified in a Purchase Order, Seller will procure
materials and fabricate, assemble, and ship Supplies or
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provide services only as authorized in shipment releases issued to Seller by
Buyer. Buyer may return overshipments to Seller at Seller's risk and expense
for all packing, handling, sorting, and transportation. Buyer, at any time
may change or temporarily suspend shipping schedules specified in a Purchase
Order or shipment release or other written instructions issued by Buyer
pursuant to this Section. For Supplies shipped to a European destination, the
Buyer's Material Planning Guide will apply and for Supplies shipped to North
American destinations, Buyer's Material Shipping Guide will apply.
6. PACKING, MARKING, AND SHIPPING
(a) Seller will pack, mark and ship Supplies in accordance with all
applicable packaging standards of Buyer and, as appropriate, the carrier
transporting such Supplies. For Supplies shipped to European destinations,
the applicable standards are contained in Buyer's Supplier Packaging guide
(EU1750) and for Supplies shipped to North American destinations, Buyer's
Ford Packaging Guidelines (MFG ENG 1750) shall apply. Buyer's standards for
Supplies shipped to all other destinations are available upon request. Seller
will ensure that any third parties who supply packaging for Buyer's Supplies
agree to comply with such standards Seller will reimburse Buyer for all
expenses incurred by Buyer as a result of unproper packing, marking, routing,
or shipping.
(b) Upon request, Seller will assist Buyer with regard to packing, marking,
routing, and shipping that will enable Buyer to secure the most economical
transportation rates.
(c) Seller will not charge separately for packing, marking, or shipping, or
for materials used therein unless Buyer specifies in writing that it will
reimburse Seller for such charges.
(d) Buyer may require shipment of any of the Supplies by a more expeditious
method of transportation if Seller fails to meet the shipping requirements of
a Purchase Order and Seller will bear the cost difference of such
transportation unless such failure is due to an excusable delay as specified
in Paragraph 22.
7. SHIPPING DOCUMENTS
(a) For Supplies shipped to European destinations: (i) Bills of Lading and
Advice Notes must accompany each material shipment. In all other respects
Seller shall conform to Buyer's applicable Material Shipping Guide.
(ii) Applicable delivery terms and title transfer are as shown in Buyer's
Material Shipping Guide unless agreed otherwise in writing between the
parties. The delivery term applying to each Purchase Order will be stated
thereon and on any other such documents as are referenced on the relevant
order.
(b) For Supplies shipped to North American destinations, (i) Seller will
obtain a straight bill of lading from the carrier of the Supplies and will
include on each packing slip and bill of lading the number of the relevant
Purchase Order and the destination address.
(ii) Seller will include a numbered master packing slip with each shipment.
For shipments of less than a full carload or truckload, the slip will be
included in one of the packages which will be marked "Packing Slip Inside."
In full carload and truckload shipments the master packing slip will be
enclosed in an unsealed envelope that is affixed near the door on the inside
of the freight vehicles.
(iii) Seller will retain the original bill of lading for three years from the
date of shipment unless otherwise directed by the Traffic Manager at the
destination facility.
(iv) For each international shipment, Seller will comply with the customs
invoicing and documentation requirements of the destination country. Seller
will include a priced invoice (if required) with the master packing slip and
upon request will furnish all other documentation required for export from
Seller's country or import into Buyer's country. Any and all benefits or
credits resulting from a Purchase Order with Buyer including but not limited
to trade credits, export credits, customs drawbacks, rebate of taxes, fees,
etc. will belong to Buyer (unless otherwise stated on a Purchase Order or a
country's practice is to let credits remain with Seller). Seller upon
request will furnish all documents required to obtain the foregoing benefits
and credits and will identify the country of origin of the materials used in
the Supplies and the value added thereto in each country. Additional
customs information is available upon request from Buyer's customs department
in the destination country.
8. INSPECTION
Buyer at its option may reject and return at Seller's risk and expense, or
retain and correct. Supplies that fail to conform to the
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<PAGE>
requirements of a Purchase Order even if the nonconformity does not become
apparent until the manufacturing or processing stage. If Buyer elects to
correct the Supplies, it will consult with Seller on the method of
correction. Seller will reimburse Buyer for all reasonable expenses resulting
from rejection or correction.
9. INVOICES, PAYMENT
(a) Seller will operate in accordance with all applicable payment guidelines
provided by Buyer which cover both invoiced items and those handled by
Buyer's Evaluated Receipt System (ERS).
(b) Payment terms will be as specified in the relevant Purchase Order.
(c) Seller agrees that all its accounts with Buyer will be administered on a
net settlement basis and that Buyer may set off debits and credits against
any of Seller's accounts regardless of the Purchase Orders or contracts from
which such debits or credits arise.
10. SERVICE AND REPLACEMENT PARTS
(a) At Buyer's request, Seller will sell to Buyer (i) the Supplies of a
Purchase Order for production parts or components necessary to fulfill
Buyer's current model service and replacement requirements for such Supplies
at the prices specified in the Purchase Order plus any actual cost
differential for packaging, and (ii) if such Supplies are assemblies, service
and replacement parts of the assemblies at prices such that the total price
of all parts of the assembly does not exceed the price of the assembly less
assembly costs, plus any actual cost differential for packaging. Seller shall
comply with Buyer's FCSD Service Parts Guide for such Supplies.
(b) At Buyer's request during the ten-year period after Buyer completes
current model purchases, Seller will sell to Buyer Supplies to fulfill
Buyer's past model service and replacement requirements at the prices
specified in a Purchase Order plus actual cost differentials for packaging
and manufacturing. During the tenth year of such period, Buyer and Seller
will negotiate in good faith with regard to Seller's continued manufacture of
service and replacement Supplies.
11. APPLICABLE TAXES
(a) The total price specified for Supplies on a Purchase Order will include
all elements of freight, duty and tax as specified in the relevant delivery
term with the exception of value added tax (VAT), if applicable, which will
be shown separately on Seller's invoice.
(b) For Supplies to be provided to U.S. destinations by U.S. suppliers, most
purchases will be covered by clauses 11(c), (d) and (e). If not covered by
such provisions, Seller must include sales or use tax if Seller is licensed
to do so by the tax authorities of the destination state. Seller must
identify the sales or use tax on Seller's invoice as a separate item.
(c) For production Supplies shipped to U.S. destinations or services to be
provided in the U.S., Seller will not charge to Buyer state or local sales or
use taxes on such production Supplies and services. Buyer will use such
Supplies and services for resale or in industrial processing or manufacturing
or will attach them to taxable goods for sale.
(d) Seller will not charge to Buyer sales or use taxes on purchases of
prototype, experimental or non-production Supplies or services that are
delivered to Buyer in states in which Buyer has a direct pay permit. Those
destinations and the applicable permit numbers are:
3 of 10
<PAGE>
FORD MOTOR COMPANY
<TABLE>
<CAPTION>
STATE DESTINATION/PLANT PERMIT NO.
<S> <C> <C>
Indiana Indianapolis 003280365-001-5
Georgia Atlanta Assy 060-30-03517-4
Kentucky Kentucky Truck 8448
Louisville Assy 29370
Michigan All Destinations 38-0549190
Minnesota Twin Cities Assy 1032
Missouri Kansas City Assy 10352287
St. Louis Assy 10795952
New Jersey Edison Assembly DP-038-0549190-002
New York Buffalo Stamping 38-0549190C
(DP-000045)
Ohio Batavia 98-001992
Canton 98-000546
Cleveland Casting 98-000548
Cleveland Engine #1 & #2 98-000551
Walton Hills Stamping 98-000554
Sharonville 98-000550
Lima Engine 98-000552
Lorain Assembly 98-000545
and Ohio Truck Plants
Maumee Stamping 98-001860
Sandusky 98-000553
Ford Customer Service and 98-001877
All Other Destinations
Tennessee Nashville Glass 2-380549190-003-8
Virginia Norfolk Assembly 998168-3
</TABLE>
FORD ELECTRONICS & REFRIGERATION CORPORATION
<TABLE>
<CAPTION>
STATE DESTINATION/PLANT PERMIT NO.
<S> <C> <C>
Indiana Bedford 003298086-002-0
Connersville 003298086-001-4
Pennsylvania North Penn Plant 89-11068-3
</TABLE>
(c) Illinois and Oklahoma exempt from sales or use taxes most goods and
services that are used or consumed in manufacturing products for sale. Seller
must not include sales or use taxes for Supplies shipped to the destinations
listed below when a Purchase Order designates that the Supplies are exempt.
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<PAGE>
<TABLE>
<CAPTION>
STATE DESTINATION/PLANT PERMIT NO.
<S> <C> <C>
Illinois Chicago Assembly Plant 0069-1801
Chicago Stamping Plant 759-220-5
Oklahoma Tulsa Glass Plant 127240
</TABLE>
12. WARRANTY
(a) Seller warrants that Supplies under a Purchase Order will, during the
warranty period specified below, conform to the applicable drawings,
specifications, or other description furnished pursuant to the Purchase
Order, and regulations in force in countries where the Supplies or Buyer's
vehicles equipped with the Supplies are to be sold, free of defects in design
(to the extent that Seller furnished the design), materials, and workmanship
and be suitable for the purpose intended.
(b) Seller will indemnify and hold Buyer harmless in respect of the cost of
recall campaigns and other corrective service actions that, in Buyer's
reasonable judgment, are required to rectify nonconformities in the Supplies
that are the result of a breach of the foregoing warranty.
(c) The warranty period for Supplies installed on new vehicles produced by
Buyer will continue for the same period as the new vehicle warranty period
offered by Buyer to its customers in the country in which the vehicle is
sold. For Supplies purchased by Buyer as service and replacement parts, the
warranty period will be the greater of twelve months from delivery to Buyer's
customer or the remainder of the warranty period on the vehicle on which the
part is installed as a service or replacement part. Buyer will provide the
list of countries in which the vehicles will be sold and applicable warranty
periods to Seller upon request.
(d) The warranty period for non-production Supplies shall be the greater of
one year after final acceptance by Buyer, or the period specified on Buyer's
Purchase Order.
13. DEFENSE AND INDEMNITY
(a) At Buyer's request, Seller will defend all claims (including lawsuits,
administrative claims, and other proceedings to recover for personal injury
or death, property damage, or economic losses) that are related in any way to
Seller's performance or obligations under a Purchase Order, including claims
based on Seller's breach of warranty; claims arising out of or related to
work performed by Seller, its employees or subcontractors on Buyer's
premises; and claims for any related violations of any law, ordinance or
regulation. To the full extent permitted by applicable law, Seller will
indemnify Buyer, its directors, officers and employees and authorized dealers
for all expenses (including attorney fees, settlements, and judgments)
incurred by Buyer in connection with such claims. Seller's obligation to
defend and indemnify under this Section will apply regardless of whether the
claim arises in tort, negligence, contract, warranty, strict liability or
otherwise except for claims that arise as a result of the sole negligence of
Buyer.
(b) If Seller provides services to Buyer on Buyer's premises, Seller will
examine the premises to determine whether they are safe for such services and
will advise Buyer promptly of any situation it deems to be unsafe. Seller's
employees, contractors and agents will not possess, use, sell or transfer
illegal drugs, medically unauthorized drugs or controlled substances, or
unauthorized alcohol, and will not be under the influence of alcohol or drugs
on Buyer's premises. For services performed on Buyer's premises in Canada,
Seller must furnish, prior to payment, evidence of compliance with the
Worker's Compensation Act.
14. TITLE AND ENGINEERING DRAWINGS, SPECIFICATIONS
(a) Any documents produced or acquired by Seller under a Purchase Order will
belong to Buyer. Any engineering drawing that Seller is required to prepare
and furnish to Buyer will conform to the requirements of the local Computer
Aided Design standards of the Buyer.
(b) All drawings, know-how, and confidential information supplied to Seller
by Buyer and all rights therein will remain the property of Buyer and will be
kept confidential by Seller in accordance with Section 16(f). Seller is
licensed to use Buyer's drawings, know-how, and confidential information only
for the purpose of fulfilling its obligations under a Purchase Order. In
addition to the obligations of Section 16(f), Seller will not disclose such
drawings to third parties unless this is required for Seller to fulfill its
duties under a Purchase Order. Seller will inform Buyer in writing of any
third parties to whom Seller subcontracts any of the work required under a
Purchase Order specifying in detail the work which has been subcontracted to
such third party. Seller will ensure that any third party to whom Seller
subcontracts any of the work hereunder is bound by all the terms and
5 of 10
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conditions relating to such work to which Seller is bound under a Purchase
Order.
15. INFRINGEMENT AND PROPRIETARY RIGHTS
(a) Seller at its expense will indemnify and hold Buyer harmless with
respect to every claim that may be brought against Buyer or others that use
the Supplies of a Purchase Order on behalf of Buyer, for any alleged
infringement of any present or future patent, copyright, industrial design
right or other proprietary right based on Seller's activity under a Purchase
Order, or the manufacture, sale, or use of the Supplies (i) alone, (ii) in
combination by reason of their content, design or structure, or (iii) in
combination in accordance with Seller's recommendations. Seller will
investigate and defend or otherwise handle every such claim, and at Buyer's
request, assist Buyer in Buyer's investigation, defense, or handling of any
such claim. Seller will pay all expenses and damages or settlement amounts
that Buyer and others selling Buyer's products or using the Supplies of a
Purchase Order on behalf of Buyer may sustain by reason of each such
indemnified claim. Seller's obligations will apply even though Buyer
furnishes all or any portion of the design and specifies all or any portion
of the processing used by Seller.
(b) Seller grants to Buyer a nonexclusive, royalty free, permanent, paid-up,
irrevocable license with a right to grant a sublicense to any of its
Associated Companies to rebuild and have rebuilt the Supplies of a Purchase
Order. Associated Company means Ford Motor Company (U.S.) (if it is not the
Buyer under a Purchase Order) and any company in which Ford Motor Company
(U.S.) owns, directly or indirectly, twenty-five percent or more of the
capital or voting stock.
(c) Seller will neither assert nor transfer to another a right to assert
against Buyer and/or any of its Associated Companies, or dealers or customers
or suppliers thereof, any intellectual property right of Seller that is
applicable to any works of authorship furnished to Buyer or any of Buyer's
Associated Companies in the course of Seller's activity hereunder.
(d) Seller will not sell or otherwise dispose of any product that
incorporates any trademark, patentable invention, copyright work, industrial
design or other matter the subject of any intellectual property right of
Buyer or any of its Associated Companies to any party other than Buyer except
where specifically authorized by Buyer in writing.
16. INFORMATION AND DATA
(a) Seller will furnish to Buyer, or another party designated by Buyer,
without restrictions on use or disclosure, all information and data Seller
acquires or develops in the course of Seller's activities under a Purchase
Order. At Buyer's request, Seller also will discuss with Buyer or another
party designated by Buyer, without restrictions on use or disclosure, any
potential design, quality or manufacturing problems with Supplies Seller
worked on or produced pursuant to a Purchase Order.
(b) At Buyer's request, Seller will furnish to Buyer all other information
and data of Seller which Buyer deems necessary to understand the operation and
to maintain the goods delivered under a Purchase Order, and to understand and
apply the information and data of Section 16(a) hereof, with no restrictions
on use other than Seller's patent rights.
(c) With respect to inventions which Seller conceives or first reduces to
practice in the course of Seller's activities under a Purchase Order, Seller
grants to Buyer a permanent, paid-up, nonexclusive, worldwide license, with a
right to sublicense others, to make, have made, use, have used and sell
manufactures, compositions and machines, and use and have used processes,
covered by patents on such inventions.
(d) Seller grants to Buyer a permanent, paid-up, nonexclusive, worldwide
license, including a license to any operating software incorporated into the
Supplies with a right to grant a sublicense to any of its Associated
Companies, to make, have made, use, have used and sell the Supplies of a
Purchase Order or derivatives thereof under any other patents now or hereafter
owned or controlled by Seller which are deemed necessary by Buyer to exercise
the license of Section 16(c) in the manufacture, use or sale of vehicles
manufactured by or for Buyer or any of its Associated Companies.
(e) Seller grants to Buyer and agrees to grant to any Associated Company
designated by Buyer a nonexclusive license, on reasonable terms and
conditions, to make, have made, use, have used and sell under any other
patents now or hereafter owned or controlled by Seller which cover any
application of the technology embodied in the information or data Seller
acquires or develops in the course of Seller's activities under a Purchase
Order.
(f) Unless otherwise indicated in writing by Buyer, Seller will use
reasonable care to prevent disclosing to others and will use only for the
benefit of Buyer, (i) the technical information and data furnished by Buyer
or developed or acquired by Seller in its work under a Purchase Order, prior
development agreement or early sourcing agreement for Supplies related to or
using such technical information or data, and (ii) information relating to
any portion of Buyer's business that Seller may acquire in the course of
Seller's
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activities under a Purchase Order, prior development agreement or early
sourcing agreement. This obligation shall continue so long as any Purchase
Order for Supplies related to or using such technical information or data is
in effect and for a period of two years thereafter. This obligation will not
apply to information that is or becomes publicly known through no fault of
Seller. Nevertheless, Seller may disclose the information and data of
subsections (f)(i) and (f)(ii) hereof to third parties if this is required
for Seller to fulfill its duties under a Purchase Order and such third
parties have agreed to conditions at least as stringent as those contained
herein.
(g) All technical information and data disclosed heretofore and hereafter by
Seller to Buyer in connection with Supplies of a Purchase Order are disclosed
on a nonconfidential basis.
(h) In the event that Seller, either now or in the future, sells to Buyer or
any of its Associated Companies directly or through another party Supplies
which are related to Seller's experimental or development work under a
Purchase Order in production quantities for at least two of Buyer's or the
Associated Company's model years, the rights and licenses of Section 16(e)
will become paid up and irrevocable. The licenses granted under Section 16(c)
and 16(d) will survive completion or termination of a Purchase Order under
which they are granted.
17. COPYRIGHTS
(a) Any work of authorship created by Seller or Seller's employees under a
Purchase Order which is specially ordered or commissioned by Buyer will be
considered as a "work made for hire" and all copyrights for such works of
authorship will belong to Buyer.
(b) In the event any portion of any work of authorship created by the Seller
in performing the services under a Purchase Order does not qualify as "work
made for hire", Seller hereby assigns or, if Seller has failed to previously
secure ownership of all copyrights in such portion, will obtain title and
assign all copyrights to such work to Buyer.
(c) All such works of authorship will bear a valid copyright notice
designating Buyer as the copyright owner, for example, "Copyright -C- 199X,
Ford Motor Company".
(d) Seller hereby grants to Buyer a permanent, nonexclusive, paid-up,
worldwide license, with a right to grant a sublicense to any of its
Associated Companies, under each copyright it owns and controls or has the
right to license, in each work of authorship fixed in any tangible medium of
expression furnished by Seller to Buyer or its designee pursuant to a
Purchase Order, to use such work, to reproduce such work, to prepare
derivative works, to distribute copies of such work to the public, and to
perform and display such work publicly.
18. SUBCONTRACTS
In each subcontract of Seller's work performed pursuant to a Purchase Order,
Seller will obtain for Buyer the rights and licenses granted in Sections 14,
16, and 17, and, if applicable, Section 29.
19. ADVERTISING
Any reference to Buyer or any of its Associated Companies or use of Buyer's
trade marks or logos by Seller in Seller's advertising or publicity materials
will comply with Buyer's Publicity/Advertising Guidelines (MSP10-150).
20. AUDIT RIGHTS
Buyer will have the right at any reasonable time to send its authorized
representatives to examine all pertinent documents and materials in the
possession or under the control of Seller relating to any of Seller's
obligations under a Purchase Order or any payments requested by Seller
pursuant to a Purchase Order. Seller shall maintain all pertinent books and
records relating to a Purchase Order for a period of two years after
completion of services or delivery of Supplies pursuant to that Purchase
Order.
21. ASSIGNMENT
Seller will not assign all of its substantive duties under a Purchase Order
without Buyer's written approval. Seller will provide Buyer with reasonable
advance written notice of any assignment of Seller's right to receive payment
under a Purchase Order. Any such assignment shall not prohibit Buyer from
enforcing any of its rights against the assignee. Buyer will have the right
to assign
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any benefit or duty under a Purchase Order to any third party upon notice to
Seller.
22. EXCUSABLE DELAYS
Neither Buyer nor Seller will be liable for a failure to perform that arises
from causes or events beyond its reasonable control and without its fault or
negligence, including labor disputes. The party claiming the excusable delay
shall give notice in writing as soon as possible after the occurrence of the
cause relied on and after termination of the condition. In the event of an
excusable delay in performance, Buyer at its option may acquire possession of
all finished goods, work in process, and parts and materials produced or
acquired for the work under a Purchase Order, and Seller will deliver such
articles to Buyer, at Buyer's option. Seller's facility (Ex Works Loaded) or
F.O.B. Buyer's facility (CIF Buyer Plant/Delivered Buyer's Plant). Buyer may
also obtain the Supplies covered by a Purchase Order elsewhere for the
duration of the impediment and a reasonable period thereafter. Prior to the
expiration of any directly related labor contract of Seller, Seller at its
expense will take such actions as Seller may reasonably determine to ensure
the uninterrupted production of supplies for a period of 30 days for Buyer
during any anticipated labor disruption or slowdown resulting from the
expiration of the labor contract.
23. REMEDIES, WAIVER
The individual remedies reserved in a Purchase Order will be in addition to
any remedies provided by law. No waiver of any breach of any provision of a
Purchase Order will constitute a waiver of any other breach of such or any
other provisions.
24. TERMINATION
(a) Unless a Purchase Order specifically states otherwise, Buyer may
terminate its purchase obligations under a Purchase Order, in whole or in
part, at any time by a written notice of termination to Seller. Buyer will
have such right of termination notwithstanding the existence of an Excusable
Delay in Section 22.
(b) Upon receipt of the notice of termination, Seller, unless otherwise
directed by Buyer, will (i) terminate promptly all work under a Purchase
Order; (ii) transfer title and deliver to Buyer the finished work, the work
in process, and the parts and materials which Seller produced or acquired in
accordance with a Purchase Order and which Seller cannot use in producing
goods for itself or for others; (iii) verify/settle all claims by
subcontractors for actual costs that are rendered unrecoverable by such
termination and provided the recovery of materials in Seller's possession is
ensured; and (iv) take actions reasonably necessary to protect property in
Seller's possession in which Buyer has an interest until disposal instruction
from Buyer has been received.
(c) Upon termination by Buyer under this Section, Buyer's obligation to
Seller will be (i) the Purchase Order price for all finished work and
completed services which conform to the requirements of a Purchase Order;
(ii) Seller's actual cost of the work in process and parts and materials
transferred to Buyer in accordance with subsection (b)(ii) hereof; (iii)
Seller's actual costs of settling the claims by subcontractors of subsection
(b)(iii) hereof; and (iv) Seller's actual cost of carrying out its
obligations of subsection (b)(iv) hereof, but Buyer's obligations will not
exceed those Buyer would have had to Seller in the absence of termination.
(d) Seller will furnish to Buyer, within one month after the effective date
of termination, Seller's termination claim, which will consist exclusively
of the items of Buyer's obligation to Seller that are listed in subsection
(c) hereof. Buyer may audit Seller's records, before or subsequent to
payment, to verify amounts requested in Seller's termination claim.
(e) Buyer will have no obligation to Seller under (b), (c), or (d) above if
Buyer terminates its purchase obligations of a Purchase Order because of a
default by Seller.
25. COMPLIANCE WITH LAW
(a) Ford Motor Company (Ford U.S.) serves from time to time as a contractor
for the United States government. The policy of the United States government
expressed in Pub. L. 95-507, that small business concerns and small
disadvantaged business concerns will have the maximum practicable opportunity
to participate in performing contracts of the United States government, and
its clause entitled "Utilization of Small Business Concerns and Small
Business Concerns Owned and Controlled by Socially and Economically
Disadvantaged Individuals," apply to Ford U.S. and its U.S. suppliers. A copy
of the foregoing clause is available from Ford U.S. upon request.
(b) If Ford U.S. is the Buyer, and Seller is a U.S. entity, Seller will
comply with federal laws, rules, and regulations applicable to subcontractors
of government contractors, including those relating to contracting with small
disadvantaged business concerns
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(Pub. L. 95-507), equal employment opportunity and affirmative action in the
employment of minorities (Executive Order 1246), women (Executive Order
11375), the handicapped (29 USC 793), and certain veterans (38 USC 2012),
contracting with business concerns operating in areas of surplus labor (41
CFR 1-1 805); and contracting with women-owned business concerns (Executive
Order 12138).
(c) For Supplies shipped to European destinations Seller will notify Buyer of
the 'Classification of Dangerous Goods' in conformity with the "European
Agreement concerning the International Carriage of Dangerous Goods" prior to
the first delivery of such Supplies.
26. APPLICABLE LAW AND ARBITRATION
(a) A Purchase Order shall be governed by the law of Buyer's principal place
of business without regard to conflict of laws provisions thereof, and
litigation on contractual causes arising from a Purchase Order shall be
brought only in that jurisdiction For Ford Motor Company, a Delaware
corporation and any U.S. subsidiary, joint venture or other operation located
in the U.S., the principal place of business will be deemed to be Michigan.
The UN Convention for the International Sale of Goods is expressly excluded.
(b) If either party initiates litigation on such contractual causes, the
other party shall have the right to initiate mediation and binding
arbitration in accordance with the following: (i) In the case of Ford Motor
Company or any of its U.S. subsidiaries, joint ventures or other operations
located in the U.S., the Model Procedure for Mediation of Business Disputes
of the Center for Public Resources and, in the case of arbitration, the CPR
Rules for Non-Administered Arbitration of Business Disputes ("CPR"). (ii) In
the case of any Ford Company subsidiary, joint venture or other operation
located in Europe, with the then-current Model Procedure for Mediation of
Business Disputes of the CPR Institute for Business Resolution or the
mediation procedures of the Centre for Dispute Resolution ("CEDR") in London
and, in the case of arbitration, the Rules of the London Court of
International Arbitration. Each party will bear equally the costs of the
mediation and arbitration.
(1) The parties will jointly appoint a mutually acceptable mediator or
arbitrator, seeking assistance in such regard from CPR or CEDR, as appropriate,
if they have been unable to agree upon such appointment within 20 days.
(2) The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of 30 days. If the parties are not
successful in resolving the dispute through the mediation, then the parties
agree to submit the matter to binding arbitration by a sole arbitrator in
accordance with the CPR Rules for Non-Administered Arbitration of Business
Disputes, or, where the mediation procedures of CEDR have been adopted, in
accordance with the Rules of the London Court of International Arbitration.
(3) Unless otherwise agreed by the parties in writing, mediation or
arbitration involving Ford Motor Company and any U.S. subsidiary, joint
venture or other operation located in the U.S. shall take place in the City
of Dearborn, Michigan and this clause 26 is subject to the Federal
Arbitration Act, 9 U.S.C.A. Section 1 et seq. and judgment upon the award
rendered by the Arbitrator, if any, may be entered by any U.S. court having
jurisdiction thereof.
Mediation or arbitration involving any Ford Company, subsidiary, joint
venture or other operation located in Europe shall take place in London and
the language shall be English. Equitable remedies shall be available in any
arbitration. Punitive and exemplary damages shall not be awarded.
SUPPLEMENTAL PROVISIONS APPLICABLE TO TOOLING
27. TOOLING ORDER
If Buyer issues a Tooling Purchase Order, Seller will design and fabricate,
rework, or acquire from such sources as Buyer has given prior approval, and
install the tools, dies, fixtures, molds, or patterns, described in such
Tooling Order ("Tooling"), subject to the terms and conditions contained
herein.
28. SAMPLES, STATUS
Seller shall, at its own expense, manufacture a reasonable number of sample
parts on the Tooling for inspection and/or testing by Buyer to ensure the
capability of the Tooling to produce parts which meet Buyer's quality
standard QS9000. In addition to Seller's obligations under Section 12(a), to
the extent technically feasible, the Tooling shall be designed and fabricated
to be sufficiently durable to support the manufacture of all production and
service requirements through the production lifetime of the part and also
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permit the production of Buyer's subsequent service-only requirements. The
Tooling will be deemed to be completed when the necessary samples have been
submitted and approved by Buyer. Buyer may request Seller to furnish
semimonthly (or more frequently at Buyer's option) status reports on the
construction and acquisition of the Tooling. Each status report shall
identify the Tooling, identify the subcontractors working on the Tooling, and
designate the percentage of completion of the work. Seller will notify Buyer
immediately upon becoming aware that the Tooling may not be completed by the
completion date specified on the Tooling Purchase Order and Seller shall
furnish to Buyer a schedule of the actions that Seller will take, at Seller's
expense, to achieve completion on the specified completion date.
29. TITLE, IDENTIFICATION
All right, title, and interest in and to any part of the Tooling shall pass
to Buyer as soon as it is acquired or fabricated in accordance with a Tooling
Purchase Order. All Tooling in the possession of Seller shall be deemed to be
Bailed Property. Seller will (i) properly house and maintain such property on
Seller's premises, (ii) prominently mark it Property of Buyer, (iii) refrain
from commingling it with the property of Seller or with that of a third
party, and (iv) adequately insure it against loss or damage. Seller shall
indemnify Buyer against any claim adverse to Buyer's ownership of the Tooling,
except as such claims may result from any acts or omissions of Buyer. To the
extent permitted by law, Seller waives its right to object to the
repossession of the Tooling by Buyer in the event Seller is involved in
bankruptcy proceedings. While in its possession, Seller, at Seller's expense,
shall maintain the Tooling in first class condition and immediately replace
any items which are lost or destroyed or become worn out. All repaired or
replaced Tooling shall be the property of Buyer. Wear and repair of the
Tooling is Seller's responsibility. None of the Tooling shall be removed from
Seller's premises without Buyer's written consent. Seller shall keep such
records in relation to the Tooling as Buyer may reasonably require. None of
the Tooling shall be used in the production, manufacture or design of any
goods or materials except to the order of Buyer. Seller shall not sell or
otherwise dispose of any product using Buyer's Tooling to any party other
than Buyer except where specifically authorized by Buyer in writing. Seller's
responsibility continues beyond the expiry date of the related parts Purchase
Order. If the Tooling is not utilized to produce any parts for Buyer for a
period of two years, Seller shall so notify Buyer and request instructions as
to the disposition of the Tooling. If Seller subcontracts all or any portion
of the manufacture of the Tooling, Seller shall so notify Buyer in advance
and obtain for Buyer all of the rights contained in this Section 29 from each
such subcontractor used by Seller.
30. TOOLING INVOICES, PAYMENT
(a) Payment for Tooling will be made in accordance with Buyer's
standard/normal payment terms unless stated otherwise on the Tooling Purchase
Order. Seller shall comply with Buyer's Claims Guidelines contained in
Buyer's applicable Tooling Guide.
(b) If a Tooling Purchase Order designates that it is noncompetitively placed
or based on affordable targets, Buyer's payment obligation shall be no more
than the specified maximum, if any, for (i) Seller's actual costs for
purchased materials and services (including purchased Tooling and portions
thereof), and (ii) Seller's actual cost for direct labor and overhead. Seller
shall establish a reasonable accounting system that enables ready
identification of Seller's cost.
- -------------------------------------------------------------------------------
[ILLEGIBLE]
Contact: JAMES P. ZIETY
Published on 07/11/1997. Expires 07/01/1998
-C- Copyright 1995-97, Ford Motor Company
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of
this Registration Statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
March 19, 1999
San Diego, California
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<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<CASH> 0 4,630,147 816,753
<SECURITIES> 0 0 0
<RECEIVABLES> 0 5,023,831 8,510,773
<ALLOWANCES> 0 (114,000) (299,000)
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<CURRENT-ASSETS> 0 10,185,537 9,405,162
<PP&E> 0 3,555,110 5,733,227
<DEPRECIATION> 0 (1,508,448) (2,801,391)
<TOTAL-ASSETS> 0 12,302,082 12,772,335
<CURRENT-LIABILITIES> 0 3,894,920 6,847,099
<BONDS> 0 0 0
0 14,678,871 16,049,780
0 0 0
<COMMON> 0 4,639,084 3,767
<OTHER-SE> 0 (11,454,288) (11,136,939)
<TOTAL-LIABILITY-AND-EQUITY> 0 12,302,082 12,772,335
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<TOTAL-REVENUES> 11,629,539 26,413,692 40,105,829
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<TOTAL-COSTS> 16,091,619 28,184,372 43,240,039
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (245,042) (463,322) (212,300)
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (4,462,080) (1,770,680) (3,134,210)
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<NET-INCOME> (4,691,311) (2,189,342) (3,203,129)
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