As filed with the Securities and Exchange Commission, July 14, 1998.
Securities Act File No. 333- ; Exchange Act File No. 0-29098
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NAVIDEC, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Colorado 7373 33-0502730
--------------------------- ------------------------- --------------
(State or other jurisdiction (Primary Standard (IRS Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
14 Inverness Drive, Suite F-116
Englewood, CO 80112
(303) 790-7565
(Address and telephone number
of principal executive offices)
---------------------
14 Inverness Drive, Suite F-116
Englewood, CO 80112
(Address of principal place of business or
intended principal place of business)
---------------------
Patrick R. Mawhinney, Chief Financial Officer
NAVIDEC, Inc.
14 Inverness Drive, Suite F-116
Englewood, CO 80112
(303) 790-7565
(Name, address and telephone number of agent for service)
--------------------
Copies of Communications to:
Roger V. Davidson, Esq.
Cohen Brame & Smith
Professional Corporation
1700 Lincoln Street, Suite 1800
Denver, Colorado 80203
(303) 837-8800
Approximate date of commencement of proposed sale to public:
As soon as practicable after the registration statement becomes effective
--------------------------
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, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]___
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount
to be Registered(5) Offering Price Aggregate Offering of
Registered Per Share Price Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value
held by Selling Security Holders 594,500 Shares $5.875(1)(2) $3,492,688 $1,030
Common Stock underlying Warrants
held by Selling Security Holders 594,500 Shares $5.875(1)(2) $3,492,688 $1,030
Common Stock to be issued upon exercise 59,450 Shares $5.875(1)(2) $ 349,269 $ 103
of Placement Agent Warrants
Common Stock underlying Warrants to
be issued upon exercise of Placement
Agent Warrants 59,450 Shares $5.875(1)(2) $ 349,269 $ 103
Common Stock to be issued upon
Exercise of Warrants sold in initial
public offering 1,000,000 Shares (3) (3) (3)
Common Stock to be issued upon
Exercise of Representative's Options 100,000 (3) (3) (3)
Common Stock to be issued upon
Exercise of Options held by Joseph
Charles & Associates 250,000 $5.875(1)(2) $1,468,750 $ 433
Warrants to purchase Common Stock 653,950 (4) (4) (4)
Common Stock to be issued upon exercise 212,500 $5.875 $1,248,438 $ 368
of McKowen Options
Additional Common Stock to be issued upon 14,962 $5.875 $ 87,902 $ 25
Exercise of other McKowen Options
=============================================================================================================================
Total. . . . . . . . . . . $3,092
=============================================================================================================================
(1) Closing price on the Nasdaq SmallCap Market on July 9, 1998.
(2) Estimated solely for the purpose of determining the registration fee and
calculated pursuant to Rule 457(c).
(3) Registration fee previously paid with registration statement on Form SB-2,
SEC No. 333-14497.
(4) No separate registration fee is required for the warrants pursuant to Rule
457(g).
(5) This registration statement covers an additional indeterminate number of
shares of common stock which may be issued in accordance with Rule 416.
</TABLE>
---------------------
Pursuant to Rule 429, the Registrant has consolidated post-effective
Amendment No. 1 to form SB-2 Registration Statement dated February 10, 1997,
File No. 333-14497 into this Form SB-2 Registration Statement because such
prospectus includes all of the information which would currently be required in
a prospectus relating to the securities covered by the earlier statement. There
are 1,100,000 shares being carried forward with a filing fee of $2,396.37 that
has previously been paid in the previous registration statements cited above.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
NAVIDEC, Inc.
No Par Value Common Stock
and
Common Stock Purchase Warrants
NAVIDEC, Inc. (the "Company" or "Navidec") has registered for offer and
sale, on behalf of certain of its security holders, a total of 653,950 warrants
to purchase shares of Common Stock (the "Warrants"), and a total of 1,785,362
shares of the Company's no par value common stock (the "Common Stock"),
including 653,950 shares of Common Stock underlying the Warrants and 477,462
shares of Common Stock underlying certain Options. The Common Stock and Warrants
offered hereby are being sold for the accounts of these certain security holders
(the "Selling Security Holders") and the Company will not receive any proceeds
from the sale of Common Stock and Warrants by the Selling Security Holders. The
offering by the Selling Security Holders is referred to as the "Selling Security
Holders Offering".
This Prospectus also relates to Common Stock that may be issued by the
Company upon the exercise of 1,000,000 Warrants, and upon the exercise of
Representative's Options that were issued in the Company's initial public
offering on February 10, 1997. The Representative's Options entitle their
holders to purchase 100,000 shares of Common Stock at a price of $7.38 per share
until February 14, 2002.
The Common Stock and Warrants are traded on the Nasdaq SmallCap Market
("Nasdaq") under the trading symbols "NVDC" and "NVDCW," respectively. The
reported closing bid prices on Nasdaq on July 2, 1998 for the Common Stock and
Warrants were $ $7.0625 and $1.125, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THERE ARE CERTAIN RISKS INVOLVED WITH THE OWNERSHIP OF THE COMPANY'S SECURITIES,
INCLUDING RISKS RELATED TO ITS BUSINESS AND THE MARKETS FOR ITS SECURITIES. (SEE
"RISK FACTORS".)
The Company will pay substantially all of the expenses of any offering and
sale hereunder (not including commissions and discounts of underwriters,
dealers, or agents), estimated to be $55,000.
The Common Stock and Warrants will be sold directly, through agents,
underwriters, or dealers as designated from time to time, or through a
combination of such methods on terms to be determined at the time of sale, at
market prices obtainable at the time of sale or otherwise in privately
negotiated transactions at prices determined by negotiation.
The date of this Prospectus is July ____, 1998.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; at the Commission's
Regional Office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Thirteenth Floor, New York, New York 10048. Copies
3
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of such material can also be obtained upon written request addressed to the
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, such materials filed electronically by
the Company with the Commission are available at the Commission's World Wide Web
site at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
SB-2 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement which may be
inspected and copied in the manner and at the sources described above. With
respect to each such agreement, instrument, or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
carefully read this Prospectus in its entirety, including but not limited to the
Risk Factors. As used in this Prospectus, the "Company" and "Navidec" refers to
NAVIDEC, Inc., unless otherwise stated or indicated by the context.
The Company
- -----------
The Company, based in Englewood, Colorado, is a leading provider of
products and solutions that use Web-based technologies to achieve its customers'
business objectives. From commercial Web site development to the design and
implementation of intranet and extranet applications and tools, the Company
helps customers nationwide define, develop and deploy successful online
solutions. The Company provides its services and distributes its products to
over 700 customers as of the date of this Prospectus. The Company also serves as
a distributor of various high technology and other products through traditional
and electronic channels.
The Company's core competencies in Internet/Intranet technology and
traditional product marketing and distribution form its business model of
providing complete Internet/Intranet solutions. These solutions include computer
and network infrastructure equipment, software and services, content and
aggregation, electronic commerce and fulfillment of orders (together,
"Internet/Intranet Solutions"). The Company was organized as ACI Systems, Inc.
in July 1993 and changed its name to NAVIDEC, Inc. in July 1996. The Company's
principal sources of revenue are from the resale of computer equipment, high
technology peripherals and electronic components manufactured by independent
vendors ("Product Distribution") and services related to Internet/Intranet
Solutions and license fees from recurring lead revenue from the Company's Wheels
solution. The Company merged with Interactive Planet, Inc. ("IPI"), a designer
and developer of Internet World Wide Web sites, in July 1996. The Company issued
an aggregate of 678,877 shares of Common Stock to the shareholders of IPI and a
promissory note in the amount of $75,000 to one shareholder of IPI in exchange
for all of the issued and outstanding stock of IPI. The Company acquired
TouchSource, Inc. ("TS"), a designer and developer of interactive kiosks, in
July 1997. The Company issued an aggregate of 207,000 shares of Common Stock to
the shareholders of TS and TS was merged into the Company in exchange for all of
the issued and outstanding stock of TS. The merger and acquisition were
consummated in order to expand the Company's business model of combined
expertise in traditional marketing and distribution and Internet/Intranet
technology.
The Company's strategy is to increase revenue generated by its two core
competencies: (1) Internet/Intranet Solutions, which are focused in five major
market areas, including computer and network infrastructure equipment, software
and services, content aggregation, electronic commerce and order fulfillment,
and (2) Product Distribution. The Company has built and intends to continue to
build an infrastructure that assumes this strategy will succeed. Management
believes that, based on the current product mix, the Company's new Wheels
solution will provide for the majority of its increased revenues in 1998 and
years to follow. The Wheels solution combines the Company's two core
competencies of Internet/Intranet Solutions and Product Distribution. Wheels is
designed on a state of the art platform that allows it to distribute electronic
information out to consumers through regional Wheels Web sites, individual
dealer Web sites, remote automotive kiosks and also in mobile sales laptops. The
failure of the Company to achieve this strategy could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company recognizes revenue upon delivery of its Internet/Intranet
Solutions and Product Distribution goods. Internet/Intranet Solutions generally
begin with consulting arrangements that are billed on an hourly basis and
progress to a bid for a proposed project. Deposits are then taken upon
acceptance of the bid. Most of the Company's customers elect to update and
expand their Web sites frequently, and clients are billed monthly on a time and
materials basis for these services. Additional sources of ongoing revenue
include revenue from advertising sold by the Company on clients Web sites,
revenue from sales of merchandise and services over clients Web sites and
revenue from maintenance and hosting of client Web sites.
The Company's principal business office is located at 14 Inverness Drive,
Suite F-116, Englewood, CO 80112. The telephone number at that address is (303)
790-7565.
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The Offering
- ------------
Shares of Common Stock Outstanding Prior to this Offering 3,606,221
Warrants, Consultant Options, and Representative's Options
Outstanding Prior to this Offering 2,580,538
Shares of Common Stock Offered Hereby, Including
Shares of Common Stock Underlying Warrants and Options 2,885,362
Warrants Offered Hereby 653,950
Nasdaq SmallCap Market Symbols: Common Stock (NVDC) and Warrants (NVDCW)
Summary Financial Information
The following tables set forth summary financial information and other
equity information of the Company. The summary financial information in the
tables is derived from the financial statements of the Company, and should be
read in conjunction with and is qualified in its entirety by the more detailed
financial statements and related notes thereto, and other financial information
included therein. The information provided below is in thousands, except share
and per share data.
Fiscal Year Ended Three Months Ended
Statement of Operations Data December 31, 1997 March 31, 1998
---------------------------- ----------------- ------------------
Net Revenues $6,008 $1,702
Operating Loss (2,578) (465)
Net Loss (4,107) (481)
Loss Per Share (1.47) (.15)
Weighted Average Shares
Outstanding 2,799,526 3,236,000
Balance Sheet Data
------------------
Cash $369 $584
Working Capital 678 885
Total Assets 3,099 3,203
Long-Term Liabilities 310 294
Stockholders' Equity 1,550 1,723
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RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following factors:
This Prospectus includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act, and Section 21E of the Exchange Act. All statements, other than statements
of historical facts, included in this Prospectus that address activities, events
or developments that the Company expects, believes or anticipates will or may
occur in the future, including such matters as future capital costs of research
and development, the size of various markets, market share, project margins,
repayment of debt, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors discussed
below, general economic and business conditions, the business opportunities (or
lack thereof) that may be presented to and pursued by the Company, changes in
laws or regulations and other factors, many of which are beyond the control of
the Company. Prospective investors are cautioned that any such statements are
not guarantees of future performance and that actual results or developments may
differ materially from those projected in the forward-looking statements.
Risk Factors Relating to the Company
1. History of Operating Losses.
----------------------------
Although the Company has been in business since July 1993, its business has
only recently expanded into Internet and Intranet infrastructure equipment,
software and services, content creation and aggregation, commerce and
distribution. As a result of this expansion, the Company is subject to all the
risks inherent in a new business enterprise. The Company has only a very limited
operating history in the Internet/Intranet Solutions business upon which to base
any evaluation of the Company's performance and prospects in such business.
Although there has been growth in annual revenue, the Company incurred losses
and experienced negative cash flow during the year ended December 31, 1997 and
for the three months ended March 31, 1998. The Company plans to focus in the
near future on growing its Internet/Intranet Solutions business and increasing
its distribution activities. In order to do so, it must increase significantly
its expenses for personnel, marketing, equipment and other product purchases. In
addition, the Company may experience fluctuations in future operating results
due to a variety of factors (many of which are out of the Company's control),
including general economic conditions, specific economic conditions in the
Internet industry, capital and other costs relating to the expansion of
operations and the mix of services and distribution channels offered by the
Company. There can be no assurance that the Company's operations will generate
sufficient revenues to become profitable. The likelihood of the Company's
success should be considered relative to the problems, experiences,
difficulties, complications and delays frequently encountered in connection with
the operation and development of a new business and the competitive environment
in which the Company operates.
2. Significant Capital Requirements.
---------------------------------
The Company's capital requirements have been and will continue to be
significant. Prior to the Company's initial public offering, the Company had
been dependent primarily on bank loans and loans from the Company's affiliates
and employees to fund its capital requirements. The Company is dependent on and
intends to use a significant portion of the proceeds of a recent offering of the
Company's securities to fund the ongoing operations of TouchSource as well as to
implement its proposed expansion plans. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company
anticipates that the proceeds to the Company from that offering, together with
projected cash flow from operations, will be sufficient to fund the Company's
operations during the twelve months following the consummation of that offering.
In the event that the Company's plans change, there are any delays in
implementing the proposed expansion, the Company's projections prove to be
inaccurate or the proceeds of that offering prove to be insufficient, the
Company may be required to seek additional financing or curtail its operations
and/or expansion activities. In such case, the Company will generally be
required to seek additional debt or equity financing to fund the costs of daily
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operation and of continuing to expand its operations. Any additional equity
financing may involve substantial dilution to the Company's then-existing
shareholders. The Company has no current commitments or arrangements with
respect to, or readily available sources of, additional financing and there can
be no assurance that the current shareholders of the Company will provide any
portion of the Company's future financing requirements. There can be no
assurance that additional financing will be available to the Company when needed
or, if available, that it can be obtained on commercially reasonable terms. Any
inability to obtain additional financing when needed would have a material
adverse effect on the Company including requiring the Company to curtail the
expansion of its operations and possibly causing the Company to cease its
operations. Even if the Company is successful in its expansion plans, no
assurances can be given that the Company will be successful or that investors
will derive a profit from an investment in the Company.
3. Developing Market; Unproven Market for the Company's Product.
-------------------------------------------------------------
The Internet, and particularly the Web, represent markets for the Company's
products and services which have only recently begun to develop, are rapidly
evolving and are characterized by low barriers to entry and an increasing number
of market entrants who have introduced or developed a wide variety of products
and services for communication, information and commerce. As is typical in the
case of a new and rapidly evolving industry, demand and market acceptance for
new products and services are subject to a high level of uncertainty. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, compatibility, cost, difficulty in obtaining user
demographic information, difficulty of use and access, and quality of service)
remain unresolved and may impact the growth of Internet and Web use. There can
be no assurance that marketing or commerce over the Internet will become
widespread, or that products and services which are being developed by the
Company for use on the Internet will become accepted. In particular, enterprises
that have already invested substantial resources in other means of conducting
commerce and exchanging information may be reluctant to adopt a new strategy
that could make their existing products and infrastructure obsolete. In
addition, there can be no assurance that individual personal computer users in
business or at home will adopt the Web for on-line commerce and communication.
Because the market for the Company's products and services is new and evolving,
it is also difficult to predict with any assurance the future growth rate, if
any, and the size of the market. There can be no assurance that the market for
the Company's products and services will continue to expand, that the Company's
products or services will be accepted, or that individual personal computer
users in business or at home will use the Internet or the Company's products and
services for commerce, information and communication. If a significant market
develops more slowly than expected or becomes saturated with competitors, or if
the Company's products do not achieve market acceptance, the Company's business,
operating results and financial condition will be materially adversely affected.
4. Risks Relating to Competition; Dynamic Market.
----------------------------------------------
Existing competitors to the Internet/Intranet. Solutions business include
Online Systems Services, Inc., Eagle River Interactive, Inc. and Open Market,
Inc., all public companies traded on the NASDAQ system, as well as a large
number of regional firms providing similar services to those of the Company.
Potential competitors in this business include browser software vendors, PC and
UNIX software vendors and on-line service providers. Additional competition
comes from numerous client/server companies, database companies, multimedia
companies, advertising agencies, document management companies, networking
software companies, network management companies and educational software
companies. In a broader sense, the Company may compete with the more traditional
advertising and distribution mediums, such as radio, television and mail order
outlets.
Potential competition also comes from the Company's clients, who could
choose to address their Internet/Intranet needs through in-house personnel. Some
of the Company's current and many of the Company's potential competitors have
longer operating histories, greater name recognition, larger installed customer
bases and significantly greater financial, technical and marketing resources
than those of the Company. Competitive factors in the Internet/Intranet
Solutions business include core technology, breadth of services offered,
creative and artistic ability, marketing and distribution resources, customer
service and support and price.
A large number of companies act as re-marketers of computer networks,
graphics equipment and components, and the Company's competition in the high
technology product distribution business is therefore also intense. In some
instances, the Company, in acting as a re-marketer, may compete with the
original manufacturer. In addition, a large number of companies offer the
reprographic services offered by the Company and competition in this area is
also intense. Many of the Company's competitors in the high technology product
distribution business have longer operating histories, greater name recognition,
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larger installed customer bases, larger sales staffs and substantially greater
financial, technical and marketing resources than those of the Company.
Competitive factors in the distribution business include technical expertise,
breadth of products offered, product quality, performance and reliability,
price, name recognition, customer service and support and access to distribution
channels.
There are numerous online automotive sales Web sites on the Internet today,
but none that employ the same total solution strategy as the Company's Wheels.
Other online auto sales products include Carpoint, Auto-by-Tel, AutoConnect, and
AutoVantage. A few Internet developers are also attempting to sell online sales
products to media, but none offer the total sales solution that Wheels offers to
ensure that dealers sell vehicles, including important add-ons such as
touch-screen kiosks and mobile sales laptops. Another important distinction is
that the Company understands the auto sales process and even trains dealers to
help them sell more autos from the leads generated by Wheels. The Company
employees have over 40 years of experience in the automotive industry and have
expended over 190,000 hours into the development of the Wheels solution.
The Company has hired a team of experts well versed in the automotive
business, and has the president of Denver's largest independently owned
dealership group (Burt Automotive) on its board of directors. These experts
enable the Company's access to the latest industry information and a deep
understanding of the automotive business and its processes. This team has
enabled the Company to develop a solution which primarily focus is on enabling
automotive dealers the ability to sell more cars.
Both the Internet/Intranet Solutions business and the high technology
product distribution business are characterized by low financial barriers to
entry and frequent introductions of new products. The Company therefore expects
competition in each of its businesses to increase in the future. There can be no
assurance that the Company will be able to successfully compete in its
businesses. Although the Company believes that it has the requisite management,
technical and creative abilities to successfully compete, the intense level of
competition in each of the Company's businesses could materially adversely
affect the Company's future operating results and financial condition.
5. Rapid Obsolescence and Technological Change
-------------------------------------------
The market for Internet/Intranet Solutions is characterized by rapidly
changing technology, frequent introductions of new products and evolving
industry standards which result in product obsolescence and short product life
cycles. Accordingly, the Company's success is dependent upon its ability to
anticipate technological changes in the industry and to continually identify,
obtain and successfully market new products and services that satisfy evolving
technologies, customer preferences and industry requirements. There can be no
assurance that competitors will not market products and services which have
perceived advantages over those of the Company or which render products and
services to be offered by the Company obsolete or less marketable.
6. Dependence on Internet Infrastructure and Access
------------------------------------------------
The Company's revenues will depend in large part upon a robust industry and
infrastructure for providing Internet access and carrying Internet traffic.
Notwithstanding current interest and worldwide subscriber growth, the Internet
may not prove to be a viable commercial marketplace because of inadequate
development of the necessary infrastructure or complementary products, such as
high speed modems. Because global commerce and on-line exchange of information
on the Internet and other open area networks are new and evolving, it is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace. There can be no assurance that the infrastructure
or complementary products necessary to make the Internet a viable commercial
marketplace will be developed or, if developed, that the Internet will in fact
become a viable commercial marketplace. If the necessary infrastructure or
complementary products are not developed, or if the Internet does not become a
viable commercial marketplace, the Company's business, operating results and
financial condition will be materially adversely affected.
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7. Need for Management of Growth
-----------------------------
The Company's rapid growth and plans for further growth have placed, and
are expected to continue to place, a significant strain on its administrative,
operational and financial resources. The Company's ability to sustain growth
effectively will depend, in part, on its ability to manage growth and to train,
motivate and manage its employees. Currently, the Company relies on a limited
staff which is responsible for all of the Company's activities, including sales
and promotion, client planning, product distribution and technical development
of products for clients. Many of the staff members are currently performing a
combination of these functions. The Company's continued growth will require it
to recruit and hire new technical, sales and marketing personnel so that the
staff can be better specialized to market the services of the Company and serve
client needs. The Company plans to use a portion of the net proceeds of its
recent offering of securities to increase its sales force and technical staff,
although no assurances can be given that qualified personnel can be hired.
Market competition for the services of the limited number of people who are
capable of performing the technical services of the Company is intense. The
inability to recruit, hire and retain necessary personnel or the emergence of
unexpected expansion difficulties could adversely affect the Company's business,
operating results and financial condition.
8. Dependence on Relationships
---------------------------
The Company maintains many important relationships with it clients and
suppliers. These relationships often result in opportunities for expanding the
Company's client base, technical capability and revenue base. The most
significant of these relationships are with Banc One, Bluestone, Sun Micro
Systems, Netscape and Sybase. While the Company has contracts with most of these
companies, none of the contracts are exclusive and for the most part these
companies are free to terminate their relationship with the Company at any time.
The termination or deterioration of one or more of these relationships could
have a material adverse effect on the Company's business, operating results and
financial condition.
9. Dependence on Recurring Revenues
--------------------------------
A substantial part of the Company's income is derived from the recurring
revenues associated with sales of supplies to existing clients and periodic
maintenance and upgrades to Internet and Intranet sites. Clients of the Company
are not required to purchase supplies from the Company and may find another
source for such supplies, or their need for such supplies may diminish or
disappear as a result of technological advances or changes in customer
utilization of hardware. In addition, most of the Company's Internet/Intranet
Solutions clients are not required to utilize the Company for periodic
maintenance and updates to their Internet and Intranet sites. Although many of
the sites designed for the Company's clients contain proprietary tools licensed
by the Company to such clients only so long as the Company maintains such sites,
such clients are nonetheless free to take the information content of their sites
to their own servers or servers maintained by competitors of the Company. The
loss of clients who provide recurring revenues could have a material adverse
effect on the Company.
10. Dependence on Proprietary Technology; Lack of Patents and Proprietary
Protection; Risks of Third Party Infringement Claims
---------------------------------------------------------------------------
The Company presently has no patents with respect to its proprietary
technology. Instead, the Company currently relies upon copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions, all
of which afford only limited protection, to protect its proprietary products.
Accordingly, there can be no assurance that the Company's measures to protect
its current proprietary rights will be adequate to prevent misappropriation of
such rights or that the Company's competitors will not independently develop or
patent technologies that are substantially equivalent or superior to the
Company's technologies. Additionally, although the Company believes that its
products and technologies do not infringe upon the proprietary rights of any
third parties, there can be no assurance that third parties will not assert
infringement claims against the Company. Similarly, infringement claims could be
asserted against products and technologies which the Company licenses, or has
the rights to use, from third parties. Any such claims, if proved, could
materially and adversely affect the Company's business and results of
operations. In addition, although any such claims may ultimately prove to be
without merit, the necessary management attention to, and legal costs associated
with, litigation or other resolution of such claims could materially and
adversely affect the Company's business and results of operations.
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11. Dependence on Key Personnel
---------------------------
The Company's success depends to a significant extent on the continued
service of certain key management personnel, in particular Ralph Armijo, the
Company's President and Chief Executive Officer. The loss or interruption of Mr.
Armijo's services, for whatever reason, would have a material adverse effect on
the Company. In the event of the loss of services of Mr. Armijo, no assurance
can be given that the Company will be able to obtain the services of adequate
replacement personnel. The loss or interruption of the services of any of the
Company's other senior management personnel would also have an adverse effect on
the Company. The Company has entered into an agreement dated May 1, 1998 with
Mr. Armijo and the Company currently maintains a $2 million life insurance
policy on his life; however, no assurance can be given that the Company will be
able to keep such policy in effect. The Company does not maintain life insurance
policies for any of its other executive officers.
12. Government Regulation and Legal Uncertainties
---------------------------------------------
The Company currently is not subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. However, due
to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet,
covering issues such as user privacy, unsolicited marketing, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's products, increase the Company's cost of
doing business or otherwise have an adverse effect on the Company's business,
operating results or financial condition. Moreover, the applicability to the
Internet of existing laws governing issues such as real and intellectual
property ownership, libel and personal privacy is uncertain.
13. Elimination of Director Liability
---------------------------------
The Company's Articles of Incorporation contain a provision eliminating a
director's liability to the Company or its shareholders for monetary damages for
a breach of fiduciary duty, except in circumstances involving certain wrongful
acts, such as the breach of a director's duty of loyalty or acts or omissions
which involve intentional misconduct or a knowing violation of law. The
Company's Articles of Incorporation also obligate the Company to indemnify its
directors and officers to the fullest extent permitted under Colorado law. While
the Company believes that these provisions are very standard and necessary to
assist the Company in attracting and retaining qualified individuals to serve as
directors, they could also serve to insulate directors of the Company against
liability for actions which damage the Company or its shareholders.
Risk Factors Relating to this Offering
1. Dilution.
---------
To the extent that any Warrants, options or other securities convertible
into shares of Common Stock currently outstanding or subsequently granted to
purchase the Company's Common Stock are exercisable at a price less than the net
tangible book value per share of the Common Stock, there will be dilution to the
Company's then current shareholders upon the exercise of such securities.
2. Control by Principal Stockholders
---------------------------------
Based upon the 3,606,221 shares of Common Stock being outstanding as of
July 2, 1998, the Company's officers and directors, as a group, will
beneficially own and control 29.9% of the Company's outstanding Common Stock. In
addition, cumulative voting (which provides that a shareholder can cast votes in
the election of directors equal to the number of shares owned by such
shareholder multiplied by the number of directors to be elected to a single
candidate or among the candidates as the shareholder wishes) is not permitted
with respect to the Company's Common Stock. As a result, these persons acting
together, although not controlling a majority of the Common Stock, will be able
to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and the approval of significant
corporate transactions. See "Security Ownership of Certain Beneficial Owners and
Management."
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3. No Dividends on Common Stock
----------------------------
The Company has not previously paid any cash or other dividends on its
Common Stock and does not anticipate payment of any dividends for the
foreseeable future, it being anticipated that any earnings would be retained by
the Company to finance its operations and future growth and expansion. See
"Market for Common Stock and Related Shareholder Matters."
4. No Assurance of Continued Public Trading Market; Risks Associated with "Penny
Stocks"
-----------------------------------------------------------------------------
The Company's Common Stock and Warrants are listed on Nasdaq. There can be
no assurance that this trading market will be sustained. If the Company should
experience losses from operations, it may be unable to maintain the standards
for continued quotation on Nasdaq. If, for any reason, the Company's securities
are not eligible for continued listing, purchasers of the Company's securities
may have difficulty selling their securities should they desire to do so. If the
Company's securities are not eligible for continued listing on Nasdaq, they may
become subject to rules of the Securities and Exchange Commission concerning
penny stocks, which could materially, adversely affect the liquidity of the
Company's securities. The regulations define a penny stock as any equity
security not listed on a regional or national exchange or Nasdaq that has a
market price of less than $5.00 per share, subject to certain exceptions. The
material, adverse effects of such designation could include, among other things,
impaired liquidity with respect to the Company's securities and burdensome
transactional requirements associated with transactions in the Company's
securities, including, but not limited to, waiting periods, account and activity
reviews, disclosure of additional personal financial information and substantial
written documentation. These requirements could lead to a refusal of certain
broker-dealers to trade or make a market in the Company's securities.
5. Possible Volatility of Stock Price
----------------------------------
The trading prices of the Company's securities could be subject to wide
fluctuations in response to quarterly variations in actual or anticipated
results of operations of the Company, changes in analysts' earnings estimates,
announcements of technological innovations or new products or services by the
Company or its competitors, general conditions in the Internet or other high
technology industries or other factors. In addition, the securities markets
frequently experience extreme price and volume fluctuation which affect market
prices for securities of companies generally, and technology companies in
particular. Such fluctuations are often unrelated to the operating performance
of the affected companies. Broad market fluctuations may adversely affect the
market price of the Company's securities.
6. Possible Adverse Effects Due to Shares Eligible for Future Sale
---------------------------------------------------------------
The Company currently has 3,606,221 shares of Common Stock outstanding, of
which 1,612,428 shares of Common Stock are freely tradable without restriction
or further registration under the Securities Act. The remaining 1,993,793 shares
of Common Stock are "restricted securities" as that term is defined under Rule
144 promulgated under the Securities Act and may only be sold pursuant to a
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144, or pursuant to another exemption under the
Securities Act. No prediction can be made as to the effect, if any, that sales
of shares of Common Stock or even the availability of such shares for sale will
have on the market prices of the Company's securities prevailing from time to
time. The possibility that substantial amounts of the Company's securities may
be sold in the public market may adversely affect prevailing market prices for
the Company's securities and could impair the Company's ability to raise capital
through the sale of its equity securities. See "Description of Securities" and
"Shares Eligible for Future Sale."
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7. Future Issuances of Stock by the Company Without Shareholder Approval
---------------------------------------------------------------------
The Company's authorized but unissued shares of Common Stock not reserved
for specific purposes may be issued without any action or approval of the
Company's shareholders. Any such issuances could be used as a method of
discouraging, delaying or preventing a change in control of the Company or could
significantly dilute the public ownership of the Company, which could adversely
affect the market. There can be no assurance that the Company will not undertake
to issue such shares if it deems it appropriate to do so. The holders of
options, Warrants and other securities convertible into shares of Common Stock
have the opportunity to profit from a rise in the market price of the Common
Stock, if any, without assuming the risk of ownership, with a resulting dilution
in the interest of other shareholders. The existence of the aforementioned
options and Warrants and any other options or warrants that may be granted in
the future may prove to be a hindrance to future equity financing by the
Company. Further, the holders of such warrants and options may exercise them at
a time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. See "Description of Securities."
8. Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants
----------------------------------------------------------------------------
The Company will be able to issue shares of its Common Stock upon the
exercise of Warrants only if there is a current prospectus relating to the
Common Stock issuable upon the exercise of the Warrants under an effective
registration statement filed with the Securities and Exchange Commission and
such Common Stock is then qualified for sale or exempt therefrom under
applicable state securities laws of the jurisdictions in which the various
holders of Warrants reside. Although the Company has undertaken to maintain the
effectiveness of a current Prospectus covering the Common Stock underlying the
Warrants, there can be no assurance that the Company will be successful in
maintaining a current registration statement. The Warrants, therefore, may be
deprived of any value if for any reason a current prospectus covering the Common
Stock issuable upon exercise of the Warrants is not kept effective, or if such
Common Stock is not qualified or exempt from qualification in the states in
which the Warrant holders reside.
9. Warrants Subject to Redemption
------------------------------
Each Warrant will entitle the holder to purchase one share of Common Stock
at an exercise price equal to $7.20 until February 10, 2002. The Warrants are
redeemable by the Company for $.05 per Warrant at any time commencing on
February 10, 1998 (which period may be reduced or waived by Joseph Charles &
Associates, Inc.("JCA"), the managing underwriter of the Company's initial
public offering, in its sole discretion) upon at least thirty days' prior
written notice provided the closing price of the Common Stock for twenty
consecutive trading days within the thirty-day period preceding the date of the
notice of redemption equals or exceeds $8.40. In the event the Company exercises
the right to redeem the Warrants, a holder would be forced either to exercise
the Warrant within the period of the notice of redemption (which could occur at
a time when it may be disadvantageous to do so), to sell the Warrants at the
then current market price when the holder might otherwise wish to hold them, or
to accept the redemption. The Company presently expects to call all of the
Warrants for redemption if the trading price of its Common Stock meets the
minimum amount for the specified number of days provided a current prospectus
relating to the Common Stock underlying such Warrants is then in effect. See
"Description of Securities -- Warrants."
USE OF PROCEEDS
All of the proceeds to be realized from the Selling Security Holders
Offering will be paid to the Selling Security Holders. The Company will not
receive any portion of the proceeds of the securities sold by the Selling
Security Holders, but will receive amounts upon exercise of any Warrants or upon
exercise of certain Options, which funds will be used for working capital.
THE COMPANY
Overview
The Company, based in Englewood, Colorado, is a leading provider of
products and solutions that use Web-based technologies to achieve its customers'
business objectives. From commercial Web site development to the design and
implementation of intranet and extranet applications and tools, the Company
helps customers nationwide define, develop and deploy successful online
solutions. The Company provides its services and distributes its products to
over 700 customers as of the date of this Prospectus. The Company also serves as
a distributor of various high technology and other products through traditional
and electronic channels. The Company's core competencies in Internet/Intranet
technology and traditional product marketing and distribution form its business
model of providing complete Internet/Intranet solutions. These solutions include
computer and network infrastructure equipment, software and services, content
and aggregation, electronic commerce and fulfillment of orders.
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The Company was organized as ACI Systems, Inc. in July 1993 and changed its
name to NAVIDEC, Inc. in July 1996. The Company's principal sources of revenue
are from the resale of computer equipment, high technology peripherals and
electronic components manufactured by independent vendors and services related
to Internet/Intranet solutions and license fees from recurring lead revenue from
the Company's Wheels solution. The Company merged with Interactive Planet, Inc.,
a designer and developer of Internet World Wide Web sites, in July 1996. The
Company issued an aggregate of 678,877 shares of Common Stock to the
shareholders of IPI and a promissory note in the amount of $75,000 to one
shareholder of IPI in exchange for all of the issued and outstanding stock of
IPI. The Company acquired TouchSource, Inc., a designer and developer of
interactive Kiosks, in July 1997. The Company issued an aggregate of 207,000
shares of Common Stock to the shareholders of TS and TS was merged into the
Company in exchange for all of the issued and outstanding stock of TS. The
merger and acquisition were consummated in order to expand the Company's
business model of combined expertise in traditional marketing and distribution
and Internet/Intranet technology.
Business Strategy
The Company's goal is to enhance its position as a leading provider of
comprehensive networking and electronic marketing and distribution solutions to
regional, national and international clients. To achieve this objective, the
Company is pursuing the following strategies.
Leverage Expertise and Core Competencies
The Company leverages its expertise in two core businesses, high technology
product distribution and Internet/Intranet Solutions, into complete electronic
marketing and networking solutions. The Company's solutions span all segments of
the commercial Internet industry, including networking equipment and routers,
Internet software, Internet/Intranet design and implementation, content creation
and aggregation, and promotion. Management believes that the Company's ability
to offer this full range of Internet/Intranet products and services as well as
traditional distribution and marketing services is unique in its industry.
Exploit Recurring Revenue Streams
The Company emphasizes ongoing services to its Internet/Intranet Solutions
clients, which services are a source of recurring revenues often well in excess
of the fees associated with initial Web site development. The Company's primary
focus has been on its Wheels solution. Wheels which was introduced in the 4th
quarter of 1997, provides recurring revenues from lead fees paid by automotive
dealers, and hosting and maintenance fees paid by its media partner (a regional
newspaper, television or radio station).
Develop Strategic Relationships
The Company has developed technology, marketing and distribution
relationships with a number of leading companies. Important relationships
include those with Banc One, AT&T, Silicon Graphics, Sybase, and Netscape.
Wheels is currently under contract in Denver Colorado and in Portland Oregon.
The Company is currently deploying its Wheels solution through a strategic
relationship with Banc One Credit Company which has committed to launching four
additional regional Wheels sites. Banc One Credit has offices in 48 states. Banc
One Credit Company is a subsidiary of Banc One Corporation headquartered in
Columbus, Ohio. It is one of the largest finance companies in the United States
and is a holding company of eight units.
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Banc One chose the Company's "Wheels" solution after two years of
reviewing other automotive solutions. The choice of the Company's solution was
based on its abilities to sell cars for dealers, and Banc One's belief that
Wheels could increase its indirect automotive lending. As a result of the
Company's technical expertise, it has been designated as a Netscape Commercial
Applications Products Provider Partner (NCAPP), which is Netscape's top reseller
designation and which allows the Company to offer all of Netscape's high-end
commercial Internet software products to its clients. These and other strategic
relationships have fueled much of the recent growth of the Company, and
management expects them to continue to generate additional clients and revenue.
Management believes that the primary growth that will be experienced in 1998
will come from its Wheels solution. The Wheels solution provides the Company
revenue from one times fees and recurring monthly fees. The one time fees come
from license fees for each region, one time setup fees from dealers, and
training fees. Recurring fees come from customer lead and lookup fees, monthly
fees which come from dealers and monthly fees charged to regional media
partners.
Emphasize Client Return on Investment
The Company furnishes clients with solutions which are designed to provide
a return on their investment through generation of leads, increased sales,
reduced personnel expenses and/or improved communications within their company.
The Company also intends to emphasize hardware solutions such as on - and
off-site free standing kiosks which include a computer terminal linked to the
Wheels Web site of the client. These kiosks are designed to expand the audience
for the client's electronic marketing presence.
Promote Intranets
The Company believes that many companies can benefit from the ease of use
and familiarity of a Web-style interface for their internal networks. Intranets
can provide an open, non-proprietary enterprise interface to a closed,
proprietary legacy database system, thereby avoiding the need to replace the
entire legacy system when an updated enterprise interface is desired. The
Company has implemented a major Intranet system for KN Energy and Merrick
Engineering and intends to promote its expertise in this area to other large
companies with a need for an easy to use internal network interface.
Expand Traditional Distribution Channels
To date, distribution of high technology products and related services has
accounted for the substantial majority of the Company's revenue. The Company
intends to expand its high technology product distribution business through
solution selling, which will combine the Company's software development and
hardware sales. The Company also plans to implement and promote its own Internet
Web site for direct sales of high technology products.
INTERNET/INTRANET SOLUTIONS
Internet/Intranet Industry Overview
The Internet is a network of computer networks that are both commercially
and publicly owned. The networks all use a common set of nonproprietary
networking protocols. This commonality of protocols provides what appears to the
Internet user to be a seamless, integrated virtual network notwithstanding the
heterogeneity of the computer hardware and communications systems underlying the
Internet. Although the individual networks comprising the Internet are privately
owned, no one organization owns or controls the Internet. Any network may join
or remove itself from the Internet at any time and this open access has allowed
the Internet to grow exponentially as a resource in the United States and
world-wide. Each new network (or individual connecting through a network)
becomes not only a consumer of information available on the Internet but also a
potential information or content provider to other users of the Internet.
Internet networks are connected in a variety of ways, including regular analog
phone lines, high-speed digital lines and fiber optic links. The Internet
permits users to communicate electronically, share or publish information,
download software and participate in commercial transactions. Internet data
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packets are transferred through flexible routing protocols which allow signals
to reach their destinations even though portions of the network may be down or
overburdened. Nonetheless, because of the rapidly growing traffic on the
Internet, users sometimes report significant delays in data transfer and some
loss of data. There is a risk that as the Internet grows in popularity, its
infrastructure will become overwhelmed to the point where its functionality is
impaired, perhaps significantly. Because connecting directly to the Internet
requires expensive equipment and considerable technical expertise, most Internet
users connect to the Internet through one of a rapidly growing number of local
and national Internet Service Providers (ISPs), including the major on-line
services such as America Online and CompuServe. The Company is not one of these
ISPs.
The World Wide Web
Much of the recent growth in Internet use has been attributable to a
network of servers and information available via open protocols known as the
World Wide Web. The Web can be accessed through software programs such as
Netscape Navigator and Microsoft Explorer, which allow non-technical users to
exploit the capabilities of the Internet. The Web enables users to find,
retrieve and link to multimedia content on the Internet with easy to use
graphical interfaces. Electronic documents are published on Web servers in a
common format called hypertext markup language (HTML). Web software browsers can
retrieve these documents across the Internet by making requests through a
standard communications protocol called Uniform Resource Locators, or URLs.
The technical capabilities of the Web together with the increasing
availability of user-friendly navigational and utility tools and search engines
such as Yahoo, Excite, Webcrawler, Magellan and Alta Vista are responsible for
the rapid growth in the popularity of the Web as a distribution channel. In
March 1997, International Data Corporation estimated the number of commercial
sites on the World Wide Web is doubling every six months and came to more than
45,000 in 1996 and predicted that the number of business sties would reach
100,000 by 2000.
The term Web site is commonly used to describe the computer screen layouts
and the file server computer that are accessible by users of the Web. Typically,
a Web site has a collection of Web pages which may contain text, graphics,
pictures, sound, animation, video or other multimedia content. One important
feature of the HTML format is that it allows a Web user to travel to other sites
simply by selecting with a mouse or other pointing device a text or graphic
marker on the current Web page. In this manner, users can quickly and
effortlessly connect to Web pages that are part of the same Web site or to Web
pages located on servers in another continent. Web sites vary significantly in
their complexity and interactivity. A simple Web site may have only text in
outline form. More complex sites may have full multimedia content. Web sites may
also vary in their level of interactivity with the user. Many Web sites are for
inquiry only (informational), while others allow the user to interact with,
enter and process information (interactive).
Commercial Uses of the Internet
Commercial uses of the Internet include business-to-business and
business-to-consumer transactions, product marketing, advertising,
entertainment, electronic publishing, electronic services and Internet support.
The Company views the Internet and in particular the Web as presenting
significant opportunities for electronic marketing, sale and distribution of
products. In the Company's view, the Internet's benefits include:
- - - Low cost in comparison to other marketing channels
- - - Direct marketing of products and services
- - - Audio/visual display and demonstration of products
- - - Ability to capture orders electronically at significantly lower personnel
costs than traditional order-taking
- - - Provision of client services such as order tracking and trouble-shooting
- - - Immediate fulfillment and satisfaction of certain orders, such as software
and information deliverable electronically
- - - Customer convenience (24-hour, 7 days a week access)
- - - Potential for narrowly-targeted marketing
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A number of companies have developed systems to maintain the security of
transactions on the Internet and the Company has developed its own proprietary
merchandise engine which provides security for order-taking functions. There can
however be no assurance that breaches in transaction security will not have an
adverse effect on the growth and viability of on-line commerce.
Intranets
Because of the ease of use and widespread acceptance of Internet protocols,
HTML and other scripting languages and tools, a number of companies have
implemented internal networks, or Intranets, based on such protocols. The use of
these protocols allows employees using personal computers and Web browser
software to access and interact with a broad range of information sources within
their company, independent of physical location and underlying computer and
database design, on the familiar platform of Web browser software.
The Company's Internet/Intranet Solutions
The Company provides its Internet/Intranet Solutions through six business
units: Business Development Services, World Wide Web Services, Marketing
Services, Media Services, Client Services and Channel Services. These units
function as a team in providing solutions for clients. The Internet/Intranet
Solutions provided to clients often also involve one or more of the traditional
distribution services offered by the Company.
Business Development Services are delivered through consulting engagements,
generally billed on an hourly basis, in which Company professionals analyze
client business requirements and recommend comprehensive solutions for the
client's Internet or Intranet requirements. Proposed solutions offered by the
Company include one or more of the following components:
- - - Network solutions
- - - Web site specifications
- - - Private Intranets - Web distribution strategies
- - - Traditional channel strategies
- - - Integrated marketing
- - - Image development
- - - Product introduction
- - - Project management
- - - Graphic design
- - - Product distribution
World Wide Web Services provide the design and implementation of a Web site
based upon specifications developed by the Company and the client. The Company's
World Wide Web Services also include the design and implementation of private
Intranets, including hardware and software implementation.
The Company designs many of its Web sites with database system integration,
which allows the Web site to act as an interface to selected portions of the
client's internal legacy or enterprise systems. Such integration allows the Web
site to reflect continuously the most current information concerning the client.
The Company has developed a set of proprietary software tools for
implementation on client Web sites. These tools are licensed to clients for use
on the particular site for so long as the site is maintained by the Company. A
brief description of each of the Company's proprietary tools follows.
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Wheels
Wheels: Navidec's Online Automotive Solution
Wheels provides the first comprehensive regional automotive Internet
solution to the television and newspaper publishing industries. Wheels addresses
the online sales needs of media organizations, automotive dealers and consumers
in the following ways:
Media
With the growing impact of online media on traditional media, television
stations and newspapers are looking to secure revenue from online activities and
gain a competitive advantage in their markets. Wheels offers media organizations
a new online revenue stream from their existing dealer advertiser relationships,
and proactively positions media organizations with these important advertisers.
Automotive Dealers
Wheels offers dealers a total online automotive solution that allows them
to integrate their complete new and pre-owned inventory across dealer franchises
and multiple legacy systems automatically updating that inventory on the Web,
touch-screen kiosks and mobile sales laptops. This solution complements a
dealer's existing traditional media advertising strategy and is proven to help
them sell more vehicles.
Consumers
Consumers can use Wheels to search both new and pre-owned car inventories
of dealers in their region, view digital photographs and maintain personal
interest lists. Wheels allows consumers to search multiple dealer inventories by
make, model, year, price range and mileage. It also allows consumers to request
that dealers assist them in their search for a specific vehicle.
Market opportunity
Navidec believes the market opportunity for Wheels is extremely promising.
The massive automotive market has quickly been impacted by Internet technology
as consumers have adopted the Internet as an important tool for making
automotive purchase decisions. The Internet allows consumers to collect the
large amount of information necessary to choose an auto from the comfort and
convenience of home or work. According to Toyota, Internet auto shoppers buy
within two to three days of visiting a dealership. Prior to the Internet,
consumers bought only after two to three weeks of shopping. Following are
statistics about online buying and its potential impact on the automotive
industry:
Online Auto Buying
- - - 63 percent of all respondents to a recent study would use the Internet to
obtain information about the vehicles they are considering for purchase.
The Dohring Co.
- - - 2.5 million people shopped for cars or parts over the Internet in the last
half of 1996. CommerceNet/Nielson Media
- - - Chrysler believes that 25 percent of its vehicle sales will happen online
within four years. The Economist, March 8, 1997.
Automotive Market
- - - The automotive market in the U.S. generates in excess of $600 billion each
year.
- - - Auto dealers spend approximately $300 in advertising to sell each vehicle in
their inventory. Reynolds & Reynolds
- - - Wheels significantly lowers cost of sales for each participating dealer.
Growth potential of Wheels
Navidec is well-positioned to experience significant growth from Wheels.
Colorado Wheels, Navidec's first Wheels implementation has far exceeded initial
expectations for participating dealers, customer leads and auto sales, as well
as for consumer acceptance. In December 1997, ColoradoWheels included the
inventory of 35 separate dealer franchises in Denver and generated 84 percent
more leads to those dealers than anticipated. Navidec's resulting revenue was
also 97 percent higher than budgeted.
Navidec continues to license Wheels to media partners in the top markets
nationwide and is currently negotiating final contracts in five major markets.
Navidec currently expects to license Wheels in 12 markets in 1998, and expects
to license up to 65 markets within 36 months.
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Competitive positioning
Navidec's Wheels has several features that make it unique in the
marketplace today. First, it is a regional solution. Traditionally consumers
have shopped for autos within five to 10 miles of their home, and Navidec's
experience has shown that the Internet does not change a shopper's desire to
purchase a vehicle from a near by dealer. Consumers use the Internet as a tool
to make a purchase decision and generally want to see and drive the vehicle they
are interested in. Second, Wheels was the first online automotive sales solution
to be licensed to media partners. Wheels provides the sponsoring media with a
method to generate ongoing revenue from new media and secure a competitive
position in a market. Media partnerships ensure that Wheels is heavily promoted
in each market. Navidec does not pay the advertising costs to draw consumers to
the Wheels site in each market--all promotion is provided by its media partner.
Market Entry
Navidec developed the software framework of Wheels based on its experience
and the proven solution it created for the Burt Automotive Group in Denver. Burt
sells more than 46,000 automobiles each year and its 1996 sales were $813
million. Burt sells 100 cars each month from the Internet. Navidec's development
of Burt's online solution allowed Navidec to use its development for Burt as a
research and development tool for Wheels. Wheels has now been launched in
Colorado with all of the functionality required for future markets. Wheels can
literally be launched in additional markets within days, limiting the
time-to-market issues that have traditionally plagued software launches. The
ability to easily roll out markets also ensures that Navidec can enter new
markets quickly prior to other solutions. Products provided by Navidec to the
auto industry
Navidec provides the total online automotive solution that includes
regional Wheels Web sites, individual dealer Web sites, touch-screen kiosks, and
mobile sales laptops. These tools use the same vehicle management technology to
present a dealer's inventory through multiple points of presence. Once the
dealer's inventory is available on Wheels, it can easily be channeled into
unique dealer websites, kiosks or laptops. The kiosks provide dealers or Wheels
partners an avenue to reach non-Internet users and consumers in high traffic
locations such as banks and malls. The mobile sales laptops create a portable
inventory manager for a dealer to take to fleet sales calls or trade shows. Both
are powerful tools to leverage Wheels participation and drive more new vehicle
sales.
Potential applications in other vertical markets
Wheels is an inventory management system and its framework could be adapted
to manage and sell a vast array of inventory over the Web. Though Navidec has
not begun selling its technology into other vertical markets, it is examining
its potential applications.
Navidex
The Navidex tool is a dynamic, database driven table of contents that
allows the user to intuitively navigate the Web site.
Navimap
The Navimap tool is a graphical representation of site information with
links to other areas on the site.
Merchandise Engine
The Merchandise Engine creates an on-line catalog of products available for
sale through the Web site. The Merchandise Engine also contains a secure
algorithm for transmitting credit card information and is capable of capturing
contact and marketing information from customers placing orders.
Calendar Tool
The Calendar Tool provides a visual interface for searching through a
database of date oriented activities, announcements, meetings or other events.
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E-Mail Tool
The E-Mail Tool is an e-mail engine which allows e-mail to be sent from the
Web site to e-mail addresses designated by the client for purposes such as
customer feedback, customer information capture and customer service inquiries.
Administration Tools
Administration Tools provide clients with the means to maintain and update
their sites themselves.
Creative Services
Creative Services include digital image capture, post-processing services
for scanned images and graphic arts production. The Company offers these
services to assist clients in developing a uniform company image that spans both
traditional and electronic media. Actual output services provided by the Company
include photographic quality prints, color transparencies and printed output in
all sizes. The Company typically bills Creative Services on a project basis.
Client Services
Client Services include technical support, network implementation, Web site
maintenance and evolution, hosting of Web sites on a Company Internet server,
database management, product support and electronic messaging implementation.
The Company charges a variety of fees for these services, ranging from a
specific one time fee for change requests to a monthly fee for site maintenance.
Channel Services
Channel Services include all of the functions necessary to implement an
Internet marketing and distribution plan, including on-line sales of
merchandise, warehousing and order fulfillment. The Company generates revenues
from these services principally through sales commissions which vary depending
upon the level of Company involvement in the distribution plan.
Significant Clients
The Company's major Internet/Intranet Solutions clients include the
following:
Account: Colorado Wheels by The Denver Post / Navidec
Industry: Retail Automobile Market
Description: Navidec developed Colorado Wheels to allow consumers to
search for new and pre-owned cars from the inventories of
multiple auto dealers in the local Denver metropolitan area.
Navidec's vision was to develop a system that would generate
sales leads to enable automobile dealers to sell cars using
the Internet as a new distribution channel. The vision
includes working with media partners within local
metropolitan markets who create awareness of the Web site
through advertising. Bank One is Navidec's national partner
to produce Wheels in markets nationwide.
The first regional Wheels site, Colorado Wheels,
coloradowheels.com, was unveiled in late 1997, and is
promoted by The Denver Post. Northwest Wheels was announced
in February 1998, and will be promoted by KOIN-Channel 6, a
CBS affiliate, to consumers in Portland and southern
Washington.
Shoppers who access the site can search for autos using a
variety of criteria, including make, model, year and price.
The site contains an inventory of thousands of new and
pre-owned vehicles, representing virtually all automobile
manufacturer makes and models. In addition to determining
which dealers have desired vehicles in inventory, shoppers
may view digital photos of the autos. Inventory is updated
on a daily basis to reflect additions and subtractions due
to sales or the arrival of additional vehicles.
For auto dealers, the system provides a new incremental
distribution channel, which generates highly qualified sales
leads. The system generates recurring revenues for both
Navidec and The Denver Post.
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Architecture: The Colorado Wheels site was written in Java, using high
performance Java servlets. The servlet architecture enables
complex query functions to be handled on the server end of
the system. Sybase is the underlying database used for the
site.
Development
Features: - Locate a vehicle yourself or request an assisted search.
Search by the following criteria:
- Range according to your zip code
- Year, make, model, type & price
- Construct an interest list based on your search results
- Search for dealers within your range based on your zip
code
- Java development allows vendor and system independence
- Shared common code baseline and database with dealer Web
sites and Navidec's Interactive Auto Sales Kiosks allow
synchronized updates across multiple systems
- Highly responsive query capabilities
Account: Denver Metro Convention and Visitor's Bureau
Industry: Conference Marketing and Reservations
Description: The Denver Metro Convention and Visitor's Bureau's (DMCVB),
primary responsibility is to market and promote the city of
Denver, Colo., as a prime convention location to businesses,
organizations and individuals worldwide.
The bureau's vision was to develop and implement a Web site
that would help market Denver to potential conventioneers
and visitors as well as to provide meeting planners,
visitors and local members with information regarding
activities, restaurants, accommodations, shopping and other
services available once they arrived. The goal was to
provide users with a single comprehensive resource for
information.
Highlights of the site include information about Denver and
the Rocky Mountain region. Detailed information is available
on Denver shopping, restaurants and menus, accommodation,
attractions and other services of interest to convention
groups and visitors to the city and region. A database
driven event calendar provides local events listings.
Architecture: The Web site is hosted on a Unix server running Netscape
Enterprise server. All of the software was developed using
HTML, CGI script, and Javascript. Functionality was cutting
edge when the site was developed in 1996.
Development
Features: The DMCVB Web site is comprehensive with a vast breadth of
information. Key features of the site include:
- Database driven events calendar
- Database of convention bureau membership
- Searchable by type of product or service
- Searchable by name
- Database driven directories for the following local
information:
- Dining
- Accommodations
- Transportation
- Attractions
- Art & Culture
- Recreation
- Services & Relocation
- Kid Stuff
- Shopping
- Meeting planning assistance
- Maps for convention sites
- Online booking services
- Rotating banner ads
- Interactive map constrains database driven searches by
region
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Account: Primestar by TCI
Industry: Broadcast/Entertainment
Description: Primestar by TCI is a division of TCI Satellite
Entertainment, Inc. Primestar markets satellite television
services to approximately 40 percent of the United States.
The majority of its customers primarily are families
residing in rural parts of the country as opposed to major
metropolitan areas. Primestar's current offerings include
160 video and audio viewing channels, equipment to receive
and display television satellite signals which may be
purchased or rented, high quality digital picture or sound,
in-home service, 24-hour customer service and support, and a
full line of accessory products.
Primestar by TCI's vision was to build a Web site to market
its products to new markets, particularly metropolitan
markets. The goal was to design a family oriented site that
presents Primestar systems and programming as the premium
product on the market.
Navidec used state-of-the-art 3D rendered graphics to design
a colorful, three-dimensional Primestar Town. The Web site
created a typical small town setting, including such
features as the town hall, schoolhouse, newsstand, and
shopping mall.
Web site users are able to navigate around the town and into
buildings to receive up-to-date information about Primestar.
The site also allows users to participate in events like the
Virtual Town Meeting to address family issues and provide
information feedback to Primestar on such issues as
TVratings and current program airings.
After perusing the most in-depth information available for
Primestar products, users can initiate their purchase with
an online order form or request a demo.
Architecture: The Primestar Web site is hosted on a Unix system using
Netscape Enterprise server. Navigation and mouse-over events
were designed using Java applets. The zip code search and
validation functions are database driven.
3D rendered artwork was used to maximize the adaptability
for changes and updates. For example, a holiday 'Layer'
could be created for every scene and scheduled during the
holiday season. Or, Primestar could change a light source to
be driven by the time the user logs on. For example, if a
user logs on in the A.M., the sun is in the east, and if the
user logs on at night, the town is moonlit. The screen shot
on the previous page shows an empty lot on the left side.
That lot is reserved for a sports complex where users can
get the latest information on sports programming. When
ready, Navidec can plug the stadium module into the existing
artwork.
Development
Features: 3D rendered graphics
Java pop-up mouse events
Java content driven button bar navigation Zip code
validation database Zip code driven marketing data
collection Online order form Demo request form Town meeting
forum
Account: Live Entertainment
Industry: Broadcast/Entertainment
Description: Live Entertainment is a diversified company that specializes
in the marketing and distribution of media entertainment
both within the United States and internationally. Live's
primary business focus is the selling of motion pictures and
related movie merchandise used to promote and advertise
films.
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Live Entertainment's goal was to develop a site which would
enable Live to provide information to the public as well as
enable users to purchase directly from the Live inventory of
videocassettes, interactive CDs and movie-related
merchandise.
Navidec designed the Live Web site to appear as a 3D store.
Visitors to the site enter the store and are able to click
on a piece of clothing merchandise to determine colors,
sizes and pricing prior to ordering online. The site also
has a home theater, enabling visitors to view video clips of
Live movies. Users also have access to Club Live, a video
club where site visitors can register and join to get new
information about special Live Entertainment movie,
merchandise and promotional offerings.
Architecture: The Web site is hosted on a Silicon Graphics Challenge-S
running the Irix operating system. The Web server software
is Netscape Enterprise Server 3.0. The animation was
developed using Macromedia Director 6.0. A Verity search
engine, Quicktime video and an MSQL Database are other
technologies used to develop and support the site.
Development
Features: - Registration database with a variety of client reporting
tools
- Suite of page update tools
- Career opportunities
- Home page text
- Financial form
- International page(s)
- Web site monitoring and statistics
- Keyword search capability
- Shockwave animation throughout the site
- Awarded Shocked Site of the Day 3/16/97
- Custom secure E-Commerce engine, developed by Navidec
Account: Destination Hotels & Resorts
Industry: Travel
Description: Destination Hotels and Resorts (DH&R) is the management
corporation for world-class luxury hotel and resort
properties located throughout the country. The distinctive
properties are designed to restore your spirit and stir your
imagination. The properties also include spacious and
well-designed conference facilities for business meetings.
This service enables users to shop for gift shop merchandise
from DH&R resorts.
DH&R's vision was to develop a unique, comprehensive Web
site which would enable potential customers the ability to
obtain the latest information regarding DH&R's resort
properties and provide them with tools for planning their
vacations and business travel. In addition to providing a
trip planning tool, DH&R also wanted to give customers who
had stayed at their properties as well as potential
customers the ability to relive or dream about their
vacations through online purchases of resort merchandise.
Architecture: The DH&R E-Commerce system is based on AT&T's Secure Buy.
This was one of the first Secure Buy systems implemented in
the country. In addition to providing access to the DH&R
Destination Express site via the Web, Navidec developed
on-site kiosks, which were deployed throughout DH&R's resort
properties.
23
<PAGE>
Development Key information and features of the DH&R Web site include:
Features:
- Resort properties
- Offer special resort value packages (coming soon)
- On line access to the DH&R site via kiosks located at
resorts On line store for purchasing merchandise
- Navidec is also the fulfillment agent
Account: Bryan Memorial Hospital
Industry: Healthcare
Description: Bryan Memorial Hospital is the largest healthcare provider
in the state of Nebraska. In addition to providing
healthcare services for its customer base, the hospital
interfaces with numerous private and governmental agencies.
Bryan Memorial processes information and performs thousands
of data transactions in paper formats everyday.
Bryan's vision is to implement a state-of-the-art, open
systems solution to provide an effective, highly secure way
to perform all of its business transactions electronically.
Its goal is to operate much more efficiently and
productively and save operating costs in the process.
Navidec has installed a 700 seat pilot solution using
Netscape servers. This Netscape pilot replaced Bryan
Memorial's previous proprietary Novell GroupWare system. The
pilot program enables Bryan Memorial to implement new
e-mail, calendar, and Web capabilities for internal and
external communication. Netscape Directory Services with
LDAP and the Certificate Server provide ease of
administration and the security needed to perform electronic
data transfers. Annual overall savings for Bryan Memorial
are expected to be in excess of $200,000.
Architecture: The 700 seat pilot program involved the installation of
seven Netscape servers on a DEC Alpha server running NT 4.0
SP3. The server was a two processor configuration with 512MB
of RAM and RAID 5 backup. Desktop clients were TCP/IP
enabled.
Development
Features: Open TCP/IP E-Mail (No gateways to Internet) Open
Calendaring (Unified LDAP Directory) Open Web Publishing
(Secure, controlled access) LDAP Directory Services (Single,
unified resource directory) Proxy Services (User
authentication & secure data transactions) Desktop
Management Services (consistent desktop user interface with
remote administration capabilities)
Account: Merrick & Company
Industry: Engineering
Description: Merrick & Company is a multi-discipline engineering and
architectural firm headquartered in Denver, Colo. Merrick
serves a variety of clients including Advanced Technologies,
Government, Light Industry and Heavy Industry. Merrick
employs a professional base of nearly 500 and has offices
throughout the United States.
Merrick's vision for its corporate intranet was the
comprehensive integration of all corporate systems and
organizations. Key corporate information is integrated from
HR, Marketing, Project Management, Administration,
Accounting and Project Tracking and Information Systems
organizations.
The goals and expected benefits of the Merrick Intranet are
as follows:
- Reduce operating costs
- Improve the accuracy and distribution of critical
information
- Improve service to employees Automate key processes
- Migrate from paper to electronic management of vital
corporate information
- Control increasing data synchronization, management and
security problems
24
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Architecture: Navidec developed a completely custom intranet solution
supported by a data warehouse integrating data from seven
legacy systems. The intranet was developed using Microsoft
Web technology exclusively due to the client's requirements.
All departments and information driven functions are
integrated or impacted by the intranet.
Development
Features: Developed on the Microsoft IIS Web server on an NT system.
Custom applications for complex, state driven, multiple user
functions were developed in Java. The data warehouse was
developed in MS-SQL and integrates a total of seven Oracle,
MS Access and proprietary database systems. The data
warehouse will ultimately replace all of the minor legacy
systems and provides the quality control gate for
synchronizing data between the primary databases.
Database driven, custom applications include:
- Online organization charts
- Function and role based 'Yellow Pages' for the online
help desk
- Bid and proposal generation and tracking
- Project creation and tracking system
- Key corporate financial information
- Marketing and forecast reports
- Quality assurance procedure, including training and
tracking
Other sites developed by the Company include Sunstrand Fluid Handling
(http://www.sfh.com) Richmond American Homes (http://richmondamerican.com)
currently under development, Denver Metro Convention & Visitors Bureau
(http://www.denver.org), Christopher Dodge (http://www.cdodge.com), Plastiprint
(http://plastiprint.com), On Sale Online (http://onsaleoneline.com), Lakewood
Hospitality Association (http://denverwesthotels.com), Cohen Brame & Smith PC
(http://www.cbspc.com), Kloppenberg (http://kloppenber.com ), Belmar Pharmacy
(http://www.belmarpharmacy.com), Kimmon Electric Co., Ltd.
(http://www.kimmon.com), KUSA-9 News (http://www.9news.com), , Colorado
Recreation (http://www.coloradorecreation.com) and the American Animal Hospital
Association (http:// www.healthypet.com).
DISTRIBUTION AND RELATED SERVICES
The Company distributes high technology systems and components manufactured
by third parties and provides related services such as system integration and
installation. Product distribution clients range from small businesses to
Fortune 100 companies. Significant product distribution clients include Lockheed
Martin, Johnson Controls, Hughes Aircraft and US West. The Company serves both
as a national manufacturer's representative for the products of certain
international manufacturers and as a reseller of selected computer products in
the Rocky Mountain region. The Company focuses its distribution efforts towards
selling specialized, higher margin products. The Company intends to expand its
product distribution activities into electronic channels, including sales over
the Internet on the Company's Web site.
Distribution activities usually involve the receipt by the Company of
orders for equipment from prospective purchasers and the delivery and/or
installation of the equipment by the Company.
The Company purchases the equipment directly from the manufacturer or
vendor and resells it to the purchaser at a price which includes the Company's
cost and a profit margin. With the exception of graphics supplies and certain
imported components, the Company does not generally maintain an inventory of
products it distributes. The Company specializes in components, lasers,
graphics, supplies, and systems integration.
Components
The Company represents and distributes component products from several
Japanese manufacturers, principally Hayashi Denko and Sunmoulon. Products
include temperature sensors, push-button switches and numerous other specialized
components. These products are sold primarily through phone sales as well as
through a national network of manufacturer's representatives. Most of these
components are sold to original equipment manufactures ("OEMs") which
incorporate these components into their product designs. Key industries for the
Company's component products include: industrial process control, heating,
ventilation and air conditioning (HVAC), energy management, food processing,
consumer appliances and medical monitoring.
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Graphics
The Company sells graphics products focused in the areas of data capture
(scanning, digital cameras and X-terminals) and color output (color printers and
LCD projection devices). The sale of many of these products is through
territorial authorizations granted to the Company by the manufacturers. The
Company has significant manufacturer alliances with Xerox, Tektronix, Sony,
InFocus and Hewlett Packard. Graphics products are sold primarily to end-user
customers by a direct sales team operating both in the field as well as through
an inside sales group which takes orders from existing customers.
Supplies
The Company sells consumable supplies for color graphic output devices. The
Company stocks an inventory of popular consumables in order to provide prompt
response for customer orders. In addition, the supplies division sells
third-party extended warranty agreements for all hardware products.
Systems Integration
The Company offers network design and implementation services to corporate
customers in the Rocky Mountain region, which services often include the
acquisition and location of network equipment and servers. These services are
performed by a direct sales team. The primary manufacturers of network equipment
and servers distributed by the Company are Compaq, IBM and Hewlett Packard.
EMPLOYEES
There are currently 51 full-time employees of the Company. These include
nine in Client Services, five in creative services, thirteen in World Wide Web
Services, two in Marketing Services, fourteen in sales, and eight in management
and administration.
The Company expects to hire ten additional full-time employees during 1998.
The Company currently anticipates three new hires dedicated to sales, four new
hires dedicated to client services and three new technical employees.
COMPETITION
Existing competitors to the Internet/Internet Solutions business include
Online Systems Services, Inc., Eagle River Interactive, Inc. and Open Market,
Inc., all public companies traded on NASDAQ, as well as a large number of
regional firms providing similar services to those of the Company. Potential
competitors in this business include browser software vendors, PC and UNIX
software vendors and on-line service providers. Additional competition comes
from numerous client/server companies, database companies, multimedia companies,
advertising agencies, document management companies, networking software
companies, network management companies and educational software companies. In a
broader sense, the Company may compete with the more traditional advertising and
distribution mediums, such as radio, television and mail order outlets.
Potential competition also comes from the Company's clients, who could
choose to address their Internet/Intranet needs through in-house personnel. Some
of the Company's current and many of the Company's potential competitors have
longer operating histories, greater name recognition, larger installed customer
bases and significantly greater financial, technical and marketing resources
than those of the Company. Competitive factors in the Internet/Intranet
Solutions business include core technology, breadth of services offered,
creative and artistic ability, marketing and distribution resources, customer
service and support and price.
A large number of companies act as re-marketers of computer networks,
graphics equipment and components, and the Company's competition in the high
technology product distribution business is therefore also intense. In some
instances, the Company, in acting as a re-marketer, may compete with the
original manufacturer. In addition, a large number of companies offer the
reprographic services offered by the Company and competition in this area is
also intense. Many of the Company's competitors in the high technology product
distribution business have longer operating histories, greater name recognition,
larger installed customer bases, larger sales staffs and substantially greater
financial, technical and marketing resources than those of the Company.
Competitive factors in the distribution business include technical
expertise, breadth of products offered, product quality, performance and
reliability, price, name recognition, customer service and support and access to
distribution channels.
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Competitors in the automotive market
There are numerous online automotive sales Web sites on the Internet today,
but none that employ the same total solution strategy as Wheels. Other online
auto sales products include Carpoint, Auto-by-Tel, AutoConnect, and AutoVantage.
A few Internet developers are also attempting to sell online sales products to
media, but none offer the total sales solution that Wheels offers to ensure that
dealers sell vehicles, including important add-ons such as touch-screen kiosks
and mobile sales laptops. Another important distinction is that Navidec
understands the auto sales process and even trains dealers to help them sell
more autos from the leads generated by Wheels. Navidec employees have over 40
years of experience in the automotive industry and have expended over 190,000
hours into the development of the Wheels solution.
Navidec has hired a team of experts well versed in the automotive business,
and has the president of Denver's largest independently owned dealership group
(Burt Automotive) on its board of directors. These experts enable Navidec's
access to the latest industry information and a deep understanding of the
automotive business and its processes. This team has enabled Navidec to develop
a solution which primary focus is on enabling automotive dealers the ability to
sell more cars.
Both the Internet/Intranet Solutions business and the high technology
product distribution business are characterized by low financial barriers to
entry and frequent introductions of new products. The Company therefore expects
competition in each of its businesses to increase in the future. There can be no
assurance that the Company will be able to successfully compete in its
businesses. Although the Company believes that it has the requisite management,
technical and creative abilities to successfully compete, the intense level of
competition in each of the Company's businesses could materially adversely
affect the Company's future operating results and financial condition.
PROPERTIES
The Company's headquarters are located at 14 Inverness Drive, Building F,
Suite 116, Englewood, Colorado, in a 8,900 square foot facility, which includes
approximately 1,500 square feet in warehouse space. The facility is occupied
under a lease with an unaffiliated party expiring in June 2001 and providing for
a current monthly lease rate of $8,150. The Company also leases space at 1300
Plaza North, Suite 101, Lafayette, CO, this is a 1,500 square foot facility. The
facility is occupied under a lease with an unaffiliated party expiring in June
1999 and providing for a monthly lease rate of $2,180. The Company may lease
additional warehouse and office space if needed to support the growth in
traditional and on-line product distribution.
LEGAL MATTERS
The Company currently is not involved in any material legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OFOPERATIONS
Cautionary Statement Regarding Forward Looking Statements. The matters
discussed here and elsewhere in this Prospectus, when not historical matters,
are forward looking statements that involve a number of risks and uncertainties
that could cause actual results to differ materially from projected results.
Such factors include, among other things, the rapidly developing and
unpredictable nature of the Internet, intense competition in all of the
Company's markets, obsolescence of products and technological changes, the need
for management of growth and the dependence on relationships of the Company with
its customers and suppliers, as well as other risk factors described elsewhere
in this Prospectus.
Overview
The Company was organized as ACI Systems, Inc. in July 1993 and changed its
name to NAVIDEC, Inc. in July 1996 when it acquired IPI, a designer and
developer of Internet World Wide Web sites. The Company's principal sources of
revenue are from the resale of computer equipment, high technology peripherals
and electronic components manufactured by independent vendors (Product
Distribution) and services related to Internet/Intranet Solutions, license fees
from recurring lead revenue from the Wheels solution. The Company issued an
aggregate of 678,877 shares of Common Stock to the shareholders of IPI and a
promissory note in the amount of $75,000 to one shareholder of IPI in exchange
for all of the issued and outstanding stock of IPI. The Company acquired
TouchSource, Inc., a designer and developer of interactive Kiosks, in July 1997.
The Company issued an aggregate of 207,000 shares of Common Stock to the
shareholders of TS and TS was merged into the Company in exchange for all of the
issued and outstanding stock of TS. The merger and acquisition were consummated
in order to expand the Company's business model of combined expertise in
traditional marketing and distribution and Internet/ Intranet technology.
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The Company's strategy is to increase revenue generated by its two core
competencies: (1) Internet/Intranet Solutions, which are focused in five major
market areas, including computer and network infrastructure equipment, software
and services, content aggregation, electronic commerce and order fulfillment,
and (2) Product Distribution. The Company has built and intends to continue to
build an infrastructure that assumes this strategy will succeed. Management
believes that, based on the current product mix, the Company's new Wheels
solution will provided for the majority of its increased revenues in 1998 and
years to follows. The Wheels solution combines the companies two core
competencies of Internet/Intranet solutions and product distribution. Wheels is
designed on a state of the art platform that allows it to distribute electronic
information out to consumers through regional wheels web sites, individual
dealer web sites, remote automotive kiosks and also in mobile sales laptops. The
failure of the Company to achieve this strategy could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company recognizes revenue upon delivery of its Internet/Intranet
Solutions and Product Distribution goods. Internet/Intranet Solutions generally
begin with consulting arrangements that are billed on an hourly basis and
progress to a bid for a proposed project. Deposits are then taken upon
acceptance of the bid. Most of the Company's customers elect to update and
expand their Web sites frequently, and clients are billed monthly on a time and
materials basis for these services. Additional sources of ongoing revenue
include revenue from advertising sold by the Company on clients Web sites,
revenue from sales of merchandise and services over clients Web sites and
revenue from maintenance and hosting of client Web sites.
From August through October, 1996, the Company raised net proceeds of
approximately $1,233,000 from the sale of 10% Unsecured Subordinated Convertible
Promissory Notes (the "Bridge Promissory Notes") in a private placement (the
"Bridge Private Placement"). These notes were converted by their terms into an
aggregate of 349,126 Units upon consummation of the Company's public offering
described below. The Units were identical to the Units offered in the public
offering.
On February 14, 1997, the Company consummated a public offering of
1,000,000 Units consisting of one share of Common Stock and one Common Stock
purchase warrant ("Warrant"). Each Warrant entitles the holder to purchase one
share of Common Stock at a price of $7.20 per share until February 10, 2002. The
Warrants are redeemable at the option of the Company, at $.05 per Warrant, at
any time on or after February 10, 1998 or such earlier date as may be determined
by JCA. Of the 1,000,000 shares of Common Stock and 1,000,000 Warrants included
in the offering, 755,000 shares of Common Stock and 1,000,000 Warrants were sold
by the Company, for net proceeds of approximately $3,436,000 (after subtracting
the underwriting discount and other expenses of the offering). The remaining
255,000 shares of Common Stock were sold by the investors in the Bridge Private
Placement.
From November 1997 to April 1998, the Company raised net proceeds of
approximately $2,229,750 from the issuance of 594,500 shares of commons stock
and warrants from a private placement. Each Warrant entitles the holder to
purchase one share of Common Stock at a price of $7.20 per share until February
10, 2002. The Warrants are redeemable at the option of the Company, at $.05 per
Warrant, at any time on or after February 10, 1998 when the Company's Common
Stock on 20 consecutive trading days has closed above $8.40 per share and there
is an effective registration statement on file with the Securities and Exchange
Commission.
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Results of Operations
The following tables sets forth for the periods indicated the percentage of
net sales represented by certain line items included in the Company's statement
of operations.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------------------------ --------------------------------------------
1997 1996 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100% $6,008,000 100% $5,470,000 100% $1,702,000 100% $1,363,000
Cost of Sales 70 4,219,000 81 4,425,000 62 1,055,000 63 857,000
Gross Margin 30 1,789,000 19 1,045,000 38 647,000 37 506,000
Operating Expense 73 4,367,000 40 2,259,000 65 1,112,000 56 769,000
Other Income (Expense) (25) (1,529,000) (3) (201,000) (1) (16,000) (20) (271,000)
Net Income (Loss) (68) (4,107,000) (24) (1,415,000) (28) (481,000) (39) (534,000)
</TABLE>
Three Months Ended March 31, 1998 and 1997
Net sales for the first quarter of 1998 were $1,702,000 which represents an
increase of 25% over net sales of $1,363,000 for the first quarter of 1997. The
increase is primarily attributed to sales of Internet/Intranet Solutions, which
were $614,000 an increase of 109% over net sales of $294,000 during the first
quarter of 1997. Sales of the Company's Wheels solution, which was introduced in
the 4th quarter of 1997 accounted for $365,000 or 59% of the Internet/Intranet
sales for the first quarter of 1998. In addition, net sales of Computer
Infrastructure were $539,000 an increase of 34% over net sales of $402,000 The
increase in net sales in all three categories was primarily attributable to
increased marketing activities and greater market penetration.
Net sales in Distribution were $549,000 a decrease of 18% from net sales of
$667,000 during the first quarter of 1997. The decrease in sales is attributed
to the discontinuation of distribution products that didn't have strong gross
profit and or recurring sales.
Gross margin was 38% during first quarter of 1998, an increase of 1% over a
gross margin of 37% during the same quarter in 1997. The increase in the
Company's gross margin was attributed to management's elimination of several
distribution products that carried low gross margin and the strong gross margin
on Internet/Intranet Solutions.
Operating expenses for first quarter of 1998 were $1,112,000 compared with
$769,000 for the first quarter 1997. The increase in operating expenses was
primarily the result of an increase in staff and marketing activities associated
with expanding the Wheels product and its market area. Operating expenses are
expected to remain stable as the Company continues to invest in the development
of high end Internet/Intranet Solutions.
Net interest expense for first quarter of 1998 was $16,000 compared with
$270,000 for first quarter of 1997. The decrease was a result of the Bridge
Promissory Notes that were converted in February of 1997. The Company expects
interest expense to remain constant for the remainder of 1998.
Years Ended December 31, 1997 and 1996
Net sales for fiscal 1997 were $6,008,000 which represents an increase of
10% over net sales of $5,470,000 in fiscal 1996. The increase is primarily
attributed to sales of Internet/Intranet Solutions, which were $1,519,000 an
increase of 290% over net sales of $389,000 in fiscal 1996. Wheels which was
introduced in the fourth quarter of 1997 accounted for $232,000 or 56% of the
$413,000 in Internet revenue during the quarter. In addition, net sales of
Computer Infrastructure were $1,819,000 an increase of 49% over net sales of
$1,221,000. The increase in net sales in all two categories was primarily
attributable to increased marketing activities and greater market penetration.
29
<PAGE>
Net sales in product distribution were $2,662,000 a decrease of 31% from
net sales of $3,860,000 in fiscal 1996. The decrease in sales is attributed to
the discontinuation of distribution products that didn't have strong gross
profit and or recurring sales. In 1997 Kimmon Electric, Inc., the Company's
supplier of laser products, began marketing its lasers directly in the United
States through Kimmon Electric USA, Inc. This resulted in a decrease in sales of
$863,000. The decrease affected the Company's net sales but due to the lower
margins of distribution did not materially adversely effect the gross margin for
1997. Gross margin was 30% during fiscal 1997, an increase of 11% over a gross
margin of 19% in fiscal 1996. The increase in the Company's gross margin was
attributed to management's elimination of several distribution products that
carried low gross margin and the strong gross margin on Internet/Intranet
Solutions which were at 57%.
Operating expenses for fiscal 1997 were $4,367,000 compared with $2,259,000
for fiscal 1996. The increase in operating expenses was primarily the result of
an increase in staff and marketing activity and legal and consulting fees.
Operating expenses are expected to remain stable as the Company continues to
invest in the development of high end Internet/Intranet Solutions.
Net interest expense for fiscal 1997 was $236,000 compared with $204,000
for fiscal 1996. The increase was a result of the Bridge Promissory Notes. The
Company expects interest expense to decrease in 1998.
In 1997 the Company experienced $1,305,000 in expense for the impairment of
goodwill. The goodwill was the result of the merger with IPI in 1996 and the
acquisition of TS (see additional discussion on impairment, which follows) in
1997.
Liquidity and Capital Resources
Through March 31, 1998, the Company funded its operations primarily through
equity investments, from the Company's IPO and subsequent Private Placement that
was completed in April of 1998 , and revenues generated from operations, lines
of credit and factoring arrangements made available to it by banks. On March 31,
1997 the Company had cash and cash equivalents of $584,000 and a net working
capital of $885,000 compared to cash and cash equivalents of $369,000 and a net
working capital of $678,000 as of December 31, 1997.
Cash used in operating activities for the Company totaled $336,000 and
$1,603,000 for first quarter of 1998 and 1997, respectively. Cash used in
investing activities consisted of expenditures for property and equipment.
Capital expenditures increased to $119,000 in first quarter of 1998 from $67,000
during first quarter of 1997.
Cash from financing activities in fiscal 1998 consisted of advances from
factoring arrangements of $402,000 net of repayments of $382,000, proceeds from
the issuance of common stock of $654,000. This compares to 1997 repayments of
Notes of $1,437,000 from the Bridge Private Placement, $226,000 in loans from
shareholders and employees.
The Company has not recorded a deferred tax asset as it cannot conclude to
date that it is more likely than not that the deferred tax asset will be
realized.
Impairment of Long-Lived Assets
Effective July 1, 1996 the Company acquired 100% of the stock of IPI for
679,000 shares of common stock of the Company and a $75,000 note payable in a
purchase transaction. The acquisition was valued at approximately $750,000 and
resulted in goodwill of approximately $850,000 being recorded. The expected
future cash flows associated with the technology previously developed by IPI
declined due to rapidly changing technologies and increased competition for
products developed with the IPI technology. In addition, during the fourth
quarter of 1997, after the introduction of new Internet solutions by the
Company, management decided to focus the Company on its automotive solution. As
such, the Company reevaluated the goodwill related to this acquisition and
recorded an impairment expense of $598,000, resulting in a remaining net balance
of $20,000. This amount will be amortized during 1998.
Effective July 31, 1997, the Company acquired 100% of the stock of TS for
207,000 shares of Common Stock of the Company in a purchase transaction. The
acquisition was valued at approximately $760,000 and resulted in goodwill of
approximately $859,000 being recorded. Subsequent to the acquisition, Java
technologies developed far more rapidly than expected, causing the Company to
replace a large portion of the software developed by TS which has reduced the
expected future cash flows associated the TS technology. Furthermore, the
Company intends to integrate the TS technology with its other products and
market it primarily to the automotive industry, which was not a market focus of
TS. As such, the Company also reevaluated the related goodwill, and recorded an
impairment expense of $707,000 resulting in a remaining net balance of $80,000.
This amount is being amortized during 1998.
30
<PAGE>
Inflation
The Company does not believe that inflation will have a material impact on
the Company's future operations.
Year 2000
Management has initiated an enterprise-wide program to prepare the
Company's computer systems and applications for the year 2000. The Company
expects to incur internal staff cost as well as consulting and other expenses
related to the year 2000 project. At this point, the Company is not able to
determine the estimated cost for its year 2000 project and, if unresolved,
whether the year 2000 issue will have a material impact on the operations of the
Company.
MANAGEMENT
Directors and Officers
The following table sets forth the name, age and position with the Company
of each officer, director and nominees for director of the Company as of the
date of this Prospectus.
Period from
Name Age Position Which Served
- ---- --- -------- ------------
Ralph Armijo 45 President, Chief Executive 7/93
Officer and Director
Patrick R.
Mawhinney 34 Chief Financial Officer, 7/96
Treasurer and Director
Andrew Davis 45 Director 4/97
Lloyd G.
Chavez, Jr. 48 Director 4/97
Gerald A.
Marroney 46 Director 4/97
Harold
Anderson II 34 Vice President of 7/96
Automotive
Kenneth P. Bero 44 Vice President of Sales 12/97
James
Hosch 45 Director 6/98
The officers are elected by the Board of Directors at the first meeting
after each annual meeting of the Company shareholders and hold office until
their successors are duly elected and qualified in accordance with the Bylaws of
the Company.
RALPH ARMIJO has served as the President, Chief Executive Officer and a
director of the Company since its inception in 1993. From 1981 to 1993, Mr.
Armijo was employed by Tektronix, Inc., a large communications company which
also produced testing and measuring equipment. Mr. Armijo's responsibilities at
Tektronix progressed from sales manager, to branch manager, to district manager
and, ultimately, to Western Regional Manager, a position he held for five years.
In that position, he was responsible for a $100 million budget in sales,
graphics, technical support and administration, and he was responsible for
developing new distribution channels, including reseller agreements. From 1976
to 1981, Mr. Armijo was employed by IBM Corporation, where he sold computerized
accounting and financial applications to small and medium-sized businesses. Mr.
Armijo received his B.A. from Colorado College and his M.B.A. from the
University of California, Los Angeles.
31
<PAGE>
ANDREW DAVIS served as Vice President of Sales and Marketing of the Company
from May 1996 until December 1997. He became a director of the Company in April
1997. From January 1994 to May 1996, Mr. Davis was manager of wholesale
distribution at InFocus Systems, a manufacturer of high resolution projection
systems. From September 1982 to January 1994, Mr. Davis held various sales and
marketing positions in Tektronix, Inc. including Director of Marketing for the
Interactive Technologies Division. Mr. Davis attended the University of Denver
from 1971 to 1974 where he studied Business Management and Marketing.
PATRICK R. MAWHINNEY served as the President of Interactive Planet, Inc.
("IPI") from its inception until its merger with the Company in July 1996 and
since that time has served as Chief Financial Officer, Treasurer and a director
of the Company. From May 1995 until May 1996, Mr. Mawhinney also served as a
financial/accounting consultant for MIS\Sunguard, a provider of accounting and
investment software. Mr. Mawhinney was employed as an Assistant Vice President
of The Bank of Cherry Creek from November 1993 to May 1995; as a Vice President
of Vectra Banking Corporation from June 1989 to November 1993; and as Operations
Coordinator for Zions Bancorporation from August 1986 to June 1989. He received
his B.S. from Colorado State University.
LLOYD G. CHAVEZ, JR. became a director of the Company in April 1997. He has
been a director of the Burt group of automobile dealerships in Denver, Colorado
since 1988 and Director of Automotive Markets of the Burt group since 1994. From
1983 to 1994, Mr. Chavez was Vice President of Fort Dodge Laboratories, a
subsidiary of American Home Products, where he was responsible for business
acquisitions, new products and technologies, joint ventures, intellectual
property acquisitions, strategic planning, market research and sale projections.
From 1982 to 1983, Mr. Chavez was Vice President of General Genetics
Corporation, where he was responsible for management of biological and
pharmaceutical research and development. Mr. Chavez received his B.A. in
Molecular, Cellular, Development Biology from the University of Colorado, his
M.A. in Old Testament Studies from Denver Seminary, his Ph.D. in Microbiology
and Immunology from the University of Virginia, and was a post-doctoral Fellow
in Chemistry at Cornell University.
GERALD A. MARRONEY became a director of the Company in April 1997. He has
served as a State of Colorado District Court Judge in Pueblo County, Colorado
since 1990. Prior to such time he was a practicing attorney in Pueblo, Colorado.
Mr. Marroney received his B.S. in Political Science from Southern Colorado State
College in 1973 and his J.D. from Oklahoma City University in 1976.
HAROLD ANDERSON II served as Vice President of Business Development for IPI
from July 1995 until its merger with the Company in July 1996. He has served as
Vice President of Business Development of the Company commencing in July 1996,
and from June 1997 as Vice President of Automotive. From September 1986 to July
1995, Mr. Anderson was employed by U.S. West Advance Technologies and
Communications, where he worked in Distributed Technology Platform Security,
served as the Technical Project Manager, and later acted as a Product Marketing
Specialist for the U.S. West Internet Services Provider/On-line Service Project.
Mr. Anderson received his B.S. degree in Business Administration from the
University of Arizona in 1986 and a Masters degree in Computer Information
Systems from the University of Denver in 1991.
KENNETH P. BERO has served as Vice President of Sales of the Company since
December 1997. From July 1996 to December 1997, Mr. Bero was Director of Sales,
SGI Business Group at Access Graphics, a wholesale distributor of UNIX based
hardware and software products. From September 1989 to June 1996, Mr. Bero held
various sales and sales management positions at Tektronix, Inc. including
Business Development Manager, Major Account Group Manager and National Reseller
Group Manager for the Display Products Division. Mr. Bero received his B.A. from
Bates College and his M.B.A. from Northeastern University.
JAMES HOSCH has been a director of the Company since June 1998. Mr. Hosch
has been an Senior Vice President of Joseph Charles & Associates, Inc., a NASD
registered broker dealer, since September 1995. From January 1993 until
September 1995, he was Executive Vice President of Cohig & Associates, Inc., a
NASD registered broker dealer. From 1989 until January 1993, he was President of
Kober Corporation, a publicly traded real estate firm.
No director or executive officer of the Company is related to any other
director or executive officer. None of the Company's officers or directors hold
any directorships in any other public company.
32
<PAGE>
Director Compensation
None of the Company's directors received any compensation during the most
recent fiscal year for serving in their position as a director. Members of the
Board of Directors may receive stock options issued under the stock option plan
to be voted upon at the Annual Meeting.
EXECUTIVE COMPENSATION
The following table sets out the annual compensation paid to Ralph Armijo
for the last three fiscal years and to Andrew Davis during the last fiscal year.
No other executive officer has received annual compensation in excess of
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
ANNUAL LONG TERM COMPENSATION ALL OTHER
NAME AND COMPENSATION RESTRICTED STOCK COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS OPTIONS ($)
- ------------------ ---- --------- -------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ralph Armijo, Chief 1997 $156,141 $12,869 0 0 $9,600(1)
Executive Officer 1996 $124,384 $ -0- 0 0 $9,000(1)
1995 $111,444 $24,000 0 0 $9,000(1)
Andrew Davis, 1997 $100,625 $ 5,250 0 0 $4,800(1)
Director (2)
- ----------
(1) Consists of an automobile allowance.
(2) The Company was not a reporting company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 at any time during 1996 or 1995.
Information concerning the compensation for 1996 or 1995 of the person
indicated has not previously been required to be reported and therefore is
not provided herein.
</TABLE>
No officer or director received any form of compensation other than cash
during 1997 and no long term incentive, bonus or option plans were or are in
place. The Compensation Committee may at its discretion, award discretionary
bonuses in the future.
The current annual salaries of the executive officers of the Company are as
follows: Ralph Armijo, President, $150,000; Kenneth Bero, Vice President of
Sales, $85,000; Patrick Mawhinney, Chief Financial Officer, $87,500; and Harold
Anderson II, Vice President of Automotive, $87,500. Total annual compensation
for all executive officers is $410,000.
Employment Agreements and Termination of Employment and Change-in-Control
Arrangements
- --------------------------------------------------------------------------------
The Company entered an Employment Agreement with Mr. Armijo that is
effective May 1, 1998. The term of that agreement is for one year and it may
renew automatically for two additional one-year periods provided that neither
Mr. Armijo nor the Company provides the other with notice of its intent to not
renew the agreement at least thirty days before the anniversary date of the
agreement. Mr. Armijo's current annual salary under the agreement is $150,000
and his salary is reviewed annually. The agreement also provides that Mr. Armijo
will be paid an annual bonus. If Mr. Armijo remains employed with the Company
through the first anniversary date of the agreement, the Company must pay Mr.
Armijo a special bonus (the "Special Bonus") in the event that there is a
"Change in Control" of the Company (as defined in the agreement). The Special
Bonus will be equal to Mr. Armijo's then effective annual salary, plus the
greater of (i) the annual bonus paid or payable for the most recently completed
fiscal year during the term of the agreement, and (ii) the average of the
bonuses paid or payable to Mr. Armijo in respect of 1997, 1996 and 1995 (the
higher of the two numbers is referred to as the "Highest Annual Bonus"). The
33
<PAGE>
agreement provides that if the Company terminates Mr. Armijo other than for
"Cause" or "Disability" (as such terms are defined in the agreement) or Mr.
Armijo terminates his employment either for "Good Reason" (as such term is
defined in the agreement) or without any reason during a thirty day period
immediately following May 1, 1999, the Company must pay Mr. Armijo a lump sum
cash payment equal to (i) his annual salary through the date of termination,
(ii) the Highest Annual Bonus through the date of termination, (iii) the Special
Bonus, if any, (iv) an amount equal to the product of two times his then
effective annual salary, the Highest Annual Bonus and the Special Bonus, if any.
The Company may terminate Mr. Armijo's employment for "Cause" and shall be
obligated only to pay Mr. Armijo his annual salary through the date of
termination.
401(k) Plan.
- ------------
The Company has a 401(k) profit sharing plan (the "Plan"). Eligible
employees may make voluntary contributions to the Plan. The amount of employee
contributions is limited as specified in the Plan. The Company may, at its
discretion, make additional contributions to the Plan. The Company made no
contributions in 1997.
Stock Option Plan.
- ------------------
The officers of the Company may receive stock options issued under the
Company's stock option plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of the date of this Prospectus, the
Common Stock ownership of each person known by the Company to be the beneficial
owner of five percent or more of the Company's Common Stock, all directors
individually, each executive officer and all directors and executive officers of
the Company as a group. Except as otherwise indicated, each person has sole
voting and investment power, as well as record and beneficial ownership, with
respect to the shares shown. As of the date of this Prospectus, there were
3,606,221 shares of Common Stock outstanding.
COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY BENEFICIAL
BENEFICIAL OWNER(1) OWNED OWNERSHIP
------------------- ------------ ---------
Ralph Armijo........................... 831,659 23.1%
Patrick R. Mawhinney................... 146,057 4.1%
Harold Anderson II..................... 76,573 2.1%
Andrew Davis........................... 21,250 (3)
Gerald A. Marroney..................... -0- 0%
Lloyd G. Chavez, Jr.................... 4,250 (2) (3)
Kenneth P. Bero........................ -0- 0%
James Hosch............................ 18,000 (4)
Cynthia J. Simmons..................... 358,132 9.9%
84 Willowleaf Drive
Littleton, CO 80125
All directors and executive officers as
a Group (Seven Persons)............. 1,097,789 30.3%
- ------------------------
34
<PAGE>
Rule 13d-3 under the Securities Exchange Act of 1934, involving the
determination of beneficial owners of securities, includes as beneficial owners
of securities, among others, any person who directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has, or shares,
voting power and/or investment power with respect to such securities; and, any
person who has the right to acquire beneficial ownership of such security within
sixty days through means, including, but not limited to, the exercise of any
option, warrant or conversion of a security. In making this calculation, options
and warrants which are significantly "out-of-the-money" and therefore unlikely
to be exercised within sixty days are not included in the calculation of
beneficial ownership. For this purpose, the Company deems options and warrants
with an exercise price above $7.00 as unlikely to be exercised within the next
sixty days. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person, but are not deemed to be outstanding for the purpose of computing the
percentage of the class by any other person.
(1) Except as indicated herein, the address for each person is 14 Inverness
Drive, Building. F, Suite 116, Englewood, Colorado 80112.
(2) LGC Management owns 4,250 shares of Common Stock. Mr. Chavez is President
of LGC Management and may be deemed the beneficial owner of such shares.
(3) Less than one percent.
(4) The number indicated represents 18,000 shares of Common Stock underlying
certain options currently exercisable.
SELLING SECURITY HOLDERS
The following table shows for the Selling Security Holders, (i) the number
of Warrants and shares of Common Stock beneficially owned by them as of July 2,
1998, (ii) the number of Warrants and shares of Common Stock covered by this
Prospectus, and (iii) the number of Warrants and shares of Common Stock to be
retained after this offering, if any.
<TABLE>
<CAPTION>
Number of Number of Number of
Number of Shares of Warrants Shares of
Warrants Common Stock Number of Beneficially Common Stock
Beneficially Beneficially Number of Shares of Owned Beneficially
Owned Before Owned Before Warrants Common Stock After the Owned After
Name the Offering the Offering(1) to be Sold to be Sold Offering(2) the Offering(2)
---- ------------ --------------- ---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Abbott, David & Linda 3,000 6,000 3,000 6,000 -0- -0-
Abbott, David & Linda 6,000 12,000 6,000 12,000 -0- -0-
Abott, David 3,000 6,000 3,000 6,000 -0- -0-
Almeida, Donald, 3,000 6,000 3,000 6,000 -0- -0-
Amico, Guy -0- 20,000 -0- 20,000 -0- -0-
Amico, Roy -0- 20,000 -0- 20,000 -0- -0-
Anderson -0- 4,000 -0- 4,000 -0- -0-
Anesthesia Pension Plan 12,000 24,000 12,000 24,000 -0- -0-
Apera, Luca 3,000 6,000 3,000 6,000 -0- -0-
Balog, John or Cecilia 3,000 6,000 3,000 6,000 -0- -0-
Bausch, Eric 6,000 12,000 6,000 12,000 -0- -0-
Boehler, Jeffrey or Barbara 3,000 6,000 3,000 6,000 -0- -0-
Buddie, Gina -0- 2,000 -0- 2,000 -0- -0-
Burgin, Mark or Tammy 3,000 6,000 3,000 6,000 -0- -0-
Burton, Robert 10,000 20,000 10,000 20,000 -0- -0-
Campbell, Michael 3,000 6,000 3,000 6,000 -0- -0-
Castro, William 9,000 18,000 9,000 18,000 -0- -0-
Cissel, Vincent 6,000 12,000 6,000 12,000 -0- -0-
35
<PAGE>
Comcor Holding Inc. 8,000 16,000 8,000 16,000 -0- -0-
Cooley, John 9,000 18,000 9,000 18,000 -0- -0-
Crane Rental Service 3,000 6,000 3,000 6,000 -0- -0-
Crowe, Robert 3,000 6,000 3,000 6,000 -0- -0-
Daroga, Norrie 14,000 28,000 14,000 28,000 -0- -0-
D Alessio, Robert 3,000 6,000 3,000 6,000 -0- -0-
Derescher, Eddie or Linda 3,000 6,000 3,000 6,000 -0- -0-
Dietz, Thomas 14,000 28,000 14,000 28,000 -0- -0-
Evans, Kathyleen 3,000 6,000 3,000 6,000 -0- -0-
Gardener, John 12,000 24,000 12,000 24,000 -0- -0-
Gardener, John Lewis 12,000 24,000 12,000 24,000 -0- -0-
Garry, John 3,000 6,000 3,000 6,000 -0- -0-
Goldstein, Scott -0- 20,000 -0- 20,000 -0- -0-
Hall, Robert & Pat 6,000 12,000 6,000 12,000 -0- -0-
Harmon, Homer 12,000 24,000 12,000 24,000 -0- -0-
Harmon, Homer or Kathy 6,000 12,000 6,000 12,000 -0- -0-
Hartley, Douglas 6,000 12,000 6,000 12,000 -0- -0-
Helen S. Nagel Trustee 24,000 48,000 24,000 48,000 -0- -0-
Hill, Anthony 3,000 6,000 3,000 6,000 -0- -0-
Homburger, John or Susan 6,000 12,000 6,000 12,000 -0- -0-
Hosch, James(5) -0- 18,000 -0- 18,000 -0- -0-
Itokazu, John or Sheila 3,000 6,000 3,000 6,000 -0- -0-
Joseph Charles & Associates(3)(5) 59,450 323,900 59,450 323,900 -0- -0-
Kaiser, Doug -0- 20,000 -0- 20,000 -0- -0-
Kent, David & Priscilla 6,000 12,000 6,000 12,000 -0- -0-
Koller, Paul or Betsy 6,000 12,000 6,000 12,000 -0- -0-
Landis, David J. 9,000 18,000 9,000 18,000 -0- -0-
Levenrich, David 33,000 66,000 33,000 66,000 -0- -0-
Lorge, Robert 6,000 12,000 6,000 12,000 -0- -0-
Lundell, Don & Gail 6,000 12,000 6,000 12,000 -0- -0-
McCarter, Larry or Kristy 6,000 12,000 6,000 12,000 -0- -0-
McClintock, Catherine 6,000 12,000 6,000 12,000 -0- -0-
McCollaum, Dixie 3,000 6,000 3,000 6,000 -0- -0-
McCoy, Greg or Betty 3,000 6,000 3,000 6,000 -0- -0-
McKowen, John -0- 227,462(4) -0- 227,462(4) -0- -0-
McNamara, Steven 9,000 18,000 9,000 18,000 -0- -0-
McWilliams, Michael 8,000 16,000 8,000 16,000 -0- -0-
Mehigan, Patrick & Ann 6,000 12,000 6,000 12,000 -0- -0-
Montanarella, Paul 9,000 18,000 9,000 18,000 -0- -0-
Morano, Christopher 7,500 15,000 7,500 15,000 -0- -0-
Morrison, Roger 12,000 24,000 12,000 24,000 -0- -0-
Moser Holdings 24,000 48,000 24,000 48,000 -0- -0-
O'Sullivan, Patrick 3,000 6,000 3,000 6,000 -0- -0-
Parker, Bradley or Brooke 3,000 6,000 3,000 6,000 -0- -0-
Patel, Kaushik or Parul 6,000 12,000 6,000 12,000 -0- -0-
Peck, Edgar 6,000 12,000 6,000 12,000 -0- -0-
Penic, Michael & Madeline 6,000 12,000 6,000 12,000 -0- -0-
Powers, Larry 3,000 6,000 3,000 6,000 -0- -0-
Prestidge, Tom & Valerie 12,000 24,000 12,000 24,000 -0- -0-
Pudelko, Michael 21,000 42,000 21,000 42,000 -0- -0-
Ryan, Robert & Jamie 3,000 6,000 3,000 6,000 -0- -0-
Salvatore, Frank -0- 20,000 -0- 20,000 -0- -0-
Shulter, Paul 6,000 12,000 6,000 12,000 -0- -0-
Shults, Stanley 4,000 8,000 4,000 8,000 -0- -0-
Shults, Stan or Diane 6,000 12,000 6,000 12,000 -0- -0-
Sims, George 6,000 12,000 6,000 12,000 -0- -0-
Small, Leonard 3,000 6,000 3,000 6,000 -0- -0-
Stone, Douglas 3,000 6,000 3,000 6,000 -0- -0-
Stone, Todd -0- 1,000 -0- 1,000 -0- -0-
Struharik, Paul 3,000 6,000 3,000 6,000 -0- -0-
Texas Cardiovascular Institute 12,000 24,000 12,000 24,000 -0- -0-
Van Vliet, Edward 42,000 84,000 42,000 84,000 -0- -0-
Van Zudan, David L. 6,000 12,000 6,000 12,000 -0- -0-
36
<PAGE>
Vanzuidam, David & Deborah 4,000 8,000 4,000 8,000 -0- -0-
Visconti, Joseph -0- 20,000 -0- 20,000 -0- -0-
Wagner, David 3,000 6,000 3,000 6,000 -0- -0-
War, William 6,000 12,000 6,000 12,000 -0- -0-
White, Jimmy 6,000 12,000 6,000 12,000 -0- -0-
White, Marsha 6,000 12,000 6,000 12,000 -0- -0-
Wilbur, Rick 24,000 48,000 24,000 48,000 -0- -0-
Yapp, Ronald 6,000 12,000 6,000 12,000 -0- -0-
Totals 653,950 1,885,362 653,950 1,885,362 -0- -0-
- ----------
(1) The number of shares of Common Stock indicated includes those shares
underlying Warrants and certain Options held by a Selling Security Holder.
(2) The Selling Security Holder will not own in excess of one (1%) percent of
the Company's outstanding securities subsequent to the offering when
combined with other offerings in which other securities owned by the
Selling Security Holder have been registered.
(3) The shares of Common Stock and Warrants indicated includes (i) securities
that may be issued upon the exercise of 59,450 Placement Agent Warrants
held by JCA that entitle it to purchase units, consisting of one share of
Common Stock and one Warrant, at an exercise price of $4.50 per unit until
April, 2003, (ii) 205,000 shares of Common Stock that may be issued upon
the exercise of certain options held by JCA, and (iii) 100,000 shares of
Common Stock underlying Representative Options.
(4) The Company has agreed with Mr. McKowen that Mr. McKowen may exercise
50,000 options held by him prior to the date on which his options become
exercisable, and transfer the Common Stock underlying those options
pursuant to this Prospectus. See "DESCRIPTION OF SECURITIES - McKowen
Options".
(5) James Hosch is a director of the Company and an Executive Vice President of
JCA.
Information set forth in the tables regarding the securities owned by each
Selling Security Holder is provided to the best knowledge of the Company
based on information furnished to the Company by the respective Selling
Security Holder and/or available to the Company through its stock transfer
records.
</TABLE>
PLAN OF DISTRIBUTION
The Warrants and shares of Common Stock offered hereby may be sold by the
Selling Security Holders or by pledgees, donees, transferees or other
successors-in-interest (including sales after exercise of the Warrants). Such
sales may be made in the over-the-counter market through Nasdaq, in privately
negotiated transactions, or otherwise, at prices and at terms then prevailing,
at prices related to the then current market prices or at negotiated prices. The
Warrants and shares of Common Stock may be sold by one or more of the following
methods: (a) a block trade in which the broker or dealer so engaged will attempt
to sell the stock as agent but may position and resell a portion of the block as
principal in order to consummate the transaction; (b) a purchase by a broker or
dealer as principal, and the resale by such broker or dealer for its account
pursuant to this Prospectus, including resale to another broker or dealer; or
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers. In effecting sales, brokers or dealers engaged by a Selling
Security Holder may arrange for other brokers or dealers to participate. Any
such brokers or dealers will receive commissions or discounts from a Selling
Security Holder in amounts to be negotiated immediately prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act. Any gain realized
by such a broker or dealer on the sale of shares which it purchases as a
principal may be deemed to be compensation to the broker or dealer in addition
to any commission paid to the broker by a Selling Security Holder.
37
<PAGE>
The securities covered by this Prospectus may in the future also be sold
under Rule 144 instead of under this Prospectus. Rule 144 provides an exemption
from registration for the resale of securities by persons other than the issuer
after the securities have been held by persons for at least one (1) year from
original issuance, and such securities are sold in strict compliance with Rule
144 requirements and maximum number of shares requirements. The Company will not
receive any portion of the proceeds of the securities sold by the Selling
Security Holders, but will receive amounts upon exercise of Warrants, which
funds will be used for working capital. There is no assurance that the Selling
Security Holders will sell any or all of the securities offered hereby.
The Selling Security Holders have been advised by the Company that during
the time each is engaged in distribution of the securities covered by this
Prospectus, each must comply with Rule 10b-5 and Regulation M under the Exchange
Act, and pursuant thereto: (i) each must not engage in any stabilization
activity in connection with the Company's securities; (ii) each must furnish
each broker through which securities covered by this Prospectus may be offered
the number of copies of this Prospectus which are required by each broker; and
(iii) each must not bid for or purchase any securities of the Company or attempt
to induce any person to purchase any of the Company's securities other than as
permitted under the Exchange Act. Any Selling Security Holders who may be
"affiliated purchasers" of the Company as defined in Regulation M, have been
further advised that pursuant to Securities Exchange Act Release 34-38067
(December 20, 1996), they must coordinate their sales under this Prospectus with
each other and the Company for purposes of Regulation M.
CERTAIN TRANSACTIONS
In October 1993, Arthur Armijo, brother of the Company's President, Ralph
Armijo, made a $119,199 loan to the Company. The loan was evidenced by a
promissory note dated October 1, 1993 bearing interest at the rate of 5% per
year. The note was paid in full in February 1997 out of the proceeds of the
Company's public offering.
In November 1993, Arthur Armijo and Ralph Armijo each personally guaranteed
a line of credit in the amount of $200,000 extended by Vectra Bank, Denver,
Colorado, to the Company. Such line of credit and Messrs. Armijo's personal
guarantees were terminated in February 1996. No compensation was paid by the
Company for such personal guarantees. In February 1996, Arthur Armijo and Ralph
Armijo each personally guaranteed the factoring arrangement of the Company with
Colorado State Bank of Denver for a maximum of $750,000. No compensation was
paid by the Company for such personal guarantees. The factoring arrangement was
terminated in February 1997.
In July 1996, Littleton Land Company made a $182,500 loan to the Company.
The loan was evidenced by a non-interest bearing promissory note with a maturity
date of August 31, 1996. Such note was prepaid in full on August 22, 1996. John
McKowen, an employee of the Company, is an affiliate of Littleton Land Company.
In August 1996, the Company granted options to Mr. McKowen to purchase 212,500
shares of Common Stock at an exercise price of $4.12 per share, exercisable from
February 1999 to August 2001.
On March 31, 1996, Patrick Mawhinney, a shareholder, director and Chief
Financial Officer of the Company, made a $45,110 loan to IPI. The loan is
evidenced by a promissory note dated March 31, 1996, which provides for the
accrual of interest at a fixed rate of 10% per year and a maturity date of
December 31, 1997. The loan was repaid in April 1997.
In June 1996, Schneider Mawhinney & Associates, P.C. advanced $32,500 to
IPI. This advance was repayable on demand without interest. Patrick Mawhinney's
spouse is a principal of Schneider Mawhinney & Associates. In July 1996, Mr.
Mawhinney made a loan to the Company in the amount of $30,000, evidenced by a
promissory note dated July 26, 1996 and bearing interest at the rate of 9.75
percent per year. These loans were repaid in February 1997 out of the proceeds
of the Company's public offering.
In July 1996, Cindy Simmons, a principal shareholder of the Company, was
issued a promissory note of the Company in the amount of $75,000 as part of the
purchase price for IPI. The promissory note provides for monthly payments of
$6,250 due on the first day of each month beginning August 1, 1996 and maturing
on July 1, 1997. The note was repaid in July 1997.
In August 1996, Ralph Armijo made a loan to the Company in the amount of
$70,000, evidenced by a promissory note dated August 6, 1996 and bearing
interest at the rate of 9.75 percent per year. Such note was prepaid in full in
October 1996.
In January 1997, Ralph Armijo and Patrick Mawhinney guaranteed a short term
promissory note of the Company in the amount of $70,000. This note was repaid
from the resale of equipment which was purchased with the borrowed funds. No
compensation was paid by the Company for such guarantees.
38
<PAGE>
In October 1997, Pat Mawhinney made a $30,000 loan to the Company,
evidenced by a promissory note dated October 5, 1997, which did not bear
interest. The loan was repaid in November 1997.
In March 1998, Pat Mawhinney made a $45,400 loan to the Company, evidenced
by a promissory note dated March 13, 1998, which did not bear interest. The loan
was repaid on March 31, 1998.
In October 1997, Ralph Armijo guaranteed a line of credit in the amount of
$750,000 extended to the Company by USA Funding, Dallas, Texas. No compensation
was paid by the Company for such personal guarantee.
James Hosch, an Executive Vice President of Joseph Charles & Associates,
Inc., has been a director of the Company since June, 1998. JCA received $143,750
in commissions and $35,938 in expenses as the placement agent for a private
placement of an aggregate of $1,437,500 principal amount of the Company's 10%
Unsecured Subordinated Convertible Promissory Notes. The notes were sold from
August 1996 until October 18, 1996, and were automatically converted into an
aggregate of 349,126 units in the Company's initial public offering of
securities.
JCA was the managing underwriter for the Company's initial public offering
of securities. The Company offered 1,000,000 units consisting of one share of
the Company's Common Stock and one common stock purchase warrant ("Warrant"). Of
the 1,000,000 shares of Common Stock and 1,000,000 Warrants included in the
offering, 755,000 shares of Common Stock and 1,000,000 Warrants were sold by the
Company and 245,000 shares of Common Stock were sold by certain shareholders as
the Company. The units were sold on a firm commitment basis and JCA received a
10% discount on the public offering price of $6.00 per unit. JCA received
pursuant to the underwriting agreement for that offering a non-accountable
expense allowance equal to 3% of the total proceeds of the offering, or
$180,000. The Company also agreed to retain JCA as a financial consultant for a
period of two years, commencing on February 10, 1997 for a fee of $3,000 per
month. The Company agreed pursuant to the underwriting agreement to sell JCA,
for an aggregate purchase price of $100 as additional compensation in connection
with the offering, options to purchase up to 100,000 shares of the Company's
Common Stock. Those options are exercisable for four years beginning on February
10, 1998 and at an exercise price of $7.38 per share.
The Company also has entered into an engagement letter with JCA to assist
the Company to complete an offering of up to 600,000 units, with each unit
consisting of one share of Common Stock and one Warrant, for an offering price
of $4.50 per unit, or an aggregate offering price of $2,700,000. In
consideration for its services, the Company has agreed to pay JCA a sales
commission of 10% of the funds raised in the offering. JCA also is entitled to
purchase a number of units equal to 10% of the units sold in the offering for a
period of five years from the date of closing of the offering at a purchase
price of $4.50 per unit. JCA also is entitled to receive a 3% non-accountable
expense allowance based on all funds raised in the offering. From November 1997
to March 1998, the Company issued 358,476 in that offering. That offering was
closed during April 1998 with an aggregate of 594,500 Units being sold. On
February 16, 1998 the Company entered into an agreement with JCA to engage it on
an exclusive basis to render financial and investment banking services for a
period of one year in consideration of options to purchase 250,000 shares for
$3.50 per share and a fee based on the Lehman formula relative to any mergers or
acquisitions.
Although the foregoing transactions were determined without arm's length
negotiations and necessarily involved conflicts of interest between the
interests of the related parties and the Company, the Company believes that all
of the foregoing transactions were entered into on terms no less favorable to
the Company than could have been obtained from independent third parties. All
future transactions by the Company with officers, directors and 5% stockholders
and their affiliates will be entered into only if a majority of the outside
directors determine that the terms of such transactions are no less favorable to
the Company than could be obtained from unaffiliated parties. There are
currently no new proposed related party transactions contemplated by the
Company.
39
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock, no
par value, of which 3,606,221 shares are currently outstanding. Holders of
Common Stock are entitled to dividends when, as and if declared by the Board of
Directors out of funds available therefor, subject to any priority as to
dividends for any preferred stock that may be outstanding. There currently is no
preferred stock authorized or outstanding. Holders of Common Stock are entitled
to cast one vote for each share held at all stockholder meetings for all
purposes including the election of directors. Cumulative voting for the election
of directors is not permitted. The holders of a majority of the Common Stock
issued and outstanding and entitled to vote, in person or by proxy, constitute a
quorum at meetings of stockholders and the vote of the holders of a majority of
Common Stock present at such a meeting will decide any question brought before
such meeting, except for certain actions such as amendments to the Company's
Articles of Incorporation, mergers or dissolutions, all of which require the
vote of the holders of a majority of the outstanding Common Stock. Upon
liquidation or dissolution, the holder of each outstanding share of Common Stock
will be entitled to share ratably in the net assets of the Company legally
available for distribution to such stockholder after the payment of all debts
and other liabilities and after distributions to preferred stockholders, if any,
legally entitled thereto. No holder of Common Stock has any preemptive or
preferential rights to purchase or subscribe for any part of any unissued or any
additional authorized stock or any securities of the Company convertible into
shares of its stock, nor does any holder of Common Stock have redemption or
conversion rights. The outstanding shares of Common Stock are, and the Common
Stock offered hereby will be when issued and paid, fully paid and nonassessable.
Stock Purchase Warrants
The Company currently has 2,580,538 Warrants and Consultant Options
outstanding. Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price equal to $7.20, subject to adjustment, for a period
of five years commencing on February 10, 1997. No holder of Warrants, as such,
will be entitled to vote or receive dividends or be deemed the holder of shares
of Common Stock for any purpose whatsoever until such Warrants have been duly
exercised and the purchase price has been paid in full. Each Warrant will be
redeemable by the Company for $.05 per Warrant at any time commencing on
February 10, 1998 (which period may be reduced or waived by JCA in its sole
discretion), upon thirty days' prior written notice, at any time when the
closing price per share of Common Stock for twenty consecutive trading days
within the thirty-day period prior to the date notice of redemption is given
equals or exceeds $8.40 and at such time there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. The Company presently expects to call all of the Warrants for
redemption as soon as permitted provided that a current prospectus relating to
the Common Stock underlying such Warrants is effective at that time. In the
event the Company gives notice of its intention to redeem, a holder may exercise
his Warrants within the period set forth in the notice of redemption or they
will be redeemed upon payment of the redemption price. The Warrants will be
entitled to the benefit of adjustments in the exercise price and in the number
of shares of Common Stock delivered upon the exercise thereof upon the
occurrence of certain events, such as stock dividends, stock splits,
recapitalizations, consolidations or mergers.
The Warrants will be exercisable only when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrant holders will be unable to exercise the
Warrants and the Warrants may become valueless. Because the Warrants may be
transferred, it is possible that the Warrants may be acquired by persons
residing in states where the Company has not registered them, or is not exempt
from registration, such that the shares of Common Stock underlying the Warrants
may not be sold or transferred upon exercise of the Warrants. Warrant holders
residing in those states would have no choice but to attempt to sell their
Warrants or let them expire unexercised.
Each Warrant will be exercisable by surrendering the Warrant certificate,
with the formal subscription form on the reverse side of the Warrant certificate
properly completed and executed, together with payment of the exercise price to
the Warrant Agent. Prior to their expiration or redemption by the Company, the
Warrants will be exercisable from time to time in whole or in part. If less than
all of the Warrants evidenced by a Warrant certificate are exercised, a new
Warrant certificate will be issued for the remaining number of Warrants.
40
<PAGE>
The Company has agreed with JCA not to solicit Warrant exercises other than
through the JCA. Upon exercise of any Warrants, the Company will pay JCA a fee
of three percent of the aggregate exercise price, if (i) the market price of the
Common Stock on the date the Warrant is exercised is greater than the then
exercise price of the Warrant; (ii) the exercise of the Warrant was solicited by
a member of the National Association of Securities Dealers, Inc., who is
designated in writing by the holder exercising the Warrant; (iii) the Warrant is
not held in a discretionary account except where prior specific written approval
for the exercise has been received; (iv) disclosure of compensation arrangements
was made both at the time of the offering and at the time of exercise of the
Warrants; (v) the solicitation of the exercise of the Warrant was not in
violation of Regulation M promulgated under the Exchange Act; and (vi) JCA
provides bona fide services in connection with the solicitation of the Warrant.
No solicitation fee will be paid to JCA on Warrants voluntarily exercised at any
time without solicitation. In addition, unless granted an exemption by the
Commission from Regulation M under the Exchange Act, JCA will be prohibited from
engaging in any market making activities or solicited brokerage activities until
the later of the termination of such solicitations activity or the termination
by waiver or otherwise of any right JCA may have to receive a fee for the
exercise of the Warrants following such solicitation. Such a prohibition, while
in effect, could impair the liquidity and market price of the Securities.
Representative's Options
Subject to the terms and condition of the Underwriting Agreement between
the Company and JCA, the Company has sold JCA for an aggregate purchase price of
$100, as additional compensation in connection with the initial public offering,
options (the "Representative's Options") to purchase up to 100,000 shares of
Common Stock. The Representative's Options are exercisable for a four-year
period commencing on February 10, 1998 and entitle JCA to purchase up to 100,000
shares of Common Stock at $7.38 per share subject to adjustment in certain
events. The Representative's Options contain anti-dilution provisions providing
for adjustment of the exercise prices as well as the number of shares issuable
upon the occurrence of certain events, including the issuance of shares of
Common Stock or Warrants at a price per share or per Warrant less than the
exercise price or the market price of the security, or in the event of any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The Representative's Options grant to the
holders thereof certain piggyback and demand registration rights as described
below.
If the holders of at least a majority of the Representative's Options or
the securities underlying them wish to register the Representative's Options or
any of the securities underlying them during the period commencing February 10,
1998 and ending February 10, 2002, the Company has agreed to register or qualify
such securities, one time only, upon the request of the holders of at least a
majority of such Representative's Options or the securities underlying them
("Demand Registration Right"). The Company will bear the full expense of such
registration which may be substantial. If the Demand Registration Right is
exercised, the Company at such time at its option may purchase the
Representative's Options for the difference between their exercise price and
fair market value of the shares issuable upon exercise. In addition, the Company
has also agreed for a period of five years commencing February 10, 1997 to give
notice to the holder or holders of the Representative's Options, or the Common
Stock underlying the Representative's Options, of its intention to file a
registration statement under the Securities Act, and in that event the holders
of the Representative's Options or the securities underlying such options shall
have the right to request the Company to include the Representative's Options
and the underlying common stock in such Registration Statement.
The holders of the Representative's Options have no voting, dividend or
other rights as shareholders of the Company with respect to the shares of Common
Stock underlying the Representative's Options until the Representative's Options
have been exercised. The Company is obligated at all times to set aside and have
available sufficient number of authorized but unissued shares of Common Stock to
be issued upon exercise of the Representative's Options.
McKowen Options
John McKowen, an employee of the Company, was granted options to purchase
212,500 shares of the Company's Common Stock in August 1996. These options are
exercisable at $4.12 per share commencing February 1999 until August 2001.
Management is registering the common shares underlying these options as part of
this registration statement. On April 13, 1998 Mr. McKowen was issued additional
options to acquire 14,962 shares of the Company's Common Stock at an exercise
price of $4.50 per share commencing September 13, 1998 for a period of five
years from the date of the grant. The exercise price was the closing sales price
of the Company's stock on the date of the grant.
41
<PAGE>
Transfer Agent and Registrar
The transfer agent for the Company's Common Stock and the Warrant Agent for
the Company's Warrants is American Securities Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 3,606,221 shares of Common Stock outstanding, of
which 1,612,428 shares of Common Stock are freely tradable without restriction
or further registration under the Securities Act, except for any shares
purchased by an affiliate of the Company (in general, a person who has a control
relationship with the Company), which shares will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 1,993,793 shares
of Common Stock are "restricted securities" as that term is defined under Rule
144 promulgated under the Securities Act and may only be sold pursuant to a
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144, or pursuant to another exemption under the
Securities Act. Rule 144 provides, in essence, that a person (including a group
of persons whose shares are aggregated) and including any person who may be
deemed an "affiliate" of the Company, as that term is defined under the
Securities Act, who has satisfied a one-year holding period for such restricted
securities may sell within any three-month period, under certain circumstances,
an amount of restricted securities which does not exceed the greater of one
percent of that class of the Company's outstanding securities or the average
weekly trading volume of that class of securities during the four calendar weeks
prior to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. In addition, pursuant to Rule 144, persons who
are not affiliated with the Company and who have held their restricted
securities for at least two years are not subject to the quantity limitations or
the manner of sale restrictions of the rule. A sale of shares by the Company's
current shareholders, whether pursuant to Rule 144 or otherwise, may have a
depressing effect upon the market price of the Company's Common Stock and
Warrants in any market for them that may develop. To the extent that these
shares enter the market, the value of the Common Stock in the over-the-counter
market may be reduced. See "Risk Factors."
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq SmallCap Market
under the symbol "NVDC" on February 11, 1997. The Company also has a class of
common stock purchase warrants ("Warrants") listed on the Nasdaq SmallCap Market
under the symbol "NVDCW." The Warrants also commenced trading on February 11,
1997. The quotations set forth below reflect inter-dealer prices, without retail
mark-up, mark-down or commission and many not represent actual transactions.
Common Stock Warrants
-------------------- ---------------------
Quarter Ended High Low High Low
March 31, 1997 $5.625 $5.125 $0.750 $0.625
June 30, 1997 $6.000 $3.250 $0.875 $0.375
September 30, 1997 $7.000 $5.250 $1.031 $0.625
December 31, 1997 $7.000 $4.063 $1.031 $0.025
March 31, 1998 $6.75 $2.9375 $0.75 $.04375
The closing price as of July 2, 1998 was $7.0625 and $1.125 for the Common
Stock and Warrants respectively.
As of July 2, 1998, the Company had 78 common shareholders of record and
believes that approximately 1,400 persons beneficial owns street named
positions.
The Company has not declared any cash dividends on its common shares for
the last two fiscal years. The Company currently intends to retain funds from
earnings, if any, from future grow and therefore does not intend to pay any cash
dividends in the foreseeable future on its Common Stock. The Company is not
currently a party to any agreement restricting the payment of dividends.
42
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the shares offered hereby have been
passed upon for the Company by Cohen Brame & Smith, Professional Corporation,
Denver, Colorado.
EXPERTS
The Company's financial statements for the year ended December 31, 1997 in
this Prospectus have been audited by Hein + Associates LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report, and are set forth herein in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
SECURITIES AND EXCHANGE COMMISSION POSITION ON CERTAIN INDEMNIFICATION
The Colorado Business Corporation Act provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation.
The Company's Articles of Incorporation obligate the Company to indemnify
its directors and officers to the fullest extent permitted under Colorado law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
43
<PAGE>
NAVIDEC, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report..............................................F-2
Balance Sheets - March 31, 1998 (Unaudited)
and December 31, 1997.............................................F-3
Statements of Operations - For the Three Months Ended
March 31, 1998 and 1997 (Unaudited),
and for the Years Ended December 31, 1997 and 1996................F-4
Statements of Changes in Stockholders' Equity (Deficit) -
For the Three Months Ended March 31, 1998 and
1997 (Unaudited), and for the Years Ended
December 31, 1997 and 1996........................................F-5
Statements of Cash Flows - For the Three Months Ended
March 31, 1998 and 1997 (Unaudited),
and for the Years Ended December 31, 1997 and 1996................F-6
Notes to Financial Statements.............................................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
NAVIDEC, Inc.
Englewood, Colorado
We have audited the accompanying balance sheet of NAVIDEC, Inc. as of December
31, 1997 and the related statements of operations, changes in stockholders'
equity (deficit), and cash flows for the years ended December 31, 1997 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 the Company as of December 31,
1997, and the results of its operations and its cash flows for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 5, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 584,000 $ 369,000
Accounts receivable:
Trade, net of $50,000 allowance for doubtful accounts 689,000 726,000
Retainage -- 21,000
Costs and estimated earnings in excess of billings 367,000 106,000
Note receivable, related party 49,000 60,000
Inventories 294,000 549,000
Prepaid expenses and other current assets 88,000 86,000
----------- -----------
Total current assets 2,071,000 1,917,000
PROPERTY AND EQUIPMENT, net 743,000 713,000
OTHER ASSETS:
Intangibles, net 89,000 169,000
Restricted certificate of deposit 300,000 300,000
----------- -----------
TOTAL ASSETS $ 3,203,000 $ 3,099,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 37,000 $ 37,000
Notes payable 63,000 63,000
Accounts payable 644,000 778,000
Accrued liabilities 232,000 171,000
Payable to factor 210,000 190,000
----------- -----------
Total current liabilities 1,186,000 1,239,000
----------- -----------
CAPITAL LEASE OBLIGATIONS, net of current portion 94,000 95,000
NOTES PAYABLE, net of current portion 200,000 215,000
COMMITMENTS AND CONTINGENCIES (Notes 2 and 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 20,000,000 shares authorized;
3,370,000 and 3,201,000 shares issued and outstanding,
respectively 7,422,000 6,768,000
Accumulated deficit (5,699,000) (5,218,000)
----------- -----------
Total stockholders' equity 1,723,000 1,550,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,203,000 $ 3,099,000
=========== ===========
See accompanying notes to these financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------------------- --------------------------------
1998 1997 1997 1996
------------ ------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 1,702,000 $ 1,363,000 $ 6,008,000 $ 5,470,000
Cost of sales 1,055,000 857,000 4,219,000 4,425,000
----------- ----------- ----------- -----------
GROSS MARGIN 647,000 506,000 1,789,000 1,045,000
Operating expense 1,112,000 769,000 4,367,000 2,259,000
----------- ----------- ----------- -----------
OPERATING LOSS (465,000) (263,000) (2,578,000) (1,214,000)
OTHER INCOME (EXPENSE):
Interest expense, net (16,000) (270,000) (236,000) (204,000)
Other -- (1,000) 12,000 3,000
Impairment of goodwill -- -- (1,305,000) --
----------- ----------- ----------- -----------
Other, Net (16,000) (271,000) (1,529,000) (201,000)
----------- ----------- ----------- -----------
NET LOSS AND COMPREHENSIVE LOSS $ (481,000) $ (534,000) $(4,107,000) $(1,415,000)
=========== =========== =========== ===========
NET LOSS PER SHARE
(Basic and Diluted) $ (.15) $ (.23) $ (1.47) $ (.73)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS OUTSTANDING 3,236,000 2,290,000 2,799,526 1,948,000
=========== =========== =========== ===========
See accompanying notes to these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
COMMON STOCK
------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ ------ ------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1996 217,000 $ 63,000 $ (118,000) $ (55,000)
Exercise of stock options 805,000 2,000 -- 2,000
Compensation recognized related to
transfers of common stock to
employees -- 83,000 -- 83,000
Shares issued in acquisition of IPI 679,000 675,000 -- 675,000
Reclassification of accumulated
deficit in connection with
termination of tax status as a
Subchapter S-Corporation -- (422,000) 422,000 --
Net loss -- -- (1,415,000) (1,415,000)
----------- ----------- ----------- -----------
BALANCES, December 31, 1996 1,701,000 401,000 (1,111,000) (710,000)
Conversion of unsecured promissory
notes to common stock 104,000 1,438,000 -- 1,438,000
Issuance of common stock and
warrants in a public offering, net
of offering costs 1,000,000 3,436,000 -- 3,436,000
Issuance of common stock for
acquisition of TouchSource 207,000 776,000 -- 776,000
Issuance of common stock and
warrants in a private placement,
net of offering costs 189,000 717,000 -- 717,000
Net loss -- -- (4,107,000) (4,107,000)
----------- ----------- ----------- -----------
BALANCES, December 31, 1997 3,201,000 6,768,000 (5,218,000) 1,550,000
Issuance of common stock and
warrants in a private placement,
net of offering cost (unaudited) 169,000 654,000 -- 654,000
Net loss (unaudited) -- -- (481,000) (481,000)
----------- ----------- ----------- -----------
BALANCES, March 31, 1998 (Unaudited) 3,370,000 $ 7,422,000 $(5,699,000) $ 1,723,000
=========== =========== =========== ===========
See accompanying notes to these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAVIDEC, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
----------------------------- ----------------------------
1998 1997 1997 1996
------------ ----------- ----------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $ (481,000) $ (534,000) $(4,107,000) $(1,415,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 169,000 92,000 865,000 173,000
Impairment of goodwill -- -- 1,305,000 --
Stock based compensation -- -- -- 83,000
Provision for bad debt -- -- 41,000 59,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 58,000 (953,000) (627,000) (56,000)
Costs and estimated earnings in excess
of billings (261,000) -- (106,000) --
Inventories 255,000 (49,000) (315,000) 8,000
Other assets (3,000) (193,000) (52,000) (33,000)
Increase (decrease) in:
Accounts payable and accrued liabilities (134,000) 186,000 (92,000) 352,000
Other liabilities 61,000 (152,000) (271,000) 198,000
----------- ----------- ----------- -----------
Net cash used in operating activities (336,000) (1,603,000) (3,359,000) (631,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in notes receivable 11,000 (30,000) -- --
Capital expenditures for property and
equipment (119,000) (67,000) (475,000) (472,000)
Cash acquired in mergers -- -- 7,000 5,000
Acquisition costs incurred -- -- (32,000) (38,000)
----------- ----------- ----------- -----------
Net cash used in investing activities (108,000) (97,000) (500,000) (505,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from factoring of accounts receivable 402,000 -- 634,000 491,000
Payments to factor (382,000) -- (444,000) --
Proceeds from issuance of common stock 654,000 5,350,000 4,153,000 2,000
Proceeds from issuance of notes payable -- 240,000 333,000 5,887,000
Proceeds from notes payable - related parties 40,000 -- -- --
Payment on notes payable - related parties (40,000) -- -- --
Payment on notes payable and capital leases (15,000) (1,850,000) (369,000) (4,608,000)
Payment for deferred financing and offering costs -- -- (10,000) (405,000)
----------- ----------- ----------- -----------
Net cash provided by financing activities 659,000 3,740,000 4,297,000 1,367,000
INCREASE IN CASH AND CASH EQUIVALENTS 215,000 2,040,000 438,000 231,000
CASH AND CASH EQUIVALENTS, beginning of period 369,000 231,000 231,000 --
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 584,000 $ 2,271,000 $ 669,000 $ 231,000
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash payments for interest $ 16,000 $ 231,000 $ 79,000 $ 155,000
=========== =========== =========== ===========
Net assets, net of cash assumed, acquired in merger
of NAVIDEC with IPI and TouchSource $ -- $ -- $ 769,000 $ 670,000
=========== =========== =========== ===========
Debentures converted to common stock $ -- $ 1,437,000 $ -- $ --
=========== =========== =========== ===========
See accompanying notes to these financial statements.
F-6
</TABLE>
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------
Organization and Nature of Operations - The Company was incorporated in the
State of Colorado in 1993 and distributes various high technology and other
products through traditional and electronic channels. Effective on July 1,
1996, the Company merged with Interactive Planet, Inc. (IPI) and as a
result, the Company also provides comprehensive Internet and Intranet
solutions, including design and development of World Wide Web sites,
marketing, database integration, electronic commerce and order
fulfillments. Effective July 31, 1997, the Company acquired TouchSource,
and as a result, the Company designs and markets touch screen computer
kiosks.
Cash Equivalents - For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method and consist primarily of
products held for resale.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed over the estimated useful lives of the assets
using the 200% declining balance method generally over a three to seven
year period. Leasehold improvements are amortized on the straight-line
method over the lesser of the lease term or the useful life. Expenditures
for ordinary maintenance and repairs are charged to expense as incurred.
Upon retirement or disposal of assets, the cost and accumulated
depreciation are eliminated from the account and any gain or loss is
reflected in the statements of operations.
Intangibles - Intangibles represents organization costs and the excess of
the purchase price paid over the net liabilities acquired in the IPI and
the TouchSource acquisition, net of amortization costs and impairment loss.
The remaining balance in intangibles will be amortized during 1998.
Impairment of Long-Lived Assets - In fiscal 1997, the Company adopted
Financial Accounting Standards Board Statement No. 121, Accounting for
Impairment of Long-Lived Assets (FAS 121). In the event that facts and
circumstances indicate that the cost of assets or other assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value
is required. Adoption of FAS 121 had no effect on the December 31, 1997
financial statements other than to impair the goodwill associated with the
IPI and TouchSource acquisitions to the value of the expected future cash
flows associated with the acquired assets.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The carrying amounts of cash, trade
accounts receivable, accounts payable, and accrued liabilities approximate
fair value.
F-7
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
Revenue Recognition - The Company recognizes revenue upon delivery of its
Internet/Intranet and Kiosk Solutions and Product Distribution goods.
Internet/Intranet and Kiosk Solutions generally begin with consulting
arrangements, which are billed on an hourly basis and/or on a percentage of
completion method on fixed bid projects. Most of the Company's customers
elect to update and expand their Web site frequently, and clients are
billed monthly on a time and materials basis for these services. Additional
sources of ongoing revenue include revenue from advertising sold by the
Company on clients' Web sites, revenue from sales of merchandise and
services over clients' Web sites and revenue from maintenance of client Web
sites. The Company receives and records a percentage of the gross revenue
from advertising and merchandise sales immediately upon completion of these
sales.
Revenues from long-term contracts are recognized on the
percentage-of-completion method for individual contracts, commencing when
progress reaches a point where experience is sufficient to estimate final
results with reasonable accuracy. Revenues are recognized in the ratio that
costs incurred bear to total estimated costs. Changes in job performance,
estimated profitability and final contract settlements may result in
revisions to costs and income, and are recognized in the period in which
the revisions are determined.
Contract costs include all labor costs and those indirect costs related to
contract performance. General and administrative costs are charged to
expense as incurred. Profits on short-term contracts are recorded upon
substantial completion of each contract. Revenues from time and material
contracts are recognized currently as the work is performed. At the time a
loss on a contract becomes known, the entire amount of the estimated
ultimate loss on both short and long-term contracts is accrued.
Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues
recognized.
Loss Per Share - Loss per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 128 Earnings
Per Share (FAS 128). FAS 128 replaced the presentation of primary and fully
diluted earnings (loss) per share (EPS) with a presentation of basic EPS
and diluted EPS. Basic EPS is calculated by dividing the income or loss
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur is securities or other contracts to issue common
stock were exercised or converted into common stock. Basic and diluted EPS
were the same for the three months ended March 31, 1998 and 1997 and for
the years ended December 31, 1997 and 1996 because the Company had losses
from operations and therefore, the effect of all potential common stocks
was anti-dilutive.
Options to purchase 297,000 shares of common stock, and warrants to
purchase 1,642,417 shares of common stock were outstanding at December 31,
1997. See Note 9, Stockholders' Equity, for a detailed discussion of the
options and warrants issued by the Company.
Income Taxes - During 1996, the Company converted to a "C Corporation" and
adopted Statement of Financial Accounting Standards No. 109, which requires
recognition of deferred tax assets and liabilities for the expected future
F-8
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined, based on the difference between the financial
statements and tax bases of asset and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates. The Company makes
significant estimates, including the allowance for doubtful accounts and
the life of the excess of purchase price over net assets acquired
(goodwill) in both the IPI merger and the TouchSource acquisition.
New Pronouncements - Statement of Financial Accounting Standards 130
Reporting Comprehensive Income and Statement of Financial Accounting
Standards 131 Disclosures About Segments of an Enterprise and Related
Information were recently issued. Statement 130 establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, Statement 130 requires
that all components of comprehensive income shall be classified based on
their nature and shall be reported in the financial statements in the
period in which they are recognized. A total amount for comprehensive
income shall be displayed in the financial statements where the components
of other comprehensive income are reported. Statement 131 supersedes
Statement of Financial Accounting Standards 14 Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards on
the way that public companies report financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued
to the public. It also establishes standards for disclosures regarding
products and services, geographic areas, and major customers. Statement 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decisionmaker in deciding how to allocate resources and in
assessing performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Results of operations and financial position
are unaffected by implementation of these standards.
Unaudited Information - The balance sheet as of March 31, 1998 and the
statements of operations for the three-month periods ended March 31, 1998
and 1997 were taken from the Company's books and records without audit.
However, in the opinion of management, such information includes all
adjustments (consisting only of normal accruals), which are necessary to
properly reflect the Company's financial position as of March 31, 1998 and
the results of operations for the three months ended March 31, 1998 and
1997. The results of operations for the interim periods presented are not
necessarily indicative of those expected for the year.
F-9
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
2. LIQUIDITY:
----------
The Company has incurred net losses for the past two years and has
experienced negative cash flows from operations. As described in Note 9,
management has taken the following actions to improve the Company's cash
flow and operating results.
o In February 1997, the Company completed an initial public
offering for the sale of its common stock and warrants which
resulted in gross proceeds of approximately $4,555,000.
o The Company is currently in the process raising additional
capital in a private placement.
The Company is also aggressively working to increase revenues and improve
operating results to ultimately achieve profitability. No assurances can be
given that the Company will be successful in completing its private
offering or ultimately achieving profitability.
3. ACQUISITION AND IMPAIRMENT OF IPI AND TOUCHSOURCE TECHNOLOGIES:
---------------------------------------------------------------
Effective July 1, 1996, the Company acquired 100% of the stock of IPI for
679,000 shares of common stock of the Company and a $75,000 note payable in
a purchase transaction. The acquisition was valued at approximately
$750,000 and resulted in goodwill of approximately $850,000 being recorded.
Projected future cash flows associated with the technology previously
developed by IPI declined due to rapidly changing technologies and
increased competition for products developed with the IPI technology. In
addition, during the fourth quarter of 1997, after the introduction of new
Internet solutions by the Company, management decided to focus the Company
on its automotive solution. As such, the Company reevaluated the goodwill
related to this acquisition and recorded an impairment expense of $598,000,
resulting in a remaining net balance of $20,000. This amount will be
amortized during 1998.
Effective July 31, 1997, the Company acquired 100% of the stock of
TouchSource for 207,000 shares of common stock of the Company in a purchase
transaction. The acquisition was valued at approximately $776,000 and
resulted in goodwill of approximately $859,000 being recorded. Subsequent
to the acquisition, technologies developed more rapidly than expected,
which has reduced the expected future cash flows associated with the
TouchSource technology. Furthermore, the Company intends to integrate the
TouchSource technology with its other products and market it primarily to
the automotive industry, which was not a market focus of TouchSource. As
such, the Company also reevaluated the related goodwill, and recorded an
impairment expense of $707,000, resulting in a remaining net balance of
$80,000. This amount is being amortized during 1998.
F-10
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
The unaudited following pro forma information presents the effect of the
TouchSource merger as if it occurred on January 1, 1996.
For the Years Ended
December 31,
--------------------------
1997 1996
----------- -----------
Revenue $ 6,362,000 $ 6,046,000
=========== ===========
Net loss $(4,377,000) $(1,541,000)
=========== ===========
Loss per share $ (1.50) $ (.72)
=========== ===========
Common share and equivalents outstanding 2,920,000 2,155,000
=========== ===========
The above pro forma information is not necessarily indicative of the
financial results which would have occurred if such acquisition had taken
place at the earlier date, nor of future operating results.
4. CONCENTRATION OF CREDIT RISK:
-----------------------------
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet)
that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
effected by changes in economic or other conditions described below. The
Company intends to market a significant portion of its products to the
automotive industry in the forthcoming year. This may create a market
concentration in future years. Sales to this industry have not been
significant in the past.
A geographic concentration exists because the Company has historically sold
approximately 40% of its products and services in the State of Colorado
with remaining revenue derived from sales throughout the United States.
Financial instruments that subject the Company to credit risk consist
principally of accounts receivable. The Company performs periodic credit
evaluations on its customers' financial condition to reduce its exposure to
credit risks.
At December 31, 1997, the Company maintained cash balances with a
commercial bank, which were approximately $414,000 in excess of FDIC
insurance limits.
The Company is dependent on four key suppliers. The Company has contracts
with these suppliers, however, they are not exclusive and can be terminated
at any time. Management believes that while the Company may suffer a
short-term adverse impact, it would be able to replace anyone of these
suppliers.
F-11
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
5. CONTRACTS IN PROGRESS:
---------------------
The following applies to contracts in progress:
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
Costs incurred on contracts in progress $ 63,355 $ 30,000
Estimated earnings 304,008 76,000
-------- --------
367,363 106,000
Less progress billings -- --
-------- --------
Costs and estimated earnings in
excess of billings $367,363 $106,000
======== ========
6. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consists of the following:
March 31 December 31,
1998 1997
---------- -----------
(Unaudited)
Furniture, fixtures and equipment $1,155,000 $1,036,000
Leasehold improvements 41,000 41,000
---------- ----------
1,196,000 1,077,000
Less accumulated depreciation (453,000) (364,000)
---------- ----------
$ 743,000 $ 713,000
========== ==========
F-12
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
7. NOTES PAYABLE:
--------------
Notes payable consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- -----------
(Unaudited)
<S> <C> <C>
Note payable, financial institution, due in monthly principal $260,000 $275,000
installments of $5,000 plus interest at prime plus 1/4% (8.75%
at December 31, 1997), due July 15, 2002, collateralized by
a certificate of deposit. The loan agreement contains
covenants, which, among other items, restricts the Company
from incurring certain debt. As of December 31, 1997, the
Company is in compliance with these covenants.
Other. 3,000 3,000
-------- --------
263,000 278,000
Less current portion (63,000) (63,000)
-------- --------
$200,000 $215,000
======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
------------------------------
Capital Lease Obligations - The Company leases certain equipment under
agreements classified as capital leases. Equipment under the leases has a
cost of approximately $174,000 and accumulated amortization of
approximately $43,000. The following is a schedule of future minimum lease
payments under capital leases at December 31, 1997.
Future minimum lease payments $177,000
Less amount representing interest (45,000)
-------
Present value of net minimum lease payments 132,000
Less current portion (37,000)
-------
$ 95,000
========
F-13
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
Office Leases - The Company leases its office space under operating leases
for a term expiring 2001. The lease calls for monthly payments of $10,000.
The aggregate minimum annual lease payments are as follows:
Operating
Year Ending December 31, Leases
------------------------ ---------
1998 $ 121,000
1999 111,000
2000 101,000
2001 42,000
---------
Total minimum lease payments $ 375,000
=========
Receivables Factored With Recourse - In 1997, the Company entered into an
agreement with a bank to factor, with full recourse, existing and future
accounts receivable to a maximum of $750,000. The Company must maintain a
cash reserve account with the bank of up to 20% of the face amount of
receivables sold to the bank. The Company's recourse obligation is secured
by all of the Company's assets and is guaranteed by one of the Company's
shareholders. As of March 31, 1998 and December 31, 1997, the face amount
of receivables factored was $237,000 and $249,000 resulting in a recourse
obligation of $210,000 and $190,000, respectively. For financial
presentation purposes, the related receivable and outstanding recourse
liability have been included as an asset and liability, respectively, on
the balance sheet.
Employment Agreements - In July 1996, the Company entered into employment
agreements with two shareholders. The agreements provide for payments
totaling $165,000 per year through June 30, 1998 and include covenants not
to compete during the term of employment and for one year thereafter.
The Company entered into a service agreement with a shareholder which
commenced on August 1, 1996, and was subsequently extended through February
1999. The agreement provides for payments of approximately $5,000 per month
plus options to purchase 212,500 shares of the Company's common stock at
$4.12 per share. The options are exercisable from April 1999 to October
2001. The agreement also contains a covenant not to compete during the term
of the service agreement and for one year thereafter. During 1997, the
Company loaned $60,000 to this shareholder at 5.5% interest, due in
semi-monthly installments of $2,300 beginning January 1, 1998,
collateralized by the options discussed above.
In April 1997, the Company entered into an additional service agreement
with this shareholder. This agreement provides for additional payments of
$5,000 per month plus 2 1/2% of any capital raised as a result of the
shareholder's efforts in the form of options and warrants for the Company's
stock. These options shall be exercisable at the closing price of the
Company's stock on the date of closing of any transaction, exercisable
F-14
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
commencing six months after each grant and expire five years from the date
of each grant. The agreement expired on October 1, 1997. As a result of
this agreement, 14,962 and 4,717 options were outstanding at March 31, 1998
and December 31, 1997, respectively.
9. STOCKHOLDERS' EQUITY (DEFICIT):
-------------------------------
Termination of S-Corporation Status - Effective July 1, 1996, the Company
terminated its S-Corporation status and became a C-Corporation. As a
result, the Company reclassified its accumulated deficit attributable to
the S-Corporation as a reduction in common stock upon termination of
S-Corporation status.
Public Stock Offering - In February 1997, the Company completed an initial
public stock offering of 1,000,000 Units (comprised of 1,000,000 shares of
common stock and warrants for the purchase of 1,000,000 shares of common
stock) which provided gross proceeds to the Company of approximately
$4,555,000. Included in the 1,000,000 shares were 245,000 shares offered by
the holders of unsecured subordinated convertible promissory notes. Each
warrant allows the holder to purchase one share of common stock at an
exercise price of $7.20 through February 2002. The warrants are redeemable
by the Company at $.05 per warrant upon 30 days notice if the market price
of the common stock for 20 consecutive trading days within the 30-day
period preceding the date the notice is given equals or exceeds $8.40. The
Company also sold to the underwriter at the close of the public offering
underwriters warrants, at a price of $0.001 per warrant, to purchase
100,000 shares of common stock. The underwriters warrants are exercisable
for 4 years beginning in February 1998 at $7.38 per share.
Private Placement - The Company has raised additional capital in a private
placement. The offering provided for a maximum amount of $2,700,000 with no
minimum, consisting of a maximum of 600,000 units (comprised of one share
of common stock and one warrant) at $4.50 per unit. Each warrant allows the
holder to purchase one share of common stock at an exercise price of $7.20
for a period extending through February 10, 2002. The warrants are
redeemable by the Company at $.05 per warrant upon 30 days notice if the
market price for 20 consecutive trading days within the 30-day period
preceding the date the notice is given equals or exceeds $8.40. The Company
is required by the terms of the placement agreement to register the common
shares and the common shares underlying the warrants within 45 days of
filing the Company's 10-KSB. Offering costs associated with the private
placement include underwriter commissions and non-accountable expense
allowances totaling 13% of proceeds, as well as placement agent options to
purchase 10% of the units sold for 5 years from the date of closing at
$4.50 per unit. In addition, the Company has agreed to issue any broker or
registered agent who places four or more placement units (consisting of
6,000 units or $27,000 each) one broker option for each $20 sold at a price
of $4.50. As of March 31, 1998 and December 31, 1997, the Company had
closings on the private placement of $654,000 and $717,000 net of offering
costs of $111,000 and $132,000, respectively. No broker options had been
issued to brokers or registered representatives as of December 31, 1997.
F-15
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
Through April 13, 1998, the Company completed two additional closings on
the private placement for a total of 236,000 units, receiving proceeds of
$897,000 net of offering costs of $165,000, which completed the maximum
offering for the private placement.
Stock Split - During 1996, the Company declared a 1 for 2 reverse stock
split and 510.2041 for 1 stock split. The Company also declared a .85 for 1
reverse stock split to be effective immediately prior to the initial public
offering. Accordingly, all common stock reflected in the financial
statements and accompanying notes reflect the effect of the split and
reverse splits.
Common Stock Transfers and Options - In June 1996, an officer and a
shareholder transferred 83,725 shares of common stock to employees at no
cost. The Company recognized $83,000 in compensation expense related to
this transfer.
During 1994 and 1993, the Company issued stock options to an officer and
shareholder to purchase 804,881 shares of common stock at an aggregate
exercise price of $1,745. During June 1996, these options were exercised.
The Board of Directors granted options for the purchase of 89,715, 310,300,
50,000 and 495,000 shares of common stock under the Stock Option Plan on
September 1, 1997, February 15, 1998, February 18, 1998 and March 2, 1998,
respectively. The exercise prices of those options are $5.75, $3.00, $3.56
and $5.438 per share, respectively, which were the quoted market prices of
the underlying Common Stock on the date of grant. These options expire on
September 1, 2002, February 14, 2003, February 17, 2003 and March 1, 2003,
respectively and vest one year from the grant date. The Stock Option Plan
is subject to shareholder approval.
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
granted to employees and directors. Accordingly, no compensation cost has
been recorded for grants of options to employees and directors where the
exercise price is not less than the fair market value of the Company's
common stock on the measurement date. Had compensation cost been determined
using the fair value method pursuant to FAS 123, the Company's net loss and
net loss per share would have increased to the pro forma amounts indicated
in the following table:
Years Ended December 31,
-------------------------------
1997 1996
----------- -----------
Net loss
As reported $(4,107,000) $(1,415,000)
Pro forma (4,219,000) (1,415,000)
Net loss per common share
As reported $ (1.47) $ (.73)
Pro forma (1.51) (.73)
F-16
<PAGE>
NAVIDEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
The fair value of all options granted was estimated as of the date of grant
using the Black-Scholes option pricing model using the following weighted
average assumptions:
Years Ended December 31,
--------------------------
1997 1996
------ ------
Estimated fair value per option $4.33 $ --
Expected volatility 104% --%
Risk-free interest rate 5.5% 6.5%
Expected dividends -- --
Expected term (in years) 4.4 3.5
10. INCOME TAXES:
-------------
As of December 31, 1997, the Company has a net operating loss (NOL)
carryforward for tax reporting purposes of approximately $3,750,000. This
NOL expires in the years 2011 through 2017.
Deferred income taxes are provided for differences between the tax and book
basis of assets and liabilities as a result of temporary differences in the
recognition of revenues or expenses for tax and financial reporting
purposes, which relates primarily to certain items not currently deductible
for tax purposes until paid.
Deferred tax assets (liabilities) resulting from these differences consist
of the following:
Net operating loss carryforward $1,398,000
Other (30,000)
----------
Total 1,368,000
Less valuation allowance (1,368,000)
----------
Net deferred tax asset $ --
==========
The valuation allowance for deferred tax assets increased from $236,000 at
December 31, 1996 to $1,330,000 at December 31, 1997, due primarily to an
increase in the Company NOL carryforwards.
11. DEFINED CONTRIBUTION PLAN:
--------------------------
The Company has a 401(k) profit sharing plan (the Plan). Eligible employees
may make voluntary contributions to the Plan. The amount of employee
contributions is limited as specified in the Plan. The Company may, at its
discretion, make additional contributions to the Plan. The Company made no
contributions in 1997 and 1996.
F-17
<PAGE>
============================================ =================================
No dealer, salesperson or any other person
has been authorized to give any information
or to make any representations in connection
with this offering other than those
contained in this Prospectus. Any
information or representation not herein
contained, if given or made, must not be
relied upon as having been authorized by the
Company. This Prospectus does not constitute
an offer to sell or a solicitation of an NAVIDEC, INC.
offer to buy any security other than the
securities offered by this Prospectus, nor
does it constitute an offer to sell or a
solicitation of an offer to buy the
securities by any person in any jurisdiction
where such offer or solicitation is not
authorized, or in which the person making
such offer is not qualified to do so, or to
any person to whom it is unlawful to make Common Stock
such offer or solicitation. The delivery of
this Prospectus shall not, under any and
circumstances, create any implication that
there has been no change in the affairs of Common Stock Purchase Warrants
the Company since the date hereof.
TABLE OF CONTENTS
Page
----
Available Information 4
Prospectus Summary 5
Risk Factors 7 ----------
Use of Proceeds 11
The Company 11 PROSPECTUS
Management's Discussion &
Analysis of Financial ----------
Condition and Results of Operations 23
Management 25
Executive Compensation 27
Security Ownership of Certain
Beneficial Owners
and Management 28
Selling Security Holders 29
Plan of Distribution 30
Certain Transactions 31
Description of Securities 32
Shares Eligible for Future Sale 34
Market for Common Stock and
Related Shareholder Matters 34 July , 1998
Legal Matters 34
Experts 34
Securities And Exchange
Commission Position
on Certain Indemnification 34
Index to Financial Statements F-1
=========================================== ==================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
------------------------------------------
The Company's Articles of Incorporation eliminate the personal liability of
directors to the Company or its stockholders for monetary damages for breach of
fiduciary duty to the extent permitted by Colorado law. The Company's Articles
of Incorporation and By-Laws provide that the Company shall indemnify its
officers and directors to the extent permitted by Colorado law, which authorizes
a corporation to indemnify directors, officers, employees or agents of the
corporation in non-derivative suits if such party acted in good faith and in a
manner such party reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Colorado Business Corporation Act further provides that indemnification
shall be provided if the party in question is successful on the merits or
otherwise.
Item 25. Other Expenses of Issuance and Distribution
-------------------------------------------
The estimated expenses of the offering, all of which are to be borne by the
Company, are as follows:
Total Registration Fee Under Securities Act of 1933 $ 3,092
Printing and Engraving.......................................... 15,000 *
Accounting Fees and Expenses.................................... 5,000 *
Legal Fees and Expenses......................................... 25,000 *
Blue Sky Fees and Expenses (including related legal fees)....... 3,000 *
Transfer Agent Fees............................................. 2,000 *
Miscellaneous................................................... 1,908
-------
Total.................................................. $55,000
*Estimated
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
In July 1996, the Company issued an aggregate of 678,877 shares of Common
Stock to the existing shareholders of Interactive Planet, Inc. ("IPI") in
exchange for all of this issued and outstanding shares of IPI in connection with
the merger of IPI with and into the Company. The Company relied on the statutory
exemption provided by Section 4(2) of the Securities Act of 1933 in accordance
with the preliminary note of Rule 145 whereby the exchange was made with a group
of 14 shareholders of IPI not involving any public offering.
In August 1996, the Company issued to John McKowen, pursuant to an
employment agreement, options to purchase 212,500 shares of Common Stock at an
exercise price of $4.12 per share. Such options are exercisable after February
1, 1999 and expire August 1, 2001. This was a privately negotiated transaction
with a sophisticated investor not involving any public offering and exempt
pursuant to Section 4(2) of the Securities Act of 1933.
From August through October 1996, the Company consummated the sale of an
aggregate of $1,437,500 principal amount of 10% Unsecured Subordinated
Convertible Promissory Notes, due December 31, 1997, in a private placement to
investors. The Notes were automatically converted into an aggregate of 349,126
units, with each unit consisting of one share of Common Stock and one Common
Stock purchase warrant, upon the consummation of the Company's initial public
offering. Joseph Charles & Associates, Inc., received $143,750 in commissions
and $35,938 in expenses as placement agent in such private placement. This
offering was made pursuant to Rule 506 of Regulation D promulgated pursuant to
the Securities Act of 1933 as an offering not involving any public offering
solely to accredited investors.
In June 1996, Ralph Armijo exercised options to purchase 804,881 shares of
Common Stock for an aggregate exercise price of $1,745. These options were
granted during 1993 and 1994 in lieu of salary. Mr. Armijo was and is the chief
executive officer of the Company and the transaction was exempt as a transaction
not involving any public offering pursuant to Section 4(2) of the Securities Act
of 1933.
II-1
<PAGE>
From November 1997 to April 1998, the Company raised net proceeds of
approximately $2,229,750 from the issuance of 594,500 shares of common stock and
warrants from a private placement. Each warrant entitles the holder to purchase
one share of Common Stock at a price of $7.20 per share until February 10, 2002.
The warrants are redeemable at the option of the Company, at $.05 per warrant,
at any time on or after February 10, 1998. This offering was made pursuant to
Rule 506 of Regulation D promulgated pursuant to the Securities Act of 1933 as
an offering not involving any public offering solely to accredited and
sophisticated investors.
Item 27. Exhibits
--------
The following Exhibits are filed as part of this Form SB-2 Registration
Statement pursuant to Item 601 of Regulation S-B by incorporation by reference
to other filings:
3.1 Amended and Restated Articles of Incorporation of ACI Systems, Inc.*
3.2 Amended and Restated Bylaws of ACI Systems, Inc.*
3.3 Articles of Merger and Agreement and Plan of Merger Between ACI
Systems, Inc. and Interactive Planet, Inc.*
4.1 Form of Certificate for Common Stock of NAVIDEC, Inc.*
4.2 Form of Warrant*
4.3 Form of Warrant Agreement*
4.4 Form of Placement Agent Options. Filed herewith.
5.1 Opinion, with Consent, of Cohen Brame & Smith Professional
Corporation. Filed herewith.
10.1 Form of "Lock Up" Letter entered into by the Company's current
shareholders.*
10.2 Form of Shareholders' Agreement dated July 12, 1996, among NAVIDEC,
Inc. and its shareholders on such date.*
10.3 Form of Confidentiality and Non-Disclosure Agreement between the
Company and its significant technical employees.*
10.4 Employment Agreement dated July 3, 1996 between NAVIDEC, Inc. and
Ralph Armijo.*
10.5 Employment Agreement between NAVIDEC, Inc. and John R. McKowen.*
10.6 Lease Agreement dated February 23, 1996 for the premises located at 14
Inverness Dr., Building F, Suite 116, Englewood, Colorado 80112.*
10.7 Lease Agreement dated October 27, 1993 for the premises located at
7002 S. Revere Parkway, Suite 40, Englewood, Colorado 80112
[Terminated in December 1996].*
10.8 Promissory Note as of October 1, 1993, in the principal amount of
$119,199, from ACI Systems, Inc. payable to Arthur Armijo.*
10.9 Promissory Note as of March 31, 1996, in the principal amount of
$45,110 from Interactive Planet, Inc. payable to Patrick Mawhinney*
10.10 Promissory Note as of July 9, 1996, in the principal amount of $75,000
from NAVIDEC, Inc. payable to Cynthia Simmons.*
10.11 Business/Manager Agreement and Commercial Security Agreement, each
dated February 27, 1996, between NAVIDEC, Inc. and Colorado State Bank
of Denver.*
10.12 Form of Commercial Guarantee of Ralph Armijo and Arthur Armijo in
favor of Colorado State Bank of Denver in connection with February 27,
1996 Promissory Note.*
10.13 Form of Commercial Continuing Guarantee of Ralph Armijo and Arthur
Armijo dated November 17, 1993 in favor of Vectra Bank in connection
with line of credit terminated in February 1996.*
10.14 Promissory Note as of August 6, 1996, in the principal amount of
$70,000 from NAVIDEC, INC. payable to Ralph Armijo.*
10.15 Promissory Note as of July 26, 1996 in the principal amount of $30,000
from NAVIDEC, INC. payable to Patrick Mawhinney.*
10.16 Promissory Note as of July 25, 1996, in the principal amount of
$182,500 from NAVIDEC, INC. payable to Little Land Company.*
10.17 Netscape Commercial Applications Partner Program (NCAPP) Guidelines.*
10.18 Form of Restated Agreement Not to Sell with Bridge Financing Selling
Stockholders.*
10.19 Form of Insider's Lock-up Agreement to be entered into by the
Company's officers, directors and 5% shareholders.*
10.20 Form of Promissory Note in the principal amount of $70,000 from
NAVIDEC, Inc. payable to Trust Company of America FBO Michael
Hendricks SEP IRA and guaranteed by Ralph Armijo and Patrick
Mawhinney.*
10.21 Wheels licence agreement with the Denver Post.**
10.22 Wheels licence agreement with KOIN TV.**
10.23 The Company's stock option plan.***
10.24 Agreement to provide services with John McKowen. Filed herewith.
II-2
<PAGE>
10.25 Engagement Letter dated October 27, 1997 with Joseph Charles &
Associates. Filed herewith.
10.26 Engagement Agreement dated February 16, 1998 with Joseph Charles
Assoicates. Filed herewith
10.27 Employment Agreement between NAVIDEC, Inc. and Ralph Armijo dated
May 1, 1998. Filed herewith.
10.28 Employment Agreement between NAVIDEC, Inc. and Hal Anderson dated
May 1, 1998. Filed herewith.
10.29 Employment Agreement between NAVIDEC, Inc. and Patrick Mawhinney dated
May 1, 1998. Filed herewith.
10.30 Employment Agreement between NAVIDEC, Inc. and Kenneth Bero dated
December 15, 1997. Filed herewith.
21.1 Subsidiaries of the Company.*
23.1 Consent of Hein & Associates LLP. Filed herewith.
23.2 Consent of Cohen Brame & Smith Professional Corporation (included in
Exhibit 5.1). Filed herewith.
- ----------------
* Incorporated by reference from the like numbered exhibit to the
Company's Registration Statement on Form SB-2 declared effective
February 10, 1997 (SEC File Number 333-14497).
** Incorporated by reference from the Company's Annual Report on From
10-KSB for the year ended December 31, 1997.
*** Incorporated by reference from the Company's preliminary proxy
statement for the 1998 Annual Shareholders' Meeting.
Item 28. Undertakings
------------
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Company hereby undertakes:
(1) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the mos
recent post-effective amendment thereto) that, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) to include any additional or changed material information on
the plan of distribution.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Englewood, State of Colorado on the 13th day of July, 1998.
NAVIDEC, INC.
By: /s/ Ralph Armijo
-----------------------------------------------
Ralph Armijo, President, Chief Executive Officer
and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ Ralph Armijo President, Chief July 13, 1998
- --------------------------- Executive Officer
Ralph Armijo and Director
/s/ Andrew Davis Director July 13, 1998
- ---------------------------
Andrew Davis
/s/ Patrick R. Mawhinney Chief Financial Officer, July 13, 1998
- --------------------------- Treasurer and Director
Patrick R. Mawhinney
/s/ Lloyd G. Chavez, Jr. Director July 13, 1998
- ---------------------------
Lloyd G. Chavez, Jr.
/s/ Gerald A. Marroney Director July 13, 1998
- ---------------------------
Gerald A. Marroney
/s/ Harold Anderson II Vice President of July 13, 1998
- --------------------------- Automotive
Harold Anderson II
/s/ Kenneth P. Bero Vice President of July 13, 1998
- --------------------------- Sales
Kenneth P. Bero
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
-----------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
NAVIDEC, INC.
-------------
(Name of Company as specified in charter)
<PAGE>
NAVIDEC, INC.
FORM SB-2 REGISTRATION STATEMENT
The following Exhibits are filed as part of the Company's Form SB-2
Registration Statement pursuant to Item 601 of Regulation S-B.
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of ACI Systems, Inc.*
3.2 Amended and Restated Bylaws of ACI Systems, Inc.*
3.3 Articles of Merger and Agreement and Plan of Merger Between ACI Systems, Inc. and Interactive Planet, Inc.*
4.1 Form of Certificate for Common Stock of NAVIDEC, Inc.*
4.2 Form of Warrant*
4.3 Form of Warrant Agreement*
4.4 Form of Placement Agent Options. Filed herewith.
5.1 Opinion, with Consent, of Cohen Brame & Smith Professional Corporation. Filed herewith.
10.1 Form of "Lock Up" Letter entered into by the Company's current shareholders.*
10.2 Form of Shareholders' Agreement dated July 12, 1996, among NAVIDEC, Inc. and its shareholders on such date.*
10.3 Form of Confidentiality and Non-Disclosure Agreement between the Company and its significant technical employees.*
10.4 Employment Agreement dated July 3, 1996 between NAVIDEC, Inc. and Ralph Armijo.*
10.5 Employment Agreement between NAVIDEC, Inc. and John R. McKowen.*
10.6 Lease Agreement dated February 23, 1996 for the premises located at 14 Inverness Dr., Building F, Suite 116,
Englewood, Colorado 80112.*
10.7 Lease Agreement dated October 27, 1993 for the premises located at 7002 S. Revere Parkway, Suite 40, Englewood,
Colorado 80112 [Terminated in December 1996].*
10.8 Promissory Note as of October 1, 1993, in the principal amount of $119,199, from ACI Systems, Inc. payable
to Arthur Armijo.*
10.9 Promissory Note as of March 31, 1996, in the principal amount of $45,110 from Interactive Planet, Inc. payable to
Patrick Mawhinney*
10.10 Promissory Note as of July 9, 1996, in the principal amount of $75,000 from NAVIDEC, Inc. payable to Cynthia Simmons.*
10.11 Business/Manager Agreement and Commercial Security Agreement, each dated February 27, 1996, between NAVIDEC, Inc.
and Colorado State Bank of Denver.*
10.12 Form of Commercial Guarantee of Ralph Armijo and Arthur Armijo in favor of Colorado State Bank of Denver in connection
with February 27, 1996 Promissory Note.*
10.13 Form of Commercial Continuing Guarantee of Ralph Armijo and Arthur Armijo dated November 17, 1993 in favor of Vectra
Bank in connection with line of credit terminated in February 1996.*
10.14 Promissory Note as of August 6, 1996, in the principal amount of $70,000 from NAVIDEC, INC. payable to Ralph Armijo.*
10.15 Promissory Note as of July 26, 1996 in the principal amount of $30,000 from NAVIDEC, INC. payable to Patrick
Mawhinney.*
10.16 Promissory Note as of July 25, 1996, in the principal amount of $182,500 from NAVIDEC, INC. payable to Little Land
Company.*
10.17 Netscape Commercial Applications Partner Program (NCAPP) Guidelines.*
10.18 Form of Restated Agreement Not to Sell with Bridge Financing Selling Stockholders.*
10.19 Form of Insider's Lock-up Agreement to be entered into by the Company's officers, directors and 5% shareholders.*
10.20 Form of Promissory Note in the principal amount of $70,000 from NAVIDEC, Inc. payable to Trust Company of America FBO
Michael Hendricks SEP IRA and guaranteed by Ralph Armijo and Patrick Mawhinney.*
10.21 Wheels licence agreement with the Denver Post.**
10.22 Wheels licence agreement with KOIN TV.**
10.23 The Company's stock option plan.***
10.24 Agreement to provide services with John McKowen. Filed herewith.
10.25 Engagement Letter dated October 27, 1997 with Joseph Charles & Associates. Filed herewith.
10.26 Engagement Agreement dated February 16, 1998 with Joseph Charles & Associates. Filed herewith.
10.27 Employment Agreement between NAVIDEC, Inc. and Ralph Armijo dated May 1, 1998. Filed herewith.
10.28 Employment Agreement between NAVIDEC, Inc. and Hal Anderson dated May 1, 1998. Filed herewith.
10.29 Employment Agreement between NAVIDEC, Inc. and Patrick Mawhinney dated May 1, 1998. Filed herewith.
10.30 Employment Agreement between NAVIDEC, Inc. and Kenneth Bero dated December 15, 1997. Filed herewith.
21.1 Subsidiaries of the Company.*
23.1 Consent of Hein & Associates LLP. Filed herewith.
23.2 Consent of Cohen Brame & Smith Professional Corporation (included in Exhibit 5.1). Filed herewith.
- -----------------
* Incorporated by reference from the like numbered exhibit to the Company's Registration Statement on Form SB-2 declared
effective February 10, 1997 (SEC File Number 333-14497).
** Incorporated by reference from the Company's Annual Report on From 10-KSB for the year ended December 31, 1997.
*** Incorporated by reference from the Company's preliminary proxy statement for the 1998 Annual Shareholders' Meeting.
</TABLE>
Exhibit 4.4
NAVIDEC, INC.
COMMON STOCK PURCHASE OPTION
105,000 Options
THIS CERTIFIES THAT, for value received Joseph Charles & Associates as
owner (the "Owner") of this Common Stock Purchase Option (the "Option"), is
entitled at any time commencing on April 13, 1998 and before 5:00 p.m. Mountain
Time on April 13, 2003 (the "Expiration Date"), to subscribe for, purchase and
receive one fully paid and nonassessable share of common stock, no par value (an
"Option Share"), of NAVIDEC, Inc. (the "Company"), for each one Option specified
above, at the price of $3.50 per share (the "Exercise Price"), upon presentation
and surrender of this Option, together with payment of the Exercise Price for
the Option Shares to be purchased, to the Company at its principal office.
Upon exercise of this Option, the form of Election to Purchase hereinafter
provided must be duly executed, the Exercise Price must be paid in lawful money
of the United States of America in cash, certified check, bank draft or wire
transfer and the instructions for the registration of the Option Shares acquired
by such exercise must be completed. If the rights represented hereby shall not
be exercised at or before 5:00 p.m., Mountain Time on the Expiration Date, this
Option shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
Subject to the terms contained herein, this Option may be assigned or
exercised by the Owner in whole or in part by execution by the Owner of the form
of Assignment or Election to Purchase, as appropriate, appearing on the reverse
side hereof. The Owner may for a period of one year commencing on April 13,
1998, assign this Option in whole or in part only to principals of Joseph
Charles & Associates. After April 13, 1999, the Owner may assign this Option
only upon approval by the Company. If the assignment is in whole, the Company
shall execute and deliver a new Option or Options of like tenor to this Option
to the appropriate assignee expressly evidencing the right to purchase the
aggregate number of Option Shares purchasable hereunder; and if the assignment
is in part, the Company shall execute and deliver to the appropriate assignee a
new Option or Options of like tenor expressly evidencing the right to purchase
the portion of the aggregate number of Option Shares as shall be contemplated by
any such assignment, and shall concurrently execute and deliver to the Owner a
new Option of like tenor evidencing the right to purchase the remaining portion
of Option Shares purchasable hereunder which has not been transferred to the
assignee. In the event this Option is exercised in part only, the Company shall
cause to be delivered to the Owner a new Option of like tenor evidencing the
right to the Owner to purchase the number of Option Shares purchasable hereunder
as to which this Option has not been exercised. No fractional shares will be
issued upon exercise of this Option.
<PAGE>
In no event shall this Option (or the Option Shares issuable upon full or
partial exercise hereof) be offered or sold except in conformity with all
applicable state and federal securities laws.
The Company may deem and treat the Owner hereof as the absolute owner of
this Certificate (notwithstanding any notation of ownership or other writing
hereon made by anyone) for all purposes and the Company shall be affected by any
notice to the contrary. The Owner of the Option, as such, shall not have any
rights of a shareholder of the Company, either at law or at equity, and the
rights of the Owner, as such, are limited to those rights expressly provided in
this Certificate.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by its
duly authorized officers.
DATED: ________________ NAVIDEC, Inc.
By: ____________________________
Ralph Armijo, President
[SEAL] By: ____________________________
Patrick Mawhinney, Treasurer
<PAGE>
NAVIDEC, INC.
ELECTION TO PURCHASE
The undersigned hereby elects irrevocably to exercise the within Option and
to purchase ________________ shares of Common Stock of NAVIDEC, Inc., and hereby
makes payment of $_______________ (at the rate of ($____________) per share) in
payment of the Exercise Price pursuant hereto. Please issue the shares as to
which this Option is exercised in accordance with the instructions given below.
Dated: ________________ Signature: ____________________________________
INSTRUCTIONS FOR REGISTRATION OF SHARES
Please insert Social Security or other identifying number of owner:_____________
Name ___________________________________________________________________________
(Print in Block Letters)
Address ________________________________________________________________________
ASSIGNMENT
FOR VALUE RECEIVED, _______________________________________ does hereby
sell, assign and transfer unto
_______________________________________________________________________________
Please insert Social Security or other identifying number of owner:
_______________________
- --------------------------------------------------------------------------------
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
the right to purchase _____________________ shares of Common Stock of NAVIDEC,
Inc., evidenced by the within Option, and does hereby irrevocably constitute and
appoint ___________________________________ Attorney to transfer such right on
the books of NAVIDEC, Inc., with full power of substitution in the premises.
Dated: ________________ Signature: _________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------
THE SIGNATURE(S) SHOULD 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-15.
EXHIBIT 5.1
OPINION OF COHEN BRAME & SMITH PROFESSIONAL CORPORATION
COHEN BRAME & SMITH
Professional Corporation
Attorneys at Law
One Norwest Center, Suite 1800
1700 Lincoln Street
Denver, CO 80203
July 10, 1998
NAVIDEC, Inc.
14 Inverness Drive, Suite F-116
Englewood, Colorado 80112
Re: Form SB-2 Registration Statement relating to shares of no par value
Common Stock and Warrants for Selling Security Holders
Ladies and Gentlemen:
We have acted as counsel for NAVIDEC, Inc. (the "Company") in connection
with the Form SB-2 Registration Statement to be filed by the Company with the
Securities and Exchange Commission relating to the shares of the Company's no
par value common stock (the "Common Stock") and the Company's warrants (the
"Warrants") being offered for sale by certain holders of the Company's
securities. As such counsel, we have examined and relied upon such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to form the basis for the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that the Warrants and
shares of Common Stock being offered, including those shares of Common Stock
underlying the Warrants and certain options, when sold in accordance with the
terms set forth in the Registration Statement will be validly issued and
outstanding, fully paid and nonassessable.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Registration Statement.
Very truly yours,
/s/ Roger V. Davidson
-----------------------------------
Roger V. Davidson
Cohen Brame & Smith,
Professional Corporation
Exhibit 10.24
AGREEMENT TO PROVIDE SERVICES
-----------------------------
THIS AGREEMENT TO PROVIDE SERVICES (the "Agreement") is entered into as of
April 1, 1997 between McKowen Enterprises, Inc., a Colorado corporation
("Consultant") and Navidec, Inc., a Colorado corporation ("Navidec").
Section 1. Engagement. Navidec hereby engages the Consultant as of the date
set forth in Section 3 and the Consultant accepts such engagement, all upon the
terms and conditions provided herein.
Section 2. Independent Contractor Status. It is understood and agreed
between the parties that Consultant is an independent contractor in the
performance of each and every part of this Agreement. Consultant is not, for the
purpose of this agreement, an employee or agent of Navidec and is not authorized
to enter into agreements on behalf of Navidec or to bind Navidec. Navidec is
interested only in the results obtained under this Agreement. No employment
benefits, including bonuses, worker compensation, health, life or disability
insurance, vacation pay or retirement benefits, shall be provided by Navidec to
Consultant. Consultant shall be solely responsible for the payment of any income
and self employment taxes which may be required to be paid. Consultant shall
additionally be solely liable for all labor and expenses in connection with the
performance of this Agreement, tools, equipment and supplies.
Section 3. Term. This Agreement shall commence on the date hereof (the
"Commencement Date") and shall continue for a period of six months from the
Commencement Date.
Section 4. Duties.
(a) The Consultant shall provide Navidec with services related to the
completion of the exercise of the warrants issued in Navidec's public offering.
Additional services in this area include advice to Navidec relative to possible
acquisitions of business(es) and financing in the form of either debt or equity
to enhance Navidec's prospects on a going forward basis.
(b) Consultant shall be available on an "as-needed" basis to conduct his
duties hereunder, and shall be available to travel as necessary to effectively
discharge such duties. Additionally, Consultant shall provide Navidec with
periodic reports, however not less frequently than monthly, advising Navidec of
its progress. Such reports shall include recommendations or other comments for
improving the flow of information.
<PAGE>
Section 5. Compensation.
(a) Consultant shall be paid a retainer of $20,000. Additionally,
Consultant shall receive fees at the rate of $5000 per month as compensation for
their duties hereunder. Navidec shall reimburse the Consultant for pre-approved
travel and other expenses incurred on behalf of Navidec in connection with its
duties hereunder.
(b) As further compensation for transactions introduced to Navidec by
Consultant or assigned in writing to Consultant by Navidec and closed on a
success basis, the Consultant shall receive fees equal to 2-1/2 percent of any
capital raised as a result of Consultant's efforts or 2-1/2 percent of the value
of any business, merger or acquisition transaction as determined based on the
net increase in tangible assets received by Navidec less all liabilities assumed
by Navidec. Additionally, for each such transaction that closes, the Consultant
shall receive the number of options equal to the fraction whereby the numerator
shall be the value of the 2-1/2 percent fee to be received and the denominator
shall be the closing sale price of Navidec's stock on the date of the closing of
any transaction. The options shall be exercisable at the closing sales price of
Navidec's stock on the date of the closing of the transaction being calculated.
Any options granted pursuant to this Agreement shall be exercisable commencing
six months after each grant and terminating five years from the date of each
grant. The Consultant fees are represented to be within all SEC and NASD
regulatory guidelines and if required by any regulatory body, Consultant agrees
to adjust its fees down as necessary. Additionally, if Navidec is required to
pay fees or commissions to any other parties as a result of any transaction for
which a fee is due the Consultant hereby, the Consultant agrees that to the
extent the total fees and commissions payable as a result of any transaction
exceed a fair and reasonable standard, its fees and/or those of others will be
adjusted down to fall within such a standard.
Section 6. Indemnification. Consultant agrees to defend, indemnify and hold
harmless Navidec from any and all costs and damages, including reasonable
attorneys fees, incurred by Navidec as a result of the breach by Consultant of
any provision of this Agreement. Navidec agrees to defend, indemnify and hold
harmless Consultant from any and all costs and damages, including reasonable
attorneys fees, incurred by Consultant as a result of the breach by Navidec of
any provision of this Agreement.
Section 7. Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Any
arbitration shall be determined by a board of three arbitrators which shall take
place in Denver, Colorado.
2
<PAGE>
Section 8. Miscellaneous.
(a) Waiver and Amendment. Any term hereof may be amended, and the
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the parties hereto.
(b) Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid, but if any provision
of this Agreement shall be held to be prohibited or invalid, such provision
shall be ineffective only to the extent or such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
(c) Colorado Law Applicable. This Agreement shall be governed by and
construed under the laws of the State of Colorado without regard to its
conflicts of law rules.
(d) Counterparts. This Agreement may be executed by facsimile 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.
(e) Notices. Any notice required under this Agreement shall be given in
writing and shall be deemed effectively given upon personal delivery or
facsimile transmission to the number set forth below to the party to be notified
or upon deposit with the United States Post Office by registered or certified
mail, postage prepaid (or with an equivalent independent postal service) and
addressed to the party at the address set forth below or at such other facsimile
number or address as may be designated by a party by written notice to the other
party:
To the Consultant:
2511 Mount Royal Drive
Castle Rock, CO 80104
Attention: John R. McKowen
Telecopier: (303) 688-9077
To Navidec:
14 Inverness Drive East
Suite F-116
Englewood, CO 80112
Telecopier: (303) 790-8845
(f) No Implied Waiver. Failure to insist upon strict compliance with any
provision hereof shall not be a waiver of such provision or any other provision
hereof. Further, the waiver by either party hereto of a breach of any provision
hereof by the other party shall not be construed to waive any subsequent breach
by such party.
3
<PAGE>
(g) Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties and supersedes all prior understandings, agreements
or representations by or between the parties, whether oral or written.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.
McKOWEN ENTERPRISES, INC.
By: /s/ John R. McKowen
------------------------------------------
John R. McKowen
Its: President
NAVIDEC, INC.
By: /s/ Ralph Armijo
------------------------------------------
Ralph Armijo
Its: President
4
Exhibit 10.25
October 30, 1997
ENGAGEMENT LETTER
Mr. Ralph Armijo
Chief Executive Officer
Navidec, Inc.
14 Inverness Drive, Building F, Suite 116
Denver, Colorado 80112
Dear Mr. Armijo:
This engagement letter shall serve, to set forth the terms upon which
Joseph Charles and Associates, Inc. ("JCA") will render Navidec, Inc. (the
"Company") certain investment banking services. On the basis of several
discussions held between JCA and the Company's respective representatives
subject to the terms and conditions of paragraph 10 hereafter, JCA agrees to act
as the Company's Placement Agent to assist the Company in a Private Placement
Offering on a "best efforts" basis, pursuant to the following terms and
conditions.
1. Investment Banking Services. JCA shall act as the Company's investment
banker and Placement Agent respecting matters relating to the
financing of the Company's businesses, recapitalizations, mergers and
acquisitions.
a) The Company proposes to issue a Private Placement Memorandum
("PPM") for up to $2,500,000 of a proposed issue of securities to
be determined at a later date by the Company and Joseph Charles &
Associates, Inc. (the "Securities"). JCA, as the Company's
investment banker, will market the Securities on a best efforts
basis.
b) The price per Unit shall be $4.50. Each Unit will consist of one
share of common stock and one warrant to purchase a share of
common stock.
c) The warrants will carry identical terms to the publicly trading
warrants.
2. Terms. Our relationship shall commence upon the execution of this
engagement letter.
3. Termination.
(a) This management letter may be terminated by the Company for just
cause upon 30 days written notice to JCA. In the event of
termination, JCA will be entitled to all items of compensation
(including any amounts deferred) payable to JCA pursuant hereto
as of the date of termination.
1
<PAGE>
Navidec, Inc.
October 30, 1997
Page 2
(b) JCA may terminate this agreement at any time, without notice, for
cause. For purposes of this letter agreement, "cause" shall mean
any breach of this engagement letter by the Company which is not
cured within 30 days after written notice of such breach is given
to the Company by JCA.
4. Compensation to JCA. JCA shall receive the following items of
compensation for the services rendered hereunder.
(a) JCA will be entitled to a sales commission of ten percent (10 %)
of the funds raised in the Private Placement.
(b) In return for undertaking the Private Placement the Company
agrees that at the closing of the Private Placement, JCA will
receive five (5) year warrants to purchase an amount of units
equal to ten percent (10%) of the units sold in this Private
Placement. The shares underlying the warrants will have standard
registration and piggyback rights and will be exercisable at the
discretion of both parties.
(c) In addition, if prior to consummation of the Private Placement,
the Company merges or sells, all or substantially all of its
assets, or sells a controlling block of stock and the offering
contemplated hereby is abandoned by the Company, the undersigned
shall be entitled to receive from the Company a cash fee of
$80,000 or five percent (5 %) of the outstanding value (not to
exceed $300,000) of the Company whichever is greater which the
Company and JCA mutually agree is a fair measure of compensation
to the JCA for the contemplated offering. Such cash fee shall be
in addition to payment for expenses and fees discussed.
(d) Pending completion of the Private Placement, the Company shall
refrain from negotiation with any other underwriter or investment
banker or other person regarding a possible private or public
offering of the Company's securities.
(e) In addition, brokers who place $100,000 or more in the securities
shall receive five percent (5%) warrant participation.
5. Expenses. The Company is responsible for the preparation of the PPM,
legal, printing, and accounting expenses, as well as Blue Sky filing
and registration fees.
2
<PAGE>
Navidec, Inc.
October 30, 1997
Page 3
(a) JCA will incur expenses in connection with this offering
including due diligence expenses, counsel, and other
expenditures. In consideration of the undertaking by JCA to use
its best efforts herein, the Company agrees to reimburse JCA for
its expenses in an amount equal to three percent (3%) of the
funds raised in the Private Placement for which JCA will not be
required to account, of which $10,000 will be prepaid in the form
of a deposit upon signing this engagement letter. The remaining
amount is to be paid upon closing of the offering.
(b) The Company will pay the expenses of a background search of the
primary management members where necessary.
6. Exclusive Agency. Unless waived, in writing, by JCA, JCA shall be the
Company's exclusive agent respecting investment banking services
required by the Company in the nature of those described herein.
JCA shall have the right of first refusal on future private placement
offerings for the Company, and the right of future negotiation on
secondary public offerings. JCA will not be paid any fees or
consideration for monies raised in any offering in which it chooses
non-participation.
7. Board Seat. JCA will be able to designate a mutually agreeable member
to the board of directors for a period of five years.
8. Representations & Indemnification. The Company represents and warrants
to JCA that: the Company will not cause or knowingly permit any action
to be taken in connection with the Private Placement which violates
the Securities Act of 1933 or any state securities laws; the Company
will cooperate with JCA so as to permit the Private Placement to be
conducted in a manner consistent with the applicable state and federal
securities laws; that all information and statements provided by the
Company in the Private Placement Memorandum will be true and correct;
that the Private Placement Memorandum will not be misleading or
violative of the anti-fraud provisions of the Securities and Exchange
Act of 1934; current Company management, as disclosed to JCA, will
continue in place after the Private Offering for a reasonable period
of time; there will be included in the Private Placement Memorandum
financial statements of the Company for the last three fiscal years or
for such shorter period as the Company was in existence and the latest
unaudited comparative quarterly or other interim financial statements;
the financial statements will fairly reflect the financial condition
of the Company and the results of its operations at a time and for the
periods covered by such financial statements, and such statements will
be substantially as heretofore represented to the undersigned; the
3
<PAGE>
Navidec, Inc.
October 30, 1997
Page 4
Company does not know of any facts adversely affecting in the Private
Placement Memorandum; the Company has prepared and delivered to the
undersigned its most recent estimate of sales, earnings, and cash flow
and agrees to update those estimates on a monthly basis during the
pendency of the Private Offering. The Company agrees to indemnify and
hold JCA and its attorneys, accountants, agents and employees,
officers and directors, free and harmless from any liability, cost and
expense, including attorneys' fees in the event of a breach of this
representation and warranty.
9. Choice of Laws and Arbitration. This engagement letter shall be
construed pursuant to the laws of the State of Florida. Any
controversy arising hereunder shall be resolved by arbitration
pursuant to the rule of the American Arbitration Association.
10. Conditions of Performance by JCA. Notwithstanding anything on the
contrary hereinabove set forth the performance of the obligations of
JCA as provided in this Engagement Letter is specifically subject to
and conditioned upon the following:
a) successful completion of in depth investigative procedures to be
conducted by JCA in respect to the Company, its operations and
general performance, as well as its officers and directors
(commonly referred to as "due diligence" procedures); and
b) results of the due diligence procedures employed by JCA
satisfactory to JCA in its sole determination.
If this engagement letter correctly sets forth our agreement, please so
indicate by signing and returning the enclosed copy of this letter.
Very truly yours, JOSEPH
CHARLES & ASSOCIATES, INC.
By: /s/ Richard A. Rappaport
---------------------------------------
Richard A. Rappaport
Managing Director
4
<PAGE>
Navidec, Inc.
October 30, 1997
Page 5
Accepted and Agreed
this _____ day of ________________, 1997.
Navidec, Inc.
By: /s/ Ralph Armijo
------------------------------------
Ralph Armijo
Chief Executive Officer
5
Exhibit 10.26
February 16, 1998
Mr. Ralph Armijo
President and CEO
Navidec, Inc.
14 Inverness Drive, Building F, Suite 116 Denver, CO 80112
Re: Engagement Agreement
Dear Mr. Armijo,
This letter (the "Engagement Letter" or "Agreement") will confirm the engagement
of Joseph Charles & Associates, Inc. ("JCA") by Navidec, Inc. ("the Company") to
render financial and investment banking services on an exclusive basis as
described below.
In connection with this engagement, the Company will furnish to JCA such
information and data (the "Information") relating to the Company as JCA
reasonably requests and will provide JCA with reasonable access to the Company's
officers, directors, employees, counsel and independent accountants. JCA may
rely upon the Information without independently verifying it and does not assume
responsibility for its accuracy or completeness. JCA will not make an
independent appraisal of the assets of the Company but will familiarize itself
with the business operations, financial condition and prospects of the Company,
and will review such corporate documents involving the Company as JCA in its
sole discretion deems necessary.
JCA will provide the following services under this investment banking agreement:
JCA will work with Navidec, Inc,, in developing a long term financial strategy
which will include private placements, future public offerings and/or strategic
partnerships. In particular, JCA will act as the Company's Placement Agent for a
$ 1,500,000 private placement financing during the term of this Agreement; the
terms of such financing shall be mutually agreeable to both parties. JCA shall
also have a first right of refusal to represent the Company in any public
offerings, private placements, or strategic partnerships for the duration of
this engagement and 12 months after it is terminated; any such transactions will
be governed by a separate engagement or letter of intent.
In consideration of JCA's services, the Company agrees to pay JCA a consulting
fee of 250,000 warrants exercisable at $3.50. The Company also agrees to
reimburse JCA for any reasonable out of pocket expenses incurred by JCA in
connection with services under this engagement; provided all such expenses are
approved in advance by the Company. JCA shall also be paid a Lehman formula fee
in the event the Company is acquired, merged or sells substantially all of its
assets or a controlling block of stock.
1
<PAGE>
1. Liability of JCA. In furnishing the company with advice and other
services as herein provided, neither JCA nor any officer, director or agent
thereof shall be liable to the company or its creditors for errors of judgment
or anything except willful malfeasance, bad faith or gross negligence in the
performance of its duties or the reckless disregard of its obligations and
duties under the terms of this agreement.
It is further understood and agreed that JCA may rely upon information furnished
to it reasonably deemed to be accurate and reliable and that, except as herein
provided, JCA shall not be accountable for any loss suffered by the company by
reason of the company's non action on the basis of any advice, recommendation or
approval of JCA, its partners, employees or agents.
2. Representations & Indemnification. The Company represents and warrants
to JCA that: the Company will not cause or knowingly permit any action to be
taken in connection with transactions which violates the Securities Act of 1933
or any state securities laws; the Company will cooperate with JCA so as to
permit the transactions to be conducted in a manner consistent with the
applicable state and federal securities laws; that all information and
statements provided by the Company in the transactions will be true and correct;
that the transactions will not be misleading or violative of the anti-fraud
provisions of the Securities and Exchange Act of 1934; current Company
management, as disclosed to JCA, will continue in place after the transactions
for a reasonable period of time; there will be included in the transactions
financial statements of the Company for the last three fiscal years or for such
shorter period as the Company was in existence and the latest unaudited
comparative quarterly or other interim financial statements; the financial
statements will fairly reflect the financial condition of the Company and the
results of its operations at a time and for the periods covered by such
financial statements, and such statements will be substantially as heretofore
represented to the undersigned, the Company does not know of any facts adversely
affecting the transactions; the Company has prepared and delivered to the
undersigned its most recent estimate of sales, earnings, and cash flow and
agrees to update those estimates on a monthly basis during the pendency of this
engagement and any transactions. The Company agrees to indemnify and hold JCA
and its attorneys, accountants, agents and employees, officers and directors,
free and harmless from any liability, cost and expense, including attorneys'
fees in the event of a breach of this representation and warranty. The Company
shall also assume responsibility for the indemnitees' defense in any such
matters except where a conflict exists such that they are required to retain
separate counsel, in which event, the Companies shall pay the legal fees and
expenses, as and when incurred, of separate counsel retained by Indemnitees to
provide such defense.
3. Other Activities of JCA. The Company recognizes that JCA now renders and
may continue to render consulting, financial and other services to other
companies which may or may not have policies and conduct activities similar to
those of the company. JCA shall be free to render such advice and other services
and the Company hereby consents thereto. JCA shall not be required to devote its
full time and attention to the performance of its duties under this Agreement,
but shall devote only so much of its time and attention as it deems reasonable
or necessary for such purposes. JCA does not intend to be engaged by a direct
competitor of the Company without prior written approval.
2
<PAGE>
4. Control. Nothing contained herein shall be deemed to require the Company
to take any action contrary to its Certificate of Incorporation or By-Laws, or
any applicable statute or regulation, or to deprive its Board of Directors of
their responsibility for any control of the conduct or the affairs of the
Company.
5. Conditions of Performance by JCA. Notwithstanding anything on the
contrary hereinabove set forth, the performance of the obligations of JCA as
provided in this Engagement Letter is specifically subject to and conditioned
upon the following:
a) successful completion of in depth investigative procedures to be
conducted by JCA in respect to the Company, its operations and general
performance as well as its officers and directors (commonly referred to as "due
diligence" procedures);
b) results of the due diligence procedures employed by JCA
satisfactory to JCA in its sole determination; and
c) receipt by JCA of the compensation referred to hereinabove.
The term of this Agreement shall be one year with the date of your acceptance of
this Engagement Letter as evidenced below. JCA or the Company may cancel this
Agreement upon 30 days written notice. Notwithstanding anything to the contrary
in the prior sentence hereto, the Company will remain obligated to pay JCA
compensation as set forth above.
This Engagement Letter sets forth the entire understanding of the parties
relating to the subject matter hereof and supersedes and cancels any prior or
contemporaneous communications, understandings or agreements between the
parties. This Agreement cannot be modified or changed, nor can any of its
provisions be waived, except by written agreement signed by all parties hereto.
This Agreement shall be governed by and construed to be in accordance with the
laws of the State of Florida applicable to contracts made and to be performed
solely in such State by citizens thereof. The parties hereto shall deliver
notices to each other by personal delivery or by registered mail (return receipt
requested) at the addresses set forth herein.
All controversies or claims between the parties hereto or arising out of or
relating to the business combination contemplated by this Agreement, including
but not limited to the making or enforcement of documents relating thereto,
shall be resolved by arbitration in accordance with applicable rules of the
American Arbitration Association. Judgment on the arbitrators' award may be
entered in any court having jurisdiction. If any action or proceeding is brought
to enforce the terms of this Agreement, the prevailing party shall be entitled
to recover all of its reasonable attorney's fees and costs.
3
<PAGE>
If the terms and conditions of this Engagement Agreement confirm our agreement
and understanding, please execute the copy of this Engagement Agreement in the
space provided below and return it to us.
Very truly yours,
JOSEPH CHARLES & ASSOCIATES, INC.
By: /s/ Richard A. Rappaport
-------------------------
Richard A. Rappaport
Managing Director
Agreed to and accepted this 16 day of February, 1998.
-- --------
Navidec, Inc.
By: /s/ Ralph Armijo
----------------------
Ralph Armijo
President and CEO
4
Exhibit 10.27
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made and entered into this 1st day of May, 1998 by and
between Navidec, Inc., a Colorado corporation (the "Company"), and Ralph Armijo
(the "Executive").
RECITALS
A. The Company desires to continue the employment of Executive and
Executive desires to continue his employment with the Company, all upon and
subject to the terms and conditions set forth herein.
B. The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to ensure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below
in Section 1) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the Executive's continued employment
with the Company and the mutual agreements hereinafter set forth, the parties
agree as follows:
AGREEMENTS
Section 1. Certain Definitions.
--------------------
(a) A "Change of Control" shall mean for purposes of this Agreement:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d- 3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related trust)
<PAGE>
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (A), (B) and
(C) of subsection (a)(iii) of this Section 1 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the members of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (A) more than 60% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation, in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation or the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
2
<PAGE>
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (1) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership immediately prior to such sale or other disposition of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (2) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and any
Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (3)
at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
(b) The "Change of Control Period" shall mean for purposes of this
Agreement the period commencing on the date hereof and ending on the third
anniversary of such date; provided, however, that commencing on the date one
year after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), the Change of Control Period shall be automatically extended so
as to terminate three years from such Renewal Date, unless at least 60 days
prior to the Renewal Date the Company shall give notice to the Executive that
the Change of Control Period shall not be so extended.
(c) The "Effective Date" shall mean for purposes of this Agreement the
first date during the Change of Control Period (as defined in Section l(b)) on
which a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
Section 2. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
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Section 3. Terms of Employment.
--------------------
(1) Position and Duties.
--------------------
(1) During the Employment Period, (A) the Executive's position
(including status, offices, titles, and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at
any time during the 90-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at the location where
the Executive was employed immediately preceding the Effective Date or any
office which is the headquarters of the Company and is less than 35 miles
from such location.
(2) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full professional time and attention during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions or (C) manage personal investments, so long as
such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to
the Effective Date shall not hereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(2) Compensation.
-------------
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid
in equal installments on a monthly basis, at least equal to twelve times
the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the first year of this Agreement the Annual Base Salary shall be $150,000.
During the Employment Period, the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary generally
awarded in the ordinary course of business to other peer executives of the
Company and its affiliated companies. Any increase in Annual Base Salary
shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
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(2) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less than twelve full months
or with respect to which the Executive has been employed by the Company for
less than twelve full months) bonus paid or payable, including by reason of
any deferral, to the Executive by the Company and its affiliated companies
in respect of the three fiscal years immediately preceding the fiscal year
in which the Effective Date occurs (the "Recent Average Bonus"). Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(3) Special Bonus. In addition to Annual Base Salary and Annual Bonus
payable as hereinabove provided, if the Executive remains employed with the
Company and its affiliated companies through the first anniversary of the
Effective Date, the Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services during the
crucial one-year transition period following the Change of Control in cash
equal to the sum of (A) the Executive's Annual Base Salary and (B) the
greater of (1) the Annual Bonus paid or payable, including by reason of any
deferral, to the Executive (and annualized for any fiscal year consisting
of less than twelve full months or for which the Executive has been
employed for less than twelve full months) for the most recently completed
fiscal year during the Employment Period, if any, and (2) the Recent
Average Bonus (such greater amount shall be hereinafter referred to as the
"Highest Annual Bonus"). The Special Bonus shall be paid no later than 30
days following the first anniversary of the Effective Date.
(4) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent,
if any, that such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 90-day period
immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(5) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
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dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs) to the
extent applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(6) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable employment
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(7) Fringe Benefits. During the Employment Period, the Executive shall
be entitled to fringe benefits in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date, or if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(8) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at
any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other per executives of the Company and its
affiliated companies.
(9) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
Section 4. Termination of Employment.
--------------------------
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that a Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set forth
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below), it may give to the Executive written notice in accordance with Section
10(b) of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean
(i) a material breach by the Executive of the Executive's obligations under
Section 3(a) (other than as a result of incapacity due to physical or mental
illness) which is demonstrably willful and deliberate on the Executive's part,
which is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach or (ii) the conviction of the Executive of a felony involving moral
turpitude.
(c) Good Reason; Window Period. The Executive's employment may be
terminated (i) during the Employment Period by the Executive for Good Reason or
(ii) during the Window Period by the Executive without any reason. For purposes
of this Agreement, the "Window Period" shall mean the 30-day period immediately
following the first anniversary of the Effective Date. For purposes of this
Agreement, "Good Reason" shall mean
(1) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles
and reporting requirement), authority, duties or responsibilities as
contemplated by Section 3(a) or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, unsubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions of
Section 3(b), other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(i) the Company's requiring the Executive to be based at any office or
location other than that described in Section 3(a)(i)(B);
(ii) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
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(iii) any failure by the Company to comply with and satisfy Section
9(c), provided that such successor has received at least ten business days'
prior written notice from the Company or the Executive of the requirements
of Section 9(c).
For purposes of this Section 4(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(4) Notice of Termination. Any termination by the Company for Cause, or by
the Executive without any reason during the Window Period or for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b). For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date under such
notice. The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(5) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive without
any reason during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
Section 5. Obligations of the Company Upon Termination.
--------------------------------------------
(a) Good Reason or during the Window Period; Other than for Cause, Death or
Disability. If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment either for Good Reason or without any reason during the
Window Period:
(i) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. The sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Highest Annual Bonus and (y) a
fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) the Special Bonus,
if due to the Executive pursuant to Section 3(b)(iii), to
the extent not theretofore paid and (4) any compensation
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previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2),
(3) and (4) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. The amount (such amount shall be hereinafter referred to as
the "Severance Amount") equal to the product of (1) two and
(2) the sum of (x) the Executive's Annual Base Salary and
(y) the Highest Annual Bonus; provided, however, that if the
Special Bonus has not been paid to the Executive, such
amount shall be increased by the amount of the Special
Bonus; and, provided further, that such amount shall be
reduced by the present value (determined as provided in
Section 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code")) of any other amount of severance
relating to salary or bonus continuation to be received by
the Executive upon termination of employment of the
Executive under any severance plan, policy or arrangement of
the Company; and
(ii) for the remainder of the Employment Period, or such longer period
as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and
policies described in Section 3(b)(v) if the Executive's
employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company
and its affiliated companies as in effect and applicable
generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such
benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until the end of the Employment Period and to have
retired on the last day of such period; and
(iii)to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be
paid or provided or which the Executive and/or the Executive's
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family is eligible to receive pursuant to this Agreement and
under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in
effect and applicable generally to other peer executives of the
Company and its affiliated companies and their families (such
other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination of an amount equal to the greater of (A) the
Severance Amount or (B) the present value (determined as provided in Section
280G(d)(4) of the Code) of any cash amount to be received by the Executive or
the Executive's family as a death benefit pursuant to the terms of any plan,
policy or arrangement of the Company and its affiliated companies, but not
including any proceeds of life insurance covering the Executive to the extent
paid for directly or on a contributory basis by the Executive (which shall be
paid in any event as an Other Benefit) (the benefits included in this clause (B)
shall be hereinafter referred to as the "Death Benefits").
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of Accrued Obligations (which shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the greater of (A) the Severance Amount or (b) the present value
(determined as provided in Section 280G(d)(4) of the Code) of any cash amount to
be received by the Executive as a disability benefit pursuant to the terms of
any plan, policy or arrangement of the Company and its affiliated companies, but
not including any proceeds of disability insurance covering the Executive to the
extent paid for directly or on a contributory basis by the Executive (which
shall be paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Disability Benefits").
(d) Cause; Other Than for Good Reason. If the Executive's employment shall
be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive Annual Base Salary through the Date of Termination plus
the amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. If the Executive terminates employment
during the Employment Period, excluding a termination either for Good Reason or
without any reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
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and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
Section 6. Non-exclusivity of Rights. Except as provided in Sections 5(a)(ii),
5(b) and 5(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
Section 7. Full Settlement, Resolution of Disputes.
----------------------------------------
(a) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
5(a)(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the Executive (i)
in the event of any termination of the Executive's employment by the Company,
whether such termination was for Cause, or (ii) in the event of any termination
of employment by the Executive, whether Good Reason existed, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
5(a) as though such termination were by the Company without Cause, or by the
Executive with Good Reason; provided, however, that the Company shall not be
required to pay any disputed amount pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.
Section 8. Certain Additional Payments by the Company.
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(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), an
additional payment (a "Gross-Up Payment") shall be made by the Company to the
Executive in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross- Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Hein + Associates
LLP (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written opinion
that failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 8(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and the Executive shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
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period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii)cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate Courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(4) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
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amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
Section 9. Successors.
-----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
Section 10. Miscellaneous.
--------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Ralph Armijo
14 Inverness Drive East, Suite F-116
Englewood, CO 80112
If to the Company: Navidec, Inc.
14 Inverness Drive East
Suite F-116
Englewood, CO 80112
Attn: Mr. Ralph Armijo, President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
14
<PAGE>
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant Section 4(c)(i)-(v), shall not be deemed to
be a waiver of such provision or right or any other provision or right of this
Agreement.
(6) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement or agreements between the
Executive and the Company concerning the Executive's employment with the
Company, the provisions of such other agreement or agreements not inconsistent
herewith which shall remain in full force and effect, the employment of the
Executive by the Company is "at will" and, prior to the Effective Date, may be
terminated by either the Executive or the Company at any time. Moreover, if
prior to the Effective Date, the Executive's employment with the Company
terminates, then the Executive shall have no further rights under this
Agreement.
(7) This Agreement may be executed in counterparts and signature pages
may be delivered by facsimile transmission.
IN WITNESS WHEREOF, this Executive Employment Agreement is hereby duly
executed by each party hereto, all as of the day and year first above written.
COMPANY:
NAVIDEC, INC.,
a Colorado corporation
/s/ Patrick R. Mawhinney
------------------------------------------
By: Patrick R. Mawhinney, Chief Financial
Officer
EXECUTIVE:
/s/ Ralph Armijo
-------------------------------------------
Ralph Armijo
15
Exhibit 10.28
EMPLOYMENT AGREEMENT
This Agreement is made and entered into this 1st day of May, 1998 (the
"Effective Date") by and between NAVIDEC, Inc., a Colorado corporation
("Employer"), and Harold Anderson II ("Employee").
1. Employment. Employer hereby employs Employee and Employee hereby accepts
such employment, subject to the terms and conditions of this Agreement. Employee
shall serve in the capacity of Vice President of Automotive and shall perform
such functions as the Board of Directors of Employer shall determine from time
to time; provided, however, that Employee's duties shall always be professional
in nature and shall utilize and be consistent with the training, talent and
ability of Employee.
2. Full-Time Best Efforts. Employee shall devote his full professional time
and attention to the performance of his obligations under this Agreement, and
shall at all times perform all of his obligations hereunder to the best of his
ability, experience and talent.
3. Term and Termination. The term of this Agreement shall commence on the
Effective Date and shall continue uninterrupted for an initial term of one year,
unless sooner terminated by mutual agreement or as provided below in this
Section 3. This Agreement may be otherwise terminated as follows:
(a) Employer may terminate the employment of Employee hereunder:
(i) upon the death of Employee;
(ii) upon Employee's inability, by reason of sickness or other
disability, to perform his obligations hereunder for more
than ninety consecutive days;
(iii) for any reason upon thirty days' prior written notice; or
(iv) upon thirty days written notice to Employee should any of
the following occur:
a. The sale of substantially all of Employer's assets to a
single purchaser or group of associated purchasers; or,
b. The sale, exchange, or other disposition, in one
transaction of the majority of Employer's outstanding
corporate shares; or
c. Employer's decision to terminate its business and
liquidate its assets;
<PAGE>
d. The merger or consolidation of Employer with another
Company; and
e. Bankruptcy or Chapter 11 reorganization of Employer.
(b) Employee may terminate his employment hereunder for any reason
upon at least ten days' prior written notice to Employer.
4. Salary. In consideration for his services, Employer shall pay Employee a
salary at the rate of $87,500 per annum. Employee's salary hereunder shall be
payable in bi-monthly installments, or on such other payment schedule as is used
to pay senior executives of Employer. Employee shall be eligible for a salary
review to occur for annual increases in salary determined by the Board of
Directors of Employer in its sole discretion based upon Employee's performance
and the financial performance of Employer.
5. Additionally, Employer shall reimburse Employee for all business
expenses after the Employee presents an itemized account of expenditures,
pursuant to Employer's policy.
6. Employee Benefits. Employee shall be entitled to such employee
benefits as are from time to time made available generally by Employer to its
senior executives, including, without limitation, paid vacation and sick leave,
health insurance, life insurance, disability insurance and office amenities.
7. Confidentiality.
(a) Definitions.
(i) As used herein, "Employer Materials" shall mean all
equipment, documents or other media or tangible items that contain or embody
Proprietary Information or any other information concerning the business,
products, procedures, operations or plans of Employer, whether such items have
been prepared by him or by others. "Employer Materials" include, but are not
limited to, drawings, charts, graphs, notebooks, customer lists, computer disks,
tapes or printouts, sound recordings and other printed, typewritten or
handwritten documents, as well as samples, prototypes, models, products and the
like.
(ii) As used herein, the term "Proprietary Information" shall
mean the business concepts, inventions, ideas, processes, procedures,
techniques, designs and methods for diagnosis and resolution by Employer of
customer problems with technology products such as computer hardware and
software through a call center for a customer support help desk, and Employer's
related technical training center, and similar technical information, including
without limitation, information about computer programs, whether or not
patentable, utilized or capable of being utilized by Employer in the course of
its business as now or hereafter conducted, as well as marketing methods,
financial information, demographic and trade area information, market
penetration techniques, plans, or schedules, customer profiles, preferences, or
statistics, itemized costs and development plans, and all other matters and
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<PAGE>
information developed by Employer or any of its employees, such as internal
business procedures, customer lists, supply information, price lists, market
studies and other information constituting or contributing to the operating
capability of Employer and its customers; provided, however, that such
confidential matter is limited to such matters as Employer does not make
available to the public without restriction or consideration. All of such
Proprietary Information has substantial value to Employer and shall be deemed
trade secrets under the Uniform Trade Secrets Act, and applicable Colorado law.
(iii) As used herein, "Inventions" shall mean all improvements,
inventions, works of authorship, trade secrets, technology, layouts, algorithms,
computer programs, formulas, compositions, ideas, designs, processes,
techniques, know-how and data.
(iv) As used herein, "Rights" shall mean all patent rights,
copyrights, trade secret rights and other intellectual property rights utilized
or capable of being utilized by Employer in the course of its business as now or
hereafter conducted.
(b) Rights of Third Parties.
(i) Employee represents and warrants that Employee's performance
of all the terms of this Confidentiality Provision ("Provision") will not breach
any agreement to keep in confidence proprietary information acquired by him in
confidence or in trust prior to Employee's employment by Employer. Employee has
not entered into, and Employee agrees not to enter into, any agreement either
written or oral in conflict herewith or in conflict with Employee's employment
with Employer.
(ii) Employee represents and warrants that Employee has not and
shall at no time in any manner disclose or otherwise make available to Employer
any invention, formula, secret, process, technique, technology or trade secrets
or other confidential matter which are the property of any other person, firm,
corporation or other organization. Employee shall promptly indemnify Employer
and hold it harmless against any actual or contingent liability, expense or cost
incurred by it as a result of the breach of the foregoing representations and
warranties.
(c) Confidentiality of Proprietary Information and Employer Materials.
Employee acknowledges that all Proprietary Information and Employer Materials,
as defined herein, including any confidential matter developed by the Employee
during any term of employment by Employer, is the sole and exclusive property of
Employer. Employee agrees that the Employee will not disclose such Proprietary
Information to any third party or use such Proprietary Information in any way to
compete with, or in any way adverse to, Employer, except with the prior written
consent of Employer. The obligations hereunder to maintain the confidentiality
of Proprietary Information shall not expire. Employee further agrees that
Employee will not remove any Employer Materials from the business premises of
Employer or deliver any Employer Materials to any person or entity outside
Employer, except with the prior written consent of Employer. Upon termination of
employment by Employer or upon Employer's request, Employee agrees promptly to
3
<PAGE>
return to Employer all tangible materials constituting or evidencing Proprietary
Information, including all copies, reproductions and extracts thereof, and other
property of Employer, including without limitation Employer Materials.
(d) Trade Secrets, Copyrightable Works and Inventions.
(i) Employee will disclose in writing to Employer immediately
upon conception thereof all Inventions, as defined herein, whether or not
copyrightable or patentable, made or conceived or reduced to practice or
developed by him, either alone or jointly with others, during the term of
Employee's employment by Employer. Employee will also disclose in writing to
Employer all things that would be Inventions if made during the term of
Employee's employment by Employer, conceived, reduced to practice, or developed
by him within six months after the termination of Employee's employment by
Employer.
(ii) Employee shall assign and turn over to Employer, its
successors, nominees and assigns, without any additional compensation
whatsoever, any and all Inventions which are made or conceived or reduced to
practice or developed by him, either alone or jointly with others, during the
term of Employee's employment by Employer, relating or in any way applicable to
any business or field of interest of Employer or arising out of any task
assigned to him by Employer and shall, at Employer's request and expense,
execute, acknowledge and deliver all applications for Copyright and Letters
Patent covering such Inventions, in this and all foreign countries, and all
assignments, contracts and other documents which may be necessary or requested
to vest fully and completely in Employer, its successors, nominees and assigns,
the sole ownership of such Inventions and of all copyrights and patents covering
the same. Employee shall further cooperate fully with Employer, its successors,
nominees and assigns in obtaining, maintaining and defending all such copyrights
and patents.
(iii) Employee agrees that all works of authorship and other
copyrightable works created by him, either alone or jointly with others, during
the term of Employee's employment by Employer, relating or in any way applicable
to any business or field of interest of Employer or arising out of any task
assigned to him by Employer, are works made for hire.
(iv) Employee has attached hereto a complete list of all existing
Inventions or improvements to which Employee claims ownership as of the date of
this Provision and that Employee desires to specifically clarify are not subject
to this Provision, and Employee acknowledges and agrees that such list is
complete. If no such list is attached to this Provision, Employee represents
that Employee has no such Inventions or improvements at the time of signing this
Provision.
(v) If any Inventions or Rights, as defined herein, assigned
hereunder are based on, incorporate or cannot be made and used without violating
any Inventions or Rights owned or licensed by him and not assigned hereunder,
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<PAGE>
Employee hereby grants Employer a perpetual, world wide, royalty-free,
non-exclusive sublicensable right and license to exploit and exercise all such
Inventions and Rights in support of Employer's exercise or exploitation of any
assigned Inventions or Rights (including any modifications, improvements and
derivatives thereof).
(e) Miscellaneous
(i) This Provision and all provisions hereof shall bind and inure
to the benefit of Employer, the Employee, and their respective heirs,
successors, personal representatives and assigns. The obligations under
paragraphs 1, 2 and 3 of this Provision shall continue in effect after
termination of the Employee's employment by Employer, regardless of the reason
or reasons for termination, and whether such termination is voluntary or
involuntary on the Employee's part, and Employer is entitled to communicate the
Employee's obligations under this Provision to any future employer or potential
employer of the Employee.
(ii) The Employee acknowledges that Employer will be irreparably
harmed by any breach hereof, that monetary damages would be inadequate and that
Employer shall have the right to have an injunction or other equitable remedies
imposed in relief of, or to prevent or restrain, such breach. The Employee
agrees that Employer shall also be entitled to any and all other relief
available under law or equity for such breach.
(iii) If any legal action arises under this Provision by reason
of any asserted breach of this Provision, the prevailing party shall be entitled
to recover all costs and expenses, including reasonable attorney fees incurred
in enforcing or attempting to enforce any of the terms, covenants, or
conditions, including costs incurred prior to commencement of legal action, and
all costs and expenses, including reasonable attorney fees, incurred in any
appeal from an action brought to enforce any of the terms, covenants, or
conditions.
8. Other.
(a) Entire Agreement. This Agreement contains the complete agreement
between the parties with respect to the subject matter hereof and supersedes any
prior agreements or understandings, written or oral. No waiver under this
Agreement shall be valid unless it is in writing and duly executed by the party
to be charged therewith. This Agreement may be amended at any time, provided
that such agreement is in writing and is signed by each of the parties hereto.
(b) Severability. If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, such provision may be severed or enforced
to the extent possible, and such invalidity, illegality or unenforceability
shall not affect the remainder of this Agreement.
(c) Binding Effect. This Agreement may not be assigned by Employee.
Subject to that limitation, this Agreement shall be binding upon and shall inure
to the benefit of Employee, his heirs and personal representatives, and shall be
binding upon and shall inure to the benefit of Employer, its successors and
assigns.
5
<PAGE>
(d) Governing Law. This Agreement and all questions arising hereunder
shall be governed by the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER: EMPLOYEE:
NAVIDEC, INC.
By: /s/ Ralph Armijo /s/ Harold Anderson II
----------------------------- --------------------------------------
Ralph Armijo, President Harold Anderson II, Vice President
of Automotive
6
Exhibit 10.29
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made and entered into this 1st day of May, 1998 by and
between Navidec, Inc., a Colorado corporation (the "Company"), and Patrick R.
Mawhinney (the "Executive").
RECITALS
A. The Company desires to continue the employment of Executive and
Executive desires to continue his employment with the Company, all upon and
subject to the terms and conditions set forth herein.
B. The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to ensure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below
in Section 1) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the Executive's continued employment
with the Company and the mutual agreements hereinafter set forth, the parties
agree as follows:
AGREEMENTS
Section 1. Certain Definitions.
--------------------
(a) A "Change of Control" shall mean for purposes of this Agreement:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d- 3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related trust)
<PAGE>
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (A), (B) and
(C) of subsection (a)(iii) of this Section 1 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the members of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (A) more than 60% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation, in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation or the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
2
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disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (1) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership immediately prior to such sale or other disposition of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (2) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and any
Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (3)
at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
(b) The "Change of Control Period" shall mean for purposes of this
Agreement the period commencing on the date hereof and ending on the third
anniversary of such date; provided, however, that commencing on the date one
year after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), the Change of Control Period shall be automatically extended so
as to terminate three years from such Renewal Date, unless at least 60 days
prior to the Renewal Date the Company shall give notice to the Executive that
the Change of Control Period shall not be so extended.
(c) The "Effective Date" shall mean for purposes of this Agreement the
first date during the Change of Control Period (as defined in Section l(b)) on
which a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
Section 2. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
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Section 3. Terms of Employment.
--------------------
(1) Position and Duties.
--------------------
(1) During the Employment Period, (A) the Executive's position
(including status, offices, titles, and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at
any time during the 90-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at the location where
the Executive was employed immediately preceding the Effective Date or any
office which is the headquarters of the Company and is less than 35 miles
from such location.
(2) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full professional time and attention during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions or (C) manage personal investments, so long as
such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to
the Effective Date shall not hereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(2) Compensation.
-------------
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid
in equal installments on a monthly basis, at least equal to twelve times
the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the first year of this Agreement the Annual Base Salary shall be $87,500.
During the Employment Period, the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary generally
awarded in the ordinary course of business to other peer executives of the
Company and its affiliated companies. Any increase in Annual Base Salary
shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
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<PAGE>
(2) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less than twelve full months
or with respect to which the Executive has been employed by the Company for
less than twelve full months) bonus paid or payable, including by reason of
any deferral, to the Executive by the Company and its affiliated companies
in respect of the three fiscal years immediately preceding the fiscal year
in which the Effective Date occurs (the "Recent Average Bonus"). Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(3) Special Bonus. In addition to Annual Base Salary and Annual Bonus
payable as hereinabove provided, if the Executive remains employed with the
Company and its affiliated companies through the first anniversary of the
Effective Date, the Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services during the
crucial one-year transition period following the Change of Control in cash
equal to the sum of (A) the Executive's Annual Base Salary and (B) the
greater of (1) the Annual Bonus paid or payable, including by reason of any
deferral, to the Executive (and annualized for any fiscal year consisting
of less than twelve full months or for which the Executive has been
employed for less than twelve full months) for the most recently completed
fiscal year during the Employment Period, if any, and (2) the Recent
Average Bonus (such greater amount shall be hereinafter referred to as the
"Highest Annual Bonus"). The Special Bonus shall be paid no later than 30
days following the first anniversary of the Effective Date.
(4) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent,
if any, that such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 90-day period
immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(5) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
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dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs) to the
extent applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(6) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable employment
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(7) Fringe Benefits. During the Employment Period, the Executive shall
be entitled to fringe benefits in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date, or if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(8) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at
any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other per executives of the Company and its
affiliated companies.
(9) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
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Section 4. Termination of Employment.
--------------------------
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that a Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set forth
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<PAGE>
below), it may give to the Executive written notice in accordance with Section
10(b) of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean
(i) a material breach by the Executive of the Executive's obligations under
Section 3(a) (other than as a result of incapacity due to physical or mental
illness) which is demonstrably willful and deliberate on the Executive's part,
which is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach or (ii) the conviction of the Executive of a felony involving moral
turpitude.
(c) Good Reason; Window Period. The Executive's employment may be
terminated (i) during the Employment Period by the Executive for Good Reason or
(ii) during the Window Period by the Executive without any reason. For purposes
of this Agreement, the "Window Period" shall mean the 30-day period immediately
following the first anniversary of the Effective Date. For purposes of this
Agreement, "Good Reason" shall mean
(1) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles
and reporting requirement), authority, duties or responsibilities as
contemplated by Section 3(a) or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, unsubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions of
Section 3(b), other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(i) the Company's requiring the Executive to be based at any office or
location other than that described in Section 3(a)(i)(B);
(ii) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
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<PAGE>
(iii) any failure by the Company to comply with and satisfy Section
9(c), provided that such successor has received at least ten business days'
prior written notice from the Company or the Executive of the requirements
of Section 9(c).
For purposes of this Section 4(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(4) Notice of Termination. Any termination by the Company for Cause, or by
the Executive without any reason during the Window Period or for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b). For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date under such
notice. The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(5) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive without
any reason during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
Section 5. Obligations of the Company Upon Termination.
--------------------------------------------
(a) Good Reason or during the Window Period; Other than for Cause, Death or
Disability. If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment either for Good Reason or without any reason during the
Window Period:
(i) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. The sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Highest Annual Bonus and (y) a
fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) the Special Bonus,
if due to the Executive pursuant to Section 3(b)(iii), to
the extent not theretofore paid and (4) any compensation
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previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2),
(3) and (4) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. The amount (such amount shall be hereinafter referred to as
the "Severance Amount") equal to the product of (1) two and
(2) the sum of (x) the Executive's Annual Base Salary and
(y) the Highest Annual Bonus; provided, however, that if the
Special Bonus has not been paid to the Executive, such
amount shall be increased by the amount of the Special
Bonus; and, provided further, that such amount shall be
reduced by the present value (determined as provided in
Section 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code")) of any other amount of severance
relating to salary or bonus continuation to be received by
the Executive upon termination of employment of the
Executive under any severance plan, policy or arrangement of
the Company; and
(ii) for the remainder of the Employment Period, or such longer period
as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and
policies described in Section 3(b)(v) if the Executive's
employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company
and its affiliated companies as in effect and applicable
generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such
benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until the end of the Employment Period and to have
retired on the last day of such period; and
(iii)to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be
paid or provided or which the Executive and/or the Executive's
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family is eligible to receive pursuant to this Agreement and
under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in
effect and applicable generally to other peer executives of the
Company and its affiliated companies and their families (such
other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination of an amount equal to the greater of (A) the
Severance Amount or (B) the present value (determined as provided in Section
280G(d)(4) of the Code) of any cash amount to be received by the Executive or
the Executive's family as a death benefit pursuant to the terms of any plan,
policy or arrangement of the Company and its affiliated companies, but not
including any proceeds of life insurance covering the Executive to the extent
paid for directly or on a contributory basis by the Executive (which shall be
paid in any event as an Other Benefit) (the benefits included in this clause (B)
shall be hereinafter referred to as the "Death Benefits").
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of Accrued Obligations (which shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the greater of (A) the Severance Amount or (b) the present value
(determined as provided in Section 280G(d)(4) of the Code) of any cash amount to
be received by the Executive as a disability benefit pursuant to the terms of
any plan, policy or arrangement of the Company and its affiliated companies, but
not including any proceeds of disability insurance covering the Executive to the
extent paid for directly or on a contributory basis by the Executive (which
shall be paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Disability Benefits").
(d) Cause; Other Than for Good Reason. If the Executive's employment shall
be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive Annual Base Salary through the Date of Termination plus
the amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. If the Executive terminates employment
during the Employment Period, excluding a termination either for Good Reason or
without any reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
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and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
Section 6. Non-exclusivity of Rights. Except as provided in Sections 5(a)(ii),
5(b) and 5(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
Section 7. Full Settlement, Resolution of Disputes.
----------------------------------------
(a) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
5(a)(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the Executive (i)
in the event of any termination of the Executive's employment by the Company,
whether such termination was for Cause, or (ii) in the event of any termination
of employment by the Executive, whether Good Reason existed, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
5(a) as though such termination were by the Company without Cause, or by the
Executive with Good Reason; provided, however, that the Company shall not be
required to pay any disputed amount pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.
Section 8. Certain Additional Payments by the Company.
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(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), an
additional payment (a "Gross-Up Payment") shall be made by the Company to the
Executive in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross- Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Hein + Associates
LLP (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written opinion
that failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 8(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and the Executive shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
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period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii)cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate Courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(4) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
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amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
Section 9. Successors.
-----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
Section 10. Miscellaneous.
--------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Patrick R. Mawhinney
14 Inverness Drive East, Suite F-116
Englewood, CO 80112
If to the Company: Navidec, Inc.
14 Inverness Drive East
Suite F-116
Englewood, CO 80112
Attn: Mr. Ralph Armijo, President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
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(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant Section 4(c)(i)-(v), shall not be deemed to
be a waiver of such provision or right or any other provision or right of this
Agreement.
(6) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement or agreements between the
Executive and the Company concerning the Executive's employment with the
Company, the provisions of such other agreement or agreements not inconsistent
herewith which shall remain in full force and effect, the employment of the
Executive by the Company is "at will" and, prior to the Effective Date, may be
terminated by either the Executive or the Company at any time. Moreover, if
prior to the Effective Date, the Executive's employment with the Company
terminates, then the Executive shall have no further rights under this
Agreement.
(7) This Agreement may be executed in counterparts and signature pages
may be delivered by facsimile transmission.
IN WITNESS WHEREOF, this Executive Employment Agreement is hereby duly
executed by each party hereto, all as of the day and year first above written.
COMPANY:
NAVIDEC, INC.,
a Colorado corporation
/s/ Ralph Armijo
------------------------------------------
By: Ralph Armijo, President
EXECUTIVE:
/s/ Patrick R. Mawhinney
------------------------------------------
Patrick R. Mawhinney
15
Exhibit 10.30
EMPLOYMENT AGREEMENT
This Agreement is made and entered into this 15th day of December, 1997
(the "Effective Date") by and between NAVIDEC, Inc., a Colorado corporation
("Employer"), and Kenneth P. Bero ("Employee").
1. Employment. Employer hereby employs Employee and Employee hereby accepts
such employment, subject to the terms and conditions of this Agreement. Employee
shall serve in the capacity of Vice President of Sales and shall perform such
functions as the Board of Directors of Employer shall determine from time to
time; provided, however, that Employee's duties shall always be professional in
nature and shall utilize and be consistent with the training, talent and ability
of Employee.
2. Full-Time Best Efforts. Employee shall devote his full professional time
and attention to the performance of his obligations under this Agreement, and
shall at all times perform all of his obligations hereunder to the best of his
ability, experience and talent.
3. Term and Termination. The term of this Agreement shall commence on the
Effective Date and shall continue uninterrupted for an initial term of one year,
unless sooner terminated by mutual agreement or as provided below in this
Section 3. This Agreement may be otherwise terminated as follows:
(a) Employer may terminate the employment of Employee hereunder:
(i) upon the death of Employee;
(ii) upon Employee's inability, by reason of sickness or other
disability, to perform his obligations hereunder for more
than ninety consecutive days;
(iii) for any reason upon thirty days' prior written notice; or
(iv) upon thirty days written notice to Employee should any of
the following occur:
a. The sale of substantially all of Employer's assets to a
single purchaser or group of associated purchasers; or,
b. The sale, exchange, or other disposition, in one
transaction of the majority of Employer's outstanding
corporate shares; or
c. Employer's decision to terminate its business and
liquidate its assets;
<PAGE>
d. The merger or consolidation of Employer with another
Company; and
e. Bankruptcy or Chapter 11 reorganization of Employer.
(b) Employee may terminate his employment hereunder for any reason
upon at least ten days' prior written notice to Employer.
4. Salary. In consideration for his services, Employer shall pay Employee a
salary at the rate of $85,000 per annum. Employee's salary hereunder shall be
payable in bi-monthly installments, or on such other payment schedule as is used
to pay senior executives of Employer. Employee shall be eligible for a salary
review to occur for annual increases in salary determined by the Board of
Directors of Employer in its sole discretion based upon Employee's performance
and the financial performance of Employer.
5. Additionally, Employer shall reimburse Employee for all business
expenses after the Employee presents an itemized account of expenditures,
pursuant to Employer's policy.
6. Employee Benefits. Employee shall be entitled to such employee benefits
as are from time to time made available generally by Employer to its senior
executives, including, without limitation, paid vacation and sick leave, health
insurance, life insurance, disability insurance and office amenities.
7. Confidentiality.
(a) Definitions.
(i) As used herein, "Employer Materials" shall mean all
equipment, documents or other media or tangible items that contain or embody
Proprietary Information or any other information concerning the business,
products, procedures, operations or plans of Employer, whether such items have
been prepared by him or by others. "Employer Materials" include, but are not
limited to, drawings, charts, graphs, notebooks, customer lists, computer disks,
tapes or printouts, sound recordings and other printed, typewritten or
handwritten documents, as well as samples, prototypes, models, products and the
like.
(ii) As used herein, the term "Proprietary Information" shall
mean the business concepts, inventions, ideas, processes, procedures,
techniques, designs and methods for diagnosis and resolution by Employer of
customer problems with technology products such as computer hardware and
software through a call center for a customer support help desk, and Employer's
related technical training center, and similar technical information, including
without limitation, information about computer programs, whether or not
patentable, utilized or capable of being utilized by Employer in the course of
its business as now or hereafter conducted, as well as marketing methods,
financial information, demographic and trade area information, market
penetration techniques, plans, or schedules, customer profiles, preferences, or
statistics, itemized costs and development plans, and all other matters and
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information developed by Employer or any of its employees, such as internal
business procedures, customer lists, supply information, price lists, market
studies and other information constituting or contributing to the operating
capability of Employer and its customers; provided, however, that such
confidential matter is limited to such matters as Employer does not make
available to the public without restriction or consideration. All of such
Proprietary Information has substantial value to Employer and shall be deemed
trade secrets under the Uniform Trade Secrets Act, and applicable Colorado law.
(iii) As used herein, "Inventions" shall mean all improvements,
inventions, works of authorship, trade secrets, technology, layouts, algorithms,
computer programs, formulas, compositions, ideas, designs, processes,
techniques, know-how and data.
(iv) As used herein, "Rights" shall mean all patent rights,
copyrights, trade secret rights and other intellectual property rights utilized
or capable of being utilized by Employer in the course of its business as now or
hereafter conducted.
(b) Rights of Third Parties.
(i) Employee represents and warrants that Employee's performance
of all the terms of this Confidentiality Provision ("Provision") will not breach
any agreement to keep in confidence proprietary information acquired by him in
confidence or in trust prior to Employee's employment by Employer. Employee has
not entered into, and Employee agrees not to enter into, any agreement either
written or oral in conflict herewith or in conflict with Employee's employment
with Employer.
(ii) Employee represents and warrants that Employee has not and
shall at no time in any manner disclose or otherwise make available to Employer
any invention, formula, secret, process, technique, technology or trade secrets
or other confidential matter which are the property of any other person, firm,
corporation or other organization. Employee shall promptly indemnify Employer
and hold it harmless against any actual or contingent liability, expense or cost
incurred by it as a result of the breach of the foregoing representations and
warranties.
(c) Confidentiality of Proprietary Information and Employer Materials.
Employee acknowledges that all Proprietary Information and Employer Materials,
as defined herein, including any confidential matter developed by the Employee
during any term of employment by Employer, is the sole and exclusive property of
Employer. Employee agrees that the Employee will not disclose such Proprietary
Information to any third party or use such Proprietary Information in any way to
compete with, or in any way adverse to, Employer, except with the prior written
consent of Employer. The obligations hereunder to maintain the confidentiality
of Proprietary Information shall not expire. Employee further agrees that
Employee will not remove any Employer Materials from the business premises of
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Employer or deliver any Employer Materials to any person or entity outside
Employer, except with the prior written consent of Employer. Upon termination of
employment by Employer or upon Employer's request, Employee agrees promptly to
return to Employer all tangible materials constituting or evidencing Proprietary
Information, including all copies, reproductions and extracts thereof, and other
property of Employer, including without limitation Employer Materials.
(d) Trade Secrets, Copyrightable Works and Inventions.
(i) Employee will disclose in writing to Employer immediately
upon conception thereof all Inventions, as defined herein, whether or not
copyrightable or patentable, made or conceived or reduced to practice or
developed by him, either alone or jointly with others, during the term of
Employee's employment by Employer. Employee will also disclose in writing to
Employer all things that would be Inventions if made during the term of
Employee's employment by Employer, conceived, reduced to practice, or developed
by him within six months after the termination of Employee's employment by
Employer.
(ii) Employee shall assign and turn over to Employer, its
successors, nominees and assigns, without any additional compensation
whatsoever, any and all Inventions which are made or conceived or reduced to
practice or developed by him, either alone or jointly with others, during the
term of Employee's employment by Employer, relating or in any way applicable to
any business or field of interest of Employer or arising out of any task
assigned to him by Employer and shall, at Employer's request and expense,
execute, acknowledge and deliver all applications for Copyright and Letters
Patent covering such Inventions, in this and all foreign countries, and all
assignments, contracts and other documents which may be necessary or requested
to vest fully and completely in Employer, its successors, nominees and assigns,
the sole ownership of such Inventions and of all copyrights and patents covering
the same. Employee shall further cooperate fully with Employer, its successors,
nominees and assigns in obtaining, maintaining and defending all such copyrights
and patents.
(iii) Employee agrees that all works of authorship and other
copyrightable works created by him, either alone or jointly with others, during
the term of Employee's employment by Employer, relating or in any way applicable
to any business or field of interest of Employer or arising out of any task
assigned to him by Employer, are works made for hire.
(iv) Employee has attached hereto a complete list of all existing
Inventions or improvements to which Employee claims ownership as of the date of
this Provision and that Employee desires to specifically clarify are not subject
to this Provision, and Employee acknowledges and agrees that such list is
complete. If no such list is attached to this Provision, Employee represents
that Employee has no such Inventions or improvements at the time of signing this
Provision.
(v) If any Inventions or Rights, as defined herein, assigned
hereunder are based on, incorporate or cannot be made and used without violating
any Inventions or Rights owned or licensed by him and not assigned hereunder,
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Employee hereby grants Employer a perpetual, world wide, royalty-free,
non-exclusive sublicensable right and license to exploit and exercise all such
Inventions and Rights in support of Employer's exercise or exploitation of any
assigned Inventions or Rights (including any modifications, improvements and
derivatives thereof).
(e) Miscellaneous
(i) This Provision and all provisions hereof shall bind and inure
to the benefit of Employer, the Employee, and their respective heirs,
successors, personal representatives and assigns. The obligations under
paragraphs 1, 2 and 3 of this Provision shall continue in effect after
termination of the Employee's employment by Employer, regardless of the reason
or reasons for termination, and whether such termination is voluntary or
involuntary on the Employee's part, and Employer is entitled to communicate the
Employee's obligations under this Provision to any future employer or potential
employer of the Employee.
(ii) The Employee acknowledges that Employer will be irreparably
harmed by any breach hereof, that monetary damages would be inadequate and that
Employer shall have the right to have an injunction or other equitable remedies
imposed in relief of, or to prevent or restrain, such breach. The Employee
agrees that Employer shall also be entitled to any and all other relief
available under law or equity for such breach.
(iii) If any legal action arises under this Provision by reason
of any asserted breach of this Provision, the prevailing party shall be entitled
to recover all costs and expenses, including reasonable attorney fees incurred
in enforcing or attempting to enforce any of the terms, covenants, or
conditions, including costs incurred prior to commencement of legal action, and
all costs and expenses, including reasonable attorney fees, incurred in any
appeal from an action brought to enforce any of the terms, covenants, or
conditions.
8. Other.
(a) Entire Agreement. This Agreement contains the complete agreement
between the parties with respect to the subject matter hereof and supersedes any
prior agreements or understandings, written or oral. No waiver under this
Agreement shall be valid unless it is in writing and duly executed by the party
to be charged therewith. This Agreement may be amended at any time, provided
that such agreement is in writing and is signed by each of the parties hereto.
(b) Severability. If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, such provision may be severed or enforced
to the extent possible, and such invalidity, illegality or unenforceability
shall not affect the remainder of this Agreement.
(c) Binding Effect. This Agreement may not be assigned by Employee.
Subject to that limitation, this Agreement shall be binding upon and shall inure
to the benefit of Employee, his heirs and personal representatives, and shall be
binding upon and shall inure to the benefit of Employer, its successors and
assigns.
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(d) Governing Law. This Agreement and all questions arising hereunder
shall be governed by the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER: EMPLOYEE:
NAVIDEC, INC.
By: /s/ Ralph Armijo /s/ Kenneth P. Bero
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Ralph Armijo, President Kenneth P. Bero, Vice President of Sales
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Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement and Prospectus of NAVIDEC,
Inc. of our report dated March 5, 1998, accompanying the consolidated financial
statements of NAVIDEC, Inc. contained in such Registration Statement, and to the
use of our name and the statements with respect to us, as appearing under the
heading "Experts" in the Registration Statement.
/s/ Hein + Associates LLP
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HEIN + ASSOCIATES LLP
Denver, Colorado
July 10, 1998
