<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INTERACTIVE OBJECTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
STATE OF WASHINGTON 7371 87-0434226
(STATE OR JURISDICTION OF STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
17720 NE 65TH ST., SUITE 202 STEVEN G. WOLLACH, CHIEF FINANCIAL OFFICER
REDMOND, WASHINGTON, 98052 17720 NE 65TH ST., SUITE 202
(425) 869-6338 REDMOND, WASHINGTON, 98052
(ADDRESS AND TELEPHONE NUMBER OF (425) 869-6338
PRINCIPAL EXECUTIVE OFFICES) (NAME, ADDRESS AND TELEPHONE NUMBER OF
AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO THE FOREGOING TO BE SENT TO:
ROBERT C. SEIDEL
TIMOTHY M. WOODLAND
CAIRNCROSS & HEMPELMANN, P.S.
701 FIFTH AVENUE, SUITE 7000
SEATTLE, WASHINGTON 98104-7014
(206) 587-0700
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AMOUNT TO BE AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $.01 par value............... 1,946,617 shares $5,742,520 $1,694
- ------------------------------------------------------------------------------------------------
Common Stock, $.01 par value, underlying
stock purchase warrants(2)................ 2,053,401 shares 7,638,604 2,253
- ------------------------------------------------------------------------------------------------
Total.................................. 4,000,018 shares $13,381,124 $3,947
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Bona fide estimate for computation of the registration fee pursuant to
Rule 457(a) under the Act.
(2) Represents shares underlying certain stock purchase warrants at exercise
prices of between $3.00 and $7.00 per share, calculated in accordance with
Rule 457(g) under the Act. See "SELLING SHAREHOLDERS" and "DESCRIPTION OF
SECURITIES."
---------------
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 HEREAFTER 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>
INTERACTIVE OBJECTS, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN PART I OF
FORM SB-2
<TABLE>
<CAPTION>
ITEM IN FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS
----------------- ---------------------------------
<C> <S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus. Front of Registration Statement;
Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front Cover and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk
Factors............................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Not Applicable
6. Dilution........................... Not Applicable
7. Selling Security Holders........... Selling Shareholders
8. Plan of Distribution............... Plan of Distribution
9. Legal Proceedings.................. Business
10. Directors, Executive Officers,
Promoters and Control Persons..... Management; Principal Shareholders
11. Security Ownership of Certain
Beneficial Owners and Management.. Management; Principal Shareholders
12. Description of Securities.......... Description of Securities
13. Interest of Named Experts and
Counsel........................... Legal Matters; Experts
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Description of Securities
15. Organization Within Last Five
Years............................. Not Applicable
16. Description of Business............ Prospectus Summary; Risk Factors;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business
17. Management's Discussion and
Analysis of Plan of Operation..... Management's Discussion and Analysis
of Financial Condition and Results of
Operations
18. Description of Property............ Business
19. Certain Relationships and Related
Transactions...................... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters....... Market for Common Equity and Related
Stockholder Matters
21. Executive Compensation............. Management
22. Financial Statements............... Financial Statements
23. Changes In and Disagreements With
Accountants and Financial
Disclosure........................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 27, 1998
PROSPECTUS
4,000,018 SHARES
INTERACTIVE OBJECTS, INC.
COMMON STOCK
This Prospectus relates to 4,000,018 shares (the "Shares") of common stock,
$.01 par value (the "Common Stock"), of Interactive Objects, Inc., a Washington
corporation ("Interactive Objects" or the "Company"). The Shares being offered
consist of 1,946,617 shares of Common Stock that are currently issued and
outstanding, and 2,053,401 shares of Common Stock that are subject to certain
outstanding stock purchase warrants (the "Warrants") and may be issued upon
exercise of such Warrants. The Shares are owned by the persons named in this
Prospectus under the caption "Selling Shareholders." The Shares were acquired
by the Selling Shareholders in various transactions, all of which were exempt
from the registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"), including sales of Shares in private placements by the
Company, issuance of Shares as compensation and Shares issuable upon the
exercise of the Warrants by certain of the Selling Shareholders.
The Selling Shareholders may from time to time sell the Shares on the OTC
Bulletin Board or on any other national securities exchange or automated
quotation system on which the Common Stock may be listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Shares may be sold
directly by or through brokers or dealers. See "PLAN OF DISTRIBUTION."
The Company will receive no part of the proceeds of any sales of Shares made
hereunder. See "USE OF PROCEEDS." All expenses of registration incurred in
connection with this offering are being borne by the Company, but all selling
and other expenses incurred by the Selling Shareholders will be borne by the
Selling Shareholders. See "SELLING SHAREHOLDERS."
The Selling Shareholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act, and any commissions or discounts given to any
such broker-dealer may be regarded as underwriting commissions or discounts
under the Securities Act.
The Shares have not been registered for sale by the Selling Shareholders
under the securities laws of any state as of the date of this Prospectus.
Brokers or dealers effecting transactions in the Shares should confirm the
registration thereof under the securities laws of the States in which
transactions occur or the existence of any exemption from registration.
The Common Stock is traded on the OTC Bulletin Board under the symbol "OBJX".
On August 21, 1998, the closing bid and asked prices of the Common Stock as
reported on the OTC Bulletin Board were $2 7/8 and $3.00, respectively.
-----------
SEE "RISK FACTORS" ON PAGE 5 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Shares of Common Stock offered hereby (together with the
exhibits and schedules thereto, the "Registration Statement"). This
Prospectus, filed as a part of the Registration Statement, does not contain
all the information set forth in the Registration Statement, certain portions
of which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Shares
of Common Stock offered hereby, reference is made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract or document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement and each such statement is qualified in
its entirety by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the
principal office of the Commission at Room 1024, Judiciary Plaza Building, 450
Fifth Street, N.W., Washington D.C. 20549, and the regional offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048,
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may be obtained at prescribed rates from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza
Building, 450 Fifth Street, N.W. Washington D.C. 20549. The Commission
maintains a Web site that contains registration statements, reports, proxy
statements and other information regarding registrants (including the
Company), that file electronically with the Commission. The address of the
Commission's Web site is www.sec.gov.
Following the effective date of the Registration Statement, the Company will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). So long as the Company is subject to
the informational reporting requirements of the Exchange Act, the Company will
provide its shareholders with annual reports containing audited financial
statements and interim quarterly reports containing unaudited financial
information.
2
<PAGE>
PROSPECTUS SUMMARY
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
risks and uncertainties posed by many factors and events that could cause the
Company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed herein as well as those discussed under the
captions "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as those discussed elsewhere in
this report. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Prospectus.
The Company undertakes no obligation to revise any forward-looking statements
in order to reflect events or circumstances that may subsequently arise.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's other reports to be filed
with the Securities and Exchange Commission that attempt to advise interested
parties of the risks and factors that may affect the Company's business.
Except as noted otherwise, all references in this Prospectus to "Interactive
Objects" or the "Company" refer to both (i) Interactive Objects, Inc. and its
subsidiary after the consummation of the Neoteric Acquisition (as defined
below) and (ii) Neoteric Media, Inc. prior to the Neoteric Acquisition.
Interactive Objects designs, develops and markets modular software
components. Additionally, the Company, through its consulting services group,
provides sophisticated software business solutions designed to facilitate
integrating medium- to large-scale businesses with the Internet.
The Company's products are designed for use primarily on the Microsoft
Corporation ("Microsoft") suite of visual programming languages including
Visual Basic(R), Visual C++(R) and Visual FoxPro(R) and are marketed to
corporate and professional developers for use in a variety of environments,
including multi-tier client-server, intranet, extranet and Internet
environments. The Company's products are reusable, modular software components
designed to work across multiple operating platforms. As a result, corporate
and professional developers are able to focus on the core functionality of the
applications they are developing--designing and constructing their applications
more efficiently. The Company released two components in the first quarter of
1998 and expects to release a suite of four components in the fourth quarter of
1998.
The Company has historically derived a substantially all of its revenue from
its consulting services group. The consulting services group specializes in
sophisticated software business solutions which involve intranet, extranet and
Internet environments. In addition to providing sophisticated business
solutions to enterprise companies, Interactive Objects' consultants provide
much of the Company's research and development input for creating new and
innovative products. In 1998, substantially all of the Company's revenues were
the result of contracts awarded to its consulting group. These contracts
provided the Company valuable insight into the technology hurdles confronting
medium and large companies.
The Company's business strategy is focused on broadening its product
development by productizing the business solutions the Company's consultants
have designed or identified while performing consulting services. These
products are "application frameworks," sets or suites of reusable software
components architected to facilitate scaleable application development designed
to solve a specific business problem. By assembling its base components
together with the business objects generated from its consulting projects in a
framework architecture, the Company can address the sophisticated business
solution requirements of medium to large size organizations. The Company has
also recently augmented its executive management team, and expanded its sales
department with individuals experienced in channel development and
relationship-based solution sales to enterprise-level organizations. The
Company expects to release its first application framework product in 1999.
3
<PAGE>
While continuing to invest its engineering and development resources in
expanding its library of development tools and components, the Company believes
that by assembling objects within an application framework, the resulting
solutions will have greater market potential than that of individual component
sales. The move from developer solutions to business solutions represents a
natural evolution for the Company. The Company believes that its core
capabilities are application architecture through its consulting group and
reusable component development by its product development team.
The Company was incorporated in the State of Washington in October 1995 and
operated under the name Neoteric Media, Inc., d/b/a Interactive Objects, until
August 1997. In August 1997, pursuant to the terms of an acquisition agreement
with Asia Pacific Chemical Engineering Corp., a publicly-held Utah corporation
with nominal assets and liabilities, Neoteric Media entered into a business
combination with APEC (the "Neoteric Acquisition"). In the Neoteric
Acquisition, the shareholders of Neoteric Media exchanged their stock for a
majority of the then-outstanding common stock of APEC and Neoteric Media became
a wholly-owned subsidiary of APEC (which changed its name to Interactive
Objects). For accounting purposes, the Neoteric Acquisition was accounted for
as a reverse purchase, with Interactive Objects as the continuing entity. The
Company's audited financial statements include, since August 1997, the results
of APEC operations, which were insignificant. In 1998, the Company was
reincorporated from Utah to the State of Washington.
The Company's executive offices are located at 17720 NE 65th Street, Redmond,
Washington 98052 and its telephone number is (425) 869-6338. Interactive
Objects and the Interactive Objects logo are trademarks of the Company; all
other trademarks and tradenames appearing in this Prospectus are the property
of their respective owners. The Company's Web site address is www.iobjects.com.
Information accessed on or through the Company's Web site does not constitute a
part of this Prospectus.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business. This Prospectus contains forward-looking statements that involve
risks and uncertainties. When used in this Prospectus, the words "intends,"
"believes," "effect," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such forward-
looking statements. The Company's actual results, performance or achievements
could differ materially from the results expressed in or implied by these
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed below and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
as well as those discussed elsewhere in this Prospectus.
Limited Operating History; No Profitable Operations. The Company was founded
in 1995 and has had insignificant operating results until 1997. The Company
has experienced losses since incorporation and there can be no assurance that
the Company will become profitable in the near future or at all. The Company
experienced losses of $(1,440,000), $(905,000) and $(75,000) for the six-month
period ended June 30, 1998, the year ended December 31, 1997 and the year
ended December 31, 1996, respectively. The Company's ability to achieve
revenue growth and profitability are substantially dependent upon its ability
to successfully grow and expand its consulting division, the success of the
Company's software component and application framework strategies, and upon
its ability to successfully complete and introduce new products. There can be
no assurance that the Company will be able to successfully accomplish the
foregoing or to achieve or maintain profitability in future periods. The
Company believes that its existing capital resources will enable it to fund
its operations, without additional capital, through the third quarter of 1999.
If the Company determines to seek additional capital through the issuance of
additional shares of capital stock, such issuance could result in dilution to
the holders of the Company's Common Stock. There can be no assurance that the
Company will be able to obtain such capital on acceptable terms or at all.
Concentration of Customers; Limited Marketing Experience. The Company's
consulting group architects, designs and implements Web-based software systems
to address Internet, intranet and/or extranet communication and integration
needs of medium to large corporations in the Pacific Northwest. Since 1995,
the Company has performed consulting services primarily for SAFECO Insurance
Companies of America, Inc. ("SAFECO") and to a lesser degree for Eddie Bauer
Incorporated ("Eddie Bauer"), and Microsoft. For 1997 and the first half of
1998, revenues resulting from the Company's relationship with SAFECO accounted
for substantially all of the Company's revenues. The Company's most recent
project with SAFECO involved developing an enterprise-wide, Internet-based
information automation system. The Company's relationship with SAFECO ended on
July 31, 1998. There can be no assurance that the Company will be able to
market its consulting services successfully to similarly positioned
organizations in the future. If the Company is unsuccessful in marketing its
consulting services, much of the Company's research and development for
creating new and innovative products, as well as further development of the
Company's application frameworks, may be delayed, which would adversely affect
the Company's financial condition and results of operation.
Uncertainties Regarding Market Acceptance of the Company's Products; New
Product Introductions. The Company's future revenues will depend substantially
on its ability to successfully design and market new and innovative products
that appeal to developers using Microsoft's visual development programming
languages, including Microsoft's Visual Basic(R), Visual C++(R), Visual
FoxPro(R) ("Microsoft Visual Programming Languages"). The Company's current
product line adheres to Microsoft's COM (component object model) standard,
which competes with the Object Modeling Group's CORBA (common object request
broker architecture) standard. Components that the Company expects to release
prior to the end of 1998 retain this tight association and reliance on
Microsoft's COM standard. There can be no assurances that sales of the
Company's current or future products will meet the Company's expectations, due
to various factors. The Company may introduce products later to market than
expected or later to market than competitors' introductions, or competitors
may introduce competitive products at lower prices. The acceptance of the
Company's products are dependent in part on the continued adoption of the
Internet as the new computing paradigm, and the continued
5
<PAGE>
growth of Microsoft's visual development environment and languages. For
example, if Object Modeling Group's CORBA standard grows in popularity,
reliance and demand for COM-based products could decline dramatically. This in
turn would adversely affect the Company's financial condition and its results
of operation would be materially and adversely affected.
Periodically, the Company expects to make announcements regarding new
product releases and product updates. Such announcements are made for the
purpose of providing customers with a general idea of the expected
availability of products for planning purposes, and are based upon estimates
and are not a prediction of the exact availability date for such products.
Some new products are based on technology from third parties, and the Company
has limited control over whether and when these technologies may be enhanced.
The failure or delay in enhancements of technology from third parties could
have a material adverse effect on the Company's ability to develop and enhance
its products. Due to the inherent uncertainties of software development, it is
likely that such situations will occur from time to time in the future.
Moreover, the loss of key employees may increase the risk of delays in product
availability from timeframes originally anticipated. Consequently,
announcements regarding the Company's expectations of when products may ship
should not be considered a prediction by the Company that the products will
ship in any particular quarter or otherwise be relied upon by investors as a
basis for predicting the Company's results for any future period. Delays in
the shipment of such products and product enhancements will have a material
adverse impact on the Company. Without the introduction of such new products,
the Company's products may become technologically outdated, and as a result
the Company's business, operating results and financial condition could be
materially adversely affected. There can be no assurance that the future
development and marketing efforts by the Company will be successful.
Evolving Markets and Standards. The Company's current products and those
expected to be released in the remainder of 1998 are designed for use by
professional software developers who primarily rely on Microsoft Visual
Programming Languages to program in a variety of environments, including
multi-tier client-server, Internet, intranet, and extranet environments.
Although the component method of programming is in its infancy, the Company
believes the market for third-party components and application frameworks
(reusable software components and business objects assembled in a framework
architecture incorporating limited business logic and/or functionality) is
expanding. As such, the Company's growth depends upon continued market
acceptance of reusable, object-oriented components and application framework
technology. Additionally, because the Company's products are based on the
Microsoft's COM and DCOM (distributed component object model) standards,
continued market acceptance of, and adherence to, these standards is critical
to the Company's future growth. In the event that the Object Modeling Group's
CORBA standard or another standard increases in market acceptance or emerges
as the market standard, reliance on and demand for COM-based products could
diminish. This would have a material adverse affect on the Company's business,
operating results and financial condition.
There can be no assurance that the object-oriented programming market in
general, or the component market in particular, will gain further acceptance
in the near future or at all. Additionally, the Company's distributed object
solutions are designed specifically for use in Web-based applications
involving the Internet, intranets and/or extranets. Because critical issues in
the industry concerning implementing Web-based initiatives, including
security, reliability, cost, ease of use, access and quality of service remain
unresolved, the growth of applications targeting the Internet is uncertain and
difficult to predict.
The markets for the Company's products are relatively new and still
evolving, and accordingly it is difficult to assess or predict with any
assurance the size or growth rate, if any, of these markets. There can be no
assurance that markets for the Company's products will develop, or that the
Company's products will be accepted. If these markets fail to develop, develop
more slowly than expected, or attract new competitors, or if the Company's
products do not achieve market acceptance, the Company's business, operating
results and financial condition could be materially adversely affected. Even
if broader market acceptance is achieved, the reusable component market may
continue to be characterized by numerous competitors in the areas of tools,
methodology and services. In addition, in the event COM-based programming
loses market acceptance to CORBA or to another standard, or be replaced by
another programming language, the Company's business, financial condition and
results of operations could be materially and adversely affected. Because the
Company's strategy is to develop
6
<PAGE>
standards-based products, and these standards are relatively new, not widely
accepted and compete with other emerging standards, to the extent that these
standards are not commercially successful, this will have a material adverse
affect on the Company's business, operating results and financial condition.
Competing or alternative technologies are being, or are likely in the future
to be, promoted by current and potential competitors of the Company, some of
which have well-established relationships with current and potential customers
of the Company. Some of these current and potential competitors have extensive
knowledge of the markets served by the Company, better name recognition and
more extensive development, sales and marketing resources than the Company. To
the extent these organizations actually become competitors to the Company,
they may prove to materially and adversely affect the Company's business,
financial condition and results of operations.
Dependence on Microsoft. The Company's current product, and those expected
to be released in 1998, complies with Microsoft's COM, DCOM and COM+ standards
and has been designed specifically for professional developers who utilize
primarily Microsoft Visual Development Languages and, to a lesser extent,
Inprise's programming language, Delphi(R). To the extent that Microsoft
changes its visual programming languages, changes its programming standards,
withholds information regarding such changes or other changes to its
Windows(R) or Windows NT(R) operating systems, changes the manner in which it
markets its visual development languages or component standards, or does not
provide the Company with pre-release information about such changes, the
Company could be adversely impacted. Such impacts could result in the delay of
the release of the Company's products, the Company's cost of developing
products could be significantly increased, and the Company may be required to
expend significant resources to modify its marketing and sales priorities and
direction.
Limited Product Distribution. The Company's future revenues from product
sales are substantially dependent upon the Company's ability to successfully
market and sell its products. The Company currently sells its products solely
by utilizing electronic software distribution ("ESD") via its Web site.
Through June 30, 1998, Company sales of its products via its Web site have
been limited, generating insignificant revenues. Although the Company believes
that the use of the Internet for software sales and distribution will continue
to grow, the Company acknowledges the need to increase its internal sales
staff, and to market and distribute its products through resellers and
integrators and other channels in order to increase sales. Recently, the
Company hired a new Vice President of Sales and Marketing and, in further
support of this initiative, the Company is aggressively recruiting sales
professionals in an effort to increase the size of its direct sales
department. There can be no assurance that the Company will be successful in
attracting and retaining such sales professionals, or in establishing a
channel of resellers and integrators. Failure to accomplish any of these tasks
could materially and adversely affect the Company's financial condition and
results of operation. In addition, the Company intends to explore third-party
partnerships with other independent software vendors ("ISVs") and explore co-
marketing arrangements. There can be no assurance that the Company will enter
into such agreements or if entered into, that such relationships will increase
product sales through these channels.
Uncertainties Regarding Component Product Positioning. The current standard
in the component industry is to sell bundled tools and components in a "class
library" consisting of numerous products, whereas the Company's marketing
strategy for its software components is, among other things, to sell
individual components at a lower unit cost than the bundled products. There
can be no assurances such product positioning will be accepted in the
marketplace. To the extent that the Company's non-bundled products do not
achieve market acceptance, the Company may be required to significantly reduce
the individual price per component to make the product more attractive, or may
be required to develop additional products to offer as a bundled library. In
either event, the Company's financial performance could be materially
adversely affected.
Uncertainty of Future Operating Results; Fluctuations in Quarterly Operating
Results. As a result of the Company's limited operating history and the
emerging nature of the markets in which it competes, the Company is unable to
forecast accurately its revenues. The Company's current and future expense
levels are based largely on its product development plans and are to a large
extent fixed. Revenues from consulting engagements tend to fluctuate as
consulting contracts, which may extend over several months, are undertaken,
renewed, completed or terminated. Product revenue is difficult to forecast due
to the fact that the Company to date has not generated
7
<PAGE>
significant material revenue from its individual software component sales. The
Company also has not determined what the average sales cycle, from initial
evaluation to purchase, will be for future sales. Sales and operating results
generally depend on the volume of, timing of and ability to fulfill orders
received, which are difficult to forecast. The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in relation to
the Company's planned expenditures would have an immediate adverse effect on
the Company's business, prospects, financial condition and results of
operations. Further, as a strategic response to changes in the competitive
environment, the Company may from time to time make certain pricing, service
or marketing decisions that could have a material adverse effect on its
business, prospects, financial condition and results of operations.
The Company may experience significant fluctuations in its quarterly
operating results due to a variety of factors, many of which are outside the
Company's control. Future operating results will depend upon many factors,
including the timing of consulting engagements and payment terms, demand for
the Company's products and services, the level of product and price
competition in the industry, the length of the Company's sales cycle, the
budget cycles of the Company's customers, the timing of new product
introductions and product enhancements, the mix of products and services sold,
activities of and acquisitions by competitors, changes in pricing policy by
the Company and its competitors, analysts' reports about the Company, its
components and application framework technology, the hiring new employees, the
ability of the Company to develop and market new products and control costs,
and general economic conditions and economic conditions specific to the
Internet, on-line commerce and the software component industry in general.
Competition. The market for software consulting and contract
development/software system design services is extremely competitive. The
principal competitive factors in this market are thoroughness and ingenuity of
solution proposed and responsiveness to client proposal requests, and to a
lessor degree, reputation and price. Many of the Company's competitors in the
consulting arena have substantially greater financial, management, marketing
and technical resources than the Company. There can be no assurance that the
Company will be able to compete successfully against current and future
competition, and the failure to do so would have a material adverse effect
upon the Company's business, operating results and financial condition.
The market for the Company's reusable software components is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's current products are targeted at professional software developers
who program using primarily Microsoft Visual Programming Languages. The
Company's competitors offer a variety of products and services to address this
market. The Company believes that the principal competitive factors in this
market are product quality, flexibility, performance, functionality and
product features, use of standards-based technology, quality of support and
service, company reputation and price. While price is less significant than
other factors for corporate customers, price can be a significant factor for
individual developers. Direct and indirect competitors in the component market
include Microsoft, RogueWave Software, Inc., Progress Software Corporation, KL
Group, Inc. and others, and the Company expects to face significant
competition in the future from these and other companies. Most of these
competitors have longer operating histories, significantly greater financial,
technical, marketing and other resources, name recognition and larger
installed bases of customers than the Company. Additionally, many of these
current and potential competitors have well-established relationships with
potential customers of the Company, have extensive knowledge of the markets
serviced by the Company's customers, more extensive development, sales and
marketing resources and are capable of offering single vendor solutions. As a
result, the Company's competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products
than the Company. Certain competitors have been known to license software for
free to gain a competitive advantage. Such competition could materially
adversely affect the Company's ability to sell products on terms favorable to
the Company. There can be no assurance that the Company will be able to
compete successfully against current and future competition, and the failure
to do so would have a material adverse effect upon the Company's business,
operating results and financial condition.
8
<PAGE>
The Company also faces competition from other software vendors, systems
integrators and internal development efforts. Many of these competitors
possess industry-specific expertise that may enable them to offer a single
vendor solution more easily, and already have a reputation among potential
customers for offering enterprise-wide solutions for software programming
needs. There can be no assurance that these third-parties, most of whom have
significantly greater resources than the Company, will not market competitive
software business solutions in the future. It is also possible that new
competitors or alliances among competitors will emerge and rapidly acquire
significant market share. The Company also expects that competition will
increase as a result of software industry consolidation. Increased competition
may result in price reductions, reduced gross margins and loss of market
share, any of which could materially and adversely affect the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors or that competitive pressures faced by the Company will not
materially and adversely affect its business, financial condition and results
of operations.
The advent of the Internet as a computing, communication and collaboration
platform, as well as a low-cost and efficient distribution on-line service and
electronic commerce vehicle, increases competition and creates uncertainty as
to future directions this technology will ultimately take. The Company faces
intense competition in the development and marketing of Web-based COM, DCOM
and COM+ software components and business solutions from a wide variety of
companies. There can be no assurances that the Company will be able to compete
effectively for business opportunities as they arise on the Internet, on-line
services, electronic commerce and other emerging areas.
Dependence on Consulting Engagements for Product Research and Development
and Marketing Research. The Company's strategy depends in part on its
continued ability to use its consulting engagements as a research and
development opportunity for products the Company might market in the future.
The Company generally negotiates its consulting agreements to enable the
Company to retain intellectual property rights to portions of the software
being developed, while the client retains rights to the entire program
developed. If the Company is not successful in growing its consulting
business, is not able to negotiate consulting agreements which allow the
Company to retain rights to portions of the developed software, or the needs
of the Company's consulting customers do not create opportunities for creating
marketable products, the Company may be required to expend significant amounts
of resources, or contract with third-parties, to perform research and
development for new product offerings, which could materially and adversely
affect the Company's financial condition and results of operation. The Company
also utilizes its consulting services for its marketing research. However, the
needs of the Company's consulting customers may not be representative of the
needs of the professional software developer community in general, and there
can be no assurances that the Company will be successful in obtaining
sufficient information through its consulting services to be able to develop
software components and application frameworks that are desirable to
professional software developers and corporate application programmers. To the
extent that the Company's consulting services, or other internal research or
marketing methods, are insufficient for such purposes, the Company may be
required to expend significant amounts of resources, or contract with third-
parties, to obtain the necessary market research information necessary to
validate new products or the positioning the Company proposes, which could
materially and adversely affect the Company's financial condition and results
of operation.
Rapid Technological Change. To remain competitive, the Company must develop
new products, while enhancing and improving its existing products and
components. Web-centric software tools are characterized by rapid
technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies, and the emergence of new industry standards and practices that
could render the Company's existing proprietary technology and systems
obsolete. The Company's success will depend, in part, on its ability to
develop or license state-of-the-art technologies, enhance its existing
services, develop or acquire new services and technologies that address the
increasingly sophisticated and varied needs of its prospective customers, and
respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. There can be no assurance that
the Company will be successful in continuing to develop and market on a timely
and cost-effective basis fully functional product enhancements or new products
that respond to technological advances by others, or that its enhanced and new
products will
9
<PAGE>
achieve adequate market acceptance. If the Company is unable, for technical,
legal, financial or other reasons, to anticipate or respond adequately to
changes in technology and customer preferences, significant delays in product
development or introduction would have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Growth of Internet/Intranet/Extranet Software
Applications. The Company's product strategies focus on supporting
professional software developers programming Internet, intranet and/or
extranet-related applications using any of the visual development languages
available, including Microsoft's Visual Programming Languages and Inprise
Corporation's ("Inprise") Delphi(R). Accordingly, revenues derived from the
Company's products will depend in large part upon the rate of adoption by
businesses and end-users of the Internet, intranets, and extranets for
commerce and communications. Many of the critical issues concerning the
Internet, including security, reliability, cost, ease of use, access and
quality of service, remain unresolved at this time, hindering adoption by many
enterprises and end-users. To the extent the Internet, intranets, and in turn
extranets, are not widely used by businesses and end-users, there would be a
corresponding material adverse effect on the Company's business, operating
results and financial condition. The Company's recent entry into these markets
is subject to a number of risks, including among others, the Company's
inexperience in these markets, the new and evolving nature of these markets,
the Company's need to make choices regarding the visual development languages
and standards on which to focus, the ongoing transition of and investment of
resources for this segment by the Company, the Company's limited market
credibility in this area, and the presence of several very large and well-
established businesses, as well as a number of smaller very successful
companies, already competing in this market. There can be no assurance that
sales in these markets will meet the Company's objectives, in which case the
Company's business, operating results or financial condition could be
materially adversely affected.
Control by Management. Approximately 37 percent of the outstanding shares of
Common Stock as of August 21, 1998 are owned by current directors and officers
of the Company or their respective affiliates. Assuming exercise in full of
all the Warrants for which Shares are being offered in this Prospectus, the
current directors and officers would own approximately 32 percent of the then-
outstanding shares of Common Stock. All such shareholders, if they were to
vote together, could significantly influence the outcome of matters submitted
to a vote of the Company's shareholders, including the election of directors
to the Company's Board of Directors. See "PRINCIPAL SHAREHOLDERS" and
"DESCRIPTION OF SECURITIES."
Software Defects and Liability Claims. Software products frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released. There can be no assurance that, despite testing by
the Company, third-parties and potential customers, defects and errors will
not be found in current versions, new versions or enhancements after
commercial shipments begin, resulting in the loss of revenues, delay in market
acceptance or unexpected re-programming costs, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective
as a result of existing or future federal, state or local laws or ordinances
or unfavorable judicial decisions. A successful product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.
Proprietary Rights, Risks of Infringement. The Company relies primarily on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect its proprietary rights. The
Company also believes that factors such as the technological and creative
skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are essential
to establishing and maintaining a technological leadership position. The
Company seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. There can be no assurance that others will not develop
technologies that are similar or superior
10
<PAGE>
to the Company's technology. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. There can be no assurance that the Company's means of
protecting its proprietary rights in the United States or abroad will be
adequate or that competition will not independently develop similar
technology.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, if at all. In the event of a successful claim of product
infringement against the Company and failure or inability of the Company to
license the infringed or similar technology, the Company's business, financial
condition and results of operations would be materially and adversely
affected.
Risks Associated with Potential Acquisitions. As a part of the Company's
business strategy, the Company intends to review acquisition prospects that
would complement the Company's existing product offerings, augment the
Company's market coverage or enhance its technological capabilities, or that
may otherwise offer growth opportunities. Although the Company does not have
current agreements or negotiations underway with respect to any such
acquisitions, the Company may make acquisitions of businesses, products or
technologies in the future. Future acquisitions by the Company could result in
potentially dilutive issuances of equity securities, the incurrence of debt,
contingent liabilities and/or amortization expenses related to goodwill and
other intangible assets, any of which could materially adversely affect the
Company's operating results and/or the market price of the Common Stock.
Acquisitions entail numerous risks, including difficulties in the assimilation
of acquired operations, technologies and products, diversion of management's
attention to other business concerns, risks of entering markets in which the
Company has no or limited prior experience and potential loss of key employees
of acquired organizations. No assurance can be given as to the ability of the
Company to successfully integrate any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the Company
to do so could have a material adverse effect on the Company's business,
financial condition and operating results.
Year 2000 Issues. Many companies are currently expending significant
resources in order to address the "Year 2000" issue. Expenditures to address
the Year 2000 issue often involve the modification of legacy and other
existing software systems rather than the development of new systems. Because
of the size of such expenditures, companies may defer or cancel other new
software development projects for which such companies might otherwise have
purchased products from the Company or engaged the Company for consulting. Any
reductions in revenues to the Company resulting from other companies focus on
the Year 2000 issue could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company has commenced a review of its internal information systems. The
objective of the review is to address necessary code changes, testing and
implementation with the objective of taking corrective action based on the
results of such review. In addition, the Company could be materially and
adversely affected by costs or complications relating to code changes, testing
and implementation for its own systems or similar issues faced by its
distributors, suppliers, customers, vendors and the financial service
organizations with which the Company interacts. At this time, the Company has
not yet determined the cost related to achieving Year 2000 compliance.
The Year 2000 issue could affect the products that the Company sells. The
Company has reviewed its current products and believes that its products are
Year 2000 compliant. However, to the extent that the Company's products prove
to be non-compliant, or in the event of any dispute with any customer
regarding
11
<PAGE>
whether the Company's products are compliant, the Company's business, results
of operations and financial condition could be materially and adversely
affected.
Recruiting and Retaining Technical Personnel. The success of the Company
depends in large part upon the ability of the Company to recruit and retain
highly skilled software engineers and programmers, both as employees and as
independent contractors. The Company's consulting division relies primarily on
independent contractors and subcontractors to perform services in connection
with its consulting engagements. If the Company is unsuccessful in obtaining
skilled independent contractors and subcontractors for its consulting
engagements, the Company may be unable to perform the contracts on a timely
basis and may be unable to bid for contracts which it cannot perform with
employees. Additionally, the Company believes that the technological and
creative skills of its personnel are essential to establishing and maintaining
a leadership position, particularly in light of the fact that its intellectual
property, once sold to the public market, is easily replicated. The
competition for such personnel is intense, and there can be no assurance that
the Company will be successful in retaining or recruiting such personnel. In
seeking qualified personnel, the Company is required to compete with companies
having greater financial and other resources than the Company. In addition,
the Company has had to, and may continue to be required to, increase
substantially the compensation, bonuses, stock options or other fringe
benefits offered to employees in order to attract and retain such personnel.
The additional costs that may be incurred in retaining or attracting new
personnel may have a material adverse affect on the Company, its product
launches and its operating results
Reliance on Management and Key Personnel; Possible Changes in
Management. The Company's future performance depends in significant part upon
the continued service of its key technical personnel and senior management.
The loss of the services of one or more of the Company's executive officers or
key technical personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, the
Company is continually seeking to expand the capabilities of its management
team by adding new executives or replacing current executives. The cost and
management time expended in such an effort and the resulting change in
management structure could have a material adverse affect on the Company, its
product launches and its operating results.
No Dividends. The Company does not intend to declare any dividends on the
Common Stock in the foreseeable future.
Anti-takeover Effect of Certain Provisions of Articles of Incorporation. The
Company's Articles of Incorporation authorize the Board of Directors to issue
up to 10,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the shareholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the voting and other
rights of the holders of Common Stock. The Company has no present plans to
issue shares of preferred stock. Further, certain provisions of the Company's
Articles of Incorporation and Bylaws and provisions of Washington law,
including the presence of a staggered Board of Directors, could delay or make
more difficult a merger, tender offer or proxy contest involving the Company.
See "DESCRIPTION OF CAPITAL STOCK."
Possible Adverse Effect of Outstanding Warrants and Options. As described in
this Prospectus, there are currently approximately 2,053,401 shares of Common
Stock reserved for issuance upon the exercise of the Warrants (at a weighted
average exercise price of approximately $3.72 per share), and an aggregate of
2,000,000 shares of Common Stock reserved for issuance upon exercise of
options that may be granted under the Company's 1998 Stock Option Plan. As of
August 21, 1998, the Company had granted stock options to purchase up to an
aggregate of 816,000 shares of Common Stock at a weighted average exercise
price of approximately $2.85 per share. To the extent that any outstanding
Warrants or options are exercised, holders of Common Stock will be diluted. In
addition, any sales in the public market of the shares underlying such
Warrants or options may adversely affect prevailing market prices for the
Common Stock and may adversely affect the Company's ability to obtain
additional equity financing. See "DESCRIPTION OF SECURITIES."
12
<PAGE>
Shares Eligible for Future Sale. As of the date of this Prospectus, there
are 14,708,927 shares of Common Stock outstanding, of which 1,946,617 Shares
are being offered hereby (exclusive of 2,053,401 shares issuable upon exercise
of the Warrants and which are also being registered hereby). There are
currently 5,165,526 previously issued shares that are freely tradable without
restriction or further registration under the Securities Act. Other than the
Shares being registered hereunder, the Company has not granted any
registration rights with regard to any additional shares of Common Stock. All
of the remaining 7,596,784 shares of Common Stock outstanding are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act and will become eligible for sale, pursuant to Rule 144
commencing on various dates following the date of this Prospectus. 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 prevailing from time to time. The possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
the prevailing market price for the Common Stock and could impair the
Company's ability to raise capital through the sale of its equity securities.
See "SHARES ELIGIBLE FOR FUTURE SALE."
Extreme Volatility of Stock Price. Like other software and high technology
companies, the market price of the Company's Common Stock has been and may
continue to be extremely volatile. Since the Common Stock began listing on the
OTC Bulletin Board in September 1997, the bid price of the Common Stock has
ranged from a high of $9.94 to a low of $1.88. Factors such as quarterly
fluctuations in the Company's results of operations, the announcement of
technological innovations or the introduction of new products by the Company
or its competitors, and general conditions in the computer software and
hardware industries may have a significant impact on the market price of the
Common Stock. In addition, the stock market in general has experienced extreme
price and volume fluctuations that have affected the market price for many
companies in industries similar or related to that of the Company and that
have been unrelated to the operating performance of these companies. These
market fluctuations may materially and adversely affect the market price of
the Common Stock.
No Assurance of Public Market; Failure to Gain Listing on The Nasdaq
SmallCap Market; Risks Relating to Low-Priced Stocks. The Common Stock is
currently traded on the OTC Bulletin Board. There can be no assurance that a
regular trading market will develop or be sustained after the date of this
Prospectus. Following the date of this Prospectus, at such time that the
Company meet the initial listing requirements, it may apply for listing on The
Nasdaq SmallCap Market ("NASDAQ"). The minimum listing requirements to qualify
for listing on NASDAQ include generally either $4 million in net tangible
assets (total assets, excluding goodwill, less total liabilities), $750,000 in
net income or $50 million in market capitalization, and a $5 million market
value of the public float. In addition, initial listing also requires three
market makers and a minimum bid price of $4.00 per share. In order to continue
to be listed on NASDAQ, the Company must maintain either $2 million in net
tangible assets or $500,000 in net income, and a $4 million market value of
its public float. As of the date of this Prospectus, the Company does not
satisfy the initial listing requirements for listing on NASDAQ. If the Company
is not able to apply for listing on NASDAQ or is not accepted for listing on
NASDAQ, the Common Stock will continue to be traded on the OTC Bulletin Board.
In addition, if the Company is subsequently listed on NASDAQ and fails to meet
the maintenance criteria, the Company's securities would be delisted from
NASDAQ, and trading, if any, in the Company's securities would thereafter be
conducted on the OTC Bulletin Board. For as long as the Common Stock is traded
on the OTC Bulletin Board, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, the Common
Stock than if it were listed on NASDAQ.
For as long as the Common Stock is traded on the OTC Bulletin Board and the
trading price of the Common Stock is below $5.00 per share, trading in such
securities will be subject to the requirements of certain "penny stock" rules
promulgated under the Exchange Act. These rules require additional disclosure
to investors by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions).
Such rules require that, prior to any penny stock transaction, the broker-
dealer deliver to the investor a disclosure statement explaining the penny
stock market and the associated risks with the market. The rules also impose
sales practice requirements on broker-dealers who sell penny stocks to persons
other than to established
13
<PAGE>
customers or accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting transactions
in the Company's securities, which could severely limit the market price and
liquidity of such securities and the ability of purchasers to sell any of the
Shares acquired in this offering in the secondary market.
14
<PAGE>
USE OF PROCEEDS
All of the Shares offered hereby are being offered by the Selling
Shareholders. The Company will not receive any of the proceeds from the sale
of the Shares. See "SELLING SHAREHOLDERS."
SELLING SHAREHOLDERS
The following table sets forth certain information about the Selling
Shareholders, including the number of shares of Common Stock being registered
hereunder and that may be offered for sale from time to time by the Selling
Shareholders. The Shares listed below consist of 1,946,617 shares of Common
Stock that are currently issued and outstanding, and 2,053,401 shares of
Common Stock that are subject to certain outstanding Warrants and that may be
issued upon exercise of such Warrants. Except as noted below, the Shares
offered for sale constitute all of the shares of Common Stock known to the
Company to be beneficially owned by the respective Selling Shareholders, and
following the offering and sale of the Shares, to the best of the Company's
knowledge, none of the Selling Shareholders will beneficially own more than
one percent of the issued and outstanding shares of Common Stock. In addition,
other than as described below, none of the Selling Shareholders has held any
position or office with the Company or had or have any material relationship
with the Company.
Of the 4,000,018 Shares being offered hereunder on behalf of the Selling
Shareholders, 1,534,010 shares were originally issued and sold to certain
foreign investors in a private offering in May 1998, 112,607 shares were
issued upon conversion of certain Company debt in September 1997, and 300,000
shares were issued as consideration for consulting services to the Company
between September 1997 and June 1998. In addition, there are 2,053,401 shares
offered hereunder that are issuable upon exercise of certain Warrants, as
described in further detail in the notes that follow the Selling Shareholder
table. The exercise prices for the Warrants range from $3.00 to $7.00 per
share. If the market price of the Common Stock does not exceed the applicable
exercise prices for the Warrants, the Company does not believe that such
Warrants will be exercised.
The Company has agreed with each of the Selling Shareholders, pursuant to
the terms of the Warrants, the purchase agreements by which certain of the
Selling Shareholders acquired their Shares and otherwise, to use its best
efforts to register the Shares. Pursuant to these arrangements, the Company
will pay all expenses in connection with the registration and sale of the
Shares, except any selling commissions or discounts allocable to sales of the
Shares, fees and disbursements of counsel and other representatives of the
Selling Shareholders, and any stock transfer taxes payable by reason of any
such sale.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED NUMBER OF SHARES
NAME OF SELLING SHAREHOLDER BEFORE OFFERING OFFERED FOR SALE
- --------------------------- ------------------ ----------------
<S> <C> <C>
Thad E. Wardall(1).......................... 1,152,607 112,607
Bankers Trust International PLC............. 500,000 500,000
National Day Corporation(2)................. 629,057 500,000
Ying Hung Assets Limited(3)................. 250,000 250,000
Sum On Securities Limited(3)................ 250,000 250,000
Tai Soong Management Limited(3)............. 250,000 250,000
Jinhui Securities Limited(3)................ 250,000 250,000
Berliner Freiverkehr AG(4).................. 200,000 200,000
GlobeMedia AG(5)............................ 200,000 200,000
Starward Securities, Ltd. .................. 208,386 200,000
Prime Asset Management Ltd(6)............... 157,870 157,870
Bank Vontobel & Co. AG...................... 145,000 145,000
Matrix Securities Pty., Ltd. ............... 121,700 100,000
Oyster SICAV-Europe Value................... 80,000 80,000
ACP Venture AG(6)........................... 60,500 60,500
Alexander Nill.............................. 55,000 55,000
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED NUMBER OF SHARES
NAME OF SELLING SHAREHOLDER BEFORE OFFERING OFFERED FOR SALE
- --------------------------- ------------------ ----------------
<S> <C> <C>
Dieter Nill................................ 50,000 50,000
Sigi Piel.................................. 50,000 50,000
VMR Fund-Strategie Quadrat................. 50,000 50,000
Thorsten Wagner............................ 50,000 50,000
Martin Lechner............................. 30,000 30,000
Karsten Schiebler.......................... 27,500 27,500
Abakus Fonds UI............................ 25,000 25,000
Patrik Cohn................................ 25,000 25,000
International Investment Management
Limited(6)................................ 25,000 25,000
Nick Nugent(6)............................. 25,000 25,000
Value Management & Research GmbH(6)........ 25,000 25,000
VMR Fund-Shareholder Value................. 20,000 20,000
Fred Kompauer.............................. 15,000 15,000
Peter Gorg................................. 10,000 10,000
Joachin Paech.............................. 10,000 10,000
Mathias von Marcard........................ 8,000 8,000
Rudolf Fichtner............................ 7,900 7,900
Siegfried Piel............................. 7,500 7,500
Dr. Olaf Hein.............................. 7,000 7,000
Claes Smith-Solbakken...................... 5,000 5,000
Eckbrecht Belka............................ 5,000 5,000
Dr. Hans-Christian Donnerstag.............. 5,000 5,000
Markus Gies................................ 5,000 5,000
Maria Gies................................. 5,000 5,000
Aloys Korioth.............................. 5,000 5,000
Gunter Kramer.............................. 5,000 5,000
Norbert Tingelhoff......................... 5,000 5,000
Leonhard Teutrine.......................... 5,000 5,000
Ernst Wild................................. 5,000 5,000
Christian Zehendner........................ 5,000 5,000
Bernarda Bole-Vekar........................ 4,500 4,500
Horst Bernges.............................. 4,000 4,000
Kurt Koenig................................ 4,000 4,000
Ulf Lesemann............................... 4,000 4,000
Walter Edgar Seiz(6)....................... 3,977 3,977
Simon Ford(6).............................. 3,877 3,877
Edward C. Henschel(6)...................... 3,877 3,877
Harald & Marianne Britz.................... 3,500 3,500
Dr. Ernst Fischer.......................... 3,500 3,500
Gerhard and Hannelore Goldschmitt.......... 3,500 3,500
Cherno Jobatey............................. 3,500 3,500
Thorsten Wobig............................. 3,500 3,500
ECM Securities Services GmbH(6)............ 3,400 3,400
Fritz Gutschmitt........................... 3,000 3,000
Wolfgang Heichel........................... 3,000 3,000
Klaus Heidenreich.......................... 3,000 3,000
Gunter and Anita Hornung................... 3,000 3,000
Dr. Rainer and Andrea Marquart............. 3,000 3,000
Fritz Oehler............................... 3,000 3,000
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED NUMBER OF SHARES
NAME OF SELLING SHAREHOLDER BEFORE OFFERING OFFERED FOR SALE
- --------------------------- ------------------ ----------------
<S> <C> <C>
Dr. Marcus Optiz............................ 3,000 3,000
Dr. Walter Reinhard......................... 3,000 3,000
Irmtraut Becker............................. 2,500 2,500
Christoph Brunning.......................... 2,500 2,500
Walter Cullmann............................. 2,500 2,500
Siegfried Drautz............................ 2,500 2,500
Jurgen Gebhardt............................. 2,500 2,500
Walter Karitzki............................. 2,500 2,500
Helga Marienfeld............................ 2,500 2,500
Wolfgang Pfeiffer........................... 2,500 2,500
Schabin Sattari............................. 2,500 2,500
Thomas Schinogel............................ 2,500 2,500
Helmut Senft................................ 2,500 2,500
Hermann Huber............................... 2,110 2,110
Christoph Baer.............................. 2,000 2,000
Andreas Bernd............................... 2,000 2,000
Juergen Braun............................... 2,000 2,000
Hans Jurgen Eschmann........................ 2,000 2,000
Karin Figge................................. 2,000 2,000
Andreas Gunther............................. 2,000 2,000
Charlotta Heuer............................. 2,000 2,000
Roland und Maike Konig...................... 2,000 2,000
Kurt Kosse.................................. 2,000 2,000
Michael Roussinos........................... 2,000 2,000
Roland und Waltraut Schuster................ 2,000 2,000
Wienfried Siebert........................... 2,000 2,000
Josef Stiefvater............................ 2,000 2,000
Edwin Thoma................................. 2,000 2,000
Jurgen Wagner............................... 2,000 2,000
Ada Wilcke.................................. 2,000 2,000
Peter Nosek................................. 1,800 1,800
John Mantle................................. 1,500 1,500
Michael Karow............................... 1,100 1,100
Reiner Balzer............................... 1,000 1,000
Elisabeth Baumgartner....................... 1,000 1,000
Dieter Bidlingmaier......................... 1,000 1,000
Manfred Breu................................ 1,000 1,000
Gabriele Cuno............................... 1,000 1,000
Matthias Eckert............................. 1,000 1,000
Bernd Heimburger............................ 1,000 1,000
Guido Jesemann.............................. 1,000 1,000
Nicolaus Loibl.............................. 1,000 1,000
Ermias Mekasha.............................. 1,000 1,000
Miachel Obraczka............................ 1,000 1,000
Klaus Schumann.............................. 1,000 1,000
Frank Sommer................................ 1,000 1,000
Stefan Taubitz.............................. 1,000 1,000
Goetz Wende................................. 1,000 1,000
Thomas Haarmeyer............................ 900 900
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED NUMBER OF SHARES
NAME OF SELLING SHAREHOLDER BEFORE OFFERING OFFERED FOR SALE
- --------------------------- ------------------ ----------------
<S> <C> <C>
Erhard Karle................................ 800 800
Centa Hahn.................................. 750 750
Klaus Hahn.................................. 750 750
Barbara Belka............................... 700 700
Britta Juenger.............................. 700 700
Peter Scannewin............................. 600 600
Joerg George................................ 550 550
Thorsten Belka.............................. 500 500
Thomas Blum................................. 500 500
Thomas Diener............................... 500 500
Jurgen Doring............................... 500 500
Guenter Spens GmbH.......................... 500 500
Albert Hellwage............................. 500 500
Andreas Hesse............................... 500 500
Uwe Kranz................................... 500 500
Ariane Mummert.............................. 500 500
Lydia Paulussen............................. 500 500
Vermeulen-Schiffers......................... 500 500
Willi Waden................................. 500 500
Anton Jell.................................. 250 250
---------
TOTAL..................................... 4,000,018
=========
</TABLE>
- --------
(1) Thad E. Wardall is a director of the Company. Following the offering of
all of the Shares hereunder (including the shares issuable upon exercise
of the Warrants), Mr. Wardall will beneficially own approximately 6.2% of
then issued and outstanding shares of Common Stock. See "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS."
(2) The Shares being offered for sale by National Day Corporation consist of
500,000 shares of Common Stock underlying a certain stock purchase warrant
at an exercise price of $4.00 per share (the "National Day Warrant"). See
"DESCRIPTION OF SECURITIES."
(3) The Shares being offered for sale hereunder include an aggregate of
1,000,000 shares of Common Stock underlying certain stock purchase
warrants at an exercise price of $3.00 per share and that expire on
November 10, 1998 (the "November Warrants"). The November Warrants are
held as follows: Ying Hung Assets Limited (250,000 shares), Sum On
Securities Limited (250,000 shares), Tai Soong Management Limited (250,000
shares) and Jinhui Securities Limited (250,000 shares). See "DESCRIPTION
OF SECURITIES."
(4) The Shares being offered for sale by Berliner Freiverkehr AG consist of
200,000 shares of Common Stock underlying a certain stock purchase warrant
at an exercise price of $4.00 per share (the "Berliner Warrant"). See
"DESCRIPTION OF SECURITIES."
(5) The Shares being offered for sale by GlobeMedia AG consist of 200,000
shares of Common Stock underlying a certain stock purchase warrants at
exercise prices ranging from $5.00 to $7.00 per share (the "GlobeMedia
Warrants"). See "DESCRIPTION OF SECURITIES."
(6) The Shares being offered for sale hereunder include an aggregate of
153,401 shares of Common Stock underlying certain stock purchase warrants
at an exercise price of $4.00 per share granted to certain foreign brokers
and their affiliates (the "Brokers' Warrants"). The Brokers' Warrants are
held as follows: Prime Asset Management AG (57,870 shares), Value
Management & Research GmbH (25,000 shares), Nick Nugent (25,000 shares),
International Investment Management Limited (25,000 shares), ACP Venture
AG (5,500 shares), Edward C. Henschel (3,877 shares), Simon Ford (3,877
shares), Walter Edgar Seiz (3,877 shares) and ECM Securities Services GmbH
(3,400 shares). See "DESCRIPTION OF SECURITIES."
18
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently anticipates that it will retain future earnings
for use in the operation and expansion of its business and does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. Any
future determination with regard to the payment of dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
future earnings, financial condition, applicable dividend restrictions and
capital requirements and other factors deemed relevant by the Board of
Directors.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of June 30, 1998:
<TABLE>
<CAPTION>
JUNE 30,
1998
----------
<S> <C>
Short-term debt......................................................................... $ 724,590
Long-term liabilities................................................................... --
Shareholders' equity:
Common Stock, $.01 par value, 50,000,000 authorized shares
and 14,708,927 shares issued and outstanding at June 30, 1998........................ 19,417
Preferred Stock, $.01 par value, issuable in series:
10,000,000 shares authorized; no shares issued and outstanding....................... --
Additional paid-in capital............................................................ 7,473,204
Retained deficit...................................................................... (2,430,703)
----------
Total shareholders' equity.......................................................... 5,016,918
----------
Total capitalization.............................................................. $5,786,508
==========
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
risks and uncertainties posed by many factors and events that could cause the
Company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed herein as well as those discussed under the
captions "Risk Factors" and "Business" as well as those discussed elsewhere in
this Prospectus. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
Prospectus. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this Prospectus that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
OVERVIEW
The Company was incorporated in the State of Washington in October 1995 and
operated under the name Neoteric Media, Inc., d/b/a Interactive Objects, until
August 1997. In August 1997, pursuant to the terms of an acquisition agreement
with Asia Pacific Chemical Engineering Corp., a publicly-held Utah corporation
with nominal assets and liabilities, Neoteric Media entered into a business
combination with APEC. In the Neoteric Acquisition, the shareholders of
Neoteric Media exchanged their stock for a majority of the then-outstanding
common stock of APEC and Neoteric Media became a wholly-owned subsidiary of
APEC (which changed its name to Interactive Objects). For accounting purposes,
the Neoteric Acquisition was accounted for as a reverse purchase, with
Interactive Objects as the continuing entity. The Company's audited financial
statements include, since August 1997, the results of APEC operations, which
were insignificant. See Note 1 of Notes to Financial Statements. The Company's
unaudited pro forma results of operations as if the APEC transaction had
occurred on January 1, 1996 are included in Note 1 of Notes to Financial
Statements. The Company had insignificant operations in 1996 and most of 1997.
Through June 30, 1998, substantially all of the Company's revenues have been
derived from its software consulting services. To date, the Company has
provided consulting services primarily for SAFECO, and has performed
consulting services on smaller projects for other corporations, including
Microsoft and Eddie Bauer. While the Company expects that revenue from its
consulting services will grow in the future, it also believes that over the
long term, revenues from its recently released and future products will become
a larger percentage of total sales. As of July 31, 1998, the Company's
consulting relationship with SAFECO concluded and the Company does not
currently expect any future revenues from SAFECO. On July 31, 1998, the
Company's latest contract with SAFECO, the fourth in a series of contracts
granted by SAFECO for various phases in the development of an Internet-based
automation program for SAFECO's insurance agents, expired by its terms and
SAFECO took over management of the project. The Company performed consulting
services for SAFECO covering approximately one year and during such period
revenues from SAFECO consulting represented substantially all of the Company's
total revenue. With the conclusion of its relationship with SAFECO, the
Company expects that consulting revenue may decrease for the second half of
1998. See "RISK FACTORS-- Concentration of Customers; Limited Marketing
Experience" and "--Uncertainty of Future Operating Results; Fluctuations in
Quarterly Operating Results."
In the first quarter of 1998, the Company released two software component
products and acquired a Novell-based software component product. Subsequent to
such acquisition, the Company decided to focus exclusively on Microsoft-based
software component products. The Company currently markets its products solely
through the Internet. Revenue from product sales has been insignificant to
date, and there can be no assurance that the Company will be successful in
marketing its products. The Company expects product revenue to grow; however,
for the near term such revenue will continue to be a small percentage of sales
as compared to sales from software consulting services.
20
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 and 1997
Gross Revenue. Gross revenue for the six-month periods ended June 30, 1998
and 1997 was approximately $1,815,000 and $55,000, respectively. During the
six-month period ended June 30, 1998, substantially all of the Company's
revenue was generated by its software consulting services. The Company
released its first product in the first quarter of 1998 and did not make any
product sales prior to January 1, 1998. The 3,293% increase in gross revenue
is attributable primarily to the Company's software consulting agreement with
SAFECO, which accounted for substantially all of the Company's revenue in the
six-month period ended June 30, 1998. During the six-month period ended June
30, 1998, the Company had insignificant revenue from product sales. In prior
periods, the Company had no revenues from product sales. See "RISK FACTORS--
Concentration of Customers; Limited Marketing Experience" and "--Uncertainties
Regarding Market Acceptance of the Company's Products; New Product
Introductions."
Labor and Benefits Expenses. Labor and benefits includes all internal labor
costs and other direct costs related to project performance, such as project
specific independent contractor fees, labor costs, supplies and specific
project related expenditures. The Company's labor and benefits expenses
increased by 3,388% from approximately $62,000 for the six-month period ended
June 30, 1997 to approximately $2,102,000 for the six months ended June 30,
1998. Labor and benefits consisted exclusively of salaries, taxes and
benefits. The increase in labor and benefits expenses from the first two
quarters of 1997 to the same period in 1998 was directly attributable to
increased costs and independent contractor fees arising out of the Company's
consulting contract with SAFECO, as well as the Company's hiring of new
employees and increasing salaries to senior management. In addition, the
Company hired additional employees during the second half of 1997 and six-
month period ended June 30, 1998 to meet increased demand and had 27 full-time
employees at June 30, 1998, and increase of 22 from five at June 30, 1997.
At June 30, 1998, the Company had 12 employees in software consulting
services and product development, seven employees in sales and marketing and
eight employees in general and administrative. In addition, the Company hires
independent contractors to service project demand for the Company's consulting
services on a project by project basis, and expects to continue to staff
projects with independent contractors. The Company believes that staffing
client projects with independent contractors results in the Company incurring
costs that are less than those the Company would experience if projects were
internally staffed. The Company expects that it will hire additional staff if
and as needed to meet demand from current clients and prospective clients
whose projects are anticipated to commence within ninety days after hiring.
The Company expects that its independent contractor costs will remain
relatively constant as it takes on additional consulting contracts that offset
decreases resulting from the termination of its consulting agreement with
SAFECO.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $1,164,000 and $47,000 for the six-
month periods ended June 30, 1998 and 1997, respectively. In each period,
these expenses consisted primarily of employee recruiting, travel,
professional fees, occupancy costs, telephone and related Internet
connectivity fees, computer network costs, office expenses and supplies,
marketing, advertising and new business development costs. Overall, selling,
general and administrative expenses as a percentage of gross revenue were 64%
for the six-month period ended June 30, 1998 as compared to 85% for the same
period in 1997. The increase in selling, general, and administrative expenses
on an absolute basis (although representing a decrease as a percentage of
gross revenue) was primarily a result of an increase in the Company's sales,
marketing and advertising efforts in anticipation of growth and its 1998
product releases and, secondarily, of increased professional fees in
connection with its financing efforts in 1998 and the Company entering into a
lease for additional office space. The decrease as a percentage of gross
revenue was due to the Company's increased revenues growing at a greater rate
than expenses.
Management believes that selling, general, and administrative expenses will
continue to decrease as a percentage of gross revenue in future periods.
General and administrative expenses have increased due to increased staffing,
investment in infrastructure and associated expenses necessary to manage and
support the
21
<PAGE>
Company's growing operations. The Company believes that its general and
administrative expenses will increase in dollar amount for fiscal 1998 as a
result of an anticipated expansion of the Company's administrative staff
required to support its growing operations and as a result of an increase in
expenses associated with being a Exchange Act reporting company. The Company
anticipates that it will begin to devote further resources to product
development in fiscal 1998. All costs incurred in the research and development
of software products and enhancements to existing products have been expensed
as incurred and the cost of acquired software products have been capitalized.
The Company's capitalized software will be amortized as required by GAAP
principles beginning in the first quarter of 1998 when the product was
released for sale to the public.
Net Loss. The Company recognized a net loss of approximately $1,467,000
(representing 81% of gross revenue) for the six-month period ended June 30,
1998 as compared to $60,000 (representing 110% of gross revenue) for the
comparable period in 1997. The increase in net loss on an absolute basis is
due primarily to the increased expenses described above which have been only
partially offset by increased revenues from the Company's consulting services.
Interest Expense. Interest expense represents interest expense on Company
debt. Interest expense increased to approximately $16,000 in the six-month
period ended June 30, 1998 from $7,000 for the six months ended June 30, 1997,
due to increased borrowings during 1998.
Years Ended December 31, 1997 and 1996
Gross Revenue. Gross revenue for fiscal 1997 and fiscal 1996 was
approximately $366,000 and $58,000, respectively. During these fiscal years,
all of the Company's revenue was generated by its software consulting
services. The 632% increase in fiscal 1997 gross revenue over fiscal 1996
gross revenue is attributable primarily to the Company's software consulting
agreement with SAFECO, which accounted for approximately $296,000 in revenue
in 1997. During fiscal 1996 and 1997 the Company had no revenue from product
sales.
Labor and Benefits Expenses. Labor and benefits includes all internal labor
costs and other direct costs related to project performance, such as project
specific independent contractor fees, labor costs, supplies and specific
project related expenditures. The Company's labor and benefits for fiscal 1997
were approximately $787,000. The Company hired additional employees during
fiscal 1997 in connection with increasing consulting and product development
and had 23 full-time employees at December 31, 1997. The Company's labor and
benefits expenses increased by 1,174% from approximately $67,000 for fiscal
1996 to $787,000 in fiscal 1997. The increase resulted primarily from the
hiring of additional personnel, primarily in the product development and
consulting and in the sales and marketing areas. The Company grew from five
full-time employees at December 31, 1996 to 23 full-time employees at December
31, 1997.
At December 31, 1997, the Company had ten employees in software consulting
and product development, four employees in sales and marketing and nine
employees in general and administrative. In addition, the Company hires
independent contractors to service project demand for the Company's consulting
services on a project by project basis, and expects to continue to staff
projects with independent contractors. The Company believes that staffing
client projects with independent contractors results in the incurrence by the
Company of costs that are less than those the Company would experience if
projects were internally staffed. The Company expects that it will hire
additional staff if and as needed to meet demand from current clients and
prospective clients whose projects are anticipated to commence within ninety
days after hiring.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $476,000 and $61,000 for fiscal
1997 and fiscal 1996, respectively. In each period, these expenses consisted
primarily of employee recruiting, travel, professional fees, occupancy costs,
telephone and related Internet connectivity fees, computer network costs,
office expenses and supplies, marketing, advertising and new business
development costs. Overall, selling, general and administrative expenses as a
percentage of gross revenue were 130% for fiscal 1997 as compared to 106% for
fiscal 1996. This increase in selling, general, and administrative expenses on
an absolute basis and as a percentage of gross revenue was a result of the
Company's increased sales, marketing and advertising in anticipation of growth
and its first quarter 1998 product releases.
22
<PAGE>
Management believes that selling, general, and administrative expenses will
decrease as a percentage of gross revenue in future periods. General and
administrative expenses have increased due to increased staffing, investment
in infrastructure and associated expenses necessary to manage and support the
Company's growing operations. The Company believes that its general and
administrative expenses will increase in dollar amount for fiscal 1998 as a
result of an anticipated expansion of the Company's administrative staff
required to support its growing operations and as a result of an increase in
expenses associated with being a Exchange Act reporting company. The Company
expects that it will begin to devote further resources to product development
in fiscal 1998. All costs incurred in the research and development of software
products and enhancements to existing products have been expensed as incurred
and the cost of acquired software products have been capitalized.
Net Loss. The Company recognized a net loss of approximately $905,000
(representing 248% of gross revenue) for fiscal 1997 as compared to $75,000
(representing 129% of gross revenue) for fiscal 1996. The increase in net
loss, both on an absolute basis and as a percentage of gross revenue is due
primarily to the increased expenses described above which have been only
partially offset by increased revenues from the Company's consulting services.
Interest Expense. Interest expense represents interest expense on Company
debt. Interest expense increased from approximately $4,000 in fiscal 1996 to
$7,000 in fiscal 1997, due to increased outstanding borrowings during fiscal
1997.
Income Tax. From inception until August 1997, the Company operated as an S-
corporation. As a result, the Company's earnings have been taxed directly to
the Company's shareholders at their individual federal income tax rates,
rather than the Company. The Company became a taxable C-corporation in August
1997. To date, the Company has not paid income taxes.
As of December 31, 1997, the Company had net operating loss carry-forwards
for federal income tax purposes of approximately $768,000. The federal net
operating loss carry-forwards expire in 2012.
CAPITAL RESOURCES AND LIQUIDITY
As a result of hiring additional employees, increasing marketing and
increasing its product development efforts in anticipation of product releases
in 1998, the Company's capital requirements have been and will continue to be
significant and its cash requirements have been and will continue to exceed
cash flows from operations. As a result, the Company has been substantially
dependent on sales of its equity securities, cash flow from operations, and
borrowings from affiliates. At June 30, 1998, the Company had cash in the
aggregate amount of approximately $5,246,000, primarily attributable to the
sale of Company Common Stock to foreign investors in May 1998. The Company's
working capital increased an aggregate of $4,817,000, from ($158,000) at
December 31, 1996 to $62,000 at December 31, 1997 and to $4,659,000 at June
30, 1998, primarily due to the sale of equity securities described in more
detail below.
Net cash used in operating activities was $960,000 for the six months ended
June 30, 1998, as compared to $(2,000) for the six months ended June 30, 1997.
The increase in net cash used in operating activities was primarily
attributable to the Company's operating loss of $1,441,000. Net cash used in
operating activities was $728,000 for the year ended December 31, 1997,
resulting primarily from the Company's operating loss of $905,000.
Net cash used in investing activities was $97,000 for the six months ended
June 30, 1998, as compared to $(2,000) for the comparable six months in 1997.
The increase in net cash used in investing activities was primarily
attributable to an increase in purchases of equipment, software and leasehold
improvements. Net cash used in investing activities for the year ended
December 31, 1997 was $279,000, consisting primarily of purchases of equipment
and leasehold improvements.
Net cash provided by financing activities for the six months ended June 30,
1998 was $6,088,000, as compared to $(8,000) for the six months ended June 30,
1997. The increase in net cash provided by financing
23
<PAGE>
activities was primarily attributable to the Company's sales of equity
securities in May 1998. Net cash provided by financing activities for the year
ended December 31, 1997 was $1,206,000, consisting primarily of sales of
equity securities.
During May 1998, the Company sold 1,534,010 shares of Common Stock to
approximately 117 foreign investors in a private offering. The Company
received gross proceeds of approximately $6,136,040 from such offering, before
costs associated with the offering. See "SELLING SHAREHOLDERS."
Additionally, during the six months ended June 30, 1998, the Company
borrowed and repaid $600,000. National Day Corporation loaned such funds to
the Company pursuant to three demand promissory notes which bore interest at
12% per annum. The Company used part of the proceeds from the Common Stock
offering in May 1998 to repay such loan.
From September 1997 to November 1998, the Company issued warrants to certain
foreign brokers to purchase an aggregate of up to 2,800,000 shares of Common
Stock. Warrants for 600,000 shares were exercised during fiscal 1997,
resulting in net proceeds to the Company of $900,000. Warrants for 1,200,000
shares have expired without being exercised and there are currently 1,000,000
of warrants remaining outstanding. If the market price of the Common Stock
does not exceed the exercise price of $3.00 per share for such warrants, the
Company does not believe that such warrants will be exercised.
Based on the Company's current proposed plans and assumptions relating to
product releases and sales, the Company anticipates that it will not require
additional capital financing through the third quarter of 1999. If the
Company's plans change or its assumptions prove to be inaccurate, the Company
may be required to seek additional equity and/or debt financing sooner than
currently anticipated. The Company has no current arrangements related to
additional financing. In as much, there can be no assurance that any
additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. See "RISK FACTORS--Limited Operating
History; No Profitable Operations."
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER
SHARE, which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS 128 supersedes Accounting Principles
Board Opinion No. 15 and is effective for financial statements issued for
periods ending after December 15, 1997. SFAS 128 requires restatement of all
prior-period earnings per share data presented after the effective date. The
adoption of SFAS 128 did not result in a restatement of earnings per share in
prior periods.
In June 1997, the FASB issued SFAS 130, REPORTING COMPREHENSIVE INCOME,
which establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company will adopt SFAS 130 in
fiscal 1998. Management believes that SFAS 130 will not have a material impact
on the Company's financial position, results of operations or cash flows.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
Although there was no stock-based compensation in 1997, Interactive Objects
has chosen to account for stock-based compensation using Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issues to Employees."
Accordingly, compensation cost for stock options granted to employees is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to pay
for the stock.
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information," is effective for years
beginning after December 15, 1997. This statement requires use of
24
<PAGE>
the "management approach" model for segment reporting. The management approach
model is based on the way a company's management organizes segments within the
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a
company. Interactive Objects does not anticipate that the adoption of the
statement will have a significant impact on its financial statements other
than potentially providing more financial statement disclosures.
25
<PAGE>
BUSINESS
THE COMPANY
Interactive Objects designs, develops and markets modular software
components. Additionally, the Company, through its consulting services group,
provides sophisticated software business solutions designed to facilitate
integrating medium- to large-scale businesses with the Internet.
The Company's products are designed for use primarily on the Microsoft suite
of visual programming languages including Visual Basic(R), Visual C++(R) and
Visual FoxPro(R) and are marketed to corporate and professional developers for
use in a variety of environments, including multi-tier client-server,
intranet, extranet and Internet environments. The Company's products are
reusable, modular software components designed to work across multiple
operating platforms. As a result, corporate and professional developers are
able to focus on the core functionality of the applications they are
developing--designing and constructing their applications more efficiently.
The Company released two components in the first quarter of 1998 and expects
to release a suite of four additional components in the fourth quarter of
1998.
The Company has historically derived a substantially all of its revenue from
its consulting services group. The consulting services group specializes in
sophisticated software business solutions which involve intranet, extranet and
Internet environments. In addition to providing sophisticated business
solutions to enterprise companies, Interactive Objects' consultants provide
much of the Company's research and development input for creating new and
innovative products. In 1998, substantially all of the Company's revenues were
the result of contracts awarded to its consulting group. These contracts
provided the Company valuable insight into the technology hurdles confronting
medium and large companies.
The Company's business strategy is focused on broadening its product
development by productizing the business solutions the Company's consultants
have designed or identified while performing consulting services. These
products are "application frameworks," sets or suites of reusable software
components architected to facilitate scaleable application development
designed to solve a specific business problem. By assembling its base
components together with the business objects generated from its consulting
projects in a framework architecture, the Company can address the
sophisticated business solution requirements of medium to large size
organizations. The Company has also recently augmented its executive
management team, and expanded its sales department with individuals
experienced in channel development and relationship-based solution sales to
enterprise-level organizations. The Company expects to release its first
application framework product in 1999.
While continuing to invest its engineering and development resources in
expanding its library of development tools and components, the Company
believes that by assembling objects within an application framework, the
resulting solutions will have greater market potential than that of individual
component sales. The move from developer solutions to business solutions
represents a natural evolution for the Company. The Company believes that its
core capabilities are application architecture through its consulting group
and reusable component development by its product development team. See "RISK
FACTORS--Uncertainties Regarding Market Acceptance of the Company's Products;
New Product Introductions."
INDUSTRY BACKGROUND
Increasing Dependence on Software. Businesses are increasingly relying on
information systems as a strategic resource and as a way of differentiating
themselves from their competitors. A sophisticated enterprise-wide information
system can allow a company to take advantage of new markets before a
competitor, reduce operating expenses, and increase ties with suppliers and
customers. Business solutions incorporating Internet and intranet technologies
can be particularly effective in extending the information system outside the
bounds of a company, creating even more opportunities. Of all the pieces that
make up an information system, software plays a critical role. Therefore, as
businesses become more dependent on their information systems, their
dependence on software increases. In addition, original equipment
manufacturers ("OEMs") and independent software vendors ("ISVs") are
increasingly dependent on the development of software to provide critical
functionality and product differentiation.
26
<PAGE>
Need for Improved Software Development Technologies and Methods. Software
development technologies and methods have not kept pace with the increasing
reliance on software systems. In fact, the intricacies of modern software
systems have tended to make the software development process longer, more
complicated and increasingly error prone. For example, many businesses are
implementing client-server applications that must be scalable (capable of
growing to support additional users) enough to handle hundreds or thousands of
users, yet flexible enough to meet continually changing business requirements.
Businesses implementing enterprise-wide information systems face a
particularly difficult challenge in developing software for the distributed,
heterogeneous environments that these systems typically demand. In addition,
businesses recognize that not only are these software systems expensive to
develop, they can also be expensive to maintain.
Organizations have taken an initial step in addressing the complexity and
cost of today's software systems by breaking software applications into
functional segments to be developed by separate teams of programmers. However,
traditional software development methodologies often produce unnecessary and
complex interdependencies among functional software segments. The resulting
software is typically difficult to develop and test, as well as expensive to
modify and maintain.
Adoption of Object-Oriented Technologies. To address the difficulties of
developing and maintaining complex software systems, organizations are
increasingly adopting object-oriented technologies and development
methodologies. Object-oriented programming allows software to be written in
terms of objects that are used as building blocks to model real-world objects
and systems. Objects, sometimes referred to as components, are self-contained
units that encapsulate a collection of data and related procedures. Although
objects may be internally complex, they are designed to have simple interfaces
that allow programmers to develop and change objects independently without
affecting other segments of the software system. The generalized, self-
contained nature of well-designed objects allows them to be reused within a
single software system and in subsequent applications. To a large extent,
developing software applications then becomes a matter of assembling new and
existing objects, rather than writing entire programs from scratch, resulting
in significantly reduced development times and improved software quality. In
addition, because the internal details of each object are relatively insulated
from the rest of the system, objects can be tested, modified and maintained
independently.
As object-oriented technologies have been adopted over the last several
years, Microsoft's Visual Programming Languages (primarily Visual C++(R) and
Visual Basic(R)) have emerged as the de facto standard computer languages for
object-oriented software development. Java(R) by Sun Microsystem, Inc.,
another object-oriented programming language that is similar to C++(R), is
gaining popularity with the growth of the Internet and intranet environments.
Need for Reusable Third-Party Software Components. While objects or
components are easy to use once built, developing reusable, well-designed
components can be extremely difficult and time consuming. Many technical
details must be addressed, including support for various platforms, graphical
user interfaces, databases and networking protocols. As a result, object-
oriented software development can be improved significantly through the use of
pre-built, industry-standard objects ("components"). Software components are
typically sold as a "class library," a group of up to 100 related object types
("classes"). Organizations seek to improve quality and time-to-market by
purchasing pre-written components from independent vendors to handle
fundamental operations ranging from simple functions such as date handling to
more complex functions such as network communications. Using off-the-shelf
components for such tasks allows developers to focus on the core functionality
of the systems they are developing. For example, using a standard component
for database connectivity allows a developers to develop an application
without regard to the low-level details of programming to any particular
database while allowing the freedom to switch between different database
vendors. In addition, commercially available software components typically are
more thoroughly tested and provide more complete functionality than parts
developed in-house. The Company believes that the use of third-party software
components will enable organizations to develop robust software applications
more rapidly, at lower cost and with more functionality than applications
using only internally developed components.
27
<PAGE>
Benefits of Implementing Application Framework Technology. As the complexity
of applications developed to solve specific business problems increase,
developers have looked to expand upon the concept of reusable component
architecture to capture the benefits this process facilitates. As a result,
the concept of application frameworks has evolved. Application frameworks are
a set or suite of reusable components architected and assembled in such a way
as to facilitate scaleable application development designed to solve a
specific business problem. As such, application frameworks represent a
reusable, easily modifiable environment where application development of a
robust business solution becomes an assembly process, built on the substantial
reuse of common, well-tested components or business objects.
In theory, application frameworks represent a development methodology where
up to 80 percent of an application or business solution under development can
be based on reusable software. As a result, application frameworks pledge to
shorten development cycles, reduce skill requirements, and cut the costs
associated with custom development of software-based business solutions.
Unlike traditional "middleware" solutions that only address low-level
application programming interface (API) integration and data transformation,
application frameworks extend upward to the business process layer allowing
developers to develop robust business solutions in less time than traditional
programming practices provide.
INTERACTIVE OBJECTS' SOLUTIONS
In addition to providing high-level consulting services to major
corporations, Interactive Objects designs, develops and markets reusable,
modular software components.
Reusable Software Components
Improved Software Quality. Interactive Objects' products improve software
quality by providing professional developers with reliable, reusable software
components and application frameworks. The use of the Company's products
result in reduced development times for applications that are easier to
maintain and contain less untested code, resulting in fewer bugs and higher
quality. See "RISK FACTORS--Uncertainties Regarding Market Acceptance of the
Company's Products; New Product Introductions."
Accelerated Development Time. By incorporating the Company's pre-programmed,
pre-tested, reusable software components within their applications, developers
can produce more reliable software solutions in less time.
Responsive to Developers. The method of bundling multiple components has
become an industry standard. However, the Company believes that in many
instances, components with little to no commonality are bundled together as a
class library. Interactive Objects offers its components on an individual
basis versus pre-bundled allowing the developer to pick and choose according
to his or her needs. The Company believes this method is a competitive
advantage as it empowers customers to determine their needs rather than the
vendor.
Increased Focus on Critical Functionality. The Company's products
encapsulate fundamental operations within reusable software components,
allowing developers to focus on defining and creating the critical business
logic within applications rather than the mundane routines that an application
needs to request and carry out lower-level services.
Reduced Maintenance Cost. The Company's products are designed to reduce
overall maintenance and support costs over the life of an application. Use of
the Company's products help developers program flexible, modular applications
that are easier to update, modify and refine. See "RISK FACTORS--Rapid
Technological Change."
Software Consulting Services
Specializing in Internet-based technologies and protocols, the Company's
consultants target primarily large enterprise-caliber companies. Through its
object-oriented, standards-based architectures, the Company provides
28
<PAGE>
sophisticated solutions and interfaces connecting enterprise corporations to
relevant communities of interest their distributors, their salesforce, their
employees, clients and business partners. With their thorough understanding of
re-useable, modular application architecture, the Company's consultants
deliver enterprise business solutions that bridge the gap between legacy
information and today's cutting-edge Web technology. In addition to providing
sophisticated IS solutions to enterprise companies, Interactive Objects'
consultants serve as part of the Company's research and development arm
identifying and defining new and innovative products that may ultimately be
sold by the Company. Emphasizing collaboration, coordination and
communication, the Company is a premium service provider of complex business
solutions for large corporations such as SAFECO, Eddie Bauer and Microsoft.
See "RISK FACTORS--Concentration of Customers; Limited Marketing Experience."
Because Internet development expertise is in demand, many companies find
they simply don't have the resources in house to tackle particularly
challenging applications. In these cases, the Company's consultants provide
the technical guidance on a project basis and solve the complex problems
presented to them. By working directly with companies, the Company's
consultants see first-hand the problems confronting corporate IS departments.
That, in turn, gives Interactive Objects a competitive advantage in creating
the tools to solve that problem. The customized tools created by the Company's
consultants to solve a particular problem today may become Company products in
the future. See "RISK FACTORS--Dependence on Consulting Engagements for
Product Research and Development and Market Research."
The Company's consultants focus on providing solutions leveraging
Interactive Objects core area of expertise integrating the enterprise with the
Internet. The Company's most recent consulting agreement related to the design
of an enterprise-wide information automation system that will enable SAFECO's
nationwide network of over 8,000 independent agents to create and process
insurance applications over the Internet. The suite of software components and
business objects resulting from this partnership are expected to increase the
efficiencies of SAFECO's claim and policy processing while reducing the cost
of SAFECO's remote agent support activities. See "RISK FACTORS--Concentration
of Customers; Limited Marketing Experience."
Cognizant of the competitive nature in the professional IS services arena,
the Company, in an effort to provide the highest level of flexibility and
responsiveness for its clients and to limit the growth of its employee base,
assembles teams of independent programmers for each project based on the
individual requirements of that project. Utilizing this business model, the
Company can limit the risks inherent in assembling large teams of low-level
programmers while maintaining management of the project and the ability to
provide the highest level of service. See "RISK FACTORS--Recruiting and
Retaining Technical Personnel."
Interactive Objects believes that its consulting services provide many
opportunities and benefits to the Company, including:
. Market Research--By working directly with large corporations,
Interactive Objects gains timely insight into the needs of the
information services market. The Company analyzes and utilizes this
market research information to identify opportunities for the
development of new components. The Company believes that consulting
projects will not only enable the Company to further develop its core
expertise while keeping apprised of the needs of the market, but will
also foster a competitive advantage for the Company since this market
research is not an added expense to the Company. See "RISK FACTORS--
Dependence on Consulting Engagements for Product Research and
Development and Market Research."
. Development--The customized tools created to solve business problems on
the consulting engagement can be further developed to become products
marketed by Interactive Objects. See "RISK FACTORS--Uncertainties
Regarding Market Acceptance of the Company's Products; New Product
Introductions."
. Product Exposure--The solutions implemented to business problems
encountered on a particular consulting engagement may require the use of
existing Interactive Objects' products, resulting in increased awareness
and exposure to the Company, its products, and personnel. See "RISK
FACTORS--Concentration of Customers; Limited Marketing Experience."
29
<PAGE>
THE INTERACTIVE OBJECTS STRATEGY
Interactive Objects' objective is to be a leading provider of modular
software components, application frameworks and Internet, intranet and
extranet business software solutions. The Company intends to achieve this
objective by:
. Continuing to Develop Modular Software Components that are both Reusable
and Robust. The Company intends to continue to develop reliable modular
software components designed to facilitate accelerated application
development of robust business solutions for the professional and
corporate developer. See "RISK FACTORS--Dependence on Growth of
Internet/Intranet/Extranet Software Applications."
. Expanding upon its Consulting Services to Enterprise-level
Corporations. Leveraging its key technological expertise in Internet,
intranet and extranet business solutions, the Company intends to invest
in expanding its infrastructure and personnel base to facilitate a more
aggressive sales initiative targeting medium to large companies. See
"RISK FACTORS--Evolving Markets and Standards" and "--Rapid
Technological Change."
. Leveraging Consulting Relationships to Develop Application
Frameworks. By leveraging the intellectual properties resulting from
certain of its consulting relationships and its software components, the
Company intends to develop application frameworks for the corporate IS
and enterprise business community. See "RISK FACTORS--Dependence on
Consulting Engagements for Product Research and Development and Market
Research."
. Expanding its Sales and Distribution Network. While currently relying
extensively on Web-based electronic software distribution, the Company
intends to expand its sales and distribution capabilities through a
variety of activities including establishing and building a network of
resellers and integrators to support the Company's enterprise
initiatives, growing its internal sales organization to facilitate
dealing directly with Fortune 2000 companies, and encouraging the
establishment of co-marketing relationships with leading OEMs, ISVs and
VARs. See "RISK FACTORS--Limited Product Distribution."
. Performing Strategic Acquisitions. The Company continually evaluates
potential acquisitions of complementary businesses, products and
technologies, that among other things, could expand the breadth and
depth of its products and organization. See "RISK FACTORS--Competition"
and "--Risks Associated with Potential Acquisitions."
INTERACTIVE OBJECTS' PRODUCTS AND SERVICES
Interactive Objects designs, develops and markets modular software
components. Additionally, the Company, through its consulting services group,
provides sophisticated software business solutions designed to facilitate
integrating medium- to large-scale businesses with the Internet.
Products
Visual Gateway Interface ("VGI"), the Company's first product released in
the first quarter of 1998, is a fully integrated, object-oriented Microsoft-
based development tool allowing users develop true server-independent Web-
based applications able to run on any NT Web server without relying on, or
learning, a new scripting language. VGI was created to solve a problem Web
programmers consistently encounter--the fact that different gateways and Web
servers support different scripting languages and/or protocol specifications.
As a result, visual programmers were required to learn and use multiple tool
sets to create separate versions of the same application for deployment across
the different servers. VGI provides a familiar, standards-based interface that
visual programmers can use to create a single version of a Web application
that runs on all popular Web servers without needing to learn and use the Web
server specific scripting language (e.g., VBScript, JavaScript, Perl, etc.).
This tool enables visual programmers to concentrate on the development and
enhancement of the Web application itself rather than on the protocols
necessary to run them. By simplifying the method for integrating
30
<PAGE>
standard Web protocols into the developer's native visual application
environment, VGI provides an easy-to-use framework for creating and migrating
visual applications to the Web. VGI retails for $149.00. Sales of VGI, to
date, have been insignificant.
Products Under Development
Visual Mail Interface ("VMI"). The VMI product suite is a series of four
reusable, object-oriented components that let developers create and implement
a variety of electronic mail applications without having to learn specific e-
mail protocols. Both componentized and reusable, VMI allows for the easy
assimilation of e-mail capabilities into existing or new applications from
either the client or server side. From requisition and form routing, to
automatic response mechanisms, VMI lets developers quickly and easily add
innovative e-mail functionality to their applications. All the VMI components
come pre-tested, ensuring the highest level of reliability and stability
available. Designed for COM-compliant development environments including
Visual Basic(R), Visual C++(R), Visual J++(R) and Delphi(R), VMI supports the
leading Internet and communication protocols: POP3, SMTP, MIME and UUencode.
The Company plans to release the VMI product line the fourth quarter of 1998.
The Company intends to market VMI both as a suite and as individual
components. Pricing has yet to be determined.
Application Frameworks. Leveraging its core competencies and its consulting
relationships, the Company plans to release its first application framework in
1999. These application frameworks will represent a set of reusable objects
architected and assembled in such a way as to facilitate scaleable application
development that solves a specific business problem. As the Company's
products, specifically its application framework solutions, become more
complex, customers increasingly require greater professional assistance in the
design, development and deployment of these business solutions within their
individual organizations. As a result of the complexity and robustness of its
application framework technology, the Company expects that application
framework pricing will be significantly in excess of prices charged for its
components. See "RISK FACTORS--Uncertainties Regarding Market Acceptance of
the Company's Products; New Product Introductions" and "--Dependence on Growth
of Internet/Intranet/Extranet Software Applications."
Consulting Services
Specializing in Internet-based technologies and protocols, the Company's
consultants target primarily large enterprise-caliber companies. Through its
object-oriented, standards-based architectures, the Company provides
sophisticated solutions and interfaces connecting enterprise corporations to
relevant communities of interest--their distributors, their sales force, their
employees, clients and business partners. With their thorough understanding of
re-useable, modular application architecture, the Company's consultants
deliver enterprise business solutions that bridge the gap between legacy
information and today's cutting-edge Web technology. Emphasizing
collaboration, coordination and communication, the Company is a premium
service provider of complex business solutions for large corporations such as
SAFECO, Eddie Bauer and Microsoft.
Product Development
Interactive Objects approaches product development as an organized
development effort utilizing individual product teams. These teams are
designed to be small, focused, and efficient. Each team consists of a project
manager, and a number of software designers, documentation writers and test
engineers. The teams work on a six to nine month development cycle, with each
team focusing on a particular component or set of related components during a
development period. The Company's product development plan is to release a
suite of 4 additional components in 1998. The Company currently has two
product development teams and will add additional teams if product sales
warrrant. Additionally, the Company maintains information on freelancers,
independent developers/programmers, and 3rd party development organizations
the Company could contract with, and outsource projects to, in an effort to
help facilitate the Company's development plans, in the event internal
resources are insufficient to accomplish the specific project. See "RISK
FACTORS--Recruiting and Retaining Technical Personnel."
31
<PAGE>
The Company believes that quality is a competitive factor in the software
component market. In as much, the Company emphasizes quality assurance as a
fundamental element within its development process. Each product development
team is staffed with a test engineer whose purpose is to develop test scripts
for the respective components and to conduct unit testing. In addition,
Interactive Objects has contracted with a third-party laboratory, ST Labs
Inc., one of the nation's leading providers of software testing and quality
assurance support services, for functionality, stress, and scalability
testing. The Company believes that with its commitment to thoroughly testing
its products, the Company will engender developer confidence in the
reliability of all products Interactive Objects brings to market. See "RISK
FACTORS--Software Defects and Liability Claims."
SALES, DISTRIBUTION AND SUPPORT
The Company seeks to increase awareness of its products, to provide customer
and technical support and to encourage dialogue regarding its products by
maintaining a World Wide Web site. Interactive Objects' current sales,
support, and distribution strategy for its software components relies almost
exclusively on the Internet and electronic software distribution. A visitor to
the Company's Web site can download products for a free time-limited trial
period (15 to 30-days in length) letting potential users become aware of the
features and benefits of the respective product. At the end of the trial
period, the user must purchase the product or it will automatically expire. To
purchase the product, the user must enter credit card information to
facilitate the sale.
The Company believes that the electronic channel is an important source of
information and support for IT professionals. By utilizing the Web and ESD as
its principal means of distribution for its components, the Company believes
it has taken the most direct and effective route to its target market, the
professional software developers a group that tends to spend significant time
on the Web. This marketing strategy enables the Company to eliminate most of
the manufacturing, distribution and inventory costs traditionally associated
with selling software. See "RISK FACTORS--Limited Product Distribution."
Another advantage to the Company's Web-based ESD is increased responsiveness
to market changes. This strategy allows the Company to provide instantaneous
changes to its product line without recalling outdated or unsold product. The
Company can also quickly respond to market pressures and can adjust the price
of a product depending on market demand. In addition, the Company has the
flexibility to dynamically package its products in a variety of configurations
versus being tied to the rigid packaging requirements standard distribution
channels require. The Company provides both volume discounts and corporate
licenses encouraging mass distribution of its products. See "RISK FACTORS--
Uncertainties Regarding Component Product Positioning" and "--Rapid
Technological Change."
As the Company expands its activities into the application frameworks arena,
the Company will move beyond the Web-centric sales and distribution model it
has employed for its components. Historically, the Company has not had a large
enterprise or national accounts sales force. Establishing and building a
channel of resellers and integrators to support the Company's overall
strategic sales and marketing activities as it expands into its enterprise
initiative will be a priority for the Company. Accordingly, the Company is
currently recruiting seasoned sales professionals in an effort to expand its
direct sales department. These individuals will serve as the primary sales
mechanism necessary to communicate the strengths of the Company to the
targeted audience-- enterprise organizations.
The Company also provides support through its Web site. By providing support
electronically, the Company believes that it is often able to identify and
solve customer problems more rapidly.
MARKETING
Interactive Objects' promotion activities focus on two objectives: generate
and raise awareness to the Company and its products, and increase the number
of visits and resulting sales from its Web site. Advertising and promotional
efforts are focused on these goals. Using controlled circulation publications
such as Visual Basic Programmer's Journal and Microsoft Interactive Developer,
Interactive Objects has implemented a plan targeting
32
<PAGE>
professional software developers through print advertising for its component
product lines. Interactive Objects has also pursued Web advertising. Banner
ads have been placed on www.microsoft.com, one of the highest trafficked sites
on the Web. The Company believes this to be an effective form of advertising
since it leverages the visibility a high traffic site like Microsoft's
provides, while enabling customers to hyperlink directly to the Company's Web
site. See "RISK FACTORS--Competition."
As the Company expands its activities to the application framework market,
its marketing activities will also expand. Direct mail supported by
telemarketing, reseller channel development and training, third-party
partnerships with other independent software vendors will all be explored as
the Company's strategy evolves. The Company's commitment to establishing these
relationships is demonstrated through its participation in Microsoft's
Software Developers Network Independent Software Vendor Program, as well as
being named a charter member of Wall Data's Cyberprise(R) Consulting Partner
Program. See "RISK FACTORS--Concentration of Customers; Limited Marketing
Experience."
Media and analyst relations will remain a core component to the Company's
promotional campaign. The Company believes that press coverage of the Company
is a cost-efficient way to increase visibility and establish credibility.
Interactive Objects has already received positive coverage in Web Techniques,
The Seattle Times, The Seattle Post-Intelligencer, Washington CEO magazine,
Puget Sound Business Journal, Business Week, and CNET's electronic magazine,
AnchorDesk. Interactive Objects intends to continue to invest in this channel
through press/analyst tours with the objective of generating further interest
and visibility in industry, general business and regional publications.
Interactive Objects' promotional activities include maintaining a presence
in the industry by promoting itself at selective trade shows. Trade shows give
Interactive Objects the opportunity to enhance its image as the corporate
developer's advocate, establish business relationships with OEMs and VARs,
meet with industry analysts and press as well as research the market and the
competitors. The Company's commitment to tradeshows was immediately recognized
at VBITS'98 San Francisco (March 1998)--the Company's first show appearance--
where Interactive Objects was awarded "Best of Show" for its marketing
activities and booth design.
ACQUISITIONS
The software industry has experienced and is expected to continue to
experience a significant amount of consolidation. While the Company expects
that it will grow internally, the Company continually evaluates potential
acquisitions of complementary businesses, products and technologies, that
among other things, could expand the breadth and depths of its products and
organization. See "RISK FACTORS--Risks Associated with Potential
Acquisitions."
COMPETITION
The market for software consulting and contract development/software system
design services is extremely competitive. The principal competitive factors in
this market are thoroughness and ingenuity of solution proposed and
responsiveness to client proposal requests, and to a lessor degree, reputation
and price. Many of the Company's competitors in the consulting arena have
substantially greater financial, management, marketing and technical resources
than the Company. There can be no assurance that the Company will be able to
compete successfully against current and future competition, and the failure
to do so would have a material adverse effect upon the Company's business,
operating results and financial condition. See "RISK FACTORS--Concentration of
Customers; Limited Marketing Experience" and "--Competition."
The market for the Company's products is intensely competitive, subject to
rapid change, and significantly affected by new product introductions and
related marketing activities of industry participants. The Company's products
are targeted at the emerging market for re-usable business objects and
software components specific to Internet-related applications. Sales in the
component industry is not currently dominated by any one company.
International Data Corporation in its 1998 Worldwide Markets and Trends Report
on Internet Tools, reports that,
33
<PAGE>
with the exception of Oracle Corporation at 16%, no programmer development
tool vendor has over 5.1 percent of the worldwide market share. See "RISK
FACTORS--Rapid Technological Change."
Direct competitors of the Company's reusable software components include
Progress Software Corporation (Crescent division) and Sheridan Software
Systems, Inc. Both produce components that are targeted directly at visual
developers and both were early leaders in the visual component market.
The Company believes that the principal competitive factors in this market
to be: product quality, flexibility, performance, functionality and features,
use of standards-based technology, quality of support and service, company
reputation and price. While price is less significant than other factors for
corporate customers, price can be a significant factor for individual
developers.
According to International Data Corporation in its 1998 Worldwide Markets
and Trends Report on Internet Tools, the Windows component market share
(developer tools produced to support Microsoft's Windows 95(R), Windows 98(R)
and Windows NT(R)) is expected to double in the next five years, from 22.3% in
1997 to 42.5% in 2002. The Company believes that by containing its development
efforts to Windows-based solutions, that it will be well positioned to take
advantage of this anticipated growth.
In the application framework product area, the competition the Company faces
is not easily identified. As an emerging market, it is difficult to project
which companies may be the most effective competitors and, as the market
matures, the Company believes it is inevitable that strong competitors will
surface. Until that time, the Company is confronted by a myriad of competitors
including Mortice Kern Systems Inc., Neuron Data, Inc. and Usoft Corporation.
Indirect competitors include many of the independent information system
consulting organizations which may have distributed component technology
expertise.
Many of these direct and indirect competitors have longer operating
histories, more resources (financial, technical, and marketing), greater name
recognition and larger installed base of customers than the Company. As a
result, these competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or devote greater
resources to the development, promotion and sale of their products than the
Company. The Company believes that its product positioning, including its
planned offering of individual, non-bundled components, as well as complete
application frameworks, and its dedication to high quality, reliable products
will enable it to gain competitive advantage in the market. In addition, the
Company's business objects are designed to interact smoothly with established
software systems. With components specifically developed for use with
Microsoft, the Company intends to partner with these companies to bundle the
components with theirs, or sell them in conjunction. The Company's products
are also developed using standards-based object technologies enabling them to
run on multiple platforms and with multiple programming languages
The Company also faces competition from systems integrators and internal
development efforts. Some systems integrators possess industry-specific
expertise that may enable them to offer a single vendor solution where they
already have a reputation among potential customers. There can be no assurance
that these third parties, some of which have significantly greater resources
than the Company, will not market competitive software products in the future.
It is also possible that new competitors or alliances among competitors will
emerge and rapidly acquire significant market share. The Company also expects
that competition will increase as a result of software industry consolidation.
Increased competition may result in price reductions, reduced gross margins
and loss of market share, any of which could materially and adversely affect
the Company's business, operating results and financial condition. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, financial
condition and results of operations. See "RISK FACTORS--Uncertainties
Regarding Market Acceptance of the Company's Products; New Product
Introductions" and "--Competition."
34
<PAGE>
YEAR 2000 COMPLIANCE
The Company's products are designed to be Year 2000 compliant and do not
contain any date- or time-dependent code strings, fields, variables or other
mechanisms that inhibit their use or reliability following the turn of the
century. As Interactive Objects develops, tests, and releases new products,
and upgrades existing products it actively verifies that any date-related
items are Year 2000 compliant. See "RISK FACTORS--Year 2000 Issues."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company also believes that factors such as
the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are essential to establishing and maintaining a
technological leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company believes its current
intellectual property rights are sufficient to carry on its business as
currently conducted. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States.
There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competition will not independently develop similar technology. See "RISK
FACTORS--Proprietary Rights; Risks of Infringement."
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays, or
require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all. In the event of a successful claim of
product infringement against the Company and failure or inability of the
Company to license the infringed or similar technology, the Company's
business, operating results and financial condition would be materially and
adversely affected.
EMPLOYEES
As of August 21, 1998, the Company had a total of 24 employees, all of whom
were based in the Seattle, Washington area. Of the total, 12 were in
consulting services and product development, seven were engaged in sales and
marketing and five were in administration and finance. The Company's future
success depends in significant part upon the continued service of its key
technical and senior management personnel and its continuing ability to
attract and retain highly qualified technical and managerial personnel.
Competition for highly qualified personnel is intense and there can be no
assurance that the Company will be able to retain its key managerial and
technical employees or that it will be able to attract and retain additional
highly qualified technical and managerial personnel in the future. None of the
Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees
to be good. See "RISK FACTORS--Recruiting and Retaining Technical Personnel"
and "--Reliance on Key Personnel; Possible Changes in Management."
35
<PAGE>
FACILITIES
The Company leases its principal facility, which contains approximately
2,200 square feet of office space, in Redmond, Washington. This facility is
leased on a month-to-month basis. The Company also leases approximately 8,141
square feet of office space in the Olympic Tower Building in Seattle,
Washington, where its product development personnel are based. The Company has
sublet certain of its Seattle office space to unaffiliated third parties. The
Company may consolidate its leased office space in 1999. The Company believes
that its existing facilities will be adequate through fiscal 1999 and that
sufficient additional space will be available as needed thereafter on
commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or
proceeding and is not aware of any material litigation or proceeding
threatened against it.
36
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
The following table sets forth the names and ages of the current directors
and executive officers of the Company and the principal offices and positions
with the Company held by each person. The Company's Board of Directors
currently consists of five directors, divided into three classes. The members
of each class serve three-year terms, with one class elected annually. The
terms of office for Class I directors (Brent Nelson and Thad E. Wardall)
expire at the Annual Meeting of Shareholders to be held in 1999; the term of
office for the Class II director (Steven G. Wollach) expires at the Annual
Meeting of Shareholders to be held in 2000; and the terms of office for Class
III directors (Ryan L. Smith and John J. Guarino) expire at the Annual Meeting
of Shareholders to be held in 2001. The executive officers of the Company are
elected annually by the Board of Directors and serve terms of one year or
until their death, resignation or removal by the Board of Directors. There are
no family relationships between any of the directors and executive officers.
Pursuant to the terms of a consulting agreement between the Company and
Northwest Capital Partners, L.L.C., Northwest Capital has the right to
nominate one director for election to the Company's Board of Directors.
Northwest Capital's nominee is Brent Nelson. See "CERTAIN TRANSACTIONS." Other
than the foregoing right of Northwest Capital, there are no arrangements or
understandings between any director or executive officer and any other person
pursuant to which any person was selected as a director or executive officer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ryan L. Smith......... 50 Chief Executive Officer and Chairman of the Board
John J. Guarino....... 47 Senior Executive Vice President and Director
Steven G. Wollach..... 44 Chief Financial Officer and Director
Steve Jackson......... 31 Chief Technology Officer
Robert Diez........... 38 Vice President of Sales and Marketing
Thad E. Wardall....... 52 Director
Brent Nelson.......... 37 Director
</TABLE>
Set forth below is biographical information for the directors and executive
officers:
DIRECTORS
Ryan Smith, age 50, has served as Chief Executive Officer, Chairman of the
Board and a Director of the Company since September 16, 1997. In November
1995, Mr. Smith, together with John Guarino and another executive officer of
the Company, formed Catalog Connections, Inc., a software consulting company,
which later changed its name to Neoteric Media, Inc. Neoteric Media was
subsequently acquired by the Company in August 1997 in the Neoteric
Acquisition. Mr. Smith served as President and a Director of Neoteric Media
from November 1995 to September 1997. Prior to Neoteric Media, Mr. Smith
founded Software Office Solutions, where he provided computer consulting
services for businesses from 1993 to 1995. From 1989 to 1993, Mr. Smith served
as Corporate Training Specialist and Production Manager for Microsoft
Corporation.
John J. Guarino, age 47, has served as Executive Vice President and a
Director of the Company since September 16, 1997, and as Secretary of the
Company's Board of Directors since October 1997. In November 1995, Mr.
Guarino, together with Ryan Smith and another executive officer of the
Company, formed Catalog Connections, Inc., a software consulting company,
which later changed its name to Neoteric Media, Inc. Neoteric Media was
subsequently acquired by the Company in August 1997 in the Neoteric
Acquisition. While at Neoteric Media, Mr. Guarino served as Secretary of the
Board of Directors from November 1995, Vice President from 1996, and Marketing
Manager in 1995. Prior to Neoteric Media, Mr. Guarino served as Master
Technical Writer for Microsoft Corporation from 1991 to 1995 where he
designed, wrote, scheduled, and produced technical documentation, marketing
material, technical white papers, and on-line help files for various Microsoft
applications. Mr. Guarino holds a B.A. in Advertising from San Jose State
University.
37
<PAGE>
Thad E. Wardall, age 52, has served as a Director of the Company since
September 16, 1997. From March 1996 to September 1997, Mr. Wardall served as a
Director of Neoteric Media, Inc. From June 1991 to February 1996, Mr. Wardall
served as the International Facilities Project Manager for Microsoft
Corporation. During his time at Microsoft, Mr. Wardall traveled to 27
countries and had oversight responsibilities for 36 high-tech subsidiary
office projects. Mr. Wardall holds a Bachelor of Architecture degree from
Washington State University.
Steven G. Wollach, age 44, has served as a Director of the Company since
September 16, 1997, as Chief Financial Officer of the Company since October
1997 and as Treasurer of the Company's Board of Directors since October 1997.
From 1995 through 1997, Mr. Wollach served as an independent contractor for
various venture capital firms. Prior to 1995, Mr. Wollach worked in the
accounting/audit/tax departments at Laventhol and Horwath and Seidman and
Seidman. Mr. Wollach holds a B.S. in Business, with a major in Accounting from
Wayne State University.
Brent Nelson, age 37, has served as a Director of the Company since
September 16, 1997. Mr. Nelson presently serves as the managing partner of
Northwest Capital Partners, L.L.C., a venture capital firm located in
Bellevue, Washington. See "CERTAIN TRANSACTIONS." Mr. Nelson presently serves
on the boards of directors of Eclipse Entertainment Group Inc., a film
development, production and distribution company, and Titan Resources Inc., a
natural resource company with interests in oil and gas exploration and
development. Mr. Nelson holds a diploma in marketing and general business from
Douglas College, Vancouver, B.C., Canada.
EXECUTIVE OFFICERS
In addition to Messrs. Smith, Guarino, and Wollach, the following are the
executive officers of the Company:
Robert Diez, age 38, was appointed Vice President of Sales and Marketing for
the Company on July 20, 1998. From May 1998 to July 20, 1998, Mr. Diez served
as Regional Sales Manager of Lawson Software. From 1993 to 1998, Mr. Diez
served as District Vice President and General Manager of Ceridian Employer
Services. From 1988 to 1993, Mr. Diez served as Regional Sales Manager,
Associate Sales Manager, Sales Training Manager, and District Manager of
Automatic Data Processing. Mr. Diez holds a B.A. degree in Economics from
U.C.L.A.
Steve Jackson, age 31, has served as Chief Technology Officer of the Company
since December 1997. From 1990 to 1996, Mr. Jackson served as Systems Engineer
and Program Manager of Microsoft Corporation. During his time at Microsoft,
Mr. Jackson managed several product development teams and was a lead member of
the Company's Desktop Management Task Force and Licensing Services Application
Programming Interface industry standards groups. From 1988 to1990, Mr. Jackson
served as Systems Engineer, Network Architect, and Software Design Engineer of
O/E Systems, Inc. From 1987 to 1988, Mr. Jackson served as Director of
Training and Sales Representative of Entree Computer Systems.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
In October 1997, the Board of Directors established an Audit Committee. The
Audit Committee's functions include reviewing the Company's internal controls
and recommending to the Board of Directors the engagement of the Company's
independent accountants, reviewing with such accountants a plan for and the
results of their examination of the Company's financial statements and
determining the independence of such accountants. The members of the Audit
Committee during 1997 and the first half of 1998 were Messrs. Nelson and
Wollach. The Audit Committee met twice in 1997. Effective on August 19, 1998,
the Audit Committee was reconstituted to be comprised of Messrs. Nelson,
Wardall and Wollach.
In October 1997, the Board of Directors established a Compensation
Committee. The Compensation Committee's functions include making
recommendations regarding the Company's employee stock option plan
38
<PAGE>
and decisions concerning salaries and incentive compensation for employees and
consultants of Company. The members of the Compensation Committee during 1997
and the first half of 1998 were Messrs. Wollach and Guarino. The Compensation
Committee met three times in 1997. Effective on August 19, 1998, the
Compensation Committee was reconstituted to be comprised of Messrs. Nelson,
Wardall and Wollach.
During 1997, the Company's Board of Directors met eight times. Each director
attended at least 75% of the total number of meetings of the Board of
Directors and committees on which he was eligible to attend.
COMPENSATION OF DIRECTORS
During 1997 and the first half of 1998, Company directors were compensated
for their service on the Company's Board of Directors and any committees on
which they served. The Company's non-employee directors, Brent Nelson and Thad
E. Wardall, each received a one-time grant of stock options to purchase 25,000
shares of Common Stock and were eligible to receive additional options to
purchase 5,000 shares of Common Stock for each Board meeting attended, up to a
total of 50,000 shares each. Steve Wollach received a one-time grant of stock
options to purchase 50,000 shares of Common Stock and was eligible to receive
additional options to purchase 10,000 shares of Common Stock for each Board
meeting attended, up to a total of 100,000 shares. Ryan Smith and John
Guarino, as employee directors, each received a one-time grant of stock
options to purchase 12,500 shares of Common Stock and were eligible to receive
additional options to purchase 2,500 shares of Common Stock for each Board
meeting attended, up to a total of 25,000 shares each. Each of the Company's
directors received the maximum number of stock options that such director was
eligible to receive. All of such options vest one year from the date of grant.
In addition, during 1997 and the first half of 1998, each member of the
Compensation Committee received options to purchase up to 5,000 shares (for
non-employee directors) and 1,000 shares (for employee directors) for each
committee meeting attended. Each member of the Audit Committee received
options to purchase up to 15,000 shares (for non-employee directors) and 5,000
shares (for employee directors) for each committee meeting attended.
Effective on August 19, 1998, the Board of Directors adopted a new
compensation policy for the directors. Under the new policy, each director of
the Company in office on such date and immediately following each annual
shareholders' meeting thereafter will receive an annual grant of stock options
to purchase 25,000 shares of Common Stock, at an exercise price equal to the
closing trade price on the date of grant. The stock options will vest 100% on
the one-year anniversary of the date of grant, provided that such director has
attended at least 75% of all meetings of the Board of Directors during such
period. In addition, each member of the Audit Committee and the Compensation
Committee will receive an annual grant of stock options to purchase 5,000
shares of Common Stock, at an exercise price equal to the closing trade price
on the date of grant, which options will vest 100% on the one-year anniversary
of the date of grant.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table. The following table sets forth all compensation
paid to or earned by the Company's Chief Executive Officer for the fiscal year
ended December 31, 1997. No executive officer of the Company received
compensation in salary and bonus in excess of $100,000 during 1997.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------
NAME AND PRINCIPAL POSITION YEAR SALARY
--------------------------- ---- ------------
<S> <C> <C>
Ryan Smith................................................. 1997 $25,961
Chief Executive Officer, President, Director
</TABLE>
Employment Contracts. The Company has entered into employment agreements
with each of Messrs. Smith, Guarino and Wollach, dated as of January 1, 1998
and amended as of July 1, 1998. Each of the employment agreements is for a
term of one year and provides for an annual base salary to each of
39
<PAGE>
Messrs. Smith, Guarino and Wollach of $175,000, $135,000 and $135,000,
respectively, subject to annual adjustment by the Board of Directors, together
with an annual discretionary bonus to be determined by the Board of Directors.
In addition, Mr. Wollach received a signing bonus in the form of stock options
to purchase up to 200,000 shares of Common Stock pursuant to the Company's
1998 Stock Option Plan, of which options to purchase 60,000 shares become
fully vested one year following the date of hire and the remaining options to
purchase 140,000 shares vest ratably over the following 24 months. All of such
stock options accelerate and become fully vested upon termination of Mr.
Wollach's employment by the Company for any reason other than for fraud or by
such officer for any reason. All of such options are exercisable at an
exercise price of $2.31, which was the fair market value of the Common Stock
on the date of hire. The foregoing employment agreements with Messrs. Smith,
Guarino and Wollach also provide for severance payments in an amount equal to
twelve months' salary for such respective executive officer upon the
termination of such officer's employment by the Company for any reason other
than for fraud or by such officer for any reason.
In addition, the Company has entered into employment agreements with Messrs.
Jackson and Diez, effective January 1, 1998 and July 20, 1998, respectively.
Each of the employment agreements is for a term of one year and provides for
an annual base salary to each of Messrs. Jackson and Diez of $100,000 and
$120,000, respectively, subject to annual adjustment by the Board of
Directors, together with an annual discretionary bonus to be determined by the
Board of Directors. In addition, Mr. Diez received a signing bonus in the form
of stock options to purchase up to 10,000 shares of Common Stock pursuant to
the Company's 1998 Stock Option Plan, which options vest 90 days from his date
of hire. Mr. Diez also received stock options to purchase up to an additional
100,000 shares of Common Stock which options vest annually over four years.
All such options are exercisable at an exercise price of $4.43, which was the
fair market value on the date of hire. The foregoing employment agreements
with Messrs. Jackson and Diez also provide for severance payments to such
executive officers upon the termination of employment by the Company without
cause. The amount of severance payments will be equal to two months' salary
for Mr. Jackson and two weeks' salary for Mr. Diez.
Additionally, pursuant to a non-competition agreement with the Company, each
of such executive officers has agreed not to compete with the Company for a
period of 12 months following the qualified termination of his employment, as
defined in his respective employment agreement. The Company, at its option,
may extend the non-compete period for an additional 12 months provided the
Company pays the employee an amount equal to 50% of the highest base salary
rate the Company paid him in the last year of employment.
1998 STOCK OPTION PLAN
On April 15, 1998, the Company's shareholders approved the 1998 Stock Option
Plan (the "Option Plan") as adopted by the Board of Directors on January 1,
1998. The purpose of the Option Plan is to promote the success of the
Company's business by attracting the best available personnel for positions of
substantial responsibility, and to provide an incentive to officers,
directors, employees, consultants and advisors of the Company. The Option Plan
provides for the granting of both incentive stock options (stock options that
are intended to qualify for favorable tax treatment under Section 422) and
nonqualified stock options. The Option Plan is not qualified under Section
401(a) of the Code and is not subject to the Employee Retirement Income
Security Act of 1974. The Company has reserved a total of 2,000,000 shares of
Common Stock for issuance under the Option Plan. At August 21, 1998, the
Company had awarded options to purchase an aggregate of 816,000 shares of
Common Stock, which options are exercisable at a weighted average exercise
price of approximately $2.85 per share.
The Option Plan is administered by the Board of Directors which has full
power and authority to administer and interpret the Plan and to adopt such
rules and agreements for the administration of the Option Plan as the Board of
Directors deems necessary or advisable.
The Board of Directors selects the participants to receive stock options and
determines the number of shares, the type of option and the exercise price as
well as the time or times at which options may be exercised and other terms
and conditions. For incentive stock options, the exercise price may not be
less than the fair market
40
<PAGE>
value of the Common Stock on the date of grant. For nonqualified stock
options, the exercise price may be less than the fair market value of the
Common Stock on the date of grant. In no case, however, may options (whether
incentive stock options or nonqualified stock options) be granted under the
Option Plan at an exercise price which is less than the initial public
offering price of the shares of Common Stock offered hereby. In the event of
stock dividends, stock splits and similar capital changes, the Option Plan
provides for appropriate adjustments in the number of shares available for
options and the number of shares subject to and exercise prices of outstanding
options.
The term of each option granted under the Option Plan may be no more than
ten years from the date of grant. Options granted to employees expire 90 days
following termination of employment (but in no event later than the date of
expiration of the option), except in the case of permanent disability or
death. In the case of termination of employment due to permanent disability or
death, the option terminates one year from the date that the employee ceases
work as a result of disability or death (but in no event later than the date
of expiration of such option). The Board of Directors has the authority to
extend the expiration dates of any outstanding option in circumstances it
deems appropriate, provided that it may not extend an option beyond the
original term of such option.
The exercise price of options is generally payable in cash. For nonqualified
options, the option holder must also pay to the Company, at the time of
purchase, the amount of federal, state, and local withholding taxes required
to be withheld by the Company. Under certain limited circumstances, shares of
Common Stock may be used for payment of the exercise price or satisfaction of
withholding obligations.
Notwithstanding any vesting requirements of an option, in the event of a
merger, reorganization, sale of substantially all of the assets of the
Company, change of control of the Company, liquidation, dissolution or other
corporate transaction wherein the Company is not the surviving corporation, an
option holder typically has the right to immediately exercise all of his or
her options, whether vested or unvested.
The options are assignable only (i) by will or by the laws of descent and
distribution or (ii) in the case of a nonqualified stock option, by gift to
immediate family members of the optionee, to partnerships of which the only
partners are members of the optionee's immediate family and trusts established
solely for the benefit of such immediate family members.
The Option Plan may be modified, amended or terminated by the Board of
Directors except with respect to options granted prior to such action.
Notwithstanding the foregoing, shareholder approval is required for any
amendment which increases the number of shares subject to the Option Plan
(other than in connection with the anti-dilution provisions described above or
the assumption or substitution of options in connection with certain mergers
and other similar events. The Board of Directors may delegate its power and
authority with respect to the Option Plan to a committee thereof.
41
<PAGE>
CERTAIN TRANSACTIONS
On July 11, 1997, the Company entered into a three-year consulting agreement
with Northwest Capital Partners, L.L.C. to serve as the Company's financial
advisor. Brent Nelson, a director and shareholder of the Company, also serves
as president and managing partner of Northwest Capital. Pursuant to the terms
of the consulting agreement, the Company is obligated to pay Northwest Capital
a fee of $5,000 per month for 36 months from December 31, 1997, in
consideration for Northwest Capital's efforts and assistance in raising
capital for the Company. In addition, for the three-year period from September
10, 1997, the Company granted to Northwest Capital certain rights of first
refusal on any offering of Company securities by the Company involving more
than 1,000 shares of stock. Under the terms of the consulting agreement,
Northwest Capital also has the right for a period of five years to nominate
one director for election to the Company's Board of Directors, and its
director nominee is Brent Nelson. In addition, for a three-year period
following the term of the consulting agreement, the Company has granted to
Northwest Capital a right of first refusal to act as financial advisor to the
Company.
On September 23, 1996, Neoteric Media entered into an asset purchase
agreement with Steve Jackson, an officer and shareholder of the Company for
the purchase of a software application developed by Mr. Jackson in
consideration for $67,500 in cash, a promissory note for $62,500 and 80,000
shares of common stock of Neoteric Media. The promissory note was subsequently
paid in full in accordance with its terms. Neoteric Media also entered into a
one-year employment agreement with Mr. Jackson effective on September 23, 1996
that provided for compensation based on a percentage of sales of the software
application. That employment agreement expired by its terms and the Company
has subsequently entered into a new employment agreement with Mr. Jackson
effective January 1, 1998. See "MANAGEMENT--Executive Compensation and Other
Information--Employment Contracts."
On September 23, 1996, Thad E. Wardall, a director and shareholder of the
Company, loaned $125,000 to Neoteric Media to fund the acquisition of the
software application developed by Mr. Jackson. The loan was evidenced by a
promissory note, secured by a lien on certain of the Company's assets.
Subsequently, on August 25, 1997, the Company entered into a note exchange
agreement with Mr. Wardall for the exchange of the prior promissory note for a
new convertible promissory note in principal amount of $73,194 (the "Wardall
Note"). On October 7, 1997, Mr. Wardall exercised his option to convert all
outstanding principal and accrued interest on the Wardall Note into 112,607
shares of Common Stock (at a conversion rate of $0.65 per share) and the
security interest terminated.
Except as described above, there have not been, nor is there currently
proposed, any transaction or series of similar transactions to which the
Company was or is to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of the
Common Stock of the Company had or will have a direct or indirect material
interest.
42
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of August 21, 1998 by: (i) each director,
(ii) the Company's Chief Executive Officer, (iii) all directors and executive
officers of the Company as a group, and (iv) each person who is known by the
Company to beneficially own more than 5% of the Common Stock. Except as
otherwise noted, the address of each such person is c/o Interactive Objects,
Inc., 17720 NE 65th, Suite 202, Redmond, WA 98052.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED(1)
---------------------
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF TOTAL(2)
---------------- --------- -----------
<S> <C> <C>
Ryan Smith(3)......................................... 1,695,800 11.5%
Jay R. Paulson(4)..................................... 1,605,000 10.9
John J. Guarino(5).................................... 1,220,000 8.3
Thad E. Wardall(6).................................... 1,182,607 8.0
Brent Nelson(7)....................................... 645,000 4.4
Steve Wollach(8)...................................... 105,000 *
All executive officers and directors as a group (seven
persons)(9).......................................... 5,498,407 36.9%
</TABLE>
- --------
* Less than 1%
(1) This table is based on information supplied by executive officers,
directors and shareholders. Subject to applicable community property laws,
each shareholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such shareholder's name.
(2) Based on 14,708,927 shares of Common Stock issued and outstanding as of
August 21, 1998.
(3) Includes 15,000 shares of Common Stock subject to stock options held by
Mr. Smith which are exercisable within 60 days of August 21, 1998.
(4) Includes 5,000 shares of Common Stock subject to stock options held by Mr.
Paulson which are exercisable within 60 days of August 21, 1998.
(5) Includes 20,000 shares of Common Stock subject to stock options held by
Mr. Guarino which are exercisable within 60 days of August 21, 1998.
(6) Includes 112,607 shares being registered and offered in this Prospectus.
See "SELLING SHAREHOLDERS." Also includes 30,000 shares of Common Stock
subject to stock options held by Mr. Wardall which are exercisable within
60 days of August 21, 1998.
(7) Includes 45,000 shares of Common Stock subject to stock options held by
Mr. Nelson which are exercisable within 60 days of August 21, 1998. In
addition, includes 600,000 shares of Common Stock held of record by
Northwest Capital Partners, L.L.C. for which Mr. Nelson serves as
president and managing partner; Mr. Nelson disclaims beneficial ownership
over all of such except to the extent of his pecuniary interest therein.
See "CERTAIN TRANSACTIONS."
(8) Includes 80,000 shares of Common Stock subject to stock options held by
Mr. Wollach which are exercisable within 60 days of August 21, 1998.
(9) Consists of Messrs. Smith, Guarino, Wollach, Nelson, Wardall, Diez and
Jackson. See "MANAGEMENT." Includes 200,000 shares of Common Stock subject
to stock options held by the executive officers as a group which are
exercisable within 60 days of August 21, 1998.
43
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock and of
certain provisions of the Company's Articles of Incorporation (the "Articles")
and Bylaws are not intended to be complete and are subject to and qualified in
this entirety by reference to, the Articles and the Bylaws, copies of each of
which are filed as exhibits to the Registration Statement on Form SB-2, of
which this Prospectus forms a part.
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock having a par value of $.01 and 10,000,000 shares of preferred
stock having a par value of $.01. As of August 21, 1998, there were issued and
outstanding 14,708,927 shares of Common Stock held by approximately 263
holders of record (excluding shares issuable upon exercise of any outstanding
stock options or the Warrants) and no shares of preferred stock issued and
outstanding.
COMMON STOCK
Holders of outstanding shares of Common Stock are entitled to one vote per
share on all matters submitted to a vote of the shareholders. There are no
cumulative voting rights. Holders of a majority of the outstanding shares of
Common Stock constitute a quorum at any meeting of shareholders and the vote
by the holders of a two-thirds of the outstanding shares of Common Stock is
required to effect certain fundamental corporate changes, including any
liquidation, merger or sale of substantially all of the Company's assets.
Holders of outstanding shares of Common Stock are entitled to receive
dividends, if, as, and when declared by the Board of Directors out of funds
legally available therefore, subject to dividend rights of holders of
preferred stock, if any. Upon liquidation of the Company, holders of
outstanding shares of Common Stock are entitled to share ratably in all assets
of the Company remaining after payment of liabilities. Holders of outstanding
shares of Common Stock have no preemptive rights or other rights to subscribe
for unissued or treasury shares or securities convertible into or exercisable
or exchangeable for shares of Common Stock. The outstanding shares of Common
Stock are fully paid and nonassessable.
PREFERRED STOCK
Pursuant to the Articles, the Company is authorized to issue shares of
preferred stock, which may be issued from time to time in one or more series
upon authorization by the Company's Board of Directors. The Board of
Directors, without further approval of the Company's shareholders, is
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, and any other
rights, preferences, privileges and restrictions applicable to each series of
the preferred stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, among other things, could adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, may make it more
difficult for a third party to gain control of the Company, discourage bids
for the Company Common Stock at a premium to the prevailing market price or
otherwise adversely affect the market price of the Common Stock. The Company
has no present plans to issue any shares of preferred stock.
COMMON STOCK PURCHASE WARRANTS
In November 1997, the Company issued a series of stock purchase warrants to
purchase an aggregate of 2,200,000 shares of Common Stock, of which warrants
to purchase 1,200,000 shares have expired and warrants to purchase 1,000,000
shares remain outstanding. These November Warrants entitle the holders to
purchase shares of Common Stock at any time on or prior to November 10, 1998,
at an exercise price of $3.00 per share (subject to appropriate adjustment
upon any stock dividend, stock split, subdivision, consolidation or
reclassification of the Common Stock). The holders of the November Warrants
are also entitled to certain registration rights on the shares underlying the
warrants, which shares are included in the Registration Statement. As of the
date of this Prospectus, none of the November Warrants has been exercised. See
"SELLING SHAREHOLDERS."
44
<PAGE>
From April 1998 through May 1998, the Company issued stock purchase warrants
to purchase up to an aggregate of 853,401 shares of Common Stock at an
exercise price of $4.00 per share, as follows: the Berliner Warrants to
purchase up to 200,000 shares were granted on April 9, 1998; the Brokers'
Warrants to purchase up to 153,401 shares were granted on May 22, 1998; and
the National Day Warrants to purchase up to 500,000 shares were granted on May
22, 1998. The terms of these Warrants expire two years from their respective
dates of issuance. These Warrants are non-transferable and are subject to
appropriate adjustment upon any stock dividend, stock split, subdivision,
consolidation or reclassification of the Common Stock. In addition, the
Company has granted to the holders of the Berliner Warrants, Brokers' Warrants
and National Day Warrants certain registration rights on the shares underlying
the Warrants, which shares are included in the Registration Statement on Form
SB-2. As of the date of this Prospectus, none of the Berliner Warrants,
Brokers' Warrants or National Day Warrants has been exercised. See "SELLING
SHAREHOLDERS."
In July 1998, the Company issued an additional series of warrants to
purchase up to 200,000 shares of Common Stock. The GlobeMedia Warrants entitle
the holder to purchase shares of Common Stock at any time prior to July 15,
2000 at the following schedule: warrants to purchase 25,000 shares have an
exercise price of $5.00 per share and expire on October 15, 1998; warrants to
purchase 50,000 shares have an exercise price of $5.50 per share and expire on
January 15, 1999; warrants to purchase 25,000 shares have an exercise price of
$6.00 per share and expire on July 15, 1999; warrants to purchase 50,000
shares have an exercise price of $6.50 per share and expire on January 15,
2000; and warrants to purchase 50,000 shares have an exercise price of $7.00
per share and expire on July 15, 2000. The exercise prices are subject to
appropriate adjustment upon any stock dividend, stock split, subdivision,
consolidation or reclassification of the Common Stock. The holder of the
GlobeMedia Warrants has certain registration rights on the shares underlying
the Warrants, which shares are included in the Registration Statement on Form
SB-2. As of the date of this Prospectus, none of the GlobeMedia Warrants has
been exercised. See "SELLING SHAREHOLDERS."
ANTI-TAKEOVER LEGISLATION
The Company is subject to the Washington Business Corporation Act ("RCW
23B"), which contains provisions that have the effect of discouraging non-
negotiated takeover attempts. RCW 23B.19, as recently amended, generally
prohibits any "significant business transaction" within five years of the date
a person acquires ten percent or more of the outstanding voting shares of a
public corporation, unless the transaction first receives the approval of a
majority of the disinterested directors prior to the time the ten percent
threshold is crossed.
RCW 23B.19, as recently amended, also imposes a fair price restriction on
public corporations. The statute provides, subject to certain exceptions, that
specified change-of-control transactions between a corporation and an
interested shareholder (defined as a person or affiliated group beneficially
owning 20% or more of a corporation's outstanding voting stock) will be
prohibited unless a majority of disinterested directors determine the price
offered by the interested shareholder to be fair or unless two-thirds of the
shareholders of each voting group entitled to vote separately on the
transaction (not including the interested shareholder) approve.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
The Company's Articles provide that the liability of the Company's directors
is limited and that the Company will indemnify its directors and officers to
the fullest extent permitted by law. Insofar as indemnification for liability
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to those provisions, or otherwise,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Registrar
and Transfer Co., whose address is 10 Exchange Place, Suite 705, P.O. Box
1798, Salt Lake City, Utah 84110.
45
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the OTC Bulletin Board under the symbol
"OBJX". On August 21, 1998, the closing bid and asked prices of the Common
Stock as reported on the OTC Bulletin Board were $2 7/8 and $3.00,
respectively. The Common Stock first began trading on the OTC Bulletin Board
on September 25, 1997. The table below sets forth, for the calendar quarters
indicated since the date that the Common Stock began trading, the high and low
bid prices for the Common Stock as reported by the OTC Bulletin Board. These
prices reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
INTERACTIVE
OBJECTS,
INC. COMMON
STOCK
-----------
HIGH LOW
----- -----
<S> <C> <C>
1997 FIRST QUARTER.............................................. -- --
Second Quarter................................................ -- --
Third Quarter (beginning September 25, 1997).................. $2.50 $1.88
Fourth Quarter................................................ 2.66 1.88
1998 FIRST QUARTER.............................................. 4.50 1.88
Second Quarter................................................ 9.94 3.84
Third Quarter (through August 21, 1998)....................... $4.72 $2.56
</TABLE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company's Common Stock is currently traded on the OTC Bulletin Board and
there is a limited public market for the Common Stock. Sales of substantial
amounts of the Common Stock in the public market, or the perception that such
sales may occur, could adversely affect market price of the Common Stock from
time to time in the public market and could impair the Company's ability to
raise additional capital through the sale of its equity securities in the
future.
As of the date of this Prospectus, there are 14,708,927 shares of Common
Stock issued and outstanding (exclusive of shares reserved for issuance upon
exercise of outstanding stock options and the Warrants). Assuming exercise in
full of the Warrants to purchase up to 2,053,401 shares of Common Stock (which
shares are included in the Registration Statement on Form SB-2), there will be
16,762,328 shares of Common Stock issued and outstanding, consisting of
4,000,018 shares offered hereby, 7,596,784 restricted shares of Common Stock,
and 5,165,526 shares of Common Stock that are currently freely tradable
without restriction. In addition, the Company has reserved up to 2,000,000
shares of Common Stock for issuance upon exercise of options which may be
granted under the 1998 Stock Option Plan, of which there are currently
outstanding options to purchase 816,000 shares of Common Stock. The shares
issuable upon exercise of any of such stock options will be restricted until
the Company files a registration statement on Form S-8, or any successor form,
with the Commission or until sold in accordance with Rule 144.
The 4,000,018 shares of Common Stock being offered hereby will be freely
tradable without restriction or further registration under the Securities Act
by persons other than affiliates of the Company. The 7,596,784 restricted
shares will become freely tradable if subsequently registered under the
Securities Act or to the extent permitted by Rule 144 or some other exemption
from registration under the Securities Act. Other than the Shares being
registered hereunder, the Company has not granted any registration rights with
regard to any additional shares of Common Stock.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the date of acquisition of restricted shares from the Company or an
affiliate of the Company, the holder will be entitled to sell in the public
market, during any three month period, a certain amount of shares of Common
Stock. The maximum number of shares of Common Stock that may be sold during
such period will be the greater of 1% of the total number of
46
<PAGE>
the then outstanding shares of Common Stock or the average weekly trading
volume of shares of Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice and availability of current public information about the Company. If
the holder of the shares has held the Common Stock for at least two years, the
shareholder, other than an affiliate of the Company, will be entitled to sell
the restricted shares in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale requirements, public information
requirements or notice requirements.
Of the restricted shares,5,984 shares of Common Stock are currently eligible
for resale under Rule 144 under the Securities Act without regard to volume
limitations. Approximately 6,960,800 restricted shares will become eligible
for sale pursuant to Rule 144 (subject to volume limitations) upon the
expiration of one-year holding periods beginning September 29, 1998, of which
6,760,800 shares are held by affiliates of the Company. The remaining 630,000
restricted shares will become eligible for sale under Rule 144 (subject to
volume limitations) upon the expiration of one-year holding periods in May and
June 1999.
PLAN OF DISTRIBUTION
The Selling Shareholders may from time to time sell all or a portion of the
Shares in the over the counter market, on any other national securities
exchange on which the Common Stock is listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The Shares will not be sold in
an underwritten public offering. The Shares may be sold directly or through
brokers or dealers. The methods by which the Shares may be sold include: (a) a
block trade (which may involve crosses) in which the broker or dealer so
engaged will attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
privately negotiated transactions. In effecting sales, brokers and dealers
engaged by Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from
Selling Shareholders (or, if any such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser) in amounts to be negotiated
which are not expected to exceed those customary in the types of transactions
involved. Broker-dealers may agree with the Selling Shareholders to sell a
specified number of such shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Shareholder, to purchase as principal any unsold shares at the price required
to fulfill the broker-dealer commitment to such Selling Shareholder. Broker-
dealers who acquire shares as principal may thereafter resell such shares from
time to time in transactions (which may involve crosses and block transactions
and sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market or otherwise at prices
and on terms then prevailing at the time of sale, at prices then related to
the then-current market price or in negotiated transactions and, in connection
with such resales, may pay to or receive from the purchasers of such shares
commissions as described above.
In connection with the distribution of the Shares, the Selling Shareholders
may enter into hedging transactions with broker-dealers. In connection with
such transactions, broker-dealers may engage in short sales of the Shares in
the course of hedging the positions they assume with the Selling Shareholders.
The Selling Shareholders may also sell the Shares short and redeliver the
Shares to close out the short positions. The Selling Shareholders may also
enter into option or other transactions with broker-dealers which require the
delivery to the broker-dealer of the Shares. The Selling Shareholders may also
loan or pledge the Shares to a broker-dealer and the broker-dealer may sell
the Shares so loaned or upon a default the broker-dealer may effect sales of
the pledged shares. In addition to the foregoing, the Selling Shareholders may
enter into, from time to time, other types of hedging transactions.
The Selling Shareholders and any broker-dealers participating in the
distributions of the Shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any profit on the sale of
Shares by the Selling Shareholders and any commissions or discounts given to
any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act.
47
<PAGE>
The Shares may also be sold pursuant to Rule 144 under the Securities Act
beginning one year after the Shares were issued.
The Company has filed the Registration Statement, of which this Prospectus
forms a part, with respect to the sale of the Shares. The Company has agreed
to use its best efforts to keep the Registration Statement current and
effective for a period commencing on the effective date of the Registration
Statement and terminating 24 months after the Registration Statement is filed
with the Commission. There can be no assurance that the Selling Shareholders
will sell any or all of the Shares offered hereunder.
Under the Exchange Act and the regulations thereunder, any person engaged in
a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage market making activities with respect
to the Common Stock of the Company during the applicable "cooling off" periods
prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-6 and 10b-7, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling
Shareholders.
The Company will pay all of the expenses incident to the offering and sale
of the Shares, other than commissions, discounts and fees of underwriters,
dealers or agents.
LEGAL MATTERS
The validity of the issuance of the Shares of Common Stock offered hereby
has been passed upon for the Company by Cairncross & Hempelmann, P.S.,
Seattle, Washington.
EXPERTS
The financial statements and notes thereto at December 31, 1997, and for
each of the two years in the period ended December 31, 1997 appearing in this
Prospectus and the Registration Statement have been audited by Peterson
Sullivan P.L.L.C., independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
48
<PAGE>
FINANCIAL STATEMENTS
OF
INTERACTIVE OBJECTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Financial Statements
Balance Sheet as of June 30, 1998....................................... F-2
Statements of Operations for the Six Months ended June 30, 1998 and
1997................................................................... F-3
Statements of Cash Flows for the Six Months ended June 30, 1998 and
1997................................................................... F-4
Notes to Unaudited Financial Statements................................. F-5
Audited Financial Statements
Independent Auditors' Report............................................ F-6
Balance Sheet as of December 31, 1997................................... F-7
Statements of Operations for the Years ended December 31, 1997 and 1996. F-8
Statements of Stockholders' Equity...................................... F-9
Statements of Cash Flows for the Years ended December 31, 1997 and 1996. F-10
Notes to Audited Financial Statements................................... F-11
</TABLE>
F-1
<PAGE>
INTERACTIVE OBJECTS, INC.
BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Current Assets
Cash............................................... $ 5,245,737 $ 214,967
Certificate of deposit............................. 101,309 101,309
Accounts receivable................................ -- 10,698
Prepaid expenses................................... 36,155 46,557
----------- ----------
Total current asset.............................. 5,383,201 373,531
Furniture and equipment, at cost, less accumulated
depreciation of $56,495 and $31,111................. 226,878 190,451
Other Assets
Capitalized software costs......................... 165,000 130,000
Deposits........................................... 11,429 880
----------- ----------
176,429 130,880
Total Assets..................................... $ 5,786,508 $ 694,862
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable................................... $ 539,666 $ 185,938
Accrued expenses................................... 153,674 62,894
Notes payable...................................... 31,250 62,500
----------- ----------
Total current liabilities........................ 724,590 311,332
Stockholders' Equity
Preferred stock, $.01 par value; 10,000,000
authorized, no shares issued and outstanding...... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 14,514,927 shares issued and
outstanding at June 30, 1998...................... 19,417 19,417
Additional paid-in capital......................... 7,473,204 1,353,965
Retained deficit................................... (2,430,703) (989,852)
----------- ----------
5,061,918 383,530
Total Liabilities and Stockholders' Equity....... $ 5,786,508 $ 694,862
=========== ==========
</TABLE>
See Notes to Unaudited Financial Statements
F-2
<PAGE>
INTERACTIVE OBJECTS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues
Service revenue..................................... $ 1,815,463 $ 55,138
Expenses
Labor and benefits.................................. 2,102,156 62,038
Selling, general and administrative................. 1,163,816 46,886
----------- ---------
3,265,972 108,924
Loss before interest expense...................... (1,450,509) (53,786)
Interest expense.................................... (16,118) (6,613)
Miscellaneous Income/Interest Income................ 25,775 --
----------- ---------
Net Loss.......................................... (1,440,852) (60,399)
=========== =========
Retained deficit, beginning of period................. (989,851) (84,586)
----------- ---------
Retained deficit, end of period....................... $(2,430,703) $(144,985)
=========== =========
Basic earnings (loss) per share of common stock....... $ (0.10) $ (0.08)
=========== =========
Weighted average common and common equivalent shares
outstanding.......................................... 14,514,927 782,600
=========== =========
</TABLE>
See Notes to Unaudited Financial Statements
F-3
<PAGE>
INTERACTIVE OBJECTS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities
Net loss............................................. $(1,440,852) $(60,399)
Depreciation and amortization........................ 25,384 6,434
----------- --------
Changes in operating assets and liabilities........ (1,415,468) (53,965)
Accounts receivable.................................. 10,698 2,664
Prepaid expenses..................................... 10,402 --
Deposits............................................. (10,549) --
Accounts payable..................................... 353,728 25,638
Accrued expenses..................................... 90,780 27,407
----------- --------
Cash provided by (used in) operating activities.... (960,409) 1,744
----------- --------
Cash Flows from Investing Activities
Purchase of equipment................................ (61,811) (1,526)
Purchase of software................................. (35,000) --
----------- --------
Cash used in investing activities.................. (96,811) (1,526)
----------- --------
Cash Flows from Financing Activities
Issuance of common stock............................. 6,119,239 --
Proceeds on notes payable............................ 600,000
Payments on notes payable............................ (631,250) (7,899)
----------- --------
Cash provided by (used in) investing activities.... 6,087,989 (7,899)
----------- --------
Net increase (decrease) in cash.................... 5,030,769 (7,681)
----------- --------
Cash, beginning of period.............................. 214,968 15,788
----------- --------
Cash, end of period.................................... $ 5,245,737 $ 8,107
=========== ========
</TABLE>
See Notes to Unaudited Financial Statements
F-4
<PAGE>
INTERACTIVE OBJECTS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The financial information as of June 30, 1998 and for the six months ended
June 30, 1998 and 1997 is unaudited, but includes all adjustments that the
Company considers necessary for a fair presentation of the financial position
at such dates and the operations and cash flows for the periods then ended.
Operating results for the six months ended June 30, 1998 are not necessarily
indicative of results that may be expected for the entire year.
Use Of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Interactive Objects, Inc.
Redmond, Washington
We have audited the accompanying balance sheet of Interactive Objects, Inc.
as of December 31, 1997, and the related statements of operations,
stockholders' equity, 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 Interactive Objects, Inc.
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.
As discussed in Note 1 to the financial statements, on August 31, 1997,
Neoteric Media, Inc. d/b/a Interactive Objects, Inc. was sold to a Company
named Asia Pacific Chemical Engineering Co., Ltd. ("Asia Pacific"). Neoteric
Media, Inc. d/b/a Interactive Objects, Inc. then merged into Asia Pacific and
the Company changed its name to Interactive Objects, Inc.
/s/ Peterson Sullivan P.L.L.C.
March 4, 1998
F-6
<PAGE>
INTERACTIVE OBJECTS, INC.
BALANCE SHEET (AUDITED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
ASSETS
------
<S> <C>
Current Assets
Cash............................................................ $ 214,967
Certificate of deposit.......................................... 101,309
Accounts receivable............................................. 10,698
Prepaid expenses................................................ 46,557
----------
Total current asset........................................... 373,531
Furniture and equipment, at cost, less accumulated depreciation of
$31,111.......................................................... 190,451
Other Assets
Capitalized software costs...................................... 130,000
Deposits........................................................ 880
----------
130,880
----------
Total Assets.................................................. $ 694,862
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable................................................ $ 185,938
Accrued expenses................................................ 62,894
Notes payable................................................... 62,500
----------
Total current liabilities..................................... 311,332
Stockholders' Equity
Preferred stock, $.01 par value; 2,000,000 authorized, no shares
issued and outstanding......................................... --
Common stock, $.0015 par value; 50,000,000 shares authorized,
12,944,917 shares issued and outstanding....................... 19,417
Additional paid-in capital...................................... 1,353,965
Retained deficit................................................ (989,852)
----------
383,530
----------
Total Liabilities and Stockholders' Equity.................... $ 694,862
==========
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
INTERACTIVE OBJECTS, INC.
STATEMENTS OF OPERATIONS (AUDITED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Service revenue..................................... $ 365,631 $ 57,832
Expenses
Labor and benefits.................................. 787,458 67,072
Selling, general and administrative................. 476,432 61,490
---------- --------
1,263,890 128,562
---------- --------
Loss before interest expense...................... (898,259) (70,730)
Interest expense.................................... (7,007) (4,134)
---------- --------
Net Loss.......................................... $ (905,266) $(74,864)
========== ========
Basic earnings (loss) per share of common stock....... $ (0.10) $ (0.01)
========== ========
</TABLE>
See Notes to Financial Statements
F-8
<PAGE>
INTERACTIVE OBJECTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (AUDITED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL DEFICIT TOTAL
---------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 782,600 $ 3,000 $ 41,121 $ (9,722) $ 34,399
Capital contribution.... -- -- 42,709 -- 42,709
Net loss................ -- -- -- (74,864) (74,864)
---------- ------- ---------- --------- ----------
Balances, December 31,
1996................... 782,600 3,000 83,830 (84,586) 2,244
Affect on capital
structure resulting
from reverse purchase
Cancellation of shares
of Interactive at the
time of reverse
purchase............. (782,600) -- -- -- --
Issuance of stock as
consideration for
shares cancelled
above................ 7,460,800 8,191 (8,191) -- --
Acquisition of Asia
Pacific.............. 1,100,082 1,650 (5,150) -- (3,500)
Exchange of note payable
for common stock. The
note was for $62,500
with accrued interest
of $12,502............. 112,607 169 74,833 -- 75,002
Issuance of stock....... 4,271,428 6,407 1,208,643 -- 1,215,050
Net loss................ -- -- -- (905,266) (905,266)
---------- ------- ---------- --------- ----------
Balances, December 31,
1997................... 12,944,917 $19,417 $1,353,965 $(989,852) $ 383,530
========== ======= ========== ========= ==========
</TABLE>
See Notes to Financial Statements
F-9
<PAGE>
INTERACTIVE OBJECTS, INC.
STATEMENTS OF CASH FLOWS (AUDITED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss........................................... $(905,266) $(74,864)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 17,023 13,370
Changes in operating assets and liabilities:
Accounts receivable............................ (10,698) --
Prepaid expenses and deposits.................. (43,893) (2,239)
Accounts payable............................... 164,513 6,142
Accrued expenses............................... 50,618 12,275
--------- --------
Cash used in operating activities............ (727,703) (45,316)
--------- --------
Cash Flows from Investing Activities
Purchase of equipment.............................. (177,862) (17,303)
Investment in certificate of deposit............... (101,309) --
Purchase of Visual Gateway Interface............... -- (67,500)
--------- --------
Cash used in investing activities................ (279,171) (84,803)
--------- --------
Cash Flows from Financing Activities
Issuance of common stock........................... 1,286,552 --
Capital contribution............................... -- 42,709
Increase (decrease) in notes payable............... (80,500) 80,500
--------- --------
Cash provided by financing activities............ 1,206,052 123,209
--------- --------
Net increase (decrease) in cash.................. 199,178 (6,910)
--------- --------
Cash, beginning of year.............................. 15,789 22,699
--------- --------
Cash, end of year.................................... $ 214,967 $ 15,789
========= ========
</TABLE>
See Notes to Financial Statements
F-10
<PAGE>
INTERACTIVE OBJECTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Neoteric Media, Inc. d/b/a Interactive Objects, Inc. ("Neoteric") was
incorporated under the laws of Washington on October 20, 1995. Effective
August 31, 1997, the stockholders of Neoteric exchanged their stock for the
common stock of another company named Asia Pacific Chemical Engineering Co.,
Ltd. ("Asia Pacific"). This business combination has been accounted for as a
purchase, with Neoteric as the continuing company. Because Neoteric is the
continuing company, this transaction is accounted for as a reverse purchase.
Asia Pacific had no assets, but did have liabilities of $3,500. The assumption
of these liabilities was considered the cost of Asia Pacific. Asia Pacific's
operations, which were insignificant, have been included in these financial
statements since the effective date of the exchange. The unaudited proforma
results of operations as if Asia Pacific's operations were included in these
financial statements as of January 1, 1996, would appear as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Operating revenue.................................... $ 365,631 $ 57,832
Operating expenses................................... 1,281,397 133,916
---------- ---------
Loss from operations............................. (915,766) (76,084)
Discontinued operations.............................. (15,686) (76,137)
Extraordinary item--debt forgiveness................. 185,991
---------- ---------
Net loss......................................... $ (745,461) $(152,221)
========== =========
Basic earnings (loss) per share of common stock
Income from continuing operations.................. $ (.10) $ (.01)
Discontinued operations............................ (.01)
Extraordinary item................................. .02
---------- ---------
$ (.08) $ (.02)
========== =========
</TABLE>
Subsequent to the business acquisition, Neoteric merged into Asia Pacific
and Asia Pacific changed its name to Interactive Objects, Inc. ("Interactive
Objects").
Concentration of Market and Credit Risk
Interactive Objects sells computer consulting services. In addition, it
began to market Visual Gateway Interface ("VGI") in February of 1998. Revenue
from consulting services provided to two international companies (Microsoft
and SAFECO) accounted for 100% of total revenue during the years ended
December 31, 1997 and 1996. Accounts receivable from one of these customers
accounted for 100% of total accounts receivable at December 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Accordingly, actual results could differ from the estimates
that were used.
Advertising Costs
Advertising costs are expensed as incurred and totaled $91,278 for the year
ended December 31, 1997, and $4,039 for the year ended December 31, 1996.
F-11
<PAGE>
INTERACTIVE OBJECTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash
Cash includes cash balances held at a bank and all highly liquid debt
instruments with original maturities of three months or less. Cash balances
are in excess of amounts insured by the Federal Deposit Insurance Corporation.
No cash payments for interest or income taxes were made during the years
ended December 31, 1997 and 1996.
Certificate of Deposit
Certificates of deposit are stated at market value which approximates cost.
Accounts Receivable
Interactive Objects uses the allowance method for recognizing bad debts.
Management believes no allowance is necessary at December 31, 1997.
Furniture and Equipment
Furniture and equipment are depreciated using the straight-line method over
the estimated useful lives of the related assets.
Visual Gateway Interface
Visual Gateway Interface is a computer software product purchased from a
partnership partially owned by a stockholder of Neoteric and is recorded at a
cost of $130,000. It was paid for with cash of $67,500, a note payable for
$62,500, and stock in Neoteric. At the time of the transaction, the stock was
determined to have no value. Amortization of the software will begin when the
product is available for general release to customers. Amortization recorded
will be the greater of the amount computed using the ratio that gross revenues
for the software bear to the total of all anticipated revenues for the
software or the straight-line method over the remaining estimated economic
life of the product. No research and development costs have been incurred.
Taxes on Income
Interactive Objects accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for expected future tax consequences of events that have been recognized in
Interactive Objects' financial statements or tax returns. In estimating future
tax consequences, Interactive Objects generally considers all expected future
events other than enactments of changes in the tax laws or rates.
In 1996 and for a portion of 1997, Interactive Objects (then Neoteric) was
an S-corporation for income tax purposes, so income tax effects were
recognized at the stockholder level.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128")
which is effective for interim and annual financial statements for periods
ending after December 15, 1997. Under FAS 128, basic and diluted earnings per
share are to be presented. Basic earnings per share is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding in the period. Diluted earnings per share takes into
F-12
<PAGE>
INTERACTIVE OBJECTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares. The stock warrants have not
been reflected as exercised for the purposes of computing earnings or loss per
share since the exercise of such warrants would be antidilutive. The weighted
average number of shares was 9,191,569 and 7,460,800 for the years ended
December 31, 1997 and 1996. The adoption of FAS 128 did not result in a
restatement of earnings per share in prior periods.
In order to be comparative, the number of shares of common stock outstanding
used to calculate earnings per share has assumed the Interactive Objects (then
Neoteric) shareholders had exchanged their 782,600 of Neoteric stock for
7,460,800 shares of Asia Pacific stock as of January 1, 1996.
Preferred Stock
The rights and restrictions of preferred stock is to be determined by
Interactive Objects when the stock is issued. Each preferred stock issuance
will be in a series, and each series will have the same rights and
restrictions.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
Although there was no stock-based compensation in 1997, Interactive Objects
has chosen to account for stock-based compensation using Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options granted to employees is measured as the
excess, if any, of the quoted market price of the Corporation's stock at the
date of the grant over the amount an employee is required to pay for the
stock.
New Accounting Standards
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," is effective for years beginning after December 15,
1997. The primary objective of this statement is to report and disclose a
measure of all changes in equity of a company that result from transactions
and other economic events in a period other than transactions with owners.
Interactive Objects does not anticipate that the statement will have a
significant impact on its financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information," is effective for years
beginning after December 15, 1997. This statement requires use of the
"management approach" model for segment reporting. The management approach
model is based on the way a company's management organizes segments within the
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a
company. Interactive Objects does not anticipate that the adoption of the
statement will have a significant impact on its financial statements other
than potentially providing more financial statement disclosures.
Statement of Financial Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," standardizes the disclosure
requirements for pensions and other postretirement benefits. This statement
requires additional information on changes in benefit obligations and fair
values of plan assets. It revises prior standards and is effective for years
beginning after December 15, 1997. Because Interactive Objects does not
currently have such employer benefit plans nor intends to initiate any in the
near-term, there should not be an impact on its financial statements.
F-13
<PAGE>
INTERACTIVE OBJECTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. CONSULTING AGREEMENT
Interactive Objects has a consulting agreement with a company ("consultant")
that is a shareholder of Interactive Objects. The consultant's main goal is to
assist Interactive Objects in obtaining equity financing. The agreement
provides for monthly payments of $3,000 to the consultant from July 1997 to
October 1997, and monthly payments of $5,000 from October 1997 to June 2000.
The consultant acquired common stock of the Company for services rendered as
part of the organizational changes described in Note 1 which resulted in a
total ownership of 1.2 million common shares. Because a value attributable to
the common stock or the initial consulting services could not be determined,
no value has been assigned to this stock issuance. Interactive Objects paid
the consultant $18,000 during the year ended December 31, 1997.
NOTE 3. NOTES PAYABLE
The note is payable to a stockholder and is non-interest bearing. The note
is due in 1998 and is unsecured. The fair value of this note is estimated to
be $60,100 at December 31, 1997. Fair values are based on an assumed payment
date of June 30, 1998, and an assumed interest rate of 8%.
NOTE 4. LEASES
The Company leases an office under an operating lease expiring in November
2000. The following are the future minimum rental payments required under the
lease for the years ending December 31:
<TABLE>
<S> <C>
1998............................................................ $121,406
1999............................................................ 130,668
2000............................................................ 124,993
--------
Total........................................................... $377,067
========
</TABLE>
Rent expense was $42,566 and $12,327 for the years ended December 31, 1997
and 1996.
NOTE 5. WARRANTS OUTSTANDING
At December 31, 1997, Interactive Objects had warrants outstanding for the
purchase of 2,000,000 shares of its common stock at prices ranging from $3.00
to $5.00 per share. The warrants are exercisable at any time. Of the total
warrants outstanding, 1,000,000 expire March 31, 1998, and 1,000,000 expire
November 10, 1998.
NOTE 6. INCOME TAXES
The reconciliation of income tax on income computed at the federal statutory
rates to income tax expense is as follows:
<TABLE>
<S> <C>
Tax at statutory rate........................................... $ 307,790
Change in valuation allowance for deferred tax asset............ (261,120)
Effect of loss being taxed at stockholder level................. (46,670)
---------
Income tax expense.............................................. $ --
=========
</TABLE>
For 1996 (and for a portion of 1997), Interactive Objects (then Neoteric)
was an S-corporation for tax purposes.
F-14
<PAGE>
INTERACTIVE OBJECTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interactive Objects' deferred tax asset as of December 31, 1997, is as
follows:
<TABLE>
<S> <C>
Net operating loss carryforwards (before valuation allowance).. $ 261,120
=========
Less valuation allowance for deferred tax asset................ (261,120)
---------
Net deferred tax asset......................................... $ --
=========
</TABLE>
Interactive Objects has net operating loss carryforwards of $768,000 at
December 31, 1997. These losses expire in 2012.
NOTE 7. SUBSEQUENT EVENT
Subsequent to year end, Interactive Objects established a stock option plan
for employees and other individuals that may provide services to the
Corporation. Interactive Objects reserved 2,000,000 shares of common stock for
this plan. In general, any options issued have an exercise price established
by the plan administrator, and options cannot be issued for less than the fair
value of the stock at the date of issuance.
Also, subsequent to year end, Interactive Objects made a down payment of
$20,000 towards the purchase of certain software that will eventually be
marketed. In addition to the down payment, $90,000 is payable to the seller in
six monthly installments of $15,000.
F-15
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATES AS TO WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 15
Selling Shareholders...................................................... 15
Dividend Policy........................................................... 19
Capitalization............................................................ 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 26
Management................................................................ 37
Certain Transactions...................................................... 42
Principal Shareholders.................................................... 43
Description of Securities................................................. 44
Market for Common Equity and Related Shareholder Matters.................. 46
Shares Eligible for Future Sale........................................... 46
Plan of Distribution...................................................... 47
Legal Matters............................................................. 48
Experts................................................................... 48
Index to Financial Statements............................................. F-1
</TABLE>
----------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTION IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION
TO THE OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,018 SHARES
INTERACTIVE OBJECTS, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
AUGUST , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 23B.08.500 et seq. of the Washington Business Corporation Act
(Title 23B of the Revised Code of Washington) permits indemnification by a
corporation of its directors, officers, employees and agents under certain
circumstances and subject to certain limitations.
(b) The Articles of Incorporation (Exhibit 3.1 hereto) provide that
Registrant will indemnify its directors to the fullest extent permitted by
law. The Articles of Incorporation contain further provisions and conditions
for indemnification by Registrant for liabilities arising in connection with
or by reason of the fact that a person is an officer, director, employee or
agent of Registrant.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated cost and expenses
payable by the Registrant in connection with the sale of the Common Stock
offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee....................... $ 4,000
Printing and engraving expenses..................................... 17,000
Accounting fees and expenses........................................ 3,000
Legal fees and expenses............................................. 55,000
Miscellaneous expenses.............................................. 10,000
-------
Total............................................................. $89,000
=======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company was incorporated in the State of Washington in October 1995 and
operated under the name Neoteric Media, Inc., d/b/a Interactive Objects, until
August 1997. In August 1997, pursuant to the terms of an acquisition agreement
with Asia Pacific Chemical Engineering Corp., a publicly-held Utah corporation
with nominal assets and liabilities, Neoteric Media entered into a business
combination with APEC. In the Neoteric Acquisition, the shareholders of
Neoteric Media exchanged their stock for a majority of the then-outstanding
common stock of APEC and Neoteric Media became a wholly-owned subsidiary of
APEC (which changed its name to Interactive Objects). For accounting purposes,
the Neoteric Acquisition was accounted for as a reverse purchase, with
Interactive Objects as the continuing entity. The Company's audited financial
statements include, since August 1997, the results of APEC operations, which
were insignificant. In 1998, the Company was reincorporated from Utah to the
State of Washington.
The following paragraphs set forth information with respect to all
securities of the Company and its predecessors in interest since August 21,
1995. All of the securities issued and sold, as described below, were sold in
reliance on exemptions under the Securities Act and were not registered under
the Securities Act.
The following paragraphs set forth information with respect to all
securities of Neoteric Media sold since incorporation and Interactive Objects
sold following the Neoteric Acquisition. All references below to "Interactive
Objects" or the "Company" include (i) Interactive Objects, Inc. following the
Neoteric Acquisition and (ii) Neoteric Media, Inc. prior to the Neoteric
Acquisition.
II-1
<PAGE>
. The Company was incorporated in October 1995 and in November 1995 issued
an aggregate of 760,000 shares of its common stock to the persons listed
below, in consideration for their contributions to the business of the Company
and certain contributions of property and/or capital to the Company. The
shares were issued in reliance on Section 4(2) under the Securities Act, as
follows:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- -------
<S> <C>
Ryan L. Smith...................................................... 306,000
Jay R. Paulson..................................................... 294,000
John J. Guarino.................................................... 150,000
Ray E. Johnson..................................................... 5,000
Randolph A. Webb................................................... 5,000
-------
Total............................................................ 760,000
=======
</TABLE>
. On January 5, 1996, the Company and its shareholders approved at a special
meeting of the shareholders a redistribution of the outstanding capital stock
of the Company and accepted the subscription of two additional shareholders as
key employees of the Company. The shares were issued and redistributed in
reliance on Section 4(2) and Section 3(9) under the Securities Act and were
held as follows:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- -------
<S> <C>
Ryan L. Smith...................................................... 283,434
Jay R. Paulson..................................................... 273,233
John J. Guarino.................................................... 173,333
Ray E. Johnson..................................................... 5,000
Randolph A. Webb................................................... 5,000
Bob Theriault...................................................... 5,000
Durene Nelson...................................................... 2,500
-------
Total............................................................ 747,500
=======
</TABLE>
. On February 20, 1996, the Company repurchased 169,900 shares from certain
of its shareholders and issued 130,000 shares to Thad Wardall in a private
offering, in connection with Mr. Wardall agreeing to serve as a director of
the Company. The shares issued to Mr. Wardall were issued in reliance on
Section 4(2) under the Securities Act.
. In September 1996, Ray Johnson, a shareholder of the Company, tendered for
cancellation his 5,000 shares of common stock in connection with his
termination of employment with the Company.
. On September 23, 1996, the Company entered into an asset purchase
agreement with Steve Jackson for the purchase of a software application
developed by Mr. Jackson in consideration for $67,500 in cash, a promissory
note for $62,500 and 80,000 shares of common stock of Neoteric Media. The
shares were issued in reliance on Section 4(2) under the Securities Act.
. On September 23, 1996, the Company borrowed $125,000 from Thad Wardall, a
director and shareholder of the Company, in part to fund the acquisition of
the software application developed by Mr. Jackson. The loan was evidenced by a
promissory note, secured by a lien on certain of the Company's assets.
Subsequently, on August 25, 1997, the Company entered into a note exchange
agreement with Mr. Wardall for the exchange of the prior promissory note for a
new convertible promissory note in principal amount of $73,194. These notes
were issued in reliance on Section 4(2) under the Securities Act. On October
7, 1997, Mr. Wardall exercised his option to convert all outstanding principal
and accrued interest on the Wardall Note into 112,607 shares of Common Stock
(at a conversion rate of $0.65 per share) and the security interest
terminated. The Company has agreed with Mr. Wardall to register for resale on
this Registration Statement on Form SB-2 the 112,607 shares. See "CERTAIN
TRANSACTIONS" and "SELLING SHAREHOLDERS."
II-2
<PAGE>
. On September 29, 1997, upon consummation of the Neoteric Acquisition, the
Company issued an aggregate of 6,260,800 unregistered shares of Common Stock
to the former shareholders of Neoteric Media pursuant to the terms of that
certain Acquisition Agreement between Neoteric Media and APEC dated August 27,
1997. The Neoteric Acquisition was effected by means of a reverse merger and
the shareholders of Neoteric Media exchanged their 782,600 shares in Neoteric
Media for shares of Company Common Stock. The shares were issued in reliance
on Section 4(2) under the Securities Act, as follows:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Ryan L. Smith.................................................... 1,680,800
Steve Jackson.................................................... 640,000
Jay R. Paulson................................................... 1,600,000
John J. Guarino.................................................. 1,200,000
Thad E. Wardall.................................................. 1,040,000
Bob Theriault.................................................... 40,000
Randolph A. Webb................................................. 40,000
Durene Nelson.................................................... 20,000
---------
Total.......................................................... 6,260,800
=========
</TABLE>
. On September 29, 1997, the Company issued 1,200,000 unregistered shares of
Common Stock to Northwest Capital pursuant to the terms of that certain
Consulting Agreement entered into between the Company and Northwest Capital,
in consideration for Northwest Capital's assistance in the reverse merger with
APEC. The shares were issued in reliance on Section 4(2) of the Securities
Act.
. On September 29, 1997, the Company issued 100,000 unregistered shares of
Common Stock in a private placement pursuant to Section 4(2) of the Securities
Act to Marvin Belcher. The total offering price was $65,000, or $.65 per
share.
. On November 10, 1997, the Company issued the November Warrants to purchase
up to 2,200,000 shares of Common Stock to certain foreign persons in the
following amounts, as consideration for consulting services and their acting
as finders for future financings for the Company. The November Warrants were
issued in reliance on Section 4(2) under the Securities Act. The exercise
prices for the November Warrants ranged from $2.50 to $5.00 per share. None of
the November Warrants has been exercised to date and warrants for 1,200,000
shares issued to Luzern Group, Inc and Chengchow Investments, Ltd. have
expired by their terms. The remaining warrants expire on November 10, 1998.
The Company has agreed with each of the holders of the November Warrants to
register for resale in this Registration Statement on Form SB-2 the shares
underlying the warrants. See "SELLING SHAREHOLDERS."
<TABLE>
<CAPTION>
NO. OF SHARES
UNDERLYING
NAME WARRANTS
---- -------------
<S> <C>
Luzern Group, Inc............................................ 200,000
Chengchow Investments Ltd. .................................. 1,000,000
Ying Hung Assets Limited..................................... 250,000
Sum On Securities Limited.................................... 250,000
Tai Soong Management Limited................................. 250,000
Jinhui Securities Limited.................................... 250,000
</TABLE>
. On January 1, 1998, the Board of Directors adopted the Company's 1998
Stock Option Plan. Pursuant to the Option Plan, the Company reserved 2,000,000
unregistered shares of Common Stock for sale and issuance to employees,
officers, directors and consultants upon the exercise of options granted under
the Option Plan. As of the date of this Registration Statement, the Company
has granted 816,000 stock options, none of which has been exercised. Options
granted under the Option Plan were issued in reliance on Rule 701 under the
Securities Act.
II-3
<PAGE>
. On April 9, 1998, the Company granted to Berliner Freiverkehr AG a stock
purchase warrant to purchase up to 200,000 unregistered shares of Common Stock
at a price of $4.00 per share in consideration for financial consulting
services rendered to the Company in Germany. The Berliner Warrant has a term
of two years. The total offering price, if the Berliner Warrant is exercised
in full, is $800,000. The Berliner Warrant was issued in reliance on Section
4(2) of the Securities Act. As of the date of this Registration Statement, the
Berliner Warrant has not been exercised. The Company has agreed with the
warrant holder to register for resale on this Registration Statement on Form
SB-2 the shares underlying the warrant. See "SELLING SHAREHOLDERS."
. On May 22, 1998, the Company sold and issued in a private placement to
certain foreign investors an aggregate of 1,534,010 shares of Common Stock.
The private offering was made in reliance on Regulation S under the Securities
Act and was further limited to accredited investors pursuant to Regulation D.
The total offering price was $6,136,040, or a price of $4.00 per share. In
connection with the private offering, the Company also issued warrants to
purchase an aggregate of 153,401 shares of Common Stock (representing ten
percent of the total number of shares sold in the offering) to certain foreign
brokers in consideration for their assistance in the offering. The Brokers'
Warrants are exercisable at a price of $4.00 per share have a term of two
years. As of the date hereof, none of the Brokers' Warrants has been
exercised. The Company filed a Form D with the Commission on June 5, 1998 for
the shares sold in the private offering and the Brokers' Warrants issued to
the foreign brokers. The Company has agreed with the foreign investors and
brokers to register for resale the shares issued in the private offering and
the shares underlying the Brokers' Warrants. See "SELLING SHAREHOLDERS."
. On May 22, 1998, the Company granted to National Day Corporation a stock
purchase warrant to purchase up to 500,000 unregistered shares of Common Stock
at an exercise price of $4.00 per share in consideration for its efforts and
assistance in raising capital for the Company, in providing certain bridge
loans to the Company, and making introductions to foreign brokers and
investors. The total offering price, if the National Day Warrants is exercised
in full, is $2,000,000. The National Day Warrant has a term of two years and
has not been exercise as of the date hereof. The National Day Warrant was
issued in reliance on Section 4(2). The Company has agreed with the warrant
holder to register for resale on this Registration Statement on Form SB-2 the
shares underlying the warrant. See "SELLING SHAREHOLDERS."
. On May 22, 1998, the Company granted 30,000 unregistered shares of Common
Stock to SAFECO, a major customer of the Company, in consideration for SAFECO
awarding to the Company a project development agreement and in consideration
for future and on-going business relationships. The shares were issued
pursuant to Section 4(2) of the Securities Act.
. On June 25, 1998, the Company granted to GlobeMedia AG stock purchase
warrants to purchase up to 200,000 unregistered shares of Common Stock at a
graduated exercise price ranging from $5.00 to $7.00 per share. The GlobeMedia
Warrants were issued in connection with, and as compensation for, an agreement
entered into between the Company and GlobeMedia to provide media, marketing,
and publication relation services for the Company in Europe. The total
offering price, if the GlobeMedia Warrants are exercised in full, is
$1,225,000. The GlobeMedia Warrants have not been exercised as of the date of
this Registration Statement. The Company has agreed with GlobeMedia to
register for resale on this Registration Statement on Form SB-2 the shares
underlying the warrant. See "SELLING SHAREHOLDERS."
. On August 14, 1998, the Company issued 200,000 shares of Common Stock to
Starward Securities, Ltd., a foreign broker, in consideration for its services
as a finder for the Company in its recent equity offerings. The shares were
issued pursuant to Section 4(2) of the Securities Act. The Company has agreed
with Starward Securities to register for resale on this Registration Statement
on Form SB-2 the 200,000 shares. See "SELLING SHAREHOLDERS."
II-4
<PAGE>
The following paragraphs set forth information with respect to all
securities of the Company's predecessors in interest, including APEC
(collectively referred to as the "Issuer"), sold since August 21, 1995 and
until consummation of the Neoteric Acquisition. All of the securities issued
and sold, as described below, were sold in reliance on exemptions under the
Securities Act and were not registered.
. On November 6, 1995, the Issuer sold 66,779 shares of Common Stock to 2
investors in a private offering pursuant to Section 4(2) of the Securities
Act. The total offering price was $30,050.55, or $.45 per share.
. On February 11, 1997, the Issuer issued a total of 14,894 unregistered
shares of Common Stock (consisting of 11,358 shares issued to Sam Sparks and
3,536 shares issued to Chinmaya Shrivastava) in consideration for the
performance of engineering and consulting services related to the design of
products for the Issuer. The shares were issued pursuant to Section 4(2) of
the Securities Act.
. On February 28, 1997, the Board of Directors of the Issuer approved a one-
for-25 reverse stock split of its 6,243,339 previously issued and outstanding
shares of common stock, thereby reducing the number of outstanding shares to
249,733.
. On February 28, 1997, the Issuer completed a private placement of a total
of 700,000 unregistered shares of Common Stock pursuant to Rule 504 of
Regulation D under the Securities Act. The aggregate offering price was
$7,000, or $.01 per share. The purchasers in the offering were as follows:
Northgate Group Limited (200,000 shares), CKL Associates, Inc. (100,000
shares), Kading Companies, SA (300,000 shares), and Olympic Capital Group,
Inc. (100,000 shares). The Issuer filed a Form D with the Commission on
February 13, 1997, as amended on March 3, 1997, relating to the offering.
. On February 28, 1997, the Issuer issued a total of 550,266 unregistered
shares of Common Stock in consideration for consulting services rendered in
connection with a merger between the Issuer and APEC (consisting of 400,000
shares issued to Pacific Chemical Holdings Limited and 150,266 shares issued
to Pacific Resource Group). The value of the shares issued was $5,502.66, or
$.01 per share. The shares were issued pursuant to Rule 504 of Regulation D.
The Issuer filed a Form D relating to the issuance on February 13, 1997, as
amended on March 3, 1997. Subsequently, in July 1997, pursuant to the terms of
a Rescission Agreement between the Issuer and the shareholders of APEC, all of
such shares were cancelled and returned to the Issuer, and the merger was
terminated, due to the failure of APEC to satisfy certain post-closing
obligations.
. On February 28, 1997, pursuant to a merger agreement between the Issuer
and APEC dated January 21, 1997, the Board of Directors for the Issuer
authorized the issuance of a total of 8,500,000 unregistered shares of Common
Stock to the following shareholders of APEC in exchange for their equity
ownership interest in APEC, in the following amounts:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Jiangsu Chengzing Phosp-Chemicals (Group) Co. ................... 6,900,000
GCC Limited...................................................... 450,000
Triangle Pacific Limited......................................... 450,000
Trinity Capital Incorporated..................................... 450,000
Jun Xia Zhang.................................................... 75,000
Jao Shun Pan..................................................... 75,000
Ming Gao......................................................... 50,000
Qing Hua Du...................................................... 50,000
---------
Total.......................................................... 8,500,000
=========
</TABLE>
These shares were issued pursuant to Section 4(2) of the Securities Act.
Subsequently, in July 1997, pursuant to the terms of a Rescission Agreement
between the Issuer and the shareholders of APEC, all of such shares were
cancelled and returned to the Issuer, and the merger was terminated, due to
the failure of APEC to satisfy certain post-closing obligations.
II-5
<PAGE>
. Between August 27, 1997 and September 4, 1997, the Issuer issued a total
of 3,571,428 unregistered shares of Common Stock, in a private placement
pursuant to Rule 504 of Regulation D. The total offering price was
$249,999.96, or $.07 per share. The Issuer filed a Form D with the Commission
on September 30, 1997, as amended April 1998, for the offering to the
following persons in the following amounts:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- -------
<S> <C>
Bright Outlook Consultants, Ltd. .................................. 350,000
Interlaken Securities, Ltd. ....................................... 350,000
Bonn Securities AG, Ltd. .......................................... 371,428
Mulhouse Investments, Ltd. ........................................ 350,000
Pan American Securities, Ltd. ..................................... 200,000
Matrix Securities PTY, Ltd. ....................................... 200,000
Jungfrau Investments, Ltd. ........................................ 250,000
Starward Securities, Ltd. ......................................... 350,000
Capricorn Resources Ltd. .......................................... 450,000
Frontier Equities Corp. ........................................... 350,000
National Day Corporation........................................... 350,000
</TABLE>
. On September 1, 1997, the Issuer issued stock purchase warrants to
purchase up to 600,000 shares of Common Stock in consideration for services
rendered in connection with the Neoteric Acquisition, to the following
persons: Pan American Securities, Ltd. (300,000 shares) and Matrix Securities
PTY, Ltd. (300,000 shares). Warrants to purchase 500,000 shares were issued in
reliance on Rule 504 of Regulation D and the remaining warrants were issued in
reliance on Section 4(2) under the Securities Act. The exercise price for the
warrants was $1.50 per share. Between September 1997 and December 1997, all of
such warrants were subsequently exercised in accordance with their terms for
an aggregate exercise price of $900,000. The Issuer filed a Form D with the
Commission on September 30, 1997, as amended April 1998, for the issuance of
the warrants and shares upon exercise.
II-6
<PAGE>
EXHIBITS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Acquisition Agreement between Asia Pacific Chemical Engineering Corp.
and Neoteric Media, Inc., dated August 27, 1997
3.1 Articles of Incorporation filed April 14, 1998
3.2 Articles of Merger filed April 16, 1998, for reincorporation of
Interactive Objects, Inc. in the State of Washington
3.3 Bylaws
4.1 Specimen Common Stock Certificate
4.2 Form of Common Stock Purchase Warrant
4.3 Form of Common Stock Purchase Warrant
5.1 Opinion of Cairncross & Hempelmann, P.S.
10.1 1998 Stock Option Plan
10.2 Seattle Office Sublease Agreement between Interactive Objects, Inc.
and Intermind Corporation, dated December 30, 1997
10.2A Olympic Tower Master Office Lease Agreement between Duchess Properties
Ltd. and Intermind Corporation, dated August 29, 1995, as amended
September 1, 1996, and as amended February 1, 1997
10.3 Consulting Agreement between Interactive Objects, Inc. and Northwest
Capital Partners, L.L.C., dated July 11, 1997
10.3A First Amendment to Consulting Agreement, dated August 25, 1998
10.4 Employment Agreement with Ryan Smith, dated January 1, 1998, as
amended as of July 1, 1998.
10.5 Employment Agreement with John J. Guarino, dated January 1, 1998, as
amended as of July 1, 1998
10.6 Employment Agreement with Steven G. Wollach, dated January 1, 1998, as
amended as of July 1, 1998
10.7 Employment Agreement with Daren Kloes, dated January 1, 1998
10.8 Employment Agreement with Jay Paulson, dated January 1, 1998
10.9 Employment Agreement with Steve Jackson, dated January 1, 1998
10.10 Employment Agreement with Robert Diez, dated July 20, 1998
21.1 Subsidiaries of the Registrant
23.1 Consent of Peterson Sullivan P.L.L.C.
23.2 Consent of Cairncross & Hempelmann, P.S. (included in opinion filed as
Exhibit 5.1)
24.1 Powers of Attorney (see Signature Page)
27.1 Financial Data Schedule
</TABLE>
II-7
<PAGE>
UNDERTAKINGS
The Registrant hereby undertakes to file with the Commission, during any
period in which it offers or sells securities in reliance upon Rule 415 of the
Securities Act, a post-effective amendment to this Registration Statement.
Such post-effective amendment shall: (1) include any prospectus required under
Section 10(a)(3) of the Securities Act; (2) reflect in such prospectus any
facts or events that exist which, individually or together, represent a
fundamental change in the information contained in the registration statement;
provided, however, that notwithstanding the foregoing, any increase or
decrease in volume of the securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of Prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; and (3) include any additional or changed material information on
the plan of distribution. In addition, Registrant hereby undertakes to file a
post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
For determining any liability under the Securities Act, Registrant hereby
undertakes to treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-8
<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,
thereunto duly authorized, in the City of Redmond, State of Washington on
August 24, 1998.
INTERACTIVE OBJECTS, INC.
/s/ Ryan L. Smith
By: _________________________________
Ryan L. Smith
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Ryan L. Smith and Steven G. Wollach, or either of them, as his attorneys-in-
fact, with full power of substitution, for him in any and all capacities, to
sign any amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, the
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ryan L. Smith Chief Executive Officer and August 24,
____________________________________ Director (Principal 1998
Ryan L. Smith Executive Officer)
/s/ Steven G. Wollach Chief Financial Officer and August 24,
____________________________________ Director (Principal 1998
Steven G. Wollach Financial and Accounting
Officer)
/s/ John J. Guarino Senior Executive Vice August 24,
____________________________________ President and Director 1998
John J. Guarino
/s/ Brent Nelson Director August 24,
____________________________________ 1998
Brent Nelson
/s/ Thad Wardall Director August 14,
____________________________________ 1998
Thad Wardall
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
2.1 Acquisition Agreement between Asia Pacific Chemical
Engineering Corp. and Neoteric Media, Inc., dated
August 27, 1997
3.1 Articles of Incorporation filed April 14, 1998
3.2 Articles of Merger filed April 16, 1998, for
reincorporation of Interactive Objects, Inc. in the
State of Washington
3.3 Bylaws
4.1 Specimen Common Stock Certificate
4.2 Form of Common Stock Purchase Warrant
4.3 Form of Common Stock Purchase Warrant
5.1 Opinion of Cairncross & Hempelmann, P.S.
10.1 1998 Stock Option Plan
10.2 Seattle Office Sublease Agreement between Interactive
Objects, Inc. and Intermind Corporation, dated
December 30, 1997
10.2A Olympic Tower Master Office Lease Agreement between
Duchess Properties Ltd. and Intermind Corporation,
dated August 29, 1995, as amended September 1, 1996,
and as amended February 1, 1997
10.3 Consulting Agreement between Interactive Objects, Inc.
and Northwest Capital Partners, L.L.C., dated July 11,
1997
10.3A First Amendment to Consulting Agreement, dated August
25, 1998
10.4 Employment Agreement with Ryan Smith, dated January 1,
1998, as amended as of July 1, 1998.
10.5 Employment Agreement with John J. Guarino, dated
January 1, 1998, as amended as of July 1, 1998
10.6 Employment Agreement with Steven G. Wollach, dated
January 1, 1998, as amended as of July 1, 1998
10.7 Employment Agreement with Daren Kloes, dated January 1,
1998
10.8 Employment Agreement with Jay Paulson, dated January 1,
1998
10.9 Employment Agreement with Steve Jackson, dated January
1, 1998
10.10 Employment Agreement with Robert Diez, dated July 20,
1998
21.1 Subsidiaries of the Registrant
23.1 Consent of Peterson Sullivan P.L.L.C.
23.2 Consent of Cairncross & Hempelmann, P.S. (included in
opinion filed as Exhibit 5.1)
24.1 Powers of Attorney (see Signature Page)
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 2.1
ACQUISITION AGREEMENT
AGREEMENT dated August 27, 1997 (the "Agreement"), by, between and among
ASIA PACIFIC CHEMICAL ENGINEERING CORP., a company incorporated under the laws
of the State of Utah (hereinafter referred to as "APEC"); the person listed on
Exhibit A attached hereto and made a part hereof, being the sole officer of APEC
(hereinafter referred to as "MANAGEMENT"); and NEOTRIC MEDIA, INC. d/b/a
Interactive Objects, Inc., a company incorporated under the laws of the State of
Washington (hereinafter referred to as "IOI"); and the persons listed on Exhibit
A-1 attached hereto and made a part hereof, (hereinafter referred to as the
"SELLERS").
WHEREAS, the SELLERS own a total of 782,600 shares of common stock, no par
value, of IOI, said shares being 100% of the issued and outstanding common stock
of IOI; and
WHEREAS, the SELLERS desire to sell and APEC desires to purchase one
hundred (100%) percent of such shares;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereby agree as
follows:
1. Purchase and Sale. The SELLERS hereby agree to sell, transfer, assign
and convey to APEC and APEC hereby agrees to purchase and acquire from the
SELLERS, a total of 782,600 shares of Common Stock of IOI, which equals one
hundred percent (100%) percent of all of IOI's currently issued and outstanding
common stock (the "IOI" Common Shares"), in a tax-free stock-for-stock
acquisition.
2. Purchase Price. The aggregate purchase price to be paid by APEC for
the IOI Common Shares shall be 7,460,800 shares of APEC voting common stock (the
"APEC Common Shares"). The APEC Common Shares will be issued to the individual
SELLERS in accordance with Exhibit A-1 attached hereto.
3. Warranties, Representations and Covenants of IOI and IOI PRINCIPALS.
In order to induce APEC to enter into this Agreement and to complete the
transaction contemplated hereby, IOI represents to APEC that:
(a) Organization and Standing. IOI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Washington,
is qualified to do business a foreign corporation in every other state or
jurisdiction in which it operates to the extent required by the laws of such
states and jurisdictions, and has full power and authority to carry on its
business as now conducted and to own and operate its assets, properties and
business. Attached hereto as Exhibit B are true and correct copies of IOI's
Certificate of Incorporation, amendments thereto and all current By-laws of IOI.
No change thereto will be made in any of the Exhibit B documents before the
Closing. IOI has no subsidiaries or any investments or ownership interests in
any corporation, partnership, joint venture or other business enterprise which
is material to its business.
(b) Capitalization. As of the Closing Date IOI's entire authorized
equity capital consists of 1,000,000 shares of Common Stock, no par value, of
which 782,600 shares of Common Stock will be outstanding as of the Closing. As
of the Closing Date, there will be no other voting or equity securities
authorized or issued, nor any authorized or issued securities convertible into
voting stock, and no outstanding subscriptions, warrants, calls, options,
rights, commitments or agreements by which IOI or the SELLERS are bound, calling
for the issuance of any additional shares of common stock or any other voting or
equity security, except as set forth in Exhibit IOI-S, attached hereto. The
782,600 issued and outstanding IOI Common Shares to be transferred by SELLERS
constitutes one hundred (100.0%) percent of the currently issued and outstanding
shares of Common Stock of IOI, which includes, inter alia, that same percentage
of IOI's voting power, right to receive dividends, when, as and if declared and
paid, and the right to receive the proceeds of liquidation attributable to
common stock, if any. After becoming management of APEC, IOI's management will
not further reverse split APEC's common stock for at least 12 months.
-1-
<PAGE>
(c) Ownership of IOI Shares. Each SELLER warrants and represents,
severally, that as of the date hereof, such SELLER is the sole owner of the IOI
Common Shares listed by his or her name on Exhibit A-1, free and clear of all
liens, encumbrances, and restrictions whatsoever, except that the IOI Common
Shares so listed have not been registered under the Securities Act of 1933, as
amended (the "33 Act"), or any applicable State Securities laws. By SELLERS'
transfer of the IOI Common Shares to APEC pursuant to this Agreement, APEC will
thereby acquire 100% of the outstanding capital stock of IOI, free and clear of
all liens, encumbrances and restrictions of any nature whatsoever, except by
reason of the fact that the IOI Common Shares will not have been registered
under the "33 Act, or any applicable State securities laws.
(d) Taxes. IOI has filed all federal, state and local income or
other tax returns and reports that it is required to file with all governmental
agencies, wherever situate, and has paid or accrued for payment all taxes as
shown on such returns, such that a failure to file, pay or accrue will not have
a material adverse effect on IOI. IOI's income tax returns have never been
audited by an authority empowered to do so.
(e) Pending Actions. There are no material legal actions, lawsuits,
proceedings or investigations, either administrative or judicial, pending or to
the best of IOI's knowledge, threatened, against or affecting IOI, that arise
out of the operation of IOI, except as described in Exhibit C attached hereto.
IOI is not knowingly in material violation of any law, material ordinance or
regulation of any kind whatever, including, but not limited to laws, rules and
regulations governing the sale of its services, the `33 Act, the Securities
Exchange Act of 1934, as amended (the "34 Act"), the Rules and Regulations of
the U.S. Securities and Exchange Commission ("SEC"), or the Securities Laws and
Regulations of any state or nation.
(f) Governmental Regulation. IOI holds the licenses and
registrations set forth on Exhibit D hereto from the jurisdictions set forth
therein, which licenses and registrations are all of the licenses and
registrations necessary to permit IOI to conducts its current business. All of
such licenses and registrations are in full force and effect, and there are no
proceedings, hearings or other actions pending that may affect the validity or
continuation of any of them. No approval of any other trade or professional
association or agency of government other than as set forth on Exhibit D is
required for any of the transactions affected by this Agreement, and the
completion of the transactions contemplated by this Agreement will not, in and
of themselves, affect or jeopardize the validity or continuation of any of them.
(g) Ownership of Assets. Except as set forth in Exhibit E attached
hereto, IOI has good, marketable title, without any liens or encumbrances of any
nature whatever, to all of the following, if any: its assets, properties and
rights of every type and description, including, without limitation, all cash on
hand and in banks, certificates of deposit, stocks, bonds, and other securities,
good will, customer lists, its corporate name and all variants thereof,
trademarks and trade names, copyrights and interests thereunder, licenses and
registrations, pending licenses and permits and applications therefor,
inventions, processes, know-how, trade secrets, real estate and interests
therein and improvements thereto, machinery, equipment, vehicles, notes and
accounts receivable, fixtures, rights under agreements and leases, franchises,
all rights and claims under insurance policies and other contracts of whatever
nature, rights in funds of whatever nature, books and records and all other
property and rights of every kind and nature owned or held by IOI as of this
date, and will continue to hold such title on and after the completion of the
transactions contemplated by this Agreement, nor, except in the ordinary course
of its business, has IOI disposed of any such asset since the date of the most
recent balance sheet described in Section 3(c) of this Agreement.
(h) No Interest in Suppliers, Customers, Landlords or Competitors.
Neither the IOI PRINCIPALS nor any member of their families have any material
interest of any nature whatever in any supplier, customer, landlord or
competitor of IOI.
(i) No Debt Owed by IOI to IOI PRINCIPALS. Except as set forth in
Exhibit F attached hereto, IOI does not owe any money, securities, or property
to either the IOI PRINCIPALS or any member of their families or to any company
controlled by such a person, directly or indirectly. To the extent that IOI may
have any undisclosed liability to pay any sum or property to any such person or
entity or any member of their families such liability is hereby forever
irrevocably released and discharged.
-2-
<PAGE>
(j) Corporate Records. All of IOI's books and records, including,
without limitation, its books of account, corporate records, minute book, stock
certificate books and other records are up-to-date, complete and reflect
accurately and fairly the conduct of its business in all material respects since
its date of incorporation.
(k) No Misleading Statements or Omissions. Neither this Agreement
nor any financial statement, exhibit, schedule or document attached hereto or
presented to APEC in connection herewith, contains any materially misleading
statement, or omits any fact or statement necessary to make the other statements
or facts therein set forth not materially misleading to the best of their
knowledge based on prudent business analysis.
(l) Validity of this Agreement. All corporate and other proceedings
required to be taken by the SELLERS and by IOI in order to enter into and carry
out this Agreement have been duly and properly taken. This Agreement has been
duly executed by the SELLERS and by IOI, and constitutes the valid and binding
obligation of each of them, enforceable in accordance with its terms except to
the extent limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws relating to or effecting generally the enforcement of
creditors rights. The execution and delivery of this Agreement and the carrying
out of its purposes will not result in the breach of any of the terms or
conditions of, or constitute a default under or violate, IOI's Certificate of
Incorporation or By-laws, or any material agreement, lease, mortgage, bond,
indenture, license or other material document or undertaking, oral or written,
to which IOI or the SELLERS is a party or is bound or may be affected, nor will
such execution, delivery and carrying out violate any law, rule or regulation or
any order, writ, injunction or decree, of any court, regulatory agency or other
governmental body; and the business now conducted by IOI can continue to be so
conducted after completion of the transaction contemplated hereby, with IOI as a
wholly-owned subsidiary of APEC.
(m) Consents and Approvals; Compliance with Laws. Neither IOI nor
the SELLERS are required to make any filing with, or obtain the consent or
approval of, any person or entity as a condition to the consummation of the
transactions contemplated by this Agreement. The business of IOI has been
operated in material compliance with all laws, rules, and regulations applicable
to its business, including, without limitation, those related to securities
matters, trade matters, environmental matters, public health and safety, and
labor and employment.
(n) Access to Books and Records. APEC will have full and free access
to IOI's books during the course of this transaction prior to Closing, during
regular business hours, on reasonable notice.
(o) IOI Financial Statements. Before the Closing, IOI's unaudited
financial statements as of and for the period from inception to July 31, 1997
are acceptable. IOI's audited financial statements as at the Closing date will
be provided to APEC within 45 days after Closing; the IOI financial statements
will accurately describe IOI's financial position as of the dates thereof. The
IOI financial statements will have been prepared in accordance with generally
accepted accounting principles in the United States ("GAAP") (or as permitted by
regulation S-X, S-B, and/or the rules promulgated under the '33 Act and the '34
Act) and for the period from inception to July 31, 1997 audited by independent
certified public accountants with SEC experience.
(p) IOI's Corporate Summary. IOI's Business Plan, dated August 1997
(attached hereto as Exhibit L) accurately describes IOI's business, assets,
proposed operations and management as of the date thereof; since the date of the
Corporate Plan, there has been no material adverse change in the Business Plan
and no material adverse change in IOI; provided that no warranties or
representations are made as to any financial projections.
4. Warranties, Representations and Covenants of APEC and MANAGEMENT of
APEC ("MANAGEMENT"). In order to induce the SELLERS and IOI to enter into this
Agreement and to complete the transaction contemplated hereby, APEC and
MANAGEMENT jointly and severally warrant, represent and covenant to IOI and
SELLERS that:
(a) Organization and Standing. APEC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Utah, is
qualified to do business as a foreign corporation in every other state and
jurisdiction in which it operates to the extent required by laws of such states
or jurisdictions, and has full power and authority to carry on its business as
now conducted and to own and operate its assets, properties and business. APEC
has no subsidiaries or any other investments or ownership interests in any
corporation, partnership, joint venture or other business enterprise.
-3-
<PAGE>
(b) Capitalization. APEC's entire authorized equity capital consists
of 50,000,000 shares of voting common stock, $0.0015 par value and 2,000,000
shares of preferred stock, $.01 par value. At or as of the Closing, the existing
APEC Board of Directors will authorize the issuance of (i) 7,460,800 restricted
shares to IOI's shareholders; (ii) 150,000 Rule 504 warrants to Pan American
Securities Limited shall be exercised at a price of $1.50 per share within a
term not exceeding 30 days; (iii) 150,000 Rule 504 warrants to Pan American
Securities shall be exercised at a price of $1.50 per share within a term not
exceeding 60 days; (iv) 150,000 Rule 504 warrants to Matrix Securities Pty. Ltd.
shall be exercised at a price of $1.50 per share within a term not exceeding 90
days; (v) 50,000 Rule 504 warrants and 100,000 Section 4(2) warrants to Matrix
Securities Pty. Ltd. Shall be exercised at a price of $1.50 per share within a
term not exceeding 120 days; and (vii) 500,000 employee stock options to be
issued to IOI designees pursuant to an Agreement dated July 1997, signed between
Interactive Objects, Inc. and Northwest Capital Partners, L.L.C. The intent of
all parties named herein is to exercise the warrants within the specified time
period. As of the Closing, APEC will have authorized 50,000,000 shares of Common
Stock, $0.0015 par value and 2,000,000 share of preferred stock, $.01 par value;
and will have issued and outstanding 12,132,310 shares of voting common stock,
$.0015 par value and no shares of preferred stock issued. Upon issuance, all of
the APEC Common Stock will be validly issued, fully paid and non-assessable. The
relative rights and preferences of APEC's equity securities are set forth on the
Certificate of Incorporation, as amended and APEC's By-laws (Exhibit H hereto).
There are no other voting or equity securities authorized or issued, nor any
authorized or issued securities convertible into voting stock, and no
outstanding subscriptions, warrants, calls, options, rights, commitments or
agreements by which APEC is bound, calling for the issuance of any additional
shares of common stock or any other voting or equity security. The By-laws of
APEC provide that a simple majority of the shares voting at a stockholders'
meeting at which a quorum is present may elect all of the directors of APEC.
Cumulative voting is not proved for by the By-laws or Certificate of
Incorporation of APEC. Accordingly, as of the Closing the 7,460,800 shares being
issued to and acquired by the SELLERS will constitute 61.50% of the 12,132,310
shares of APEC which will then be issued and outstanding which includes, inter
alia, that same percentage of APEC's voting power (subject to the provisions
regarding cumulative rights), right to receive dividends, when, as and if
declared and paid, and the right to receive the proceeds of liquidation
attributable to common stock, if any.
(c) Ownership of Shares. By APEC's issuance of the APEC Common
Shares to the SELLERS pursuant to this Agreement, the SELLERS will thereby
acquire good, absolute marketable title thereto, free and clear of all liens,
encumbrances and restrictions of any nature whatsoever, except by reason of the
fact that such APEC shares will not have been registered under the '33 Act, or
any applicable state securities laws.
(d) Significant Agreements. APEC is not and will not at Closing be
bound by any contracts, obligations, leases or agreements of any kind including,
without limitations, the following:
(i) Employment, advisory or consulting contract (except as
described in Section 12 herein);
(ii) Plan providing for employee benefits of any nature;
(iii) Lease with respect to any property or equipment;
(iv) Contract or commitment for any current expenditure;
(v) Contract or commitment pursuant to which it has assumed,
guaranteed, endorsed, or otherwise become liable for any obligation or
any other person, firm or organization;
(vi) Contract, agreement, understanding, commitment or
arrangement, other than in the normal course of business, not set
forth in this Agreement or an Exhibit hereto;
(vii) Agreement with any person relating to the dividend,
purchase or sale of securities, that has not been settled by the
delivery of payment of securities when due, and which remains
unsettled upon the date of this Agreement.
(e) Taxes. APC has filed all federal, state and local income or
other tax returns and reports that is required to file with all governmental
agencies, wherever situate, and has paid all taxes as shown on such
-4-
<PAGE>
returns. All of such returns are true and complete. APEC's income tax returns
have been audited by any authority empowered to do so.
(f) Absence of Liabilities. At and as of the Closing Date APEC will
have no liabilities of any kind or nature, fixed or contingent, except for the
costs, including legal and accounting fees and other expenses, in connection
with this transaction, for which APEC agrees to be responsible and to pay in
full at or before the Closing not to exceed $5,000.00.
(g) No Pending Actions. To the best of management's knowledge, there
are no legal actions, lawsuits, proceedings or investigations, either
administrative or judicial, pending or threatened, against or affecting APEC, or
against any of the APEC MANAGEMENT and arising out of their own operation of
APEC. APEC has been in compliance with, and has not received notice of violation
of any law, ordinance or regulation of any kind whatever, including, but not
limited to, the '33 Act, the '34 Act, the Rules and Regulations of the SEC, or
the Securities Laws and Regulations of any state. APEC is not an investment
company as defined in, or otherwise subject to regulation under, the Investment
Company Act of 1940. APEC is not required to file reports pursuant to either
Section 13 or Section 15(d) of the '34 Act.
(h) Corporate Records. All of APEC's books and records, including,
without limitation, its books of account, corporate records, minute book, stock
certificate books and other records are up-to-date, complete and reflect
accurately and fairly the conduct of its business in all respects since its date
of incorporation; all of said books and records will be made available for
inspection by IOI's authorized representatives prior to the Closing as provided
by Section 4(l) herein, and will be delivered to APEC's new management at the
Closing;
(i) No Misleading Statements or Omissions. Neither this Agreement
nor any financial statement, exhibit, schedule or document attached hereto or
presented IOI in connection herewith contains any materially misleading
statement, or omits any fact or statement necessary to make the other statements
or facts therein set forth not materially misleading.
(j) Validity of this Agreement. All corporate and other proceedings
required to be taken by APEC in order to enter into and carry out this Agreement
will have been duly and properly taken at or before the Closing. This Agreement
has been duly executed by APEC, and constitutes a valid and binding obligation
of APEC enforceable in accordance with its terms. The execution and delivery of
this Agreement and the carrying out of its purposes will not result in the
breach of any of the terms or conditions of, or constitute a default under or
violate, APEC's Certificate of Incorporation or By-laws, or any agreement,
lease, mortgage, bond, indenture, license or other document or undertaking, oral
or written, to which APEC is a party or is bound or may be affected, nor will
such execution, delivery and carrying out violate any law, rule or regulation or
any order, writ, injunction or decree of any court, regulatory agency or other
governmental body.
(k) Consents and Approvals; Compliance with Laws. Neither APEC nor
MANAGEMENT is required to make any filing with, or obtain the consent or
approval of, any person or entity as a condition to the consummation of the
transactions contemplated by this Agreement. The business of APEC has been
operated in compliance with all laws, rules, and regulations applicable to its
business, including, without limitation, those related to securities matters,
trade matters, environmental matters, public health and safety, and labor
employment.
(l) Issuance of Common Stock and Warrants. All past issuances of
common stock and warrants by APEC described in this Agreement has been in full
compliance with all Federal and State securities laws.
(m) Access to Books and Records. IOI and SELLERS will have full and
free access to APEC's books and records during the course of this transaction
prior to and at the Closing, on reasonable notice.
(n) APEC Financial Statements. At or before the Closing, APEC and
MANAGEMENT will provide IOI with APEC's audited financial statements for the
fiscal year ended December 31, 1996, which will be audited in accordance with
GAAP by independent certified public accountants with SEC experience, and which
comply with applicable Federal securities laws and regulations including
Regulation S-X, together with audited financial statements for the period ending
July 31, 1997.
-5-
<PAGE>
(o) APEC Financial Condition. As of the Closing, APEC will have
$300,000 cash assets and no liabilities.
(p) Directors' and Shareholders' Approval. Immediately upon the
signing of this Agreement, APEC's Board of Directors and Shareholders, by
meeting or consent, will duly and properly authorize the matters described in
section 7(a)(iv) herein.
(q) The APEC Shares. All of the APEC Common Shares issued to SELLERS
shall be validly issued, fully-paid non-assessable shares of AXPE Common Stock,
with full voting rights, dividend rights, and right to receive the proceeds of
liquidation, if any, as set forth in APEC's Certificate of Incorporation.
(r) Trading of APEC Stock. APEC's common stock is now and as of the
Closing will be traded on the OTC Bulletin Board (Symbol: AXPE); no further
action must be taken before the Closing for continued trading on the Bulletin
Board.
5. Term: Indemnification. All representations, warranties, covenants
and agreements made herein and in the exhibits attached hereto shall survive the
execution and delivery of this Agreement and payment pursuant thereto.
MANAGEMENT and IOI MANAGEMENT ("management") of both parties to the Agreement
hereby agree, jointly and severally, to indemnify, defend, and hold harmless
APEC, IOI, and the SELLERS from and against any damage, loss liability, or
expense (including, without limitation, reasonable expenses of investigation and
reasonable attorney's fees) arising out of any material breach of any
representation, warranty, covenant, or agreement made by MANAGEMENT or
management in this Agreement.
6. Restricted Shares; Legend. All of the APEC Common Shares issued to
SELLERS hereunder will be "restricted securities" as defined in Rule 144 under
the '33 Act; and each stock certificate issued to SELLERS hereunder will bear
the usual restrictive legend to such effect. Appropriate Stop Transfer
instructions will be given to APEC's stock transfer agent.
7. Conditions Precedent to Closing. (a) The obligations of IOI and the
SELLERS under this Agreement shall be and are subject to fulfillment, prior to
or at the Closing, of each of the following conditions:
(i) That APEC's and MANAGEMENT's representations and
warranties contained herein shall be true and correct at the time of Closing as
if such representations and warranties were made at such time, and MANAGEMENT
will deliver an executed certification confirming the foregoing:
(ii) That APEC and MANAGEMENT shall have performed or complied
with all agreements, terms and conditions required by this Agreement to be
performed or complied with by them prior to or at the time of Closing;
(iii) That APEC's directors and shareholders, by proper and
sufficient vote taken either by consent or at a meeting duly and properly called
and held, shall have properly approved all of the matters required to be
approved by APEC's directors and shareholders, respectively;
(iv) That APEC's Board of Directors, by proper and sufficient
vote, shall have approved this Agreement and the transactions contemplated
hereby; approved the change of APEC's corporate name to a name selected by IOI;
approved the resignation of all of APEC's current directors and the election of
up to three designees of IOI to serve as directors in place of APEC's current
directors; and will have approved such other changes as are consistent with this
Agreement and approved by IOI and APEC; and
(b) The obligation of APEC and MANAGEMENT under this Agreement shall
be and are subject to fulfillment, prior to or at the Closing of each of the
following conditions :
(i) That IOI's and SELLERS' representations and warranties
contained herein shall be true and correct at the time of Closing as if such
representations and warranties were made at such time and IOI and the IOI
PRINCIPALS shall deliver an executed certification confirming the foregoing;
-6-
<PAGE>
(ii) That IOI and IOI PRINCIPALS shall have performed or
complied with all agreements, terms and conditions required by this Agreement to
be performed or complied with by them prior to or at the time of Closing; and
(iii) that IOI's officers will have signed non-compete clauses
in the form attached hereto as Exhibit J.
(iv) That IOI's officers shall provide any existing employment
agreements which are attached hereto as Exhibit H.
8. Termination. This Agreement may be terminated at any time before or
at Closing, by:
(a) The mutual agreement of the parties;
(b) Any party if:
(i) Any provision of this Agreement applicable to a party
shall be materially untrue or fail to be accomplished on
or before September 30, 1997.
(ii) Any legal proceeding shall have been instituted or shall
be imminently threatening to delay, restrain or prevent
the consummation of this Agreement.
Upon termination of this Agreement for any reason, in accordance with the
terms and conditions set forth in this paragraph, each said party shall bear all
costs and expenses as each party has incurred and no party shall be liable to
the other.
9. Exhibits. All Exhibits attached hereto are incorporated herein by
this reference as if they were set forth in their entirety.
10. Miscellaneous Provisions. This Agreement is the entire agreement
between the parties in respect of the subject matter hereof, and there are no
other agreement, written or oral, nor may this Agreement be modified except in
writing and executed by all of the parties hereto. The failure to insist upon
strict compliance with any of the terms, covenants or conditions of this
Agreement shall not be deemed a waiver or relinquishment of such right or power
at any other time or times.
11. Closing. The Closing of the transactions contemplated by this
Agreement ("Closing") shall take place at the offices of IOI, 17720 NE 65th
Street, Suite 202, Redmond, Washington 98052, at 1:00 P.M. on the first business
day after the latter of the approval of SELLERS owning at least 80% of IOI's
Common Stock or the shareholders of APEC approving this Agreement, or such other
date as the parties hereto shall mutually agree upon. At the Closing, all of
the documents and terms referred to herein shall be exchanged.
12. Fees and Commissions. IOI and APEC represent to each other that no
broker, finder or other person or entity is entitled to any fee or commission
from APEC or IOI for services rendered on behalf of APEC or IOI in connection
with the transactions contemplated by this Agreement.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Washington.
14. Counterparts. This Agreement may be executed in duplicate facsimile
counterparts, each of which shall be deemed an original and together shall
constitute one and the same binding Agreement, with one counterpart being
delivered to each party hereto.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the date and year above first written.
APEC, INC.
By: /s/ Brent Nelson
-----------------------------------------
Brent Nelson, President
NEOTERIC MEDIA, INC. D/B/A INTERACTIVE OBJECTS, INC.
By: /s/ Ryan Smith
-----------------------------------------
Ryan Smith, CEO and Chairman
SELLERS:
/s/ Ryan Smith /s/ Steve Jackson
- ----------------------------- --------------------------------
Ryan Smith Steve Jackson
/s/ Jay Paulson /s/ John Guarino
- ----------------------------- --------------------------------
Jay Paulson John Guarino
/s/ Thad Wardall /s/ Durene Nelson
- ----------------------------- --------------------------------
Thad Wardall Durene Nelson
/s/ Bob Theriault /s/ Randy Webb
- ----------------------------- --------------------------------
Bob Theriault Randy Webb
-8-
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
INTERACTIVE OBJECTS--WASHINGTON, INC.
____________
ARTICLE 1. NAME
The name of this corporation is "Interactive Objects--Washington, Inc."
ARTICLE 2. SHARES
2.1 AUTHORIZED SHARES. The total number of shares which the corporation
is authorized to issue is sixty million (60,000,000) shares, consisting of fifty
million (50,000,000) shares of Common Stock having a par value of $.01 and ten
million (10,000,000) shares of Preferred Stock having a par value of $.01.
2.2 ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Articles of Incorporation of the corporation, as
determined from time to time by the board of directors and stated in the
resolution or resolutions providing for the issuance thereof, prior to the
issuance of any shares thereof. The board of directors shall have the authority
to fix and determine and to amend, subject to the provisions hereof, the rights
and preferences of the shares of any series that is wholly unissued or to be
established. Unless otherwise specifically provided in the resolution
establishing any series, the board of directors shall further have the
authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
2.3 PROVISIONS APPLICABLE TO CLASSES OF STOCK. The relative rights,
preferences, privileges and restrictions granted to or imposed upon the Common
Stock and Preferred Stock are as follows:
(a) VOTING RIGHTS. The holders of Common Stock shall be entitled to
one vote on all matters presented to the shareholders, without limitation, for
each share so held. Holders of Preferred Stock shall have such voting rights as
may be provided by the Board of Directors in designating a particular series of
Preferred Stock or as otherwise provided by law.
(b) DIVIDEND RIGHTS. The holders of shares of the Preferred Stock
shall be entitled to receive dividends, out of the funds of the corporation
legally available therefor, at the rate and at the time or times, whether
cumulative or noncumulative, as may be provided by the Board of Directors in
designating a particular series of Preferred Stock. If such dividends on the
Preferred Stock shall be cumulative, then if dividends shall not have been paid,
the deficiency shall be fully paid or the dividends declared and set apart for
payment at such rate, but without interest on cumulative dividends, before any
dividends on the Common Stock shall be paid or declared and set apart for
payment. Subject to the prior rights of holders of all classes of stock at the
time outstanding having prior rights as to dividends, the holders of shares of
the Common Stock shall be entitled to receive, when and as declared by the Board
of Directors, out of the funds of the corporation legally available therefor,
such dividends as may be declared from time to time by the Board of Directors.
(c) REDEMPTION. The Preferred Stock may be redeemable at such price,
in such amount, and at such time or times as may be provided by the Board of
Directors in designating a particular series of Preferred Stock. In any event,
such Preferred Stock may be repurchased by the corporation to the extent legally
permissible. The Common Stock is not redeemable.
Articles of Incorporation Page 1
<PAGE>
(d) LIQUIDATION. In the event of any liquidation, dissolution, or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock and
dividends accrued thereon to the date of such payment. The holders of the
Preferred Stock shall not be entitled to receive any distributive amounts upon
the liquidation, dissolution, or winding up of the affairs of the corporation
other than the distributive amounts referred to in this Section, unless
otherwise provided by the Board of Directors in designating a particular series
of Preferred Stock.
(e) CONVERSION. Shares of Preferred Stock may be convertible into
Common Stock of the corporation upon such terms and conditions, at such rate and
subject to such adjustments as may be provided by the board of directors in
designating a particular series of preferred stock.
ARTICLE 3. NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the board of directors, no
preemptive rights shall exist with respect to shares of stock or securities
convertible into shares of stock of this corporation.
ARTICLE 4. NO CUMULATIVE VOTING
At each election for directors, every shareholder entitled to vote at such
election has the right to vote in person or by proxy the number of shares held
by such shareholder for as many persons as there are directors to be elected.
No cumulative voting for directors shall be permitted.
ARTICLE 5. BYLAWS
The board of directors shall have the power to adopt, amend or repeal the
Bylaws or adopt new Bylaws. Nothing herein shall deny the concurrent power of
the shareholders to adopt, alter, amend or repeal the Bylaws.
ARTICLE 6. DIRECTORS
The directors shall be divided into three classes, designated Class I,
Class II and Class III (each as equal in number as possible). Initially, Class
I directors shall be elected for a one-year term, Class II directors for a two-
year term and Class III directors for a three-year term. Subsequent to the 1998
annual election of directors, directors elected to a class the term of which
expired at that meeting shall be elected for a term of three years. Each
director shall serve for the term for which he or she was elected, or until his
or he successor shall have been elected and qualified, or until his or her
death, resignation or removal from office; provided, however, that despite the
expiration of a director's term, a director shall continue to serve until his or
her successor is elected or until there is a decrease in the authorized number
of directors. Directors need not be shareholders of the corporation or
residents of the State of Washington and need not meet any other qualifications.
The initial board shall consist of one director as follows:
Ryan Smith
17720 NE 65th St., Suite 202
Redmond, WA 98052
ARTICLE 7. SHAREHOLDER VOTING REQUIREMENT FOR CERTAIN TRANSACTIONS
To be approved by the shareholders, amendments of the Articles of
Incorporation, a plan of merger or share exchange, the sale, lease, exchange or
other disposition of all or substantially all, of the corporation's assets other
than in the usual and regular course of business, or dissolution of the
corporation must be approved by holders of a majority of the shares entitled to
vote thereon.
Articles of Incorporation Page 2
<PAGE>
ARTICLE 8. LIMITATION OF DIRECTORS' LIABILITY
A director shall have no liability to the corporation or its shareholders
for monetary damages for conduct as a director, except for acts or omissions
that involve intentional misconduct by the director, or a knowing violation of
law by the director, or for conduct violating RCW 23B.08.310 (as may hereafter
be amended or supplemented), or for any transaction from which the director will
personally receive a benefit in money, property or services to which the
director is not legally entitled. If the Washington Business Corporation Act is
hereafter amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director shall be
eliminated or limited to the full extent permitted by the Washington Business
Corporation Act, as so amended. Any repeal or modification of this Article
shall not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or modification for or with
respect to an act or omission of such director occurring prior to such repeal or
modification.
ARTICLE 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS
9.1 Right to Indemnification. Any individual who is, was, or is
threatened to be made a party to or is otherwise involved in (including without
limitation as a witness) any threatened, pending, or completed action, suit, or
other proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal, by reason of the fact that he or she is or was a
director or officer of the corporation or that, while a director or officer, he
or she is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation or of a
partnership, joint venture, trust, employee benefit plan, or other enterprise,
shall be indemnified and held harmless by the corporation, to the full extent
permissible by applicable law as then in effect, against all expenses and
liabilities (including without limitation any obligation to pay any judgment,
settlement, penalty, fine, including an excise tax assessed with respect to an
employee benefit plan, or expense incurred with respect to the proceeding,
including attorneys' fees) actually and reasonably incurred or suffered by such
individual in connection therewith; provided, however, that the corporation
shall not indemnify any director from or on account of: (a) any act or omission
of the director finally adjudged to be intentional misconduct or a knowing
violation of law, (b) any conduct of the director finally adjudged to be in
violation of RCW 23B.08.310 (as may hereafter be amended or supplemented), or
(c) any transaction with respect to which it is finally adjudged that the
director personally received a benefit in money, property, or services, to which
the director was not legally entitled; and further provided that except as
provided in the following paragraph with respect to proceedings seeking to
enforce rights to indemnification, the corporation shall indemnify any such
individual seeking indemnification in connection with a proceeding (or part
thereof) initiated by such individual only if such proceeding (or part thereof)
was, prior to its initiation, authorized by the board of directors of the
corporation. The right to indemnification conferred in this paragraph shall be
a contract right and shall include the right to be paid by the corporation for
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that the payment of such expenses in advance of
the final disposition of a proceeding shall be made only upon delivery to the
corporation of a written undertaking, by or on behalf of the director or
officer, in the form of a general unlimited obligation to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this paragraph or otherwise. The right to
indemnification as provided herein shall continue as to an individual who has
ceased to be a director or officer and shall inure to the benefit of his or her
heirs, executors and administrators.
9.2 Right of Claimant to Apply for Court Order. If a claim made on the
corporation for indemnification under the preceding paragraph of this Article is
not paid in full by the corporation within sixty (60) days after a written claim
has been received by the corporation, except in the case of a claim for expenses
incurred in defending a proceeding in advance of its final disposition, in which
case the applicable period shall be twenty (20) days, the claimant may at any
time thereafter commence an action or otherwise petition a court to order the
corporation to pay the unpaid amount of such claim and, to the extent successful
in whole or in part, the claimant shall be entitled to be paid also the expense
of obtaining such a court order. A claimant shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim to the
corporation or, in an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition, where the required
undertaking has been tendered to the corporation; and thereafter the corporation
shall have the burden of proof to overcome the presumption that the claimant is
not so entitled. Neither the failure of the corporation (including its board of
directors, independent legal counsel or its shareholders) to have made a
Articles of Incorporation Page 3
<PAGE>
determination prior to the filing of such petition that indemnification or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the corporation (including its
board of directors, independent legal counsel or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
9.3 Nonexclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any individual may have or hereafter acquire under any statute, provision
of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
9.4 Insurance, Contracts and Funding. The corporation may maintain
insurance, at its expense, to protect itself and any director, trustee, officer,
employee or agent of the corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such individual
against such expense, liability or loss under the Washington Business
Corporation Act. Without further shareholder action, the corporation may enter
into contracts with any director or officer of the corporation in furtherance of
the provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
9.5 Indemnification of Employees and Agents of the Corporation. From time
to time by action of its board of directors, the corporation may provide to
employees and agents of the corporation indemnification and payment of expenses
in advance of the final disposition of a proceeding to the same extent provided
to officers of the corporation by the provisions of this Article or pursuant to
rights granted in or provided by the Washington Business Corporation Act.
ARTICLE 10. REGISTERED AGENT AND OFFICE
The name of the initial registered agent of this corporation and the
address of its initial registered office are as follows:
Cairncross & Hempelmann, P.S.
70th Floor, Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
ARTICLE 11. INCORPORATOR
The name and address of the incorporator are:
Timothy M. Woodland
70th Floor, Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
EXECUTED this 13 day of April, 1998.
/s/ Timothy M. Woodland
-----------------------
Timothy M. Woodland, Incorporator
Articles of Incorporation Page 4
<PAGE>
CONSENT TO SERVE AS REGISTERED AGENT
Cairncross & Hempelmann, P.S. hereby consents to serve as Registered Agent,
in the State of Washington, for Interactive Objects--Washington, Inc. It
understands that as agent for the corporation, it will be its responsibility to
receive service of process in the name of the corporation; to forward all mail
to the corporation; and to immediately notify the office of the Secretary of
State in the event of its resignation, or of any changes in the registered
office address of the corporation for which it is agent.
CAIRNCROSS & HEMPELMANN, P.S.
April 13, 1998 By /s/ Robert C. Seidel
------------------------
Print Name Robert C. Seidel
----------------
Its Vice President
-----------------------
70th Floor, Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
Articles of Incorporation Page 5
<PAGE>
EXHIBIT 3.2
ARTICLES OF MERGER
OF
INTERACTIVE OBJECTS--WASHINGTON, INC.
A WASHINGTON CORPORATION
AND
INTERACTIVE OBJECTS, INC.
A UTAH CORPORATION
THESE ARTICLES OF MERGER (these "Articles") are made and entered into as of
April 15, 1998, by and between INTERACTIVE OBJECTS--WASHINGTON, INC., a
Washington corporation (the "Surviving Corporation"), and INTERACTIVE OBJECTS,
INC., a Utah corporation ("IO Utah"). The Surviving Corporation and IO Utah are
sometimes referred to jointly as the "Constituent Corporations."
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, the Constituent Corporations hereby agree as
follows:
1. Each of the Constituent Corporations is a corporation governed by, and
organized and existing under, the laws of the respective states as indicated in
the first paragraph of these Articles. The merger of IO Utah with and into the
Surviving Corporation is permitted by the laws of their respective jurisdictions
of incorporation and has been authorized in compliance with such laws.
2. The Plan and Agreement of Merger between the Surviving Corporation and
IO Utah (the "Plan"), attached hereto as Exhibit A, has been adopted and
approved by the directors of each of the Constituent Corporations in accordance
with Section 23B.11.030 of the Washington Business Corporation Act and Chapter
78 of the Utah Revised Business Corporation Act.
3. The Plan was submitted to the shareholders of IO Utah and the
Surviving Corporation by their respective boards of directors. The sole
shareholder of the Surviving Corporation approved the Plan by written consent.
At the annual meeting of the shareholders of IO Utah held on April 15, 1998, the
shareholders of IO Utah approved the Plan. As of the record date for such
meeting, there were 12,944,917 shares of IO Utah common stock issued and
outstanding, all of which were entitled to notice and to vote at the annual
meeting. Holders of 9,362,356 shares of common stock voted in favor of the Plan
(representing approximately 72% of the issued and outstanding shares); holders
of 54 shares of common stock voted against the Plan; and holders of 3,582,507
shares of common stock abstained or did not otherwise vote their shares. The
number of shares of IO Utah cast in favor of the Plan was sufficient for the
approval thereof.
4. Pursuant to Chapter 78 of the Utah Revised Business Corporation Act,
the Surviving Corporation irrevocably appoints the Secretary of the State of
Utah to accept service of process in any proceeding to enforce against the
Surviving Corporation any obligation of IO Utah as well as for enforcement of
any obligation of the Surviving Corporation arising from the Merger. The Utah
Secretary of State shall mail a copy of the service of process to Interactive
Objects, Inc., Attn: Legal Department, 17720 N.E. 65th, Suite 202, Redmond,
Washington 98052.
5. The Surviving Corporation will be authorized to transact business as a
foreign corporation in the State of Utah at the effective time and date of the
merger, in accordance with the provisions of the Utah Revised Business
Corporation Act.
Articles of Merger Page 1
<PAGE>
EXECUTED as of the date first written above.
INTERACTIVE OBJECTS--WASHINGTON, INC.
a Washington corporation
By: /s/ Ryan L. Smith
-----------------
Ryan L. Smith
Chief Executive Officer
INTERACTIVE OBJECTS, INC.
a Utah corporation
By: /s/ Ryan L. Smith
-----------------
Ryan L. Smith
Chief Executive Officer
AGREEMENT AND PLAN OF MERGER
BETWEEN
INTERACTIVE OBJECTS--WASHINGTON, INC.
A WASHINGTON CORPORATION
AND
INTERACTIVE OBJECTS, INC.
A UTAH CORPORATION
This Plan and Agreement of Merger (this "Agreement") is entered into as of
the 15th day of April, 1998, by and between INTERACTIVE OBJECTS--WASHINGTON,
INC., a Washington corporation (the "Surviving Corporation"), having its
principal place of business at 17720 N.E. 65th, Suite 202, Redmond, Washington
98052, and INTERACTIVE OBJECTS, INC., a Utah corporation ("IO Utah"), having its
principal place of business at 17720 N.E. 65th, Suite 202, Redmond, Washington
98052. The Surviving Corporation and IO Utah are sometimes referred to jointly
as the "Constituent Corporations."
RECITALS
A. Each of the Constituent Corporations is a corporation governed by, and
organized and existing under, the laws of the respective states as indicated in
the first paragraph of this Agreement.
B. The shareholders and directors of each of the Constituent Corporations
have deemed it advisable for the mutual benefit of the Constituent Corporations
and their respective shareholders that IO Utah change its state of incorporation
from Utah to Washington by a merger with and into the newly formed Surviving
Corporation pursuant to the provisions of Title 23B of the Washington Business
Corporation Act and Chapter 78 of the Utah Revised Business Corporation Act (the
"Reincorporation Merger").
NOW, THEREFORE, in accordance with the laws of Washington and Utah, the
Constituent Corporations agree that, subject to the following terms and
conditions, (i) IO Utah shall be merged with and into the Surviving Corporation,
(ii) the Surviving Corporation shall continue to be governed by the laws of the
State of Washington, and (iii) the terms of the Reincorporation Merger, and the
mode of carrying them into effect, shall be as follows:
Articles of Merger Page 2
<PAGE>
SECTION I
ARTICLES OF SURVIVING CORPORATION
The Articles of Incorporation of the Surviving Corporation as in effect
immediately prior to the Effective Time of the Reincorporation Merger shall
constitute the "Articles of Incorporation" of the Surviving Corporation within
the meaning of Section 23B.01.400(1) of the Washington Business Corporation Act
and Chapter 78 of the Utah Revised Business Corporation Act, except that the
name of the Surviving Corporation shall be changed to "Interactive Objects,
Inc."
SECTION II
APPOINTMENT OF AGENT FOR SERVICE OF PROCESS
Pursuant to the Utah Revised Business Corporation Act, the Surviving
Corporation irrevocably appoints the Secretary of State of Utah to accept
service of process in any proceeding to enforce against the Surviving
Corporation any obligation of IO Utah as well as for enforcement of any
obligation of the Surviving Corporation arising from the Reincorporation Merger.
The Utah Secretary of State shall mail a copy of the service of process to
Interactive Objects, Inc., Attn: Legal Department, 17720 N.E. 65th, Suite 202,
Redmond, Washington 98052.
SECTION III
CONVERSION OF SHARES
IO Utah Shares. At the effective time of the Reincorporation Merger each
outstanding share of the common stock of IO Utah shall automatically be
converted into one share of common stock of the Surviving Corporation. It will
not be necessary for shareholders of IO Utah to exchange their existing stock
certificates for stock certificates of the Surviving Corporation.
Surviving Corporation Shares. At the Effective Time of the Reincorporation
Merger each previously issued and outstanding share of the common stock of the
Surviving Corporation shall be cancelled.
SECTION IV
BYLAWS
The Bylaws of the Surviving Corporation shall be the governing Bylaws.
SECTION V
DIRECTORS AND OFFICERS
The Directors and Officers of the Surviving Corporation shall remain the
officers and directors of the Surviving Corporation.
SECTION VI
EFFECT OF THE MERGER
The effect of the Reincorporation Merger shall be as provided by the
applicable provisions of the laws of Washington and Utah. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time of the
Reincorporation Merger the separate existence of IO Utah shall cease, the
Surviving Corporation shall possess all assets and property of every interest
therein, wherever located, and the rights, privileges, immunities, powers,
franchises, and authority, of a public as well as a private nature, of all of
the Constituent Corporations; all obligations
Agreement and Plan of Merger Page 3
<PAGE>
belonging to or due any of the Constituent Corporations shall be vested in and
become the obligations of, the Surviving Corporation without further act or
deed; title to any real estate or any interest therein vested in any of the
Constituent Corporations shall be vested in and become the obligations of the
Surviving Corporation without further act or deed; title to any real estate or
interest therein shall not revert or in any way be impaired by reason of the
Reincorporation Merger; all rights of creditors and all liens upon any property
of the Constituent Corporations shall be preserved unimpaired; and the Surviving
Corporation shall be liable for all of the obligations of the Constituent
Corporations and any claim existing, or action or proceeding pending, by or
against any of the Constituent Corporations may be prosecuted to judgment with
right of appeal, as if the Reincorporation Merger had not taken place.
If at any time after the Effective Time of the Reincorporation Merger the
Surviving Corporation shall consider it to be advisable that any further
conveyances, agreements, documents, instruments, and assurances of law or any
other things are necessary or desirable to vest, perfect, confirm or record in
the Surviving Corporation the title to any property, rights, privileges, powers
and franchises of the Constituent Corporations or otherwise to carry out the
provisions of this Agreement, the proper directors and officers of the
Constituent Corporations last in office shall execute and deliver, upon the
Surviving Corporation's request, any and all proper conveyances, agreements,
documents, instruments, and assurances of law, and do all things necessary or
proper to vest, perfect or confirm title to such property, rights, privileges,
powers and title to such property, rights, privileges, powers and franchises in
the Surviving Corporation, and otherwise to carry out the provisions of this
Agreement.
SECTION VII
EFFECTIVE TIME OF THE REINCORPORATION MERGER
As used in this Agreement, the "Effective Time of the Reincorporation
Merger" shall mean the time at which executed counterparts of this Agreement, or
conformed copies thereof, together with duly executed Articles of Merger have
been duly filed by the Constituent Corporations in the office of the Washington
Secretary of State pursuant to Section 23B.11 of the Washington Business
Corporation Act and the office of the Utah Secretary of State pursuant to
Chapter 78 of the Utah Revised Business Corporation Act.
SECTION VIII
TERMINATION
This Agreement may be terminated and the Reincorporation Merger abandoned
by mutual consent of the directors of the Constituent Corporations at any time
prior to the Effective Time of the Reincorporation Merger.
SECTION IX
NO THIRD PARTY BENEFICIARIES
Except as otherwise specifically provided herein, nothing express or
implied in this Agreement is intended, or shall be construed, to confer upon or
give any person, firm or corporation, other than the Constituent Corporations
and their respective shareholders, any rights or remedies under or by reason of
this Agreement.
Agreement and Plan of Merger Page 4
<PAGE>
EXECUTED as of the date first above written.
INTERACTIVE OBJECTS--WASHINGTON, INC.
a Washington corporation
By:/s/ Ryan L. Smith
--------------------------------------
Ryan L. Smith, Chief Executive Officer
INTERACTIVE OBJECTS, INC.
a Utah corporation
By:/s/ Ryan L. Smith
--------------------------------------
Ryan L. Smith, Chief Executive Officer
Agreement and Plan of Merger Page 5
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
INTERACTIVE OBJECTS, INC.
ARTICLE I
Principal Office
The principal office of the corporation shall be at such location as the
board of directors may designate from time to time. The corporation may have
such other offices, either within or without the state of Washington, as the
business of the corporation may require from time to time.
ARTICLE II
Shareholders' Meetings
Section 1. Annual Meetings. The annual meeting of the shareholders of
this corporation, for the purpose of election of directors and for such other
business as may come before it, shall be held at the principal office of the
corporation, or such other place as may be designated by the notice of the
meeting, on the second Tuesday of April, or on such other date as the Board of
Directors shall determine by resolution of the Board.
Section 2. Special Meetings. Special meetings of the shareholders of this
corporation may be called at any time by the holders of ten percent (10%) of the
voting shares of the corporation, or by the president, or by a majority of the
board of directors. No business shall be transacted at any special meeting of
shareholders except as is specified in the notice calling for said meeting. The
board of directors may designate any place as the place of any special meeting.
Section 3. Notice of Meetings. Written notice of annual or special
meetings of shareholders stating the place, day, and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given by the secretary or persons authorized to call the
meeting to each shareholder of record entitled to vote at the meeting and, if
and to the extent required by law, to each other shareholder of the corporation.
Such notice shall be given not less than ten (10) nor more than sixty (60) days
prior to the date of the meeting, except that notice of a meeting to act on an
amendment to the Articles of Incorporation, a plan of merger or share exchange,
a proposed sale, lease, exchange or other disposition of all or substantially
all of the assets of the corporation other than in the usual or regular course
of business, or the dissolution of corporation shall be given no fewer than
twenty (20) days nor more than sixty (60) days before the meeting date. Notice
may be transmitted by: mail, private carrier or personal delivery; telegraph or
teletype; or telephone, wire or wireless equipment which transmits a facsimile
of the notice. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his or her
address as it appears on the stock transfer books of the corporation.
Section 4. Waiver of Notice. Notice of the time, place, and purpose of
any meeting may be waived in writing (either before or after such meeting) and
will be waived by any shareholder by his or her attendance thereat in person or
by proxy, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting. Any shareholder so
waiving shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
Section 5. Quorum and Adjourned Meetings. A majority of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. A majority of the shares
represented at a meeting, even if less than a quorum, may adjourn the meeting
from time to
Bylaws Page 1
<PAGE>
time without further notice. At such reconvened meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. The shareholders present at a
duly organized meeting may continue to transact business at such meeting and at
any adjournment of such meeting (unless a new record date is or must be set for
the adjourned meeting pursuant to Section 9 of this Article II), notwithstanding
the withdrawal of enough shareholders from either meeting to leave less than a
quorum.
Section 6. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.
Section 7. Voting Record. After fixing a record date for a shareholders'
meeting, the corporation shall prepare an alphabetical list of the names of all
shareholders on the record date who are entitled to notice of the shareholders'
meeting. The list shall be arranged by voting group, and within each voting
group by class or series of shares, and show the address of and number of shares
held by each shareholder. A shareholder, a shareholder's agent, or a
shareholder's attorney may inspect the shareholders' list, beginning ten (10)
days prior to the shareholders' meeting and continuing through the meeting, at
the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held, during regular business hours
and at the shareholder's expense. The shareholders' list shall be kept open for
inspection during such meeting or any adjournment.
Section 8. Voting of Shares. Except as otherwise provided in the Articles
of Incorporation or in these Bylaws, every shareholder of record shall have the
right at every shareholders' meeting to one vote for every share standing in his
or her name on the books of the corporation, and the affirmative vote of a
majority of the shares represented at a meeting and entitled to vote thereat
shall be necessary for the adoption of a motion or for the determination of all
questions and business which shall come before the meeting.
Section 9. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the board
of directors may fix in advance a record date for any such determination of
shareholders, such date to be not more than seventy (70) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the day before the date on which
notice of the meeting is mailed or the date on which the resolution of the board
of directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof, unless the board of directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than one hundred twenty (120) days
after the date is fixed for the original meeting.
Section 10. Election of Directors. Each shareholder entitled to vote at
an election of directors may vote in person or by proxy the number of shares
owned by him or her for as many persons as there are directors to be elected and
for whose election he or she has a right to vote.
ARTICLE III
Directors
Section 1. General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the board of directors except as otherwise
provided by the laws under which this corporation is formed or in the Articles
of Incorporation.
Section 2. Number. The board shall be composed of no less than one and no
more than seven directors, as determined from time to time by resolution of the
Board of Directors. No decrease in the number of directors shall have the effect
of shortening the term of any incumbent director.
Bylaws Page 2
<PAGE>
Section 3. Tenure and Qualifications. The Board of Directors shall be
divided into three classes, as equal in number as possible, with one class
elected at each annual meeting of shareholders. The members of each class shall
serve a term of three years, and each director shall hold office until the next
annual meeting of shareholders, as applicable, and until his or her successor
shall have been elected and qualified. Directors need not be residents of the
state or shareholders of the corporation.
Section 4. Election. The directors shall be elected by the shareholders
at their annual meeting each year; and if, for any cause, the directors shall
not have been elected at an annual meeting, they may be elected at a special
meeting of shareholders called for that purpose in the manner provided by these
Bylaws. The members of one class of the Board of Directors shall be elected each
year.
Section 5. Vacancies. Any vacancy occurring on the board may be filled by
the affirmative vote of a majority of the remaining directors though less than a
quorum of the board. A director elected to fill a vacancy due to resignation or
removal shall be elected for the unexpired term of his or her predecessor in
office. Any directorship to be filled by reason of an increase in the number of
directors shall be filled for a term extending only until the next annual
meeting of shareholders.
Section 6. Resignation. Any director may resign at any time by delivering
written notice to the board of directors, its chairperson, the president or the
secretary of the corporation. A resignation shall be effective when the notice
is delivered unless the notice specifies a later effective date.
Section 7. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, the entire board of directors, or any member
thereof, may be removed, with or without cause, by a vote of the holders of a
majority of shares then entitled to vote at an election of such directors.
Section 8. Meetings
(a) The annual meeting of the board of directors shall be held
immediately before or after the annual shareholders' meeting at the same place
as the annual shareholders' meeting or at such other place and at such time as
may be determined by the directors. No notice of the annual meeting of the board
of directors shall be necessary.
(b) Special meetings may be called at any time and place upon the
call of the president, secretary, or any director. Notice of the time and place
of each special meeting shall be given by the secretary, or the persons calling
the meeting, by mail, private carrier, radio, telegraph, telegram, facsimile
transmission, personal communication by telephone or otherwise at least two (2)
days in advance of the time of the meeting. The purpose of the meeting need not
be given in the notice. Notice of any special meeting may be waived in writing
or by telegram (either before or after such meeting) and will be waived by any
director by attendance thereat. Written notice shall be in a comprehensible form
and effective at the earliest of the following: (i) when dispatched by
telegraph, teletype, or facsimile equipment; or (ii) when received; or (iii) if
mailed, five (5) days after its deposit in the United States mail, as evidenced
by the postmark if mailed with first-class postage, prepaid and correctly
addressed; or on the date shown on the return receipt if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
(c) Regular meetings of the board of directors shall be held at such
place and on such day and hour as shall from time to time be fixed by resolution
of the board of directors. No notice of regular meetings of the board of
directors shall be necessary.
(d) At any meeting of the board of directors, any business may be
transacted, and the board may exercise all of its powers.
Bylaws Page 3
<PAGE>
Section 9. Quorum and Voting
(a) A majority of the directors presently in office shall constitute
a quorum, but a lesser number may adjourn any meeting from time to time until a
quorum is obtained, and no further notice thereof need be given.
(b) At each meeting of the board at which a quorum is present, the
act of a majority of the directors present at the meeting shall be the act of
the board of directors. The directors present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough directors to leave less than a quorum.
Section 10. Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 11. Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless:
(a) The director objects at the beginning of the meeting, or promptly
upon the director's arrival, to holding it or transacting business at the
meeting;
(b) The director's dissent or abstention from the action taken is
entered in the minutes of the meeting; or
(c) The director delivers written notice of the director's dissent or
abstention to the presiding officer of the meeting before its adjournment or to
the corporation within a reasonable time after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 12. Committees. The board of directors, by resolution adopted by
a majority of the full board of directors, may designate from among its members
one or more committees, each of which must have two or more members and, to the
extent provided in such resolution, shall have and may exercise all the
authority of the board of directors, except that no such committee shall have
the authority to: authorize or approve a distribution except according to a
general formula or method prescribed by the board of directors; approve or
propose to shareholders action that the Washington Business Corporation Act
requires to be approved by shareholders; fill vacancies on the board of
directors or on any of its committees; amend any Articles of Incorporation not
requiring shareholder approval; adopt, amend, or repeal Bylaws; approve a plan
of merger not requiring shareholder approval; or authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences, and limitations of a class or series of
shares, except that the board of directors may authorize a committee, or a
senior executive officer of the corporation, to do so within limits specifically
prescribed by the board of directors.
ARTICLE IV
Special Measures for Corporate Action
Section 1. Actions by Written Consent. Any corporate action required or
permitted by the Articles of Incorporation, Bylaws, or the laws under which this
corporation is formed, to be voted upon or approved at a duly called meeting of
the directors, committee of directors, or shareholders may be accomplished
without a meeting if one or more unanimous written consents of the respective
directors or shareholders, setting forth the actions so taken, shall be signed,
either before or after the action taken, by all the directors, committee
members, or shareholders, as the case may be. Action taken by unanimous written
consent is effective when the last director or committee
Bylaws Page 4
<PAGE>
member signs the consent, unless the consent specifies a later effective date.
Action taken by unanimous written consent of the shareholders is effective when
all consents are in possession of the corporation, unless the consent specifies
a later effective date.
Section 2. Meetings by Conference Telephone. Members of the board of
directors, members of a committee of directors, or shareholders may participate
in their respective meetings by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time. Participation in a meeting by such
means shall constitute presence in person at such meeting.
ARTICLE V
Officers
Section 1. Officers Designated. The officers of the corporation shall be
a chief executive officer and/or president, one or more vice presidents (the
number thereof to be determined by the board of directors), a secretary, and a
treasurer, each of whom shall be elected by the board of directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the board of directors. Any two or more offices may be held by the
same person. The board of directors may, in its discretion, elect a chairperson
of the board of directors; and, if a chairperson has been elected, the
chairperson shall, when present, preside at all meetings of the board of
directors and the shareholders and shall have such other powers as the board may
prescribe.
Section 2. Election, Qualification and Term of Office. Each of the
officers shall be elected by the board of directors at each annual meeting of
the board of directors. Except as hereinafter provided, each of said officers
shall hold office from the date of his or her election until the next annual
meeting of the board of directors and until his or her successor shall have been
duly elected and qualified.
Section 3. Powers and Duties
(a) President. The president shall be the chief executive officer of
the corporation and, subject to the direction and control of the board of
directors, shall have general charge and supervision over its property,
business, and affairs. He or she shall, unless a chairperson of the board of
directors has been elected and is present, preside at meetings of the
shareholders and the board of directors.
(b) Vice President. In the absence of the president or in the event
of the president's inability to act, the senior vice president shall act in the
president's place and stead and shall have all the powers and authority of the
president, except as limited by resolution of the board of directors.
(c) Secretary. The secretary shall: (1) be responsible for preparing
minutes of the shareholders' and of the board of directors' meetings and keeping
all such minutes in one or more books provided for that purpose; (2) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (3) be custodian of the corporate records; (4) keep a
register of the post office address of each shareholder which shall be furnished
to the secretary by such shareholder; (5) sign with the president, or a vice
president, certificates for shares of the corporation, the issuance of which
shall have been authorized by resolution of the board of directors; (6) have
general charge of the stock transfer books of the corporation; (7) authenticate
records of the corporation; and (8) in general perform all duties incident to
the office of secretary and such other duties as from time to time may be
assigned to him or her by the president or by the board of directors.
(d) Treasurer. Subject to the direction and control of the board of
directors, the treasurer shall have the custody, control, and disposition of the
funds and securities of the corporation and shall account for the same. At the
expiration of his or her term of office, the treasurer shall turn over to his or
her successor all property of the corporation in his or her possession.
Section 4. Assistant Secretaries and Assistant Treasurers. The assistant
secretaries, when authorized by the board of directors, may sign with the
president, or a vice president, certificates for shares of the corporation, the
Bylaws Page 5
<PAGE>
issuance of which shall have been authorized by resolution of the board of
directors. The assistant treasurers shall, respectively, if required by the
board of directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the board of directors shall determine. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or the treasurer,
respectively, or by the president or the board of directors.
Section 5. Removal. The board of directors shall have the right to remove
any officer whenever in its judgment the best interests of the corporation will
be served thereby.
Section 6. Vacancies. The board of directors shall fill any office which
becomes vacant with a successor who shall hold office for the unexpired term and
until his or her successor shall have been duly elected and qualified.
Section 7. Salaries. The salaries of all officers of the corporation
shall be fixed by the board of directors.
ARTICLE VI
Share Certificates
Section 1. Issuance, Form and Execution of Certificates. No shares of the
corporation shall be issued unless authorized by the board. Such authorization
shall include the maximum number of shares to be issued, the consideration to be
received for each share, the value of noncash consideration, and a statement
that the board has determined that such consideration is adequate. Certificates
for shares of the corporation shall be in such form as is consistent with the
provisions of the Washington Business Corporation Act and shall state:
(a) The name of the corporation and that the corporation is organized
under the laws of this state;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the series,
if any, which such certificate represents.
They shall be signed by the president or vice president and by the secretary of
the corporation. Certificates may be issued for fractional shares. No
certificate shall be issued for any share until the consideration established
for its issuance has been paid.
Section 2. Transfers. Shares may be transferred by delivery of the
certificate therefor, accompanied either by an assignment in writing on the back
of the certificate or by a written power of attorney to assign and transfer the
same, signed by the record holder of the certificate. The board of directors
may, by resolution, provide that beneficial owners of shares shall be deemed
holders of record for certain specified purposes. Except as otherwise
specifically provided in these Bylaws, no shares shall be transferred on the
books of the corporation until the outstanding certificate therefor has been
surrendered to the corporation.
Section 3. Loss or Destruction of Certificates. In case of loss or
destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory
indemnity bond to the corporation. A new certificate may be issued without
requiring any bond, when in the judgment of the board of directors it is proper
to do so.
ARTICLE VII
Books and Records
Section 1. Books of Accounts, Minutes and Share Register. The corporation
shall keep as permanent records minutes of all meetings of its shareholders and
board of directors, a record of all actions taken by the shareholders or board
of directors without a meeting, and a record of all actions taken by a committee
of the board of directors exercising the authority of the board of directors on
behalf of the corporation. The corporation shall
Bylaws Page 6
<PAGE>
maintain appropriate accounting records. The corporation or its agent shall
maintain a record of its shareholders, in a form that permits preparation of a
list of the names and addresses of all shareholders, in alphabetical order by
class of shares showing the number and class of shares held by each. The
corporation shall keep a copy of the following records at its principal office:
the Articles or Restated Articles of Incorporation and all amendments to them
currently in effect; the Bylaws or Restated Bylaws and all amendments to them
currently in effect; the minutes of all shareholders' meetings, and records of
all actions taken by shareholders without a meeting, for the past three years;
its financial statements for the past three years, including the balance sheets
and income statements prepared pursuant to Section 3 of this Article VII; all
written communications to shareholders generally within the past three years; a
list of the names and business addresses of its current directors and officers;
and its most recent annual report delivered to the Secretary of State of the
State of Washington.
Section 2. Copies of Resolutions. Any person dealing with the corporation
may rely upon a copy of any of the records of the proceedings, resolutions, or
votes of the board of directors or shareholders, when certified by the president
or secretary.
Section 3. Financial Statements
(a) Not later than four (4) months after the close of each fiscal
year, and in any event prior to the annual meeting of shareholders next
following the close of such fiscal year, the corporation shall prepare (i) a
balance sheet showing in reasonable detail the financial condition of the
corporation as of the close of such fiscal year, and (ii) an income statement
showing the results of its operation during such fiscal year. Such statements
may be consolidated or combined statements of the corporation and one or more of
its subsidiaries, as appropriate. If financial statements are prepared by the
corporation for any purpose on the basis of generally accepted accounting
principles, the annual statements must also be prepared, and disclose that they
are prepared, on that basis. If financial statements are prepared only on a
basis other than generally accepted accounting principles, they must be
prepared, and disclose that they are prepared, on the same basis as other
reports and statements prepared by the corporation for the use of others.
(b) Upon written request, the corporation shall promptly mail to any
shareholder a copy of the most recent balance sheet and income statement. If
prepared for other purposes, the corporation shall also furnish upon written
request a statement of sources and applications of funds, and a statement of
changes in shareholders' equity, for the most recent fiscal year.
(c) If the annual financial statements are reported upon by a public
accountant, the accountant's report must accompany them. If not, the statements
must be accompanied by a statement of the president or the person responsible
for the corporation's accounting records:
(i) Stating the person's reasonable belief whether the
statements were prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation; and
(ii) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the basis used for statements
prepared for the preceding year.
Bylaws Page 7
<PAGE>
ARTICLE VIII
Amendment of Bylaws
The power to alter, amend, or repeal these Bylaws and adopt new Bylaws is
vested in the board, subject to repeal or change by action of the shareholders.
ARTICLE IX
Fiscal Year
The fiscal year of the corporation shall be the twelve (12) month period
ending on December 31 in each year.
CERTIFICATE OF ADOPTION
The undersigned, being the secretary of Interactive Objects, Inc., hereby
certifies that the foregoing is a true and correct copy of the Bylaws adopted by
resolution of the board of directors on April 14, 1998.
/s/ John Guarino
---------------------------------------------
John Guarino
Bylaws Page 8
<PAGE>
EXHIBIT 4.1
[INTERACTIVE OBJECTS, INC. LOGO]
---------------------------
CUSIP 45839B 10 7
NUMBER SHARES
------ INTERACTIVE OBJECTS, INC. ------
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: $.01
THIS CERTIFIES THAT
----------------------------------------
IS THE RECORD OWNER OF
----------------------------------------
SHARES OF INTERACTIVE OBJECTS, INC. COMMON STOCK
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
-------------------------
[SEAL]
/s/ -------------------------- /s/ ----------------------
SECRETARY PRESIDENT
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank(other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the fact of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- . . . . . . . Custodian. . . . . . . . . . . . . .
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act. . . . . . . . . . . . . . . . . . . . . . . .
in common (State)
UNIF TRF MIN ACT -- . . . . . . . .Custodian (until age. . . . . . . . . )
(Cust)
. . . . . . . . . . . . . . . .under Uniform Transfers
(Minor)
to Minor Act. . . . . . . . . . . . . . . . . . . . .
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------
X
----------------------------------------
X
----------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERNATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.2
OPTION NO. ____ OPTION HOLDER: _______________________________
THIS OPTION EXPIRES NOVEMBER 10, 1998
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT.
STOCK PURCHASE OPTION
To Subscribe for and Purchase Shares of
INTERACTIVE OBJECTS, INC.
(Transferability Restricted as Provided Below)
THIS CERTIFIES THAT, for value received, ______________________________ is
entitled to subscribe for and purchase from INTERACTIVE OBJECTS, INC.,
incorporated under the laws of the State of Utah (the "Company"), at a price of
$__________ per share from November 10, 1997 until November 10, 1998 (the
"Expiration Date"), up to ____________________ (__________) fully paid and
nonassessable shares of the Company's common stock, $.02 par value, upon the
terms and subject to the conditions set forth in this Option.
1. The rights represented by this Option may be exercised by the holder
of this Option, in whole or in part (but not as to a fractional share of common
stock), by the surrender of this Option (property endorsed, if required) at the
principal office of the Company, 17720 NE 65th Street, Suite 202, Redmond,
Washington, 98052 (or such other office or agency of the Company as it may
designate by notice in writing to the holder of this Option, at the address of
the holder appearing on the books of the Company at any time within the period
stated above), and upon payment to it, for the account of the Company, by cash
or by certified check or bank draft, of the purchase price for the shares. The
Company agrees that the Shares so purchased shall be and be deemed to be issued
to the holder of this Option as the record owner of the Shares, as of the close
of business on the date on which this Option shall have been surrendered and
payment made for the Shares, as aforesaid. Certificates for the Shares purchased
shall be delivered to the holder of this Option within it reasonable time, not
exceeding ten days, after the rights represented by this Option have been
exercised, and, unless this Option has expired, a new Option representing the
number of Shares which have not been purchased pursuant to the exercise of this
Option, if any, shall be issued to the holder within that time, The shares
issued upon the exercise of this option will be issued pursuant to S.E.C. Rule
4.2.
2. This Option is issued in consideration of the holder's past services
to the Company and is personal in nature. This Option shall not be exercisable
until November 10, 1997, and may not be sold, transferred, assigned or
hypothecated for the life of this Option. During the life of this Option, it may
be transferred only by the laws of descent.
3. By acceptance of this Option the holder agrees that, prior to the
disposition of any shares of common stock purchased upon the exercise of this
Option under circumstances that might require registration of the shares under
the Securities Act of 1933, as amended (the "Act"), as then in force, or any
similar federal statute then in force, the holder will give written notice to
the Company expressing the holder's intention as to the disposition to be made
of the shares of common stock issued upon exercise of this Option. Promptly upon
receiving the notice, the Company shall present copies to its counsel, and the
following provisions shall apply:
(a) If, in the opinion of the Company's counsel, the proposed
disposition does not require registration under the Act, as then in force, or
any similar federal statute then in force, of the Option or shares issuable or
issued upon the exercise of the Option, as the case may be, the Company shall,
as promptly as practicable, notify the holder of such opinion, whereupon the
holder shall be entitled to dispose of the shares issued
-1-
<PAGE>
upon the exercise of this Option, all in accordance with the terms of the Notice
delivered by the holder to the Company.
(b) If, in the opinion of such counsel, the proposed disposition
requires registration or qualification of the shares common stock issuable or
issued upon the exercise of this Option, pursuant to the Act, the holders of the
Option or Underlying Stock shall not be able to make such transfer. The holder
hereof recognizes that the Company has the obligation to register either this
Option or the shares issuable upon the exercise hereof upon the company's first
registration.
4. The Company covenants and agrees that all shares that may be issued
upon the exercise of the rights represented by this Option will, upon issuance,
be validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to their issue (other than taxes in respect of any
transfer occurring contemporaneously with the issue of the shares). The Company
further covenants and agrees that, at all times during the period within which
the rights represented by this Option may be exercised, the Company will have a
sufficient number of its shares of common stock authorized and reserved to
provide for the exercise of the rights represented by this Option.
5. (a) If at any time or from time to time, the Company shall change as
a whole the outstanding shares of common stock into a different number or class
of Shares, by subdivision, consolidation or reclassification of Shares, or
otherwise the number and class of Shares as so changed shall, for the purpose of
each Option and terms and conditions of this Option, replace the shares
outstanding immediately prior to such change, and the Option purchase price in
effect, and the number of Shares purchasable under each Option, immediately
prior to the date on which the change shall become effective, shall be
proportionately adjusted.
(b) Irrespective of any adjustment or change in the Option purchase
price or the number of shares of common stock actually purchasable under each
Option of like tenor, the Options issued may continue to express the Option
purchase price per share and the number of shares purchasable under the Option
as the Option purchase price per share and the number of shares purchasable were
expressed on the Options when initially issued.
(c) If at any time while any Option is outstanding, the Company shall
consolidate with or merge into another corporation, firm or entity, or otherwise
enter into a form of business combination, the holder of this Option shall be
entitled upon exercise of this Option to purchase, with respect to each share
purchasable under this Option immediately prior to the date on which the
consolidation, merger, or other form of business combination shall become
effective, the securities or property to which a holder of one (1) share of
common stock would have been entitled upon the consolidation or merger, without
any change in, or payment in addition to, the Option purchase price in effect
immediately prior to the merger or consolidation, and the Company shall take the
steps in connection with the merger or consolidation as may be necessary to
assure that all the provisions of each Option shall be applicable, as nearly as
reasonably may be, in relation to any securities or property deliverable upon
the exercise of each Option after the merger or consolidation.
(d) Upon the happening of any event requiring an adjustment of the
Option exercise price under this Option, the Company shall forthwith give
written notice of the event requiring an adjustment to the registered holder of
each Option, stating the adjusted Option exercise price and the adjusted number
of shares purchasable upon the exercise of this Option resulting from the event,
and setting forth in reasonable detail the method of calculation. The
certificate of the Company's independent public accountant shall be conclusive
evidence of the correctness of any computation of the adjustment to the option
exercise price. In case any voluntary or involuntary dissolution, liquidation or
winding-up of the Company shall at any time be proposed, the Company shall give
at least 30 days' prior written notice of such proposal, or such lesser time as
may be available but in no event less than ten (10) days, to the registered
holder of each Option, stating the date on which the event is to take place and
the date (which shall be at least 30 days, or such lesser time as may be
available but in no event less than ten (10) days, after the giving of the
notice) as of which the holders of common stock of record shall be entitled to
exchange their common stock for securities or other property deliverable upon
the dissolution, liquidation or winding-up (on which date, in the event of
dissolution, liquidation or winding-up shall actually take place, each Option
and rights with respect thereto shall terminate). Notice pursuant to this
paragraph shall be given by certified mail, postage
-2-
<PAGE>
prepaid, return receipt requested, addressed to the registered holder of this
Option at the address in the records of the Company.
6. In case, at any time during the period this Option shall be
exercisable:
(a) The Company shall pay any dividend payable in stock on its common
stock or make any distribution to the holders of its common stock; or
(b) The Company shall offer any additional shares of stock of any
class, or other rights for subscription to the holders of its common stock on a
pro rata basis; or
(c) There shall be any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation, merger or other form of
business combination of the Company with another corporation, or the sale of all
or substantially all of the Company's assets to another corporation; or
(d) There shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give the holder of the
Option (i) at least 30 days' prior written notice, or such lesser time as may be
available but in no event less than ten (10) days, of the date on which the
books of the Company shall close or a record shall be taken for the dividend,
distribution or subscription rights or for determining rights to vote in respect
of any reorganization, reclassification, consolidation, merger, sale, or other
form of business combination, dissolution, liquidation or winding-up and (ii) in
the case of any reorganization, reclassification, consolidation, merger, sale,
or other form or business combination, dissolution, liquidation or winding-up,
at least 30 days' prior written notice of the date when the same shall take
place. Notice in accordance with clause (i) shall also specify, in the case of
any dividend, distribution or subscription rights, the date on which the holders
of common stock shall be entitled thereto and notice in accordance with clause
(ii) shall also specify when the holders of common stock shall be entitled to
exchange their common stock for securities or other property deliverable upon
the reorganization, reclassification, consolidation, merger, sale or other form
of business combination, dissolution, liquidation or winding-up, as the case may
be. Each written notice shall be given by certified mail, postage prepaid,
return receipt requested, addressed to the holder of this Option at the address
in the records of the Company.
7. As used in this Option, the term "common stock" shall mean and include
the Company's common stock authorized on the date of the original issue of the
Options, and shall also include any capital stock of any class of the company
authorized after the date of the original issue of the Options as long as such
stock is not limited to a fixed sum or percentage in respect of the rights of
the liquidation, dissolution or winding-up of the Company; provided, that the
shares included in the Units of this Option designated in the Company's
Certificate of Incorporation as common stock on the date of the original issue
of Options, or, in this case of reorganization, reclassification, consolidation,
merger or sale of assets of the character referred to in subparagraph 5 of this
Option, the stock, securities or assets provided for in the subparagraph.
8. This Option is exchangeable, upon its surrender by the registered
holder at the office of the Company, for new Options of like tenor,
representing, in the aggregate, the right to subscribe to and purchase
hereunder, each of the new Options to represent the right to subscribe to and
purchase hereunder, each of the new Options to represent the right to subscribe
for and purchase the number of shares as shall be designated by the registered
holder at the time of the surrender. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Option, and,
in the case of any loss, theft or destruction, upon delivery of a bond of
indemnity satisfactory to the Company, or, in the case of any mutilation, upon
surrender or cancellation of this Option, the Company will issue to the
registered holder a new Option of like tenor, in lieu of this Option,
representing the right to subscribe for and purchase the number of shares that
may be subscribed for and purchased under this Option. Nothing in this Option is
intended to authorize the transfer of this Option, except as permitted under
paragraph 2.
-3-
<PAGE>
9. The holder of this Option will not have any of the rights, privileges,
or liabilities of Shareholders of the Company (either in law or equity) prior to
the exercise of this Option.
IN WITNESS WHEREOF, Interactive Objects, Inc. has caused this Option to be
signed by its duly authorized officers under its corporate seal, to be dated
November 10, 1997.
INTERACTIVE OBJECTS, INC.
By:________________________________________
Ryan Smith, President & CEO
By:________________________________________
Director
-4-
<PAGE>
EXHIBIT 4.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
INTERACTIVE OBJECTS, INC.
COMMON STOCK PURCHASE WARRANT
DATE OF ISSUANCE: _______, 1998 NUMBER OF SHARES: ______ SHARES
Interactive Objects, Inc., a Washington corporation (the "Company"), for
value received, hereby certifies that ____________________, or its registered
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time after the date hereof and for a period of
two (2) years from the date set forth above, up to ________________ shares of
Company common stock, $.01 par value per share (the "Common Stock"), at a
purchase price of $____ (U.S.) per share. The number of shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Stock" and the "Purchase Price," respectively.
1. EXERCISE. This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as Exhibit A duly executed by such Holder, at the principal office of the
Company, or at such other office or agency as the Company may designate,
accompanied by payment in full by cash, check or wire transfer of the Purchase
Price payable in respect of the number of shares of Warrant Stock purchased upon
such exercise.
2. ADJUSTMENTS.
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price,
the number of shares of Warrant Stock purchasable upon the exercise of this
Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Purchase Price in effect
immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.
(b) In case of any reclassification or change of the outstanding
securities of the Company or of any reorganization of the Company (or any other
corporation the stock or securities of which are at the time receivable upon the
exercise of this Warrant) or any similar corporate reorganization on or after
the date hereof, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraph (a); and in each such case, the terms of
this Section 2 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.
3. TRANSFERS. Each Holder of this Warrant acknowledges that this Warrant
and the Warrant Stock have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and agrees not to sell, pledge, distribute,
offer for sale, transfer or otherwise dispose of this Warrant or any Warrant
Stock in the absence of (i) an effective registration statement under the
Securities Act as to this Warrant or such Warrant Stock and registration or
qualification of this Warrant or such Warrant Stock under any applicable blue
sky or state securities
-1-
<PAGE>
law then in effect, or (ii) an opinion of counsel, satisfactory to the Company,
that such registration and qualification are not required. Each certificate or
other instrument for Warrant Stock issued upon the exercise of this Warrant
shall bear an appropriate securities legend.
4. TERMINATION. This Warrant (and the right to purchase securities upon
exercise hereof) shall terminate on the date two (2) years after the date
hereof.
5. MAILING OF NOTICES. Any notice required or permitted pursuant to this
Warrant shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed (a) if to the Holder, to the address of the Holder most
recently furnished in writing to the Company and (b) if to the Company, to the
address set forth below or subsequently modified by written notice to the
Holder.
6. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
Holder of this Warrant shall not have or exercise any rights by virtue hereof as
a shareholder of the Company.
7. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall round the number of
shares of Common Stock to be issued to the nearest whole number of shares.
8. MERGER, CONSOLIDATION OR OTHER REORGANIZATION. In case of any merger,
consolidation or other reorganization of the Company into or with any other
corporation or other business entity, then each underlying share of Common Stock
originally purchasable by exercise of this Warrant immediately prior to such
merger, consolidation or other reorganization shall upon exercise of this
Warrant be replaced for the purposes hereof by the stock or other securities
issuable or distributable in respect of each share of stock of the Company upon
such merger, consolidation or other reorganization.
9. REGISTRATION RIGHTS; INDEMNIFICATION.
(a) The Company covenants and agrees that the Company will undertake,
within 120 days after the date hereof, to file a registration statement (on
Form SB-2 or such similar form) with the U.S. Securities and Exchange
Commission covering the resale of all of the shares of Common Stock
underlying this Warrant. The Company will use its best efforts to cause
such registration statement to become effective as soon as possible
thereafter. In addition, the Holder shall be entitled to certain piggyback
registration rights with regard to the shares, subject to customary
underwriter cutbacks, if any, and shall terminate upon the effectiveness of
the registration statement described in the first sentence of this Section.
The Holder agrees to furnish to the Company such reasonable information
regarding itself, the Warrant and shares held, and the intended method of
disposition of such shares as shall be required to effect the registration
of such shares. This Section 9(a) shall terminate on the first anniversary
of the date of this Warrant Agreement.
(b) Holder shall indemnify and hold the Company harmless for any
liability, claim or loss arising out of any untrue statement of a material
fact or omission of a material fact contained in any such registration
statement necessary to make the statements not misleading, to the extent
that such liability, claim or loss occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration. In addition, the Company shall
indemnify and hold Holder harmless for any liability, claim or loss arising
out of any untrue statement of a material fact or omission of a material
fact contained in any such registration statement necessary to make the
statements not misleading, except to the extent that such liability, claim
or loss occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration.
10. MISCELLANEOUS. Any term of this Warrant may be amended or waived only
in writing signed by the party against which enforcement of the amendment or
waiver is sought. This Warrant shall be governed, construed and interpreted in
accordance with the laws of the State of Washington, without giving effect to
principles of conflicts of law.
INTERACTIVE OBJECTS, INC.
By: ______________________________________
Its:______________________________________
-2-
<PAGE>
EXHIBIT A
PURCHASE FORM
To: INTERACTIVE OBJECTS, INC. Dated:________________
(1) The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby irrevocably elects to purchase _______ shares of the Common
Stock covered by such Warrant and herewith makes payment of $_________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant, together with all applicable transfer taxes, if
any.
(2) Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below.
________________________________
(Name)
___________________________________________
___________________________________________
___________________________________________
(Address)
(3) The undersigned represents that the shares being purchased are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
Signature:_______________________________________
Address:_________________________________________
_________________________________________
<PAGE>
EXHIBIT 5.1
[CAIRNCROSS & HEMPELMANN, P.S. LETTERHEAD]
August 26, 1998
Interactive Objects, Inc.
17720 NE 65th St., Suite 202
Redmond, Washington 98052
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel for Interactive Objects, Inc., a Washington
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form SB-2, together with any and all exhibits and
schedules attached thereto (the "Registration Statement") to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), relating to the offering and sale of (i) up to 1,946,617 shares
(the "Shares") of common stock of the Company, par value $.01 per share (the
"Common Stock"), by certain existing shareholders of the Company, (ii) up to
2,053,401 shares of Common Stock (the "Warrant Shares") issuable upon the
exercise of outstanding stock purchase warrants (the "Warrants"). We have
examined the Registration Statement and such other documents as we deem
necessary for the purpose of this opinion.
Based on the foregoing, we are of the opinion that (a) the Shares are
validly issued, fully paid and non-assessable and (b) upon proper exercise of
the Warrants and receipt by the Company of the consideration from the exercise
of the Warrants, the Warrant Shares will be duly authorized, validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus of the
Registration Statement under the caption "Legal Matters."
Very truly yours,
/s/ Cairncross & Hempelmann, P.S.
<PAGE>
EXHIBIT 10.1
INTERACTIVE OBJECTS, INC.
1998 STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of this 1998 Stock Option Plan (the
"Plan") is to enable Interactive Objects, Inc. (the "Company") to attract and
retain the services of people with training, experience and ability, and to
provide additional incentive to such persons by granting them an opportunity to
participate in the ownership of the Company.
SECTION 2. Stock Subject to Plan. The stock subject to this Plan shall be
the Company's common stock, $.01 par value per share (the "Common Stock"),
presently authorized but unissued. The aggregate amount of Common Stock reserved
for issuance or delivery upon exercise of all options granted under this Plan
shall not exceed 2,000,000 shares of Common Stock, subject to adjustment
pursuant to Section 10 below. If any option granted under this Plan shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall be returned to the Plan and become
available for future grant under the Plan.
SECTION 3. Administration. The Plan shall be administered by the Board of
Directors of the Company or any committee of the Board of Directors delegated
such authority pursuant to Section 3.3 (the "Plan Administrator"), in accordance
with the following terms and conditions:
3.1 General Authority. Subject to the express provisions of the
Plan, the Plan Administrator shall have the authority, in its sole discretion,
to determine all matters relating to options granted under the Plan, including,
without limitation, the selection of individuals to be granted options, the
number of shares to be subject to each option, the fair market value of the
shares and the exercise price, the term, whether such options shall be
immediately exercisable or shall become exercisable in increments over time, and
all other terms and conditions thereof, and to make all other determinations
necessary or advisable in the administration of the Plan. Grants under this Plan
to persons eligible need not be identical in any respect, even when made
simultaneously. The Plan Administrator may from time to time adopt, amend and
rescind rules and regulations relating to the administration of the Plan. The
interpretation and construction by the Plan Administrator of any terms or
provisions of this Plan or any option issued hereunder, or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
on all interested parties. The Plan Administrator in its sole discretion may
grant incentive stock options ("Incentive Stock Options") as such term is
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), and/or nonqualified stock options ("Nonqualified Stock Options"). A
Nonqualified Stock Option is a stock option which is not an Incentive Stock
Option. The term "option" when used in this Plan refers to Incentive Stock
Options and Nonqualified Stock Options, collectively.
3.2 Directors. A member of the Board of Directors may be eligible to
participate in or receive or hold options under this Plan; provided, however,
that no member of the Board of Directors shall vote with respect to the granting
of an option hereunder to himself or herself.
3.3 Delegation to a Committee. The Board of Directors, if it so
determines, may delegate to one or more committees of the Board of Directors
(each consisting of not less than two members of the Board of Directors) any or
all authority for the administration of the Plan, subject to such terms and
conditions the Board of Directors may prescribe. If, and so long as, the Company
has a class of equity securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Board of Directors in
determining the membership of any such committee shall, with respect to option
grants to any persons subject to or likely to become subject to Section 16 of
the Exchange Act, give due consideration to the provisions regarding (a)
"outside directors" as contemplated by Section 162(m) of the Code and (b)
"nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act.
Thereafter references to the Plan Administrator in this Plan shall be deemed to
be references to such committee to the extent such authority is so delegated.
-1-
<PAGE>
3.4 Replacement of Options. Without limiting the authority granted
to the Plan Administrator under Section 3.1, the Plan Administrator, in its sole
discretion, shall have the authority, among other things, to (a) grant options
subject to the condition that options previously granted at a higher or lower
exercise price under the Plan be canceled or exchanged in connection with such
grant (the number of shares covered by the new options, the exercise price, the
term and the other terms and conditions of the new option, shall be determined
in accordance with the Plan and may be different from the provisions of the
canceled or exchanged options), and (b) amend or modify outstanding and
unexercised options, with the consent of the holder of the option, to, among
other things, reduce the exercise price per share, establish the exercise price
at the then-current fair market value of the Common Stock or accelerate or defer
the exercise date, vesting schedule or expiration date of any option.
3.5 Loans to Optionees. The Plan Administrator, in its sole
discretion, may provide that the Company loan to any Optionee sufficient funds
to exercise any option granted under the Plan and/or to pay withholding tax due
upon exercise of such option. The Plan Administrator shall have the authority to
make such determinations at the time of grant or exercise and shall establish
repayment terms thereof, including installments, maturity, interest rate and
security for repayment.
SECTION 4. Eligibility. Options may be granted only to persons who, at
the time the option is granted, are employees, directors, consultants or
advisors of the Company or any of its then-existing parent or subsidiary
corporations (hereafter a "Parent" or "Subsidiary"). Any person to whom an
option is granted under this Plan shall be referred to hereinafter as
"Optionee." Any Optionee may receive one or more grants of options as the Plan
Administrator shall from time to time determine, and such determinations may be
different as to different Optionees and may vary as to different grants.
Optionees who are not employees will only be eligible to receive Nonqualified
Stock Options. An "employee" shall be any person, including officers and
directors, employed by the Company or any Parent or Subsidiary, with the status
of employment determined based upon such minimum number of hours or periods
worked as shall be determined by the Board of Directors in its discretion,
subject to any requirements of the Code.
SECTION 5. Terms and Conditions of Options. Options granted under this
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Each option agreement
shall clearly indicate whether the option granted thereby is an Incentive Stock
Option or a Nonqualified Stock Option. Notwithstanding the foregoing, all such
options shall include or incorporate by reference the following terms and
conditions:
5.1 Number of Shares and Exercise Price. The maximum number of
shares that may be purchased pursuant to the exercise of each option and the
price per share at which such option is exercisable (the "exercise price") shall
be as established by the Plan Administrator, provided that the exercise price
for any Incentive Stock Option shall not be less than the fair market value per
share of the Common Stock at the time the option is granted and subject further
to Section 7.2 below. The exercise price of Nonqualified Stock Options may be
less than, equal to or greater than the fair market value per share of the
Common Stock at the time the option is granted.
a. Limitation on Number of Shares Underlying Options. Subject to
adjustment from time to time as provided in Section 10 below, the Plan
Administrator shall not grant options to any person in any one fiscal year of
the Company in an amount that exceeds, in the aggregate, 250,000 shares of
Common Stock. This limitation shall be applied in a manner consistent with the
requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
b. Determination of Fair Market Value. For the purposes of this
Plan, fair market value of Common Stock, as of any date, shall be determined as
follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation The Nasdaq
National Market, its fair market value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported), as quoted on
such system or exchange, or the system or exchange with the greatest volume
of trading in Common Stock, for the last market trading day prior to the
time of determination, as reported in The Wall Street Journal or such other
source as the Plan Administrator deems reliable;
-2-
<PAGE>
(ii) If the Common Stock is quoted on The Nasdaq SmallCap Market, on
the over-the-counter system, or regularly quoted by a recognized securities
dealer but selling prices are not reported, its fair market value shall be
the last trade reported for the Common Stock on the last market trading day
prior to the time of determination, as reported in The Wall Street Journal
or such other source as the Plan Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the fair market value thereof shall be determined in good faith by the Plan
Administrator.
5.2 Duration of Options. Subject to the restrictions contained in
Section 9, the term of each option shall be established by the Plan
Administrator and, if not so established, shall be ten years from the date it is
granted, but in no event shall the term of any Incentive Stock Option exceed ten
years.
5.3 Exercisability. Each option shall prescribe the installments or
vesting schedule, if any, under which an option granted under the Plan shall
become exercisable. In the absence of a defined vesting schedule in an option
agreement, the option covered by such agreement shall vest annually over four
years from the date of grant, at the rate of 25 percent per year on each
anniversary of the date of grant. The Plan Administrator, in its absolute
discretion, may waive or accelerate any vesting requirement contained in
outstanding and unexercised options. Only whole shares shall be issued pursuant
to the exercise of any option.
SECTION 6. Restrictions on Transferability
6.1 Options granted under this Plan and the rights and privileges
conferred hereby shall not be subject to execution, attachment or similar
process and may not be assigned, alienated, pledged, sold, or transferred in any
manner (whether by operation of law or otherwise) other than by will or by the
laws of descent and distribution.
6.2 Notwithstanding Section 6.1 above, in the case of a Nonqualified
Stock Option, an Optionee may transfer such option either (a) pursuant to a
"domestic relations order" as defined in Section 414 of the Code or Section 206
of the Employment Retirement Income Security Act, or the rules thereunder, or
(b) by transfer without the receipt of consideration by an Optionee, subject to
such rules as the Plan Administrator may adopt to preserve the purposes of the
Plan (including limiting such transfers to transfers by Optionees who are
directors or senior executives), to
(i) a member of his or her Immediate Family or, in the case of an
Optionee that is a corporation, partnership or limited liability company,
holders of equity ownership interest of Optionee;
(ii) a trust solely for the benefit of the Optionee and/or his or
her Immediate Family, or
(iii) a partnership, corporation or limited liability company whose
only partners, shareholders or members are the Optionee and/or (y) his or
her Immediate Family members or (z) holders of equity ownership interest of
Optionee (in the case of an Optionee that is a corporation, partnership or
limited liability company).
(each transferee described in 6.2(a) and (b) is hereafter referred to as a
"Permitted Transferee"), provided that the Plan Administrator is notified in
advance in writing of the terms and conditions of any proposed transfer
described in (a) or (b) and it determines that the proposed transfer complies
with the requirements of the Plan and the applicable option agreement. For this
purpose, "Immediate Family" means, with respect to a particular Optionee, the
Optionee's spouse, children and grandchildren (including adopted and
stepchildren and grandchildren).
6.3 Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of an option granted under the Plan or any right or privilege
conferred hereunder contrary to the provisions of the Plan, or upon the sale,
levy or any attachment or similar process upon the rights and privileges
conferred by an option granted under the Plan, the option shall thereupon
terminate and become null and void.
-3-
<PAGE>
6.4 The terms of options granted under this Plan and transferred in
accordance with this Section 6 shall apply to the beneficiaries, executors and
administrators of the Optionee and of the Permitted Transferees of the Optionee
(including the beneficiaries, executors and administrators of the Permitted
Transferees), including the right to agree to any amendment of the applicable
option agreement, except that Permitted Transferees shall not transfer any
option other than by will or by the laws of descent and distribution.
6.5 Options granted under this Plan, or options transferred in
accordance with this Section 6, are exerciseable during Optionee's lifetime only
by Optionee or Permitted Transferee, as applicable (or his or her attorney in
fact or guardian). In the event of the death of an Optionee or Permitted
Transferee, options may be exercised by such Optionee's or Permitted
Transferee's executor or administrator. In no event shall the Company issue
shares of Common Stock upon exercise of an option unless Optionee or Permitted
Transferee makes sufficient payment, as determined by the Company, to meet
withholding tax obligations on such exercise or other arrangements satisfactory
to the Plan Administrator to provide for such payment.
SECTION 7. Certain Limitations Regarding Incentive Stock Options. The
grant of Incentive Stock Options shall be subject to the following special
limitations:
7.1 Limitation on Amount of Grants. To the extent that an Optionee
is granted Incentive Stock Options that in the aggregate (together with all
other Incentive Stock Options granted by the Company or any Parents or
Subsidiaries) entitle the Optionee to purchase, in any calendar year during
which such options first become exercisable, stock of the Company, any Parent or
any Subsidiary having a fair market value (determined as of the time such
options are granted) in excess of $100,000, such options in excess of the
$100,000 threshold shall be treated as Nonqualified Stock Options. No limitation
shall apply to Nonqualified Stock Options.
7.2 Grants to Ten Percent Shareholders. Incentive Stock Options may
be granted to a person who, at the time the option is granted, owns more than
ten percent of the total combined voting power of all classes of stock of the
Company and any Parent or Subsidiary only if (i) the exercise price is at least
110 percent of the fair market value of the Common Stock at the time of grant,
and (ii) the option is not exercisable more than five years from the date of
grant.
7.3 Taxation of Incentive Stock Options. In order to obtain certain
tax benefits afforded to Incentive Stock Options under Section 422 of the Code,
the Optionee must hold the shares issued upon the exercise of an Incentive Stock
Option for a minimum of two years after the date of grant of the Incentive Stock
Option and one year from the date of exercise. An Optionee may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Plan Administrator may provide in any option agreement evidencing an
Incentive Stock Option granted under this Plan that the Optionee under such
agreement be required to give the Company prompt notice of any subsequent
disposition of shares acquired on exercise of such Incentive Stock Option prior
to the expiration of the above holding periods.
SECTION 8. Exercise of Options. Options shall be exercised in accordance
with the following terms and conditions:
8.1 Procedure. Options shall be exercised by delivery to the Company
of written notice of the number of shares with respect to which the option is
exercised.
8.2 Payment. Payment of the exercise price shall be made in full
within five business days of the notice of exercise of the option and shall be
in cash or bank-certified, cashier's or personal check. If the Company's Common
Stock is registered under Section 12 of the Exchange Act, then, to the extent
permitted by applicable laws and regulations (including, but not limited to,
federal tax and securities laws and regulations) and unless the Plan
Administrator determines otherwise, an option also may be exercised by (a)
delivery of shares of Common Stock of the Company that have been held by the
Optionee for at least six months having a fair market value equal to the
exercise price, such fair market value to be determined in good faith by the
Plan Administrator (such payment in stock may occur in the context of a single
exercise of an option or successive and simultaneous exercises, sometimes
referred to as "pyramiding," which provides that, rather than physically
exchanging certificates
-4-
<PAGE>
for a series of exercises, bookkeeping entries will be made pursuant to which
the Optionee is permitted to retain his existing stock certificate and a new
stock certificate is issued for the net shares), or (b) delivery of a properly
executed exercise notice together with irrevocable instructions to (i) a broker
to promptly deliver to the Company the amount of sale or loan proceeds to pay
the exercise price and any withholding tax obligations that may arise in
connection with such exercise, and (ii) the Company to deliver the certificates
for such purchased shares directly to such broker, all in accordance with the
requirements of the Federal Reserve Board.
In addition, the exercise price for shares purchased under an option may be
paid, either singly or in combination with one or more of the alternative forms
of payment authorized by this Section 8.2, by (y) a promissory note delivered
pursuant to Section 3.5 or (z) such other consideration as the Plan
Administrator may permit.
8.3 Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the shares acquired on exercise, notwithstanding the exercise of
the option. The Company shall issue (or cause to be issued) such stock
certificate promptly upon exercise of the option and payment of the exercise
price. In the event that the exercise of an option is treated in part as the
exercise of a Nonqualified Stock Option pursuant to Section 7.2, the Company
shall issue a stock certificate evidencing the shares treated as acquired upon
the exercise of an Incentive Stock Option and a separate stock certificate
evidencing the shares treated as acquired upon the exercise of a Nonqualified
Stock Option, and shall identify each such certificate accordingly in its stock
transfer records. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of this Plan.
8.4 Federal Withholding Tax Requirements. Upon exercise of an
option, the Optionee shall, upon notification of the amount due and prior to or
concurrently with the delivery of the certificates representing the shares, pay
to the Company amounts necessary to satisfy applicable federal, state and local
withholding tax requirements or shall otherwise make arrangements satisfactory
to the Company for such requirements. If permitted by the Plan Administrator,
such arrangements may include payment of the appropriate withholding tax in
shares of stock of the Company having a fair market value equal to such
withholding tax, either through delivery of shares held by the Optionee or by
reduction in the number of shares to be delivered to the Optionee upon exercise
of such option.
SECTION 9. Termination of Employment, Disability and Death
9.1 General. If the employment of the Optionee by the Company, a
Parent or a Subsidiary shall terminate by retirement or for any reason other
than death or disability (as hereinafter provided), the option may be exercised
by the Optionee, or its Permitted Transferee, at any time prior to the
expiration of three months after the date of such termination of employment
(unless by its terms the option sooner terminates or expires), but only if and
to the extent the Optionee was entitled to exercise the option at the date of
such termination.
9.2 Disability. If the employment of the Optionee by the Company, a
Parent or a Subsidiary is terminated because of the Optionee's disability (as
herein defined), the option may be exercised by the Optionee, or its Permitted
Transferee, at any time prior to the expiration of one year after the date of
such termination (unless by its terms the option sooner terminates or expires),
but only if and to the extent the Optionee, or its Permitted Transferee, was
entitled to exercise the option at the date of such termination. For purposes of
this section, an Optionee will be considered to be disabled if the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable mental or physical impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
9.3 Death. In the event of the death of an Optionee while in the
employ of the Company, a Parent or a Subsidiary, the option shall be exercisable
on or prior to the expiration of one year after the date of such death (unless
by its terms the option sooner terminates and expires), but only if and to the
extent the Optionee was entitled to exercise the option at the date of such
death and only by the Optionee's personal representative if then subject to
administration as part of the Optionee's estate, or by the person or persons to
whom such Optionee's rights
-5-
<PAGE>
under the option shall have passed by the Optionee's will or by the applicable
laws of descent and distribution or by Optionee's Permitted Transferee.
9.4 Waiver or Extension of Time Periods. The Plan Administrator
shall have the authority, prior to or within the times specified in this Section
9 for the exercise of any such option, to extend such time period or waive in
its entirety any such time period to the extent that such time period expires
prior to the expiration of the term of such option. In addition, the Plan
Administrator may modify or eliminate the time periods specified in this Section
9 with respect to particular option grants. However, no Incentive Stock Option
may be exercised after the expiration of ten years from the date such option is
granted. If an Optionee holding an Incentive Stock Option exercises such option,
by permission of the Plan Administrator, after the expiration of the time
periods specified in this Section 9, the option will no longer be treated as an
Incentive Stock Option under the Code and shall automatically be converted into
a Nonqualified Stock Option.
9.5 Termination of Options. To the extent that the option of any
deceased Optionee or of any Optionee whose employment is terminated shall not
have been exercised within the limited periods prescribed in this Section 9, all
further rights to purchase shares pursuant to such option shall cease and
terminate at the expiration of such period.
9.6 Non-employee Optionees. Options granted to Optionees who are not
employees of the Company, a Parent or a Subsidiary at the time of grant shall
not be subject to the provisions of this Section 9, except as specifically
provided in the written option agreement for such Optionee.
SECTION 10. Option Adjustments
10.1 Adjustments Upon Changes in Capitalization. The aggregate
number and class of shares on which options may be granted under this Plan, the
number and class of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and all such options, shall
each be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification or any like
capital adjustment, or any other increase or decrease in the number of shares of
Common Stock of the Company without the receipt of consideration by the Company.
10.2 Effect of Certain Transactions. Except as otherwise provided in
the option agreement, in the event of a merger, consolidation, disposition of
all or substantially all of the assets, separation, reorganization or
liquidation of the Company, as a result of which the shareholders of the Company
receive cash, stock or other property in exchange for their shares of Common
Stock, or upon the acquisition by a person (as defined in Section 3(a)(9) and
13(d)(3) of the Exchange Act as in effective as of the date hereof) of a
majority of the Company's outstanding voting securities (whether directly or
indirectly, beneficially or of record) (each, a "Corporate Transaction"), all
outstanding and unexercised options granted under this Plan shall automatically
accelerate so that each option shall, immediately prior to any such Corporate
Transaction, become 100 percent vested (except that such acceleration shall not
occur if, in the opinion of the Company's accountants, such acceleration would
render unavailable "pooling of interest" accounting for a Corporate Transaction
that would otherwise qualify for such accounting treatment). Provided further,
however, that an option shall not so accelerate if and to the extent that such
option is, in connection with a Corporate Transaction, either to be assumed by
the successor corporation or its parent or to be replaced with a comparable
option for the purchase of shares of capital stock of such successor corporation
or its parent. Immediately following the consummation of any Corporate
Transaction, all options shall terminate and cease to remain outstanding, except
to the extent assumed by a successor corporation. Any such options that are
assumed or replaced in a Corporate Transaction and do not otherwise accelerate
at that time shall be accelerated in the event the Optionee's employment or
services should subsequently terminate within two years following such
transaction.
10.3 Further Adjustment of Options. The Plan Administrator shall
have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the Company,
as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to Optionees,
with respect to options. Such authorized action may include (but
-6-
<PAGE>
shall not be limited to) establishing, amending or waiving the type, terms,
conditions or duration of, or restrictions on, options so as to provide for
earlier, later, extended or additional time for exercise and other
modifications, and the Plan Administrator may take such actions with respect to
all Optionees, to certain categories of Optionees or only to individual
Optionees. The Plan Administrator may take such action before or after granting
options to which the action relates and before or after any public announcement
with respect to such, sale, merger, consolidation, reorganization, liquidation
or change in control that is the reason for such action.
10.4 Fractional Shares. In the event of any adjustment in the number
of shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
10.5 Determination of Plan Administrator to be Final. All
adjustments made pursuant to this Section 10 shall be made by the Plan
Administrator and its determination as to what adjustments shall be made, and
the extent thereof, shall be final, binding and conclusive.
SECTION 11. Securities Regulations
11.1 Compliance. Shares shall not be issued with respect to an
option granted under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange, national market system, over the counter system, or any electronic
bulletin board, upon which the shares may then be listed, quoted or traded, and
shall further be subject to the approval of counsel for the Company with respect
to such compliance. Inability of the Company to obtain from any regulatory body
having jurisdiction the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the nonissuance or sale of such
shares as to which such requisite authority shall not have been obtained.
11.2 Representations by Optionee. As a condition to the exercise of
an option, the Company may require the Optionee to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares,
if, in the opinion of counsel for the Company, such representation is required
by any relevant provision of the laws referred to in Section 11.1 above. At the
option of the Company, a stop transfer order against any shares of stock may be
placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold or otherwise transferred
unless an opinion of counsel was provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on the stock certificate in order to assure exemption
from registration. The Plan Administrator may also require such other action or
agreement by the Optionees as may from time to time be necessary to comply with
the federal and state securities laws. This provision shall not obligate the
Company to undertake registration of options or stock hereunder.
SECTION 12. Employment Rights. Nothing in this Plan or any option or
right granted pursuant hereto shall confer upon any Optionee any right to be
continued in the employment of the Company, a Parent or any Subsidiary of the
Company, or to remain a director thereof or a consultant thereto, or to
interfere in anyway with the right of the Company, a Parent or any Subsidiary,
in its sole discretion, to terminate such Optionee's employment at any time or
to remove the Optionee as a director or consultant at any time.
SECTION 13. Amendment and Termination
13.1 Action by Shareholders. The Plan may be terminated, modified or
amended by the shareholders of the Company.
13.2 Action by Board of Directors. The Board of Directors may also
terminate the Plan, or modify or amend the Plan in such respects as it shall
deem advisable in order to conform to any changes in law or regulation
applicable thereto, or in other respects; provided, however, that, to the extent
required for compliance
-7-
<PAGE>
with Section 422 of the Code or any applicable law or regulation, the Board of
Directors may not, without further approval by the shareholders of the Company:
(i) Change the number of shares in the aggregate as to which
options may be granted under the Plan;
(ii) Change the eligibility of persons to be granted Incentive Stock
Options under the Plan;
(iii) Change the terms of the Plan which causes the Plan to lose its
qualification as an incentive stock option plan under Section 422(b) of the
Code; or
(iv) Otherwise amend the Plan for which shareholder approved is
required under any applicable law or regulation.
No termination, suspension or amendment of the Plan may, without the
consent of each Optionee to whom any option shall previously have been granted,
adversely affect the rights of such Optionees under such options.
13.3 Automatic Termination. Unless the Plan shall have been
terminated as herein provided, this Plan shall terminate ten years from the
earlier of: (i) the date on which the Plan is adopted by the Board of Directors;
or (ii) the date on which this Plan is approved by the shareholders of the
Company. No option may be granted after such termination, or during any
suspension of this Plan. The amendment or termination of this Plan shall not,
without the consent of the Optionee, alter or impair any rights or obligations
under any option previously granted under this Plan.
SECTION 14. Effective Date of the Plan. This Plan shall become effective
on the date of its adoption by the Board of Directors of the Company and options
may be granted immediately thereafter, but no option may be exercised under the
Plan unless and until the Plan shall have been approved by the shareholders
within 12 months after the date of adoption of the Plan by the Board of
Directors. If such approval is not obtained within such period the Plan and any
options granted shall be null and void.
Adopted by the Board of Directors on January 1, 1998; approved by the
Company's shareholders on April 15, 1998.
-8-
<PAGE>
EXHIBIT 10.2
SUBLEASE AGREEMENT
1. PARTIES. This Sublease is entered into as of the 30th day of
December, 1997, by and between Intermind Corporation, a Washington corporation
("Sublessor"), and Interactive Objects, Inc., a Washington corporation
("Sublessee"), as a sublease under the Office Lease, dated August 29, 1995
(which was executed by Sublessor as "Intermind, Inc."), as amended by
instruments dated September 1, 1996, and February 1, 1997, entered into by
Duchess Properties Ltd., as Landlord, and Sublessor, as Tenant (collectively,
the "Master Lease"). A copy of the Master Lease is attached hereto as Exhibit A
and incorporated herein by this reference. Capitalized terms in this Sublease
Agreement which are not defined herein shall have the same meaning as in the
Master Lease.
2. PROVISIONS CONSTITUTING SUBLEASE.
(a) This Sublease is subject to all of the terms and conditions of
the Master Lease, except as specifically exempted herein, and Sublessee shall
assume and perform the obligations of Sublessor as tenant under the Master
Lease, to the extent said terms and conditions are applicable to the Premises
(defined below) subleased pursuant to this Sublease. Sublessee shall not commit
nor permit to be committed on the Premises any act or omission which shall
violate any term or condition of the Master Lease. In the event of the
termination of Sublessor's interest as tenant under the Master Lease for any
reason, this Sublease shall terminate coincidentally therewith without any
liability of Sublessor to Sublessee. In case of any default hereof by Sublessee,
Sublessor shall have all rights against Sublessee as would be available to
Landlord against the tenant under the Master Lease if such default were by the
tenant thereunder. Sublessee acknowledges that it has read and understands the
Master Lease. Notwithstanding anything contained herein to the contrary,
Sublessor does not by this Sublease promise or agree to perform any obligation
undertaken or assumed by Landlord under the Master Lease. Sublessor will,
however, use Sublessor's reasonable efforts to obtain performance by Landlord
for Sublessee's benefit under the Master Lease. If Landlord does not perform its
obligations under the Master Lease, Sublessee shall be entitled to pursue all
remedies against Landlord which are available to the tenant under the Master
Lease, and Sublessor agrees to reasonably cooperate with Sublessee in any such
action.
(b) All of the terms and conditions contained in the Master Lease are
incorporated herein, as if Sublessor were the landlord and Sublessee were the
tenant under the Master Lease from and after the commencement of the term of
this Sublease, except for Paragraphs 1, 2, 3, 4, 5, 6 and 7 of the Second Lease
Amendment, dated February 1, 1997, as terms and conditions of this Sublease
(with each reference therein to Landlord and Tenant to be deemed to refer to
Sublessor and Sublessee) and along with all of the paragraphs set out in this
Sublease, shall be the complete terms and conditions of this Sublease. In the
event of conflict between the terms of this Sublease and the terms of the Master
Lease, the terms of this Sublease shall prevail.
3. PREMISES. Sublessor subleases to Sublessee and Sublessee subleases
from Sublessor the following described premises situated in the City of Seattle,
County of King, State of Washington, and described as 215 Pine Street (Olympic
Tower), consisting of approximately 3,220 RSF (defined below) on floor four and
approximately 4,921 RSF on floor eight (the "Premises"), as shown on Exhibit B
attached hereto and made a part hereof. The eighth floor portions of the
Premises is divided into two suites (the "Subleased Suite" comprised of
approximately 2,921 rentable square feet and the "Retained Suite" comprised of
approximately 2,000 rentable square feet) as delineated on the floor plans
attached hereto as Exhibit B-2.
4. TERM.
4.1 TERM. The term of this Sublease shall be for a period commencing on
January 1, 1998 for all of the Premises except the Retained Suite and on March
1, 1998 for the Retained Suite. The term shall end on November 30, 2000, or upon
the expiration or earlier termination of the Master Lease, whichever is earlier,
unless sooner terminated pursuant to any provision hereof.
-1-
<PAGE>
4.2 DELAY IN COMMENCEMENT. Notwithstanding the commencement date
referenced above, if for any reason Sublessor cannot deliver possession of the
Premises to Sublessee on said date, Sublessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Sublease
or the obligations of Sublessee hereunder or extend the term hereof, but in such
case Sublessee shall not be obligated to pay rent until possession of the
Premises is tendered to Sublessee; provided, however, that if Sublessor. shall
not have delivered possession of the Premises within thirty (30) days from said
commencement date, Sublessee may, at Sublessee's option, by notice in writing to
Sublessor within ten (10) days thereafter, cancel this Sublease. If this
Sublease is canceled as herein provided, Sublessor shall return any monies
previously deposited by Sublessee and the parties shall be discharged from all
obligations hereunder.
4.3 EARLY POSSESSION. In the event that Sublessor shall permit Sublessee
to occupy the Premises prior to the commencement date of the term, such
occupancy shall be subject to all of the provisions of this Sublease. Said early
possession shall not advance the termination date of this Sublease.
5. RENT. The annual base rental rate shall be:
Fifteen and 55/100 Dollars ($15.55) per rentable square foot ("RSF") from
January 1, 1998 through December 31, 1998;
Sixteen and 05/100 Dollars ($16.05) per RSF from January 1, 1999 through
December 31, 1999; and
Sixteen and 75/100 Dollars ($16.75) per RSF from January 1, 2000 through
November 30, 2000.
Sublessee shall pay to Sublessor as base rent for the Premises monthly
installments of the following amounts in advance, on the first day of each month
of the term hereof.:
Seven Thousand Nine Hundred Fifty Seven and 71/100 Dollars ($7,957.71) from
January 1, 1998 through February 28, 1998;
Ten Thousand Five Hundred Forty Nine and 38/100 Dollars ($10,549.38), from
March 1, 1998 through December 31, 1998;
Ten Thousand Eight Hundred Eighty Eight and 59/100 Dollars ($10,888.59)
from January 1, 1999 through December 31, 1999; and
Eleven Thousand Three Hundred Sixty Three and 48/100 Dollars ($11,363.48)
from January 1, 2000 through November 30, 2000.
Sublessee shall pay Sublessor upon the execution hereof the sum of Seven
Thousand Nine Hundred Fifty Seven and 71/100 Dollars ($7,957.71) as rent for
January 1998.
Rent for any period during the term hereof which is for less than one (1)
month shall be a pro-rata portion of the monthly installment. Rent shall be
payable without notice or demand and without deduction, offset, or abatement, in
lawful money of the United States of America to Sublessor at the address stated
herein or to such other persons or at such other places as Sublessor may
designate in writing.
If Sublessor shall be charged for additional rent or other sums pursuant to
the provisions of the Master Lease, including without limitation, provisions
relating to rent escalation, utilities, real property taxes and assessments,
license fees, excise fees, occupation taxes, personal property taxes, leasehold
taxes, and insurance premiums and deductibles for which Sublessor is responsible
under the Master Lease, Sublessee shall be liable for such additional rent or
sums for periods commencing on the date on which the term of this Sublease
commences for the portion thereof attributable to the Premises, provided however
that any Operating Costs and Property Taxes passed through to Sublessee shall be
calculated using a Base Year of 1998. Any rent or other sums payable by
Sublessee under this Section 5 shall be additional rent and collectible as such.
-2-
<PAGE>
6. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon
execution hereof the sum of Ten Thousand Five Hundred Forty Nine and 38/100
Dollars ($10,549.38) as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion
of said deposit, Sublessee shall within ten (10) days after written demand
therefore deposit cash with Sublessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated, and Sublessee's failure to do so
shall be a breach of this Sublease, and Sublessor may at its option terminate
this Sublease. Sublessor shall not be required to keep said deposit separate
from its general accounts. If Sublessee performs all of Sublessee's obligations
hereunder, said deposit or so much thereof as has not theretofore been applied
by Sublessor, shall be returned, without payment of interest or other increment
for its use, to Sublessee (or, at Sublessor's option, to the last assignee, if
any, or Sublessee's interest hereunder) within fifteen (15) days after the
expiration of the term hereof, or after Sublessee has vacated the Premises,
whichever is later.
7. USE. The Premises shall be used and occupied only for general office
use and for no other purpose without prior written consent of Sublessor and
Landlord. Sublessee's business shall be established and conducted throughout the
term hereof in a first class manner. Sublessee shall not use the Premises for,
or carry on, or permit to be carried on, any offensive, noisy, or dangerous
trade, business, manufacture or occupation or permit any auction sale to be held
or conducted on or about the Premises. Sublessee shall not do or suffer anything
to be done upon the Premises which will cause structural injury to the Premises
or the building of which the Premises form a part. The Premises shall not be
overloaded and no machinery, apparatus or other appliance shall be used or
operated in or upon the Premises which will in any manner injure, vibrate, or
shake the Premises or the building of which it is a part. No use shall be made
of the Premises which will in any way impair the efficient operation of the
sprinkler system (if any) within the building containing the Premises. Sublessee
shall not leave the Premises unoccupied or vacant during the term. No musical
instrument of any sort, or any noise-making device will be operated or allowed
upon the Premises for the purpose of attracting trade or otherwise. Sublessee
shall not use or permit the use of the Premises or any part thereof for any
purpose which will increase the existing rate of insurance upon the building in
which the premises are located, or cause a cancellation of any insurance policy
covering the building or any part thereof. If any act on the part of Sublessee
or use of the Premises by Sublessee shall cause, directly or indirectly, any
increase of Sublessor's or Landlord's insurance expense, said additional expense
shall be paid by Sublessee to Sublessor upon demand. No such payment by
Sublessee shall limit Sublessor in the exercise of any other rights or remedies,
or constitute a waiver of Sublessor's right to require Sublessee to discontinue
such act or use.
8. NOTICES. All notices or demands of any kind required or desired to be
given to Sublessor or Sublessee hereunder shall be in writing and shall be
deemed delivered forty-eight (48) hours after depositing the notice or demand in
the United States mail, certified or registered, postage prepaid, addressed to
the Sublessor or Sublessee, respectively, at the addresses set forth below their
signatures at the end of this Sublease. All rent and other payments due under
this Sublease or the Master Lease shall be made b Sublessee to Sublessor at the
same address.
9. COMMISSION. Sublessor and Sublessee each represents to the other that
there are no individuals or entities entitled to brokerage commissions or
finder's fees in connection with this transaction other than Kidder, Mathews &
Segner, Inc. and Pacific Real Estate Partners, and that if any claims for
brokerage commissions or finder's fees or like payments arise out of or in
connection with this transaction, all such claims shall be defended by, and if
sustained, paid by, the party whose alleged actions or commitment form the basis
of such claims. Sublessor shall pay Kidder, Mathews & Segner, Inc. ("KMSI") a
real estate commission in the amount of Twenty-Five Thousand Two Hundred Forty-
Eight and 21/100 Dollars ($25,248.21), payable one-half (1/2) upon execution of
this Sublease and one-half (1/2) upon Sublessee's occupancy. Upon receipt of the
commission referenced above, KMSI shall immediately pay an amount equal to
Fifteen Thousand Five Hundred Thirty Seven and 36/100 Dollars ($15,537.36) to
Pacific Real Estate Partners ("PREP"). If PREP has not received its share of the
commission from KMSI within thirty days following Sublessee's occupancy,
Sublessee may pay PREP its share of the commissions and set-off against its base
rent such amount.
-3-
<PAGE>
10. PARKING. Four (4) stalls shall be provided to Sublessee in the
building parking garage at market rents.
11. INDEMNITY. Each party (the "Indemnifying Party") agrees to indemnify,
defend and hold harmless the other party (the "Indemnified Party") from and
against all liabilities, causes of action, losses, costs and expenses (including
attorneys' fees and court costs) to the extent caused by the negligence, willful
misconduct, breach of this Sublease or breach of the Master Lease by the
Indemnifying Party, its employees or agents. Nothing herein shall require an
Indemnifying Party to protect an Indemnified Party from and against any such
risks to the extent caused by the negligence, willful misconduct, breach of this
Sublease or breach of the Master Lease by the Indemnified Party, its employees
or agents.
12. INSURANCE. All insurance required to be maintained by Sublessor
pursuant to the Master Lease shall be maintained by Sublessee with respect to
the Premises and shall name Sublessor as an additional or named insured, in the
same manner and with the same coverage, notice requirements, and endorsements as
apply to Landlord under the Master Lease.
13. ACCEPTANCE OF PREMISES; ALTERATIONS. Sublessee accepts the Premises in
their present condition and agrees that Sublessee will not demand that Sublessor
make any improvement thereon or provide any maintenance thereof. Sublessee may
make alterations and improvements to the Premises only in accordance with the
provisions of the Master Lease. Subject to the approval of the Landlord and such
conditions as the Landlord may impose under the Master Lease, Sublessee, at its
own expense, may connect the HVAC system serving the Premises to the HVAC unit
located on the third floor of the Building
14. DEFAULT BY SUBLESSOR UNDER MASTER LEASE. In the event that Sublessor
defaults in the payment of rent, additional charges, or any other amounts
required to be paid by Sublessor under the Master Lease, Sublessee shall have
the right, but not the obligation, to pay to Landlord such amounts as may be
required to cure such default. Thereafter, Sublessee may pay rent and other sums
due hereunder directly to Landlord. Any payments so made by Sublessee shall be
credited toward the amount due from Sublessee to Sublessor hereunder.
15. DEFAULT BY SUBLESSEE; RE-ENTRY. If Sublessee fails to pay rent or
other sums due hereunder when the same are due or if Sublessee violates,
breaches, or fails to keep or perform any covenant, agreement, term, or
condition of this Sublease (other than payment of rent and other sums), and does
not remedy such default or violation within ten (10) days after notice in
writing thereof given by Sublessor to Sublessee specifying the matter claimed to
be in default, Sublessor, at Sublessor's option, may pursue against Sublessee
those remedies provided to Landlord in the Master Lease, in addition to all
other remedies available to Sublessor at law or in equity.
16. SURRENDER OF PREMISES. Sublessee shall promptly yield and deliver to
Sublessor possession of the Premises at the expiration or sooner termination of
the term of this Sublease.
17. ASSIGNMENT. Sublessee shall not assign this Sublease nor sublet the
Premises in whole or in part, without Sublessor's and Landlord's consent.
18. SUCCESSORS OR ASSIGNS. Except as otherwise expressly provided in this
Sublease, all he terms, conditions, covenants, and agreements of this Sublease
shall extend to and be binding upon Sublessor and Sublessee and their respective
successors and assigns, and upon any person or persons coming into ownership or
possession of any interest in the Premises by operation of law or otherwise.
19. PARTIAL INVALIDITY. If any term, covenant, or condition of this
Sublease or the Master Lease, or the application thereof to any person or
circumstance is, to any extent, invalid or unenforceable, the remainder of this
Sublease and the Master Lease, or the application of such term, covenant, or
condition to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term,
covenant, or condition of this Sublease shall be valid and shall be enforced to
the fullest extent permitted by law.
-4-
<PAGE>
20. WAIVER. The waiver by either Sublessor or Sublessee of a breach of
any term or condition of this Sublease shall not be deemed to constitute the
waiver of any other breach of the same or any other term or condition hereof.
21. ENTIRE AGREEMENT. This Sublease and the Master Lease under which it
is entered set forth the entire agreement of Sublessor and Sublessee concerning
the lease of the Premises, and there are no other agreements or understandings,
oral or written, between Sublessor and Sublessee concerning the lease of the
Premises. Any subsequent modification or amendment of this Sublease shall be
binding upon Sublessor and Sublessee only if in writing and signed by both
parties.
22. APPLICABLE LAW. This Sublease shall be governed by and construed in
accordance with the laws of the State of Washington.
23. TIME. Time is of the essence hereof.
24. APPROVAL OF LANDLORD. Notwithstanding anything contained herein to
the contrary, this Sublease shall not be effective until and unless Landlord
consents to this Sublease by signing below.
25. SUBLEASE OF FURNISHINGS AND FIXTURES. Sublessor hereby agrees to
sublease to Sublessee and Sublessee hereby agrees to sublease from Sublessor
during the term of this Sublease Agreement those Herman Miller and Quantum work
station furnishings and fixtures located on the Premises (comprised of work
surfaces drawers, file cabinet, keyboard trays and wall panels) which Sublessee
elects to use at a rate of $42 per month for each work station unit payable in
advance, on or before the first day of each month. Subleased units and the dates
of use shall be confirmed by the parties in writing. This sublease may be
terminated by Sublessor upon five (5) days' prior written notice to Sublessee in
which event Sublessee shall return possession of such property to Sublessor upon
demand. Sublessor also hereby grants to Sublessee a revocable license to use
any other furnishings belonging to Sublessor and left on the Premises. Sublessor
may remove any licensed property upon twenty-four hours prior notice.
SUBLESSOR:
INTERMIND CORPORATION
By: /s/ Peter Heymann
--------------------
Its: Chairman
Address: 217 Pine Street, Suite 800
Seattle, WA 98101-1500
SUBLESSEE:
INTERACTIVE OBJECTS, INC.
By: /s/ Stuart Eastman
---------------------
Its: Chief Operating Officer
Address: 17720 NE 65th Street
Redmond, WA 98052
-5-
<PAGE>
EXHIBIT 10.2A
OFFICE LEASE
THIS LEASE is made as of August 29, 1995, between DUCHESS PROPERTIES LTD.,
a Washington corporation ("Landlord"), and INTERMIND, INC., a Washington
corporation ("Tenant") . Landlord and Tenant covenant and agree as follows:
SECTION 1. Lease Data; Exhibits. The following terms shall have the
following meanings, except as otherwise specifically modified in this Lease:
(a) Building: The building containing approximately 76,995 square feet of
retail space and office space, currently known as Olympic Tower, located at 217
Pine Street in Seattle, King County, Washington, situated on real property (the
"Land") legally described in Exhibit A attached.
(b) Premises: An agreed area of approximately 4,921 rentable square feet
located on the 8th floor of the Building as outlined on the floor plan attached
as Exhibit B (the "Floor Plan").
(c) Lease Term: A period of sixty-three (63) full calendar months
commencing on the Commencement Date and expiring on the Expiration Date;
provided, if the Commencement Date is a day other than the first day of a
calendar month, unless otherwise agreed in writing, the Lease Term shall not
commence until the first day of the first calendar month starting after the
Commencement Date, however all of the terms and conditions of this Lease
(including those regarding the payment of rent) shall be applicable on the
Commencement Date.
(d) Commencement Date: The date this Lease is fully executed by both
Landlord and Tenant.
(e) Expiration Date: 11:59 on the last day of the sixty-third (63rd) full
calendar month of the Lease Term.
(f) Base Rent: Tenant shall pay the following dollar amounts per month as
Base Rent on or before the first day of each month:
Month of Lease Term Monthly Base Rent
1 - 3 $ 0.00
3 - 15 5,228.56
16 - 27 5,433.60
28 - 39 5,638.65
40 - 51 5,843.69
52 - 63 6,048.73
The Base Rent includes the amount of Operating Costs and Property Taxes (as
such terms are defined in section 5 below) for the Building during the Base Year
and all prior Lease Years.
(g) Base Year: Calendar year 1996.
(h) Additional Rent: Whether or not so designated, all other sums due from
Tenant under this Lease shall constitute Additional Rent, payable when specified
in this Lease.
(i) Operating Costs and Real Property Taxes: During all Lease Years after
the. Bass Year, Tenant will pay its share ("Tenant's Share") of Operating Costs
and Property Taxes pursuant to Section 5 of this Lease. Tenant's Share of
operating Costs and Property Taxes is estimated to be 6.39%. Tenant's Share
shall be calculated and may be adjusted during the Lease Term as provided in
section 5 below.
(j) Deposit: Three Thousand Five Hundred Dollars ($3,500.00).
-1-
<PAGE>
(k) Permitted Use: General office purposes.
(1) Building Standard Hours:
Monday through Friday - 7 a.m. to 6 p.m., excluding legal holidays
(m) Notice Addresses:
To Landlord: c/o Duchess Properties Ltd.
Colliers Real Estate services
800 Fifth Avenue, Suite 3930
Seattle, WA 98104
with a copy to:
Alston, Courtnage, MacAulay & Proctor
1000 Second Avenue, Suite 3900
Seattle, WA 98104-1045
Attn: Andrew B. Bassetti
To Tenant: At the Premises
(n) Brokers:
Listing Broker - Colliers Real Estate Services.
Cooperating Broker - Ewing & Clark.
(o) Name and Address for Payments to Landlord;
Duchess Properties Ltd.
c/o Colliers Real Estate Services
800 Fifth Avenue, Suite 3930
Seattle, WA 98104
(p) Exhibits: The following exhibits are made a part of this Lease:
Exhibit A - Legal Description of Land
Exhibit B - Floor Plan
Exhibit C - Workletter
Exhibit D - Estoppel Certificate
SECTION 2. Premises.
(a) Premises. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, those certain premises (the "Premises") located on the
floor and in the location referenced in Section 1.
(b) Condition. The Premises are leased by Landlord and accepted by
Tenant in an "AS IS" condition; except Landlord agrees at its expense promptly
following the full execution of this Lease to clean all HVAC ducts and ceiling
units serving the Premises (in accordance with the commercially reasonable
standards of those persons or entities qualified to clean commercial air
conditioning systems), repair damaged ceiling tiles, and clean all levelors.
Prior to taking occupancy of the Promises or commencing any of the work to be
performed by Tenant pursuant to Exhibit C attached, Tenant shall inspect the
Premises and Landlord and Tenant shall prepare and agree upon a "punchlist" of
any items or repairs which are the responsibility of Landlord. The existence of
repairs or defects of a nature commonly found on a "punchlist," as such term is
used in the construction industry, shall not
-2-
<PAGE>
postpone the Commencement Date or result in a delay or abatement of Tenant's
obligation to pay rent or give rise to a damage claim against Landlord.
(c) Common Areas. During the Lease Term, Tenant and its licensees,
invitees, customers and employees shall have the non-exclusive right to use all
entrances, lobbies, elevators, stairs, corridors, restrooms and other public
areas of the Building (the "Common Areas") in common with Landlord, other
Building tenants and their respective licensees, invitees, customers and
employees. Landlord shall at all times have exclusive control and management of
the Common Areas and no diminution thereof shall be deemed a constructive or
actual eviction or entitle Tenant to compensation or a reduction or abatement of
rent.
(d) Alterations. Landlord may in its discretion increase, decrease
or change the number, locations and dimensions of any hallways, lobby areas,
Common Areas and other improvements in the Building which are not within the
Premises. Landlord reserves the right from time to time (i) to install, use,
maintain, repair, relocate and replace pipes, ducts, conduits, wires and
appurtenant meters and equipment for service to the Premises or to other parts
of the Building in areas above the suspended ceiling surfaces, below the floor
surfaces, within the walls and in the central core areas of the Building within
the Premises and elsewhere in the Building (ii) to alter or expand the Building;
and (iii) to alter, relocate or substitute any of the Common Areas.
SECTION 3. Term. The Lease Term shall begin on the Commencement Date and
end on the Expiration Date, unless extended or sooner terminated in accordance
with the terms of this Lease.
SECTION 4. Base Rent and Additional Rent. Tenant shall pay to Landlord at
the address and to the account specified by Landlord in Section 1 above or such
other address or account as Landlord may hereafter designate in writing, without
notice or demand, or any setoff or deduction whatsoever except as provided in
this Lease, in lawful money of the United States: (a) Base Rent in the amount(s)
specified in Section 1 above in advance on the first day of each month, and (b)
Additional Rent as and when specified elsewhere in this Lease, but if not
specified, then within ten (10) days of demand. Base Rent and Additional Rent
shall be prorated on a daily basis (based on a 30-day month and the actual
number of days elapsed) for any partial month within the Lease Term and for any
partial initial month in the Lease Term shall be paid on the first day of the
Lease Term.
SECTION 5. Tenant's Share of Operating Costs and Real Property Taxes.
(a) Amount. In addition to Base Rent, after the end of the Base
Year, Tenant shall pay to Landlord as Additional Rent, Tenant's Share of all
increases in the sum of the "Operating Costs" (defined below) and "Property
Taxes" (defined below) incurred by Landlord in any "Lease Year" (defined below)
after the Base Year, over the sum of the operating Costs and Property Taxes
incurred by Landlord during the Base Year. After the end of the Base Year, and
each Lease Year commencing thereafter, Landlord will notify Tenant in writing of
Landlord's estimate of Tenant's Share of the estimated increases in operating
Costs and Property Taxes for the current Lease Year over the Operating Costs and
Property Taxes for the Base Year. Tenant shall pay the estimated amount set
forth in Landlord's notice,, in advance, in equal monthly installments, without
deduction or offset whatsoever,, on or before the first (1st) day of each
calendar month, with the payment of Base Rent required pursuant to Section 4
above. Until Landlord provides Tenant with the notice provided for above in this
paragraph, Tenant shall continue to pay Tenant's Share of Operating Costs and
Property Taxes in the monthly amounts specified in the last such notice given to
Tenant by Landlord, if any. When reasonably possible following the end of each
Lease Year, Landlord will compute Tenant's Share due under this Section 5 for
such Lease Year, based an actual costs, and, if Tenant's Share for such Lease
Year is greater than that already paid by Tenant for such Lease Year, Tenant
shall pay Landlord the deficiency within twenty (20) days of its receipt of
written notice or an invoice for the amount of the deficiency. If the total
amount paid by Tenant under this Section 5 for a Lease Year exceeds Tenant's
Share, then Landlord shall credit such excess to the payment of Base Rent and
Additional Rent thereafter coming due; however, upon the expiration or sooner
termination of the Lease Term, if Tenant has otherwise complied with all other
terms and conditions of this Lease, Landlord shall refund the excess to Tenant.
If during a Lease Year Landlord obtains information regarding operating Costs or
Property Taxes which alters its prior estimates, Landlord may adjust the amount
due from Tenant under this Section 5 during the balance of that Lease Year to
reflect such new information by written notice to Tenant. Notwithstanding any
other provision of this Lease, Tenant's Share of operating Costs, other than
insurance premiums, shall not increase by more than six percent (6.0%) per
annum. The foregoing limitation shall not be applicable to Property Taxes.
-3-
<PAGE>
(b) Definitions. For purposes of this Lease:
(i) "Operating Costs" means all expenses paid or incurred by
Landlord or charged to Landlord for maintaining,, managing, operating, repairing
and administering the Building (including the Common Areas), and the personal
property used in conjunction therewith, including without limitation, the costs
of refuse collection, water, sewer, electricity, heat, air conditioning, fuel,
light, fire protection, and other utilities and services; supplies; janitorial
and cleaning services; window washing; snow, garbage and refuse removal;
security services and systems; landscape maintenance; garage maintenance,
compensation (including employment taxes and fringe benefits) of all persons who
perform duties in connection with the operation, management, maintenance, repair
and administration of the Building; insurance premiums for all insurance carried
by Landlord with respect to the Building; licenses, permits and inspection fees,
subsidies and other payments required by public bodies; property management
fees; rent for any on-site property management office; easement and license
fees; legal and accounting expenses and all other expenses or charges whether or
not hereinabove described which, in accordance with generally accepted
accounting and management practices, would be considered an expense of
maintaining, managing, operating, repairing and administering the Building,
excluding: (a) costs of any special services rendered to individual tenants
(including Tenant) for which a special charge is made; (b) ground lease rental
payments and debt service on mortgages or deeds of trust encumbering the
Building; (c) leasing commissions and attorneys' and other fees and costs
incurred in leasing space in the Building or in connection with disputes with
tenants of the Building; (d) depreciation or amortization expenses; (e) costs
incurred by Landlord in efforts to reduce assessments on Landlord's personal
property to the extent such costs exceed the amount of any reduction in the
annual tax assessments which are included as an Operating Cost or Property Tax;
and (f) costs required to be capitalized in accordance with generally accepted
accounting practices, except operating Costs shall include amortization of
capital improvements (1) designed with a reasonable probability of improving the
operating efficiency of the Building, (2) required to comply with governmental
laws or regulations, or (3) made for the general benefit or convenience of
tenants of the Building.
(ii) "Property Taxes" means all taxes of every kind and nature
on the Building and/or the Land and on personal property used by Landlord in
conjunction therewith, including surcharges and all local improvement and other
assessments levied with respect to the Building, the Land and all other property
of Landlord used in connection with the operation of the Building; And any taxes
levied or assessed in lieu of, in whole or in part, such real or personal
property taxes; and any taxes in addition to such real and personal property
taxes, including, but not limited to, taxes or license fees upon or measured by
the leasing of the Building or the rents or other income collected therefrom,
other than any federal or state net income or inheritance taxi and all costs and
expenses incurred by Landlord in efforts to reduce or minimize such taxes.
(iii) "Lease Year" means a twelve (12) month period beginning
January 1st and ending December 31st; however, if the Commencement Date is a
date other than the first day of a calendar year, the first Lease Year shall
commence on the Commencement Date and end on December 31 of such calendar year,
and the last Lease Year shall commence on January 1 of the last calendar year
during the Lease Term and end on the Expiration Date.
(iv) "Tenant's Share" means the. percentage determined by
dividing the square foot area of the Premises by the square foot area of the
Building, exclusive of the parking garage, or the total square foot area of the
Promises is increased or decreased during the Lease Term (as a result of
remeasurement, remodeling or otherwise), Tenant's Share shall be adjusted
accordingly.
SECTION 6. Late Charge; Interest. Time is of the essence of this Lease.
If Tenant fails to pay any Base Rent or Additional Rent within five (5) days of
the due date, a late charge equal to the greater of $50.00, or five percent (5%)
of the unpaid amount, shall be assessed and be immediately due and payable by
Tenant. In addition, any Base Rent or Additional Rent more than five (5) days
past due shall bear interest from the date due until paid in full (together with
late charges and interest) at an interest rate equal to the lesser of one and
one-half percent (1.5%) per month, or the maximum rate of interest permitted by
applicable law.
SECTION 7. Deposit. Tenant has deposited with Landlord the sum specified
as the Deposit in Section 1 of this Lease, if any. This sum shall belong to
Landlord and shall constitute partial consideration for the execution
-4-
<PAGE>
of this Lease, subject only to repayment when required in this Section. Landlord
shall pay Tenant the remaining balance of the Deposit, without any liability for
interest within thirty (30) days after the expiration or prior termination of
the Lease Term, or any extension thereof, if and only if Tenant has fully
performed all of its obligations under this Lease. Landlord may withdraw from
the Deposit the amount of any unpaid rent or other charges not paid to Landlord
when due, and Tenant shall immediately redeposit an amount equal to that so
withdrawn within ten (10) days of demand.
SECTION 8. Tenant's Operations.
(a) Use of Premises. Tenant shall use the Premises only for Permitted
Use specified in Section 1. Tenant shall not permit any act that will increase
the then existing rate of insurance on the Building, without Landlord's prior
written consent. Tenant shall pay on demand the amount of the increase in
insurance rates caused by any such acts or omissions by Tenant, or its agents or
employees. Tenant shall not commit or allow to be committed any waste on the
Premises, or any public or private nuisance or other act which disturbs the
quiet enjoyment of any other tenant of the Building. Tenant s a not, without the
prior written consent of Landlord, use any apparatus, machinery, or device in or
about the Premises which will cause any substantial noise, vibration or fumes.
If any of Tenant's office machines or equipment disturb the quiet enjoyment of
any other tenant of the Building, Tenant shall provide adequate insulation or
take such other action as Landlord directs to eliminate the disturbance.
(b) Unlawful Use. Tenant shall not use or permit the Premises or the
Common Areas or any part thereof to be used for any purpose in violation of any
municipal, county, state or federal law, ordinance or regulation which the
Building is a part and Tenant shall comply with and shall cause its employees,
invitees and contractors to comply with such rules and regulations as Landlord
may from time to time promulgate. Tenant shall promptly comply, at its sole cost
and expense, with all laws, ordinances and regulations now in force or hereafter
adopted relating to or affecting the condition, use or occupancy of the
Premises, including without limitation the Americans With Disabilities Act of
1990, as now or hereafter amended (the "ADA"). Notwithstanding the foregoing,
as between Landlord and Tenant, Landlord shall be solely responsible for making
any changes to the Common Areas as and when required pursuant to the ADA.
(c) Liens and Encumbrances. Tenant shall keep the Premises, the Building
and the Land free and clear of, and shall indemnify, defend and hold Landlord
harmless from, any and all liens and encumbrances arising or growing out of
Tenant's acts or omissions, or breach of this Lease or its use, improvement or
occupancy of the Premises. If any lien is so filed against the Premises, the
Land or the Building, Tenant shall cause the same to be fully discharged and
released of record within ten (10) days of demand or within such period provide
Landlord with cash or other security acceptable to Landlord in an amount equal
to one and one-half (1/2) times the amount of the claimed lien as security for
its prompt removal. Landlord shall have the right to disburse such security to
cause the removal of the lien if a judgment is entered against Tenant in the
lien proceeding, if such lien causes difficulties for Landlord in connection
with its financing of the Building, or if Tenant is otherwise in default under
this Lease.
(d) Hazardous Substances. Tenant shall not, without Landlord's prior
written consent, keep any substances designated as, or containing components now
or hereafter designated, as, hazardous, dangerous, toxic or harmful and/or
subject to, regulation under any federal, state or local law, regulation or
ordinance ("Hazardous Substances") on or about the Promises or Building.
Notwithstanding the preceding sentence, Tenant may keep, use, store and dispose
of, in, on and from the Premises, materials and supplies otherwise constituting
Hazardous Substances which are normally used in general business offices,
provided such materials and supplies are used, handled, stored and disposed of
in accordance with all applicable governmental rules, regulations, laws and
requirements, and in accordance with all applicable manufacturers' or suppliers'
recommendations. With respect to any Hazardous Substances stored with Landlord's
consent or permitted hereunder, Tenant shall: promptly, timely and completely
comply with all governmental requirements for reporting and record keeping;
submit to Landlord true and correct copies of all reports, manifests and
identification numbers at the same time as they are required to be and/or are
submitted to the appropriate governmental authorities; within five (5) days of
Landlord's request, provide evidence satisfactory to Landlord of Tenant's
compliance with all applicable governmental rules, regulations and requirements;
and comply with all governmental rules, regulations and requirements regarding
the proper and lawful use, sale, transportation, generation, treatment and
disposal of Hazardous Substances. Any and all costs incurred by Landlord and
associated with Landlord's inspections of the Premises and Landlord's monitoring
of Tenant's compliance with this Section 8(d), including Landlord's attorneys'
fees and costs, shall be Additional Rent
-5-
<PAGE>
and shall be due and payable to Landlord within ten (10) days of Landlords
demand. Tenant shall be fully and completely liable to Landlord for any and all
cleanup costs and expenses and any and all other charges, expenses, fees, fines,
penalties (both civil and criminal) and costs imposed with respect to Tenant's
use, disposal, transportation, generation and/or sale of Hazardous Substances,
in or about the Premises or Building. Tenant shall indemnify, defend and hold
Landlord, and lenders to Landlord (each a "Lender"), harmless from any and all
of the costs, fees, penalties, charges and expenses assessed against or imposed
upon Landlord and Lender (as well as Landlord's and Lender's attorneys' fees and
costs) as a result of Tenant's use, disposal, transportation, generation and/or
sale of Hazardous Substances.
(e) Signs. Tenant, at Landlord's expense, shall be entitled to one
Building standard sign in the Building directory in the main lobby of the
Building, and a Building standard sign outside the door of the Premises.
Additional directory signage for subtenants is available at the current cost of
$30.00 each. Without the prior consent of Landlord, which will not be
unreasonably withheld, Tenant shall not erect or place, or permit to be erected
or placed, or maintain any other signs of any nature or kind whatsoever on the
exterior walls or windows of the Premises or elsewhere in the Building.
SECTION 9. Utilities and Services; Deliveries.
(a) Tenant's Responsibility. In accordance with Section 5 of this
Lease, as Additional Rent, Tenant shall pay its share of all increases over the
Base Year of all charges for heat, water, light, gas, electricity, sewer,
garbage, fire protection and any other utilities and/or services used or
consumed on or supplied to the Building, including the Premises, and not
separately metered or charged to Tenant or any other tenant of the Building.
Tenant shall be solely responsible for and shall promptly pay when due all
charges for telephone and all other charges for other utilities and/or services
which are separately metered or charged to the Premises.
(b) Services. Landlord shall cause the common Areas such as lobbies,
elevators, stairs, corridors and restrooms, to be maintained in reasonably good
order and condition, except for damage occasioned by any act or omission of
Tenant or Tenant's officers, contractors, agents, invitees, licensees or
employees, the repair of which latter damage shall be paid for by Tenant.
Twenty-four (24) hours per day, seven (7) days per week, Tenant shall have
access to the Premises (subject to such Building security systems and procedures
as may be in place from time to time), and Tenant shall have available to it
water and electrical service for lighting and operation of 110-volt office
equipment. During the Building Standard Hours specified in Section 1 above,
Landlord shall furnish the Premises with heat and air conditioning services. If
requested by Tenant, Landlord shall furnish such services at times other than
Building Standard Hours, and Tenant shall pay for the cost of such after-hours
services at rates established by Landlord from time to time. The initial charge
for heat and air conditioning services at times other than Building Standard
Hours shall be $15.00 per hour. Such hourly charge shall be subject to
reasonable increases to reflect increases in the costs incurred by Landlord in
providing such services as established by Landlord.
(i) Janitorial. Landlord will provide Janitorial services
customary for buildings comparable to the Building in quality and location. If
Tenant requires excessive or specialized Janitorial services, Tenant shall
promptly pay Landlord the additional costs and expenses incurred by Landlord in
providing such services.
(ii) Additional Service. The Building standard mechanical
system is designed to accommodate heating loads generated by lights and 110-volt
office equipment normally found in general business offices. Before installing
lights and equipment in the Premises which in the aggregate exceed the heating
and cooling loads of the Bui1ding's mechanical system, Tenant shall obtain the
written permission of Landlord. Landlord may refuse to grant such permission
unless Tenant agrees to pay the cost of installing supplementary air
conditioning units or electrical systems as necessitated by such equipment or
lights. In addition, Tenant shall pay to Landlord in advance, on the first day
of each month during the Lease Term, the amount estimated by Landlord as the
cost of furnishing electricity for the operation of such equipment or lights and
the amount estimated by Landlord as the costs of operation and maintenance of
supplementary air conditioning units or electrical systems as necessitated by
Tenant's use of such equipment or lights. Landlord shall be entitled to install
and operate at ` Tenant's cost a monitoring/metering system in the Premises to
measure the added demands on electricity, heating, ventilation, and air
conditioning systems resulting from such equipment and lights and from Tenant's
after-hours
-6-
<PAGE>
heating, ventilation and air conditioning service requirements. Tenant shall
comply with Landlord's instructions, rules and regulations for the use of
drapes, blinds and thermostats in the Building.
(c) Interruption. Landlord shall not be liable for any loss, injury
or damage to person or property caused by or resulting from any variation,
interruption, or failure of such services due to any cause whatsoever, or from
failure to make any repairs or perform any maintenance. No temporary
interruption or failure of such services incident to the making of repairs,
alterations or improvements, or due to accident, strike or conditions or other
events beyond Landlord's reasonable control shall be deemed an eviction of
Tenant or to relieve Tenant from any of Tenant's obligations hereunder or to
give Tenant a right of action against Landlord for damages; provided, in the
event of an interruption in utilities or services, Landlord will use reasonable
best efforts to repair and/or cause others to repair any damage necessary for
utilities and services to be restored in a timely manner.
(d) Telecommunications. Tenant may elect to utilize the services of
a telephone or telecommunications provider whose equipment is not presently
servicing the Building (a "Provider"), however no Provider shall be permitted to
install its lines or other equipment within the Building without first securing
the prior written consent of Landlord, which consent shall not be unreasonably
withheld. Landlord's consent to the installation of lines or equipment, within
the Building by any Provider shall be evidenced by a written agreement between
Landlord and such Provider, which contains terms and conditions acceptable to
Landlord. Landlord's consent under this section shall not be deemed any kind of
warranty or representation by Landlord, including without limitation any
warranty or representation as to the suitability, confidence or financial
strength of a Provider. Tenant acknowledges and agrees all telephone and
telecommunications services desired by Tenant shall be ordered and utilized at
the sole expense of Tenant. Tenant agrees, to the extent the service by a
Provider is interrupted, curtailed or discontinued, Landlord shall have no
obligation or liability in connection therewith (unless the interruption is
caused by the negligence or intentional misconduct of Landlord) and it shall be
the sole obligation of Tenant at its expense to obtain substitute service.
Notwithstanding any other provision herein to the contrary, the refusal by
Landlord to consent to any prospective Provider shall not be deemed a default or
breach by Landlord of its obligations under this Lease unless and until Landlord
is adjudicated in a final and unappealable court decision to have acted
recklessly, maliciously or in bad faith with respect to its refusal. The
provisions of this section may be enforced solely by Tenant and Landlord, and
are not for the benefit of any other party, specifically without limitation, no
telephone or telecommunications provider shall be deemed a third party
beneficiary hereof.
SECTION 10. Licenses and Taxes. Tenant shall be liable for, and shall pay
throughout the term of this Lease, all license and excise fees and occupation
taxes covering the business conducted on the Premises and all personal property
taxes levied with respect to all personal property located at the Premises. If
any governmental authority levies a tax or license fee on rents payable under
this Lease or rents accruing from use of the Premises or a tax or license fee in
any form against Landlord or Tenant because of or measured by or based upon
income derived from the leasing or rental thereof (other than a net income tax
on Landlord's income), or a transaction privilege tax, such tax or license fee
shall be paid by Tenant, either directly if required by law, or by reimbursing
Landlord for the amount thereof upon demand.
SECTION 11. Alterations by Tenant. After the completion of the
improvements to be made to the Premises by Tenant pursuant to Exhibit C
attached, Tenant shall not, make any alterations, additions or improvements in
or to, the Premises without first obtaining Landlord's prior written approval,
and if required by Landlord, submitting to Landlord professionally prepared
plans and specifications. Tenant covenants it will cause all such alterations,
additions and improvements to be performed at Tenant's sole cost and expense by
a contractor reasonably acceptable to Landlord and in a manner which: (a) is
consistent with any Landlord-approved plans and specifications and any
reasonable conditions imposed by Landlord; (b) is in conformity with first class
commercial standards; (c) includes acceptable insurance coverage for Landlord's
benefit; (d) does not affect the structural integrity of the Building or the
Building's systems (e) does not disrupt the business or operations of other
tenants; and (f) does not invalidate or otherwise affect the construction and
systems warranties then in effect with respect to the Building. Tenant shall
secure all governmental permits and approvals and comply with all other
applicable governmental requirements and restrictions, and reimburse Landlord
for all expenses incurred in connection therewith. Except as provided in Section
14 with regard to concurrent negligence, Tenant shall indemnify, defend and hold
Landlord harmless from and against all losses, liabilities, damages, liens,
costs, penalties and expenses (including attorneys' fees, but without waiver of
the duty to hold harmless) arising from or out of the performance of such
alterations, additions and improvements, including, but not limited to, all
which arise from or out of Tenant's
-7-
<PAGE>
breach of its obligations under terms of this Section 11. All alterations,
additions and improvements (expressly including all light fixtures, heating,
ventilation and air conditioning units and floor, window and wall coverings),
except Tenant's moveable trade fixtures and appliances and equipment not affixed
to the Premises, shall immediately become the property of Landlord without any
obligation on its part to pay therefor. These improvements remain Landlord's and
Tenant shall not remove all or any portion thereof on the termination of this
Lease except as specifically directed by Landlord in writing at the time
Landlord consents to the improvements pursuant to this Section 11.
SECTION 12. Care of Premises. Tenant shall take good care of the Premises
(including all doors, entrances and lighting and plumbing fixtures located
within the Premises) and shall reimburse Landlord for all damage done to the
Building or Premises occasioned by any act or omission of Tenant or Tenant's
officers, contractors, agents, invitees, licensees or employees, including, but
not limited to, cracking or breaking of glass. If Tenant fails to take good care
of the Premises, Landlord may, at its option, do so, and in such event, upon
receipt of written statements from Landlord, Tenant shall promptly pay the
entire cost thereof as Additional Rent. Landlord shall have the right to enter
the Premises for such purposes. Landlord shall not be liable for interference
with light, air or view. Except as provided in Section 17, there shall be no
abatement or reduction of rent arising by reason of Landlord's making of
repairs, alterations or improvements. Landlord agrees to make any repairs to the
Premises which are Landlord's responsibility within a reasonable period of time
after receiving a written request from Tenant.
SECTION 13. Surrender of Premises. At the expiration or sooner
termination of the Lease Term, Tenant shall return the Premises to Landlord in
the same or better condition as an the date the improvements to be made by
Tenant pursuant to Exhibit C attached are completed (or, if altered thereafter,
then the Premises shall be returned in such altered condition unless otherwise
directed by Landlord pursuant to Section 11), except for reasonable wear and
tear, damage by condemnation and damage by casualty not caused by Tenant or its
employees, agents, contractors or invitees. Prior to such return, Tenant shall
remove its furniture and equipment and shall restore the Premises to the
condition of the Premises prior to the installation of said items, and Tenant
shall repair any damage resulting from their removal. In no event shall Tenant
remove floor coverings; heating, ventilating and air conditioning equipment;
lighting equipment or fixtures; or floor, window or wall coverings unless
otherwise specifically directed by Landlord in writing. Tenant's obligations
under this Section 13 shall survive the expiration or termination of this Lease.
Tenant shall indemnify Landlord for all actual damages and losses suffered as a
result of Tenant's failure to so redeliver the Premises on a timely basis.
SECTION 14. Waiver; Indemnity.
(a) Tenant Indemnity. Except as otherwise provided in this Section
14, Tenant shall indemnify, defend and hold Landlord, its partners, officers,
agents, employees and contractors and Lenders, harmless from all claims, suits,
losses, damages, fines, penalties, liabilities and expenses (including
Landlord's attorneys' fees and other costs incurred in connection with claims,
regardless of whether such claims involve litigation) resulting from any actual
or alleged injury (including death) of any person or from any actual or alleged
loss of or damage to any property arising out of or in connection with (i)
Tenant's occupation, use or improvement of the Premises or that of its
employees, agents or contractors, (ii) Tenant's breach of its obligations
hereunder, or (iii) any negligent or willful act or omission of Tenant or any
subtenant, licensee, assignee or concessionaire of Tenant, or of any officer,
agent, employee, guest or invitee of Tenant, or of any such entity in or about
the Premises.
(b) Landlord's Indemnity. Except as otherwise provided in this
Section 14, Landlord shall indemnify, defend and save Tenant, its partners,
officers, agents, employees and contractors, harmless from all claims, suits,
losses, damages, fines, penalties, liabilities and expenses (regardless of
whether such claims involve litigation), resulting from any actual or alleged
injury (including death) of any person or from any actual or alleged loss of or
damage to any property arising out of or in connection with (i) Landlord's
breach of its obligations hereunder, or (ii) any negligent or willful act or
omission of Landlord or any officer, agent, employee, guest or invitee of
Landlord, or of any such entity, in or about the Premises.
(c) General Indemnity Provisions. The indemnities in Sections 14(a) and
14(b) above are intended to specifically cover actions brought by the
indemnifying party's own employees, and with respect to acts or omissions during
the term of this Lease shall survive termination or expiration of this Lease.
Such indemnities are specifically and expressly intended to constitute waivers
by the indemnifying party of its immunity, if any, under
-8-
<PAGE>
Washington's Industrial Insurance Act, RCW Title 51, to the extent necessary to
provide the other party with a full and complete indemnity from claims made by
the indemnifying party and its employees, to the extent of their negligence.
Tenant shall promptly notify Landlord of casualties or accidents occurring in or
about the Premises. If losses, liabilities, damages, liens, costs and expenses
covered by either party's indemnity are caused by the sole negligence of the
other party or by the concurrent negligence of both Landlord and Tenant, their
employees, agents, invitees and licensees, then the indemnifying party shall
indemnify the other only to the extent of the indemnifying party's own
negligence or that of its officers, agents, employees, guests or invitees.
LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS OF SECTION
11 AND THIS SECTION 14 WERE SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM.
(d) Release of Claims. Except as provided in Section 14(b) above,
Tenant hereby fully and completely waives and releases all claims against
Landlord for any losses or other damages sustained by Tenant or any person
claiming through Tenant resulting from any accident or occurrence in or upon the
Premises, including but not limited to: any defect in or failure of Building
equipment; any failure to make repairs; any defect, failure, surge in, or
interruption of Building facilities or services; any defect in or failure of
Common Areas; broken glass; water leakage; the collapse of any Building
component; or any act, omission or negligence of co-tenants, licensees or any
other persons or occupants of the Building.
SECTION 15. Insurance.
(a) Tenant's Insurance. Tenant shall, at its own expense, maintain
comprehensive or commercial general liability insurance with broad form and stop
gap endorsements with combined single limits of Two Million Dollars
($2,000,000), for property damage and loss and for personal injuries (including
death), to insure and indemnify both Landlord and Tenant against claims,
demands, losses, damages, liabilities and expenses arising out of or in
connection with the use, operation, occupancy or condition of the Premises and
Tenant's operations in and about the Premises. Landlord shall have the right to
periodically review the appropriateness of such limits in view of inflation
and/or changing industry conditions and to require a reasonable increase in such
limits no more frequently than annually, upon ninety (90) days prior written
notice. Landlord, any Lender designated by Landlord, and any agents of Landlord
designated by Landlord (such as the Building property manager), shall be named
as additional insureds and shall be furnished with a certificate of insurance on
request. All such insurance shall bear an endorsement that the same shall not be
cancelled or materially altered without at least ten (10) days prior written
notice to such additional insureds. During the Lease Term, Tenant shall also
maintain at its own expense insurance covering its furniture, fixtures,
equipment and inventory and all improvements which it makes to the Premises in
an amount equal to the full replacement cost thereof, against fire and such
other perils as are covered by an all risk policy including plate glass coverage
and coverage for sprinkler leakage.
(b) General Insurance Requirements. All insurance required of Tenant
under this Lease shall (a) be issued by insurance companies authorized to do
business in the State of Washington and otherwise acceptable to Landlord; (b) be
issued as a primary policy, or under a blanket policy, not contributing with and
not in excess of coverage which Landlord may carry; (c) in the case of the
liability policy, contain a contractual liability coverage endorsement covering
Tenant's indemnification duties under this Lease to the fullest extent
insurable; and (d) have deductibles reasonably acceptable to Landlord. Tenant
shall deliver to Landlord prior to the Commencement Date, and thereafter not
less than ten (10) days before the expiration dates of any expiring policies of
insurance, and from time to time thereafter within ten (10) days after written
request from Landlord, certificates of insurance evidencing the insurance
coverages required of Tenant pursuant to this Paragraph 15. In no event shall
the limits of any such policies be considered as limiting the liability of
Tenant under this Lease. If Tenant does not deliver to Landlord certificates of
insurance as required above, Landlord may charge Tenant a $50.00 noncompliance
fee. If Tenant fails to maintain any insurance required of it under this Section
15, Landlord may do so, and Tenant shall reimburse Landlord for the full expense
thereof upon demand.
(c) Landlord's Insurance. Throughout the Lease Term, Landlord shall
maintain such property and liability insurance coverages as are customarily
maintained by owners of buildings similar in age, location and construction to
the Building, and such additional insurance as any Lender may reasonably
require, and the cost of all such insurance shall be considered an operating
Cost.
-9-
<PAGE>
(d) Waiver of Subrogation. Neither Landlord nor Tenant shall be
liable to the other party or to any insurance company (by way of subrogation or
otherwise) insuring the other party for any loss or damage to any building,
structure or tangible personal property of the other occurring in or about the
Premises, Land or the Building,, even though such loss or damage might have been
occasioned by the negligence of such party, its agents or employees, if such
loss or damage is covered by insurance benefiting the party suffering such loss
or damage or was required to be covered by insurance under terms of this Lease.
Each party shall use its best efforts to cause each insurance policy obtained by
it to contain the waiver of subrogation clause. Notwithstanding the foregoing,
no such release shall be effective unless a party's insurance policy or policies
expressly permit such a release or contain a waiver of the carrier's right to be
subrogated.
SECTION 16. Assignment or Subletting.
(a) Consent Required. Landlord acknowledges Tenant may sublet
portions of the Premises (not to exceed a total of sixty percent (60%) of the
Premises) to Globaltech, Inc. and Bane & Associates, provided such subtenants
enter into written subleases reasonably satisfactory to Landlord. Tenant shall
not otherwise sublet or encumber the whole or any part of the Promises, nor
shall this Lease or any interest thereunder be assignable (for security purposes
or otherwise) or transferable, voluntarily or involuntarily, by operation of law
or by any process or proceeding of any court or otherwise without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
In determining whether to consent to a proposed assignment or subletting,
Landlord may consider any commercially reasonable basis for approving or
disapproving the proposed subletting or assignment, including without limitation
any of the following: (i) the experience or business reputation of the proposed
assignee or sublessee, (ii) whether the clientele, personnel or foot traffic
which will be generated by the business of the proposed assignee or sublessee is
consistent in Landlord's opinion with the businesses of other tenants of the
Building, (iii) notwithstanding that Tenant or others may remain liable under
this Lease, if Tenant will be vacating the Premises, whether the proposed
assignee or sublessee has a net worth and financial strength and credit record
satisfactory to Landlord, and (iv) whether the use of the Premises by the
proposed assignee or sublessee will be substantially the same as the use of the
Premises by Tenant, or whether such use is consistent with the businesses of
other tenants then occupying the Building, and whether such use will violate or
create any potential violation of any laws or a breach or violation of any other
lease or agreement by which Landlord is bound. Any assignment or sublease
without Landlord's prior written consent, at Landlord's option, shall be void.
No assignment or sublease shall release Tenant from primary liability hereunder.
Each assignment and sublease shall be by an instrument in writing in form
satisfactory to Landlord. The granting of consent to a given transfer shall not
constitute a waiver of the consent requirement as to future transfers. Tenant
shall also pay all legal fees and other costs incurred by Landlord in connection
with Landlord's consideration of Tenant's request for approval of assignments or
subleases, including assignments for security purposes. Tenant shall deliver to
Landlord with its request for Landlord's approval of a proposed assignment or
subletting a fee of $100.00 which shall be credited against the fees and costs
payable by Tenant pursuant to the preceding sentence.
(b) Recapture Right. In lieu of giving its consent a proposed
assignment or subletting, affecting sixty percent (60%) or more of the Premises,
Landlord may terminate the Lease as to the portion of the Premises affected by
the action for which Landlord's consent is requested and recover possession
thereof from Tenant within twenty (20) days following written notice thereof to
Tenant. All costs incurred by Landlord in separating the remainder of the
Premises from the area so retaken shall be paid by Tenant as Additional Rent.
(c) Additional Consideration. If Tenant assigns its interest in this
Lease or sublets the Premises, Tenant shall pay to Landlord one-half (1/2) any
and all. consideration received by Tenant for such assignment or sublease,
whether such additional consideration is in the form of rent in excess of the
Base Rent and/or Additional Rent payable by Tenant under this Lease, cash
payments or otherwise; however, such additional consideration shall be reduced
by any reasonable costs and expenses (including brokerage fees and tenant
improvement costs) incurred by Tenant in connection with the sublease or
assignment, and the amount of any Base Rent or Additional Rent payable by Tenant
pursuant to this Lease.
(d) Entities. If Tenant is a corporation, then any transfer of this
Lease by merger, consolidation or liquidation, or any direct or indirect change
in the ownership of, or power to vote the majority of, Tenant's outstanding
voting stock, shall constitute an assignment for the purposes of this Lease. If
Tenant is a
-10-
<PAGE>
partnership, then a change in general partners in or voting or decision-making
control of the partnership shall also constitute an assignment.
(e) Assignment by Landlord. If Landlord sells or otherwise transfers
the Building, such purchaser or transferee shall be deemed to have assumed
Landlord's obligations hereunder, and Landlord shall thereupon be relieved of
all liabilities hereunder arising thereafter, but this Lease shall otherwise
remain in full force and effect and Tenant shall attorn to Landlord's successor,
SECTION 17. Destruction.
(a) Partial Destruction. If the Premises are rendered partially
untenantable by fire or other insured casualty, and if the damage is repairable
within sixty (60) days from the date of the occurrence (with the repair work and
preparations therefore to be done during regular working hours on regular work
days), Landlord shall repair the Premises with due diligence, to the extent of
the insurance proceeds available, and the monthly minimum rental shall be abated
in the proportion that the untenantable portion of the Premises bears to the
whole thereof for the period from the date of the casualty to the completion of
the repairs, unless the casualty results from Tenant's negligence or its breach
of the terms hereof. If thirty percent (30%) or more of the rentable area of the
Building is destroyed or damaged, regardless of whether the Premises are
damaged, Landlord may terminate this Lease as of the date of such damage or
destruction by giving notice to Tenant within thirty (30) days thereafter of the
election so to do.
(b) Total Destruction. If the Premises are completely destroyed by
fire or other casualty, or if they are damaged by uninsured casualty, or by
insured casualty to such an extent that the damage cannot be repaired within
sixty (60) days of the occurrence, Landlord shall have the option to restore the
Premises or to terminate this Lease on thirty (30) days written notice,
effective as of any date not more than sixty (60) days after the occurrence. If
this Section becomes applicable, Landlord shall advise Tenant within thirty (30)
days after such casualty whether Landlord elects to restore the Premises or to
terminate this Lease. If Landlord elects to restore the Premises, it shall
commence and prosecute the restoration work with diligence. For the period from
the date of the casualty until completion of the repairs (or the date of
termination of this Lease, if Landlord elects not to restore the Premises), the
monthly minimum rent shall be abated in the same proportion that the
untenantable portion of the Promises bears to the whole thereof, unless the
casualty results from Tenant's negligence or its breach of its obligations under
this Lease. If the Premises are totally damaged or destroyed, and the repairs to
the Premises have not been completed within seven (7) months after the damage or
destruction (subject to delays such as force majeure delays which are beyond
Landlord's control), Tenant shall have the right to terminate this Lease by
written notice given to Landlord within thirty (30) days after the end of the
foregoing seven (7) month period, provided Landlord does not complete the
repairs prior to the date Tenant delivers its termination notice to Landlord.
(c) Limitation. Except as otherwise provided in this Lease, Landlord
shall not be liable to Tenant for destruction or damage to any of Tenant's
property including fixtures, equipment or other improvements, or for damages or
compensation for inconvenience, loss of business or disruption arising from
repairs or restoration of any portion of the Building or the Premises.
SECTION 18. Eminent Domain.
(a) Taking. If all of the Premises are taken by Eminent Domain, this
Lease shall terminate as of the date Tenant is required to vacate the Premises
and all Base Rent and Additional Rent shall be paid to that date. The term
"Eminent Domain" shall include the taking or damaging of property by, through or
under any governmental or statutory authority, and any purchase or acquisition
in lieu thereof, whether the damaging or taking is by government or any other
person. If a taking of any part of the Premises by Eminent Domain renders the
remainder thereof unusable for the business of Tenant, in the reasonable
judgment of Landlord, this Lease, at the option of either party, may be
terminated by written notice given to the other party not more than thirty (30)
days after Landlord gives Tenant written notice of the taking, and such
termination shall be effective as of the date when Tenant is required to vacate
the portion of the Premises so taken. If this Lease is so terminated, all Base
Rent and Additional Rent shall be paid to the date of termination. Whenever any
portion of the Premises is taken by Eminent Domain and this Lease is not
terminated, Landlord shall at its expense proceed with all reasonable dispatch
to restore, to the extent of available proceeds and to the extent it is
reasonably prudent to do so, the remainder of the
-11-
<PAGE>
Premises to the condition they were in immediately prior to such taking. The
Base Rent and Additional Rent payable hereunder shall be reduced from the date
Tenant is required to partially vacate the Premises in the same proportion that
the rentable area taken bears to the total rentable area of the Premises prior
to taking.
(b) Award. Landlord reserves all right to the entire damage award or
payment for any taking by Eminent Domain and except as provided below, Tenant
waives all claim whatsoever against Landlord for damages for termination of its
leasehold interest in the Premises or for interference with its business. Tenant
hereby grants and assigns to Landlord any right Tenant may now have or hereafter
acquire to such damages and agrees to execute and deliver such further
instruments of assignment as Landlord may from time to time request. Tenant
shall, however, have the right to claim from the condemning authority all
compensation that may be recoverable by Tenant on account of any loss incurred
by Tenant in moving Tenant's merchandise, furniture, trade fixtures and
equipment, provided, however, that Tenant may claim such damages only if they
are awarded separately in the eminent domain proceeding and not out of or as
part of Landlord's damages.
SECTION 19. Default by Tenant.
(a) Definition. If (i) Tenant vacates or abandons the Premises, (ii)
fails to pay Base Rent or Additional Rent, or Make any other payment required of
Tenant under this Lease on the date such rent or payment is due, (iii) Tenant
violates or breaches or fails to keep or perform any covenant, term or condition
of this Lease other than those requiring the payment of rent or otherwise
requiring Tenant to make payments pursuant to this Lease, or (iv) Tenant or any
Guarantor files or is the subject of a petition in bankruptcy, or if a trustee
or receiver is appointed for Tenant's or any guarantor's assets, or if Tenant or
a guarantor makes and assignment for the benefit of creditors, or if Tenant or a
guarantor is adjudicated insolvent, Tenant shall be deemed in default under this
Lease. With respect to a default under (ii) above, Tenant shall have five (5)
days after written notice of the default to remedy or cure its default. With
respect to a default under (iii) above, Tenant shall have twenty (20) days after
written notice from Landlord to remedy or cure the default; however, if the
default cannot reasonably be cured within such twenty (20) day period, and
Tenant commences the cure within the twenty (20) day period, and Tenant
thereafter diligently prosecutes the cure to completion in good faith, such
twenty (20) day period shall be extended for such period of time as is
reasonably necessary for Tenant to cure the default, but in no event more than
an additional sixty (60) days. The foregoing notice and cure provisions shall be
inclusive of and not in addition to the notices and cure periods provided for in
RCW 59.12, as now or hereafter amended, or any legislation in lieu or
substitution thereof.
(b) Remedies. If Tenant defaults and fails to cure the default
within the applicable cure period, if any, Landlord shall have the following
rights and remedies, at its option, which shall be cumulative and not exclusive,
and which shall be in addition to and not in lieu of any other rights or
remedies available to Landlord at law or in equity, or elsewhere in this Lease:
(i) to declare the Lease Term ended and reenter the Premises and take possession
thereof and- remove all persons therefrom, and Tenant shall have no further
claim thereon or hereunder; (ii) to cure such default on Tenant's behalf and at
Tenant's cost and expense and charge Tenant as Additional Rent for all costs and
expenses incurred by Landlord in effecting the cure; (iii) without declaring
this Lease terminated, to reenter the Premises and occupy the whole or any part
thereof for and on account of Tenant and collect any unpaid rentals and other
charges, which have become payable, or which may thereafter become payable; (iv)
even though it may have reentered the Premises, to thereafter elect to terminate
this Lease and all of the rights of Tenant in or to the Premises.
(c) Reentry. If Landlord reenters the Premises under option (iii) of
Section 19(b), Landlord shall not be deemed to have terminated this Lease or the
liability of Tenant to pay any Rent thereafter accruing as it becomes due, or to
have terminated Tenant's liability for damages under any of the provisions
hereof, by any such reentry or by any action, in unlawful detainer or otherwise,
to obtain possession of the Premises, unless Landlord shall have notified Tenant
in writing that it has so elected to terminate this Lease, and Tenant shall be
liable for and reimburse Landlord upon demand for all costs and expenses of
every kind and nature incurred in retaking possession of the Promises and all
other losses suffered by Landlord as a consequence of Tenant's default. In the
event of any entry or taking possession of the Premises, Landlord shall have the
right, but not the obligation, to remove therefrom all or any part of the
personal property located therein and may place the same in storage at a public
warehouse at the expense and risk of Tenant.
-12-
<PAGE>
(d) Termination. If Landlord elects to terminate this Lease pursuant
to the provisions of options (i) or (iv) of Section 19(b), Landlord may recover
from Tenant as damages, the following: (i) the worth at the time of award of any
unpaid Rent which had been earned, at the time of such termination; plus (ii)
the worth at the time of award of the amount by which the unpaid Rent which
would have been earned after termination until the time of award exceeds the
amount of the Rent loss Tenant proves could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the unpaid Rent for
the balance of the term after the time of award exceeds the amount of the Rent
loss that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including but not
limited to, any costs or expenses incurred by Landlord in retaking possession of
the Premises, including reasonable attorneys' fees therefor; maintaining or
preserving the Premises after such default; in making repairs to the Premises
necessary for reletting the Premises to a new tenant; leasing commissions; and
any other costs necessary or appropriate to relet the Premises; and (v) such
other amounts in addition to or in lieu of the foregoing as may be permitted
from time to time by the laws of the State of Washington. As used in items (i)
and (ii) of this Section 19(d), the "worth at the time of award" shall be
computed by allowing interest at the interest rate specified in Section 6 of
this Lease. As used in item (iii) above, the "worth at the time of award" shall
be computed by using the then applicable discount rate quoted by the Federal
Reserve Bank of San Francisco or its successor. For purposes of this Section 22
only, the term "rent" shall be deemed to be the Base Rent and all Additional
Rent and other sums required to be paid by Tenant pursuant to the terms of this
Lease.
(e) Adequate Security. If a petition is filed by or against Tenant
or Guarantor under any provision of the Bankruptcy Code or successor act, Tenant
agrees that it shall be obligated to post a cash bond with Landlord equal to six
(6) months Base Rent and Additional Rent, to provide Landlord with adequate
security for Tenant's performance of its obligations under this Lease.
(f) Landlord's Remedies Cumulative; Waiver. Landlord's rights and
remedies hereunder are not exclusive, but cumulative, and Landlord's exercise of
any right or remedy due to a default or breach by Tenant shall not be deemed a
waiver of, or alter, affect or prejudice any other right or remedy which
Landlord may have under this Lease or by law or in equity. Neither the
acceptance of rent nor any other acts or omissions of Landlord at any time or
times after the happening of any event authorizing the cancellation or
forfeiture of this Lease shall operate as a waiver of any past or future
violation, breach or failure to keep or perform any covenant, agreement, term or
condition hereof or to deprive Landlord of its right to cancel or forfeit this
Lease, upon the written notice provided for herein, at any time that cause for
cancellation or forfeiture may exist, or be construed so as at any future time
to estop Landlord from promptly exercising any other option, right or remedy
that it may have under any term or provision of this Lease.
SECTION 20. Default by Landlord; Lender Protection.
(a) Default by Landlord. Landlord shall be in default if Landlord
fails to perform its obligations under this Lease within twenty (20) days after
its receipt of notice of nonperformance from Tenant; provided that if the
default cannot reasonably be cured within the twenty (20) day period, Landlord
shall not be in default if Landlord commences the cure within the twenty (20)
day period and thereafter diligently pursues such cure to completion.
(b) Notice to Lender. Notwithstanding anything to the contrary in
this Lease, Landlord shall not be in default under any provision of this Lease
unless written notice specifying such default is given to Landlord and to any
Lender who has been identified to Tenant in writing as a party to whom notice
must be sent. Any Lender of Landlord entitled to notice pursuant to the
preceding sentence shall have the right to cure any default on behalf of
Landlord within the later of (a) thirty (30) days after receipt of such notice,
or (b) thirty (30) days after the expiration of any cure period provided to
Landlord pursuant to this Lease provided, if such default cannot reasonably be
cured within such thirty (30) day period, the Lender shall be entitled to such
additional time as may be reasonably necessary to cure the default, if within
the thirty (30) day period the Lender commences and thereafter diligently
pursues the actions necessary for the Lender to cure such default by Landlord
(including, if possession of the Premises is necessary to cure the default,
commencing such judicial or nonjudicial proceedings as may be necessary for the
Lender or a receiver to take possession of the Premises). So long as a Lender is
diligently taking the actions
-13-
<PAGE>
reasonably necessary for it to cure Landlord's default, Tenant shall not
exercise its remedies for Landlord's default under this Lease.
SECTION 21. Attorneys' Fees. If either party retains the services of an
attorney in connection with enforcing the terms of this Lease, or if suit is
brought for the recovery of the Base Rent or Additional Rent due under this
Lease or for the breach of any covenant or condition of this Lease or for the
restitution of the Premises to Landlord and/or eviction of Tenant during the
term of this Lease or after the expiration thereof, the substantially prevailing
party therein will be entitled to recover from the other party the substantially
prevailing party's reasonable attorneys' fees, witness fees and other court
costs incurred in connection therewith.
SECTION 22. Access by Landlord. Landlord and its agents shall have the
right to enter the Premises at any time upon reasonable prior notice to Tenant
to examine the same, and to show them to prospective purchasers, lenders or
tenants, and to make such repairs, alterations, improvements, additions or
improvements to the Premises or Building as Landlord may deem necessary or
desirable; provided, in an emergency or perceived emergency or to provide normal
services (such as janitorial and security services) to the Premises, and no
advance notice shall be required. if Tenant is not personally present to permit
entry and an entry is necessary in an emergency, Landlord may enter the same by
master key or may forcibly enter the same, without rendering Landlord liable
therefor. Nothing contained herein shall be construed to impose upon Landlord
any duty of repair or other obligation not specifically stated in this Lease.
Tenant shall change the locks to the Premises only through Landlord and upon
paying Landlord for all costs related thereto.
SECTION 23. Holding Over. Any holding over by Tenant after the expiration
of the term hereof consented to in advance in writing by Landlord shall be
construed as a tenancy from month-to-month on the terms and conditions set forth
herein, except the Base Rent shall be increased to one and one-half (1 1/2)
times the Base Rent in effect during the last month rent is payable by Tenant
under this Lease, Any such holdover tenancy may be terminated by either party
upon thirty (30) days written notice to the other party. If Tenant fails to
surrender the Premises upon the termination of this Lease, Tenant shall
indemnify, defend and hold harmless Landlord from all losses, damages,
liabilities and expenses resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant arising out of such failure. Any holding over by Tenant after the
expiration of the Lease Term without Landlord's consent shall be deemed a
tenancy at will, terminable at any time by Landlord, at a rental rate equal to
twice the Base Rent and Additional Rent payable by Tenant during the last month
rent is payable by Tenant pursuant to this Lease.
SECTION 24. Subordination; Estoppel Certificates.
(a) Subordination. This Lease shall be automatically subordinate to
all of Landlord's mortgages, deeds of trust, or ground leases which heretofore
and hereafter affect the Premises, the Building or the Land, to any and all
advances made or to be made thereunder, to the interest on the obligations
secured thereby, and to all renewals, modifications, consolidations,
replacements or extensions thereof. This subordination shall be self operative,
and no further instrument of subordination shall be necessary to effect such
subordination; nevertheless, within fifteen (15) days after receiving a written
request from Landlord, Tenant shall execute such additional instrument of
subordination as may be required by Landlord (or its lenders or ground lessors)
if such instrument of subordination provides so long as Tenant is not in default
hereunder beyond any applicable cure period in this Lease, Tenant shall have
continued enjoyment of the Premises free from any disturbance or interruption by
reason of any foreclosure of any such deed of trust, mortgage or the exercise of
any remedies by the lessor under any such ground lease. In the event of sale or
foreclosure of any such mortgage or deed of trust, or exercise of the power of
sale thereunder, or in the event of a transfer in lieu of foreclosure, or in the
event a ground lessor acquires the Landlord's interests in the Building, Tenant
shall attorn to the purchaser (or transferee) of the Building at such
foreclosure or sale and recognize such purchaser (or transferee) as Landlord
under this Lease if so requested by such purchaser (or transferee). Such
attornment shall be self operative and no further instruments need be executed
to effect such attornment. If any lender elects to have this Lease superior to
its mortgage or deed of trust and gives notice of its election to Tenant, then
this Lease shall thereupon become superior to the lien of such mortgage or deed
of trust, whether this Lease is dated or recorded before or after the mortgage
or deed of trust.
(b) Estoppel Certificates. As a material inducement to Landlord to
enter into this Lease, Tenant covenants that it shall, within fifteen (15) days
of the receipt thereof, acknowledge and deliver to Landlord
-14-
<PAGE>
an estoppel certificate in the form attached to this Lease as Exhibit D, or such
other form requested by Landlord from time to time, certifying, to the extent
true, that (i) Tenant shall be in occupancy, (ii) this Lease is unmodified and
in full force and effect, or if there have been modifications, that the same is
in full force and effect as modified and stating the modifications, (iii) Base
Rent and Additional Rent have been paid only through a certain specified date,
(iv) Tenant has no offsets, defenses or claims against Landlord, and (v) such
other matters as Landlord may reasonably request. Tenant's failure to deliver an
estoppel certificate within the fifteen (15) day period shall be deemed its
confirmation of the accuracy of the information supplied by Landlord to the
prospective lender or purchaser. Tenant acknowledges and agrees that Landlord
and others will be relying and are entitled to rely on the statements contained
in such estoppel certificates.
SECTION 25. Relocation. Landlord reserves the right upon sixty (60) days
written notice to Tenant, to substitute other space within the Building (the
"Substitute Premises") for the Premises, provided that the Substitute Premises
at least (a) contain approximately the same or a greater number of square feet
an the Premises; (b) contain comparable tenant improvements and have a
comparable view, and (c) are made Available to Tenant at a rental rate equal to
the lesser of (i) the fair market rent for the Substitute Premises for the time
period in question (namely, from the delivery date of the Substitute Premises
through the Expiration Date), and (ii) Base Rent rate called for under this
Lease as of the time of, the substitution, either on a per square foot basis or
in total. If the substitution occurs prior to the date Tenant initially occupies
the Premises, then Landlord shall reimburse Tenant for the necessary and
reasonable costs incurred by Tenant in planning for the space in the initial
Premises which expenses have been previously approved by Landlord and which have
no benefit to Tenant in the Substitute Premises; If the Substitute Premises are
not acceptable to Tenant, Tenant may terminate this Lease by written notice
given within thirty (30) days after its receipt of Landlord's relocation notice,
such termination to be effective on the relocation date stated in Landlord's
notice to Tenant. If Tenant is occupying the Premises at the time; Landlord
gives notice of any such relocation, Landlord shall pay the reasonable cost of
moving Tenant, its property and equipment to the Substitute Premises and shall,
without cost or expense to Tenant, improve the Substitute Premises with
improvements substantially similar to those located in the Premises. All of the
other terms, covenants and conditions of the Lease shall remain unchanged and in
full force and effect, except that Section 1 and Exhibit B shall be revised to
identify the Substitute Premises, to state the square foot area of the
Substitute Premises and to make the change, if any, in Base Rent. If Tenant
elects to move to new space in the Building other than at the request of
Landlord, the terms of this section shall be inapplicable.
SECTION 26. Liability of Landlord. Tenant shall look solely to rents,
issues and profits from the Building for the satisfaction of any judgment or
decree against Landlord, whether for breach of the terms hereof or arising from
a right created by statute or under common law. Tenant agrees that no other
property or assets of the Landlord or any partner in Landlord shall be subject
to levy, execution or other enforcement procedures for satisfaction of any such
judgment or decree; and no partner, shareholder of other holder of an ownership
interest in Landlord shall be sued or named as a party in any suit or action
(except as may be necessary to secure jurisdiction over the partnership).
SECTION 27. Miscellaneous.
(a) Quiet Enjoyment. If Tenant fully complies with and promptly
performs all of the terms, covenants and conditions of this Lease on its part to
be performed, it shall have quiet enjoyment of the Premises throughout the Lease
term, subject, however, to matters of record on the day hereof and to those
matters to which this Lease may be subsequently subordinated.
(b) Notices. Any notices required in accordance with any of the
provisions herein shall be in writing and delivered personally, or mailed by
registered or certified mail to the parties at the addresses set forth in
Section 1 above, or to such other address as a party shall from time to time
designate in writing by notice given pursuant to this Section 27(b). If Tenant
is a partnership, any notice required or permitted hereunder may be given by or
to any one partner thereof with the same force and effect as if given by or to
all thereof. If mailed, a notice shall be deemed received three (3) days after
the postmark affixed on the envelope by the United States Post Office.
(c) Successors or Assigns. All of the terms, conditions, covenants
and agreements of this Lease shall be binding upon and subject to Section 16
above, benefit Landlord, Tenant and their respective heirs,
-15-
<PAGE>
administrators, executors, successors and assigns, and upon any person or
persons coming into ownership or possession of any interest in the Promises by
operation of law or otherwise.
(d) Tenant Authority and Liability. Tenant warrants that this Lease
has been duly authorized, executed and delivered by Tenant, and Tenant has the
requisite power and authority to enter into this Lease and perform its
obligations hereunder. Tenant covenants to provide Landlord with evidence of its
authority and the authorization of this Lease upon request. All persons and
entities named as Tenant herein shall be jointly and severally liable for
Tenant's liabilities, covenants and agreements under this Lease.
(e) Brokers' Commission. Tenant represents that it has not dealt
with any broker, agent or finder in connection with this Lease other than the
brokers listed in Section 1 of this Lease, if any, and Tenant agrees to
indemnify and hold Landlord harmless from all damages,, judgments, liabilities,
claims and expenses (including attorneys' fees) arising out of or in connection
with any claim or demand of any other broker, agent or finder with whom Tenant
has dealt for any. commission or fee alleged to be due in connection with its
participation in the procurement of Tenant or the negotiation of this Lease.
(f) Partial Invalidity. If any court determines that any provision
of this Lease or the application thereof to any person or circumstance is, to
any extent, invalid or unenforceable, the remainder of this Lease, or
application of such provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each other term, covenant or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
(g) Recording. Tenant shall not record this Lease nor a memorandum
of this Lease without the prior written consent of Landlord.
(h) Force Majeure. Neither party shall be deemed in default under
this Lease for failing to perform its duties or obligations under this Lease if
such failure is due to causes beyond its reasonable control, including but not
limited to acts of God, acts of civil or military authorities, fires, floods,
windstorms, earthquakes, strikes or labor disturbances, civil commotion, delays
in transportation, governmental delays or war; provided, nothing in this Section
27(h) shall limit or otherwise modify or waive Tenant's obligation to pay Base
Rent and Additional Rent as and when due pursuant to the terms of this Lease.
(i) Name of Building. Landlord may change the name of the Building
at any time. Any such change shall not require amendment of this Lease or affect
in any way Tenant's obligations under this Lease, and except for the name
change, all terms and conditions of this Lease shall remain in full force and
effect.
(j) Headings. The section headings used in this Lease are used for
purposes of convenience and do not alter or limit in any manner the content of
the sections. Whenever appropriate from the context, the use of any gender shall
include any other or all genders, and the singular shall include the plural, and
the plural shall include the singular.
(k) Execution by Landlord and Tenant; Approval of Lender. Landlord
shall not be deemed to have made an offer to Tenant by furnishing Tenant with a
copy of this Lease with particulars inserted. No contractual or other rights
shall exist or be created between Landlord and Tenant until all parties have
executed this Lease and, if specified in writing by Landlord, until it has been
approved in writing by a Lender and fully executed copies have been delivered to
Landlord and Tenant. Tenant agrees to make such changes herein as may be
reasonably requested by a Lender, so long as such changes do not increase Base
Rent and Additional Rent due from Tenant or otherwise materially alter Tenant's
rights or obligations hereunder.
(l) Transportation Management Programs; Recycling. Tenant shall
cooperate with Landlord in meeting the objectives and complying with the terms
and conditions of any transportation management plan now or hereafter instituted
by any governmental authority and applicable to the Building. Landlord will
provide Tenant with notice of any such transportation plan now or hereafter in
effect. In addition, Tenant will cooperate with and participate in any and all
recycling programs now or hereafter in place with respect to the Building,
whether or not governmentally mandated, if all tenants of the Building are
requested to participate.
-16-
<PAGE>
(m) Demolition. If at any time during the Lease Term, Landlord
decides to demolish the Building, or substantially change the character of the
use of the Building (e.g. from commercial to residential use) Landlord may
terminate this Lease by giving Tenant written notice of termination no less than
twelve (12) months prior to the date Landlord desires to terminate this Lease.
In which case this Lease shall terminate as of the termination date specified in
Landlord's notice, and after such date neither Landlord nor Tenant shall have
any future liabilities or obligations under this Lease.
(n) Entire Agreement: Applicable Law. This Lease and the attached
exhibits set forth the entire agreement of Landlord and Tenant concerning the
Premises and the Building, and there are no other agreements or understanding,
oral or written, between Landlord and Tenant concerning the Premises or the
Building. Any subsequent modification or amendment of this Lease shall be
binding upon Landlord and Tenant only if reduced to writing and signed by them.
This Lease shall be governed by, and construed in accordance with the laws of
the State of Washington.
(o) Consent; Approval; Security. Where either party's consent,
authorization, review or approval is required pursuant to this Lease, such
consent, authorization, review or approval shall not be unreasonably withheld or
delayed. If Tenant is required to provide Landlord with cash or other security
to discharge a lien or encumbrance on the Building, a bond from a financial
institution or surety acceptable to Landlord and with terms acceptable to
Landlord shall be acceptable security.
SECTION 28. Parking. Throughout the term of this Lease, Tenant shall have
the right to purchase from Landlord up to three (3) parking permits for monthly
parking in the Building parking garage, which permits shall be made available to
Tenant within sixty (60) days after written notice from Tenant requesting the
permit. The initial charge for monthly parking in the Building garage will be
$140.00 per month. The charges for monthly parking in the Building garage will
be subject to increases annually to reflect changes in market rates generally
charged for parking in similarly situated buildings (as reasonably determined by
Landlord) . All charges for monthly parking will be due and payable on or before
the first day of each month, without setoff or deduction, at such address as
Landlord may designate from time to time. Tenant will comply with and will cause
its employees to comply with any and all parking rules and regulations in affect
from time to time for the Building parking garage. Tenant's parking privileges
in the Building parking garage shall be subject to whatever parking methods are
then being used in the Building parking garage (e.g., self parking, valet
parking, stack parking, etc.).
DATED as of the day and year first indicated above.
LANDLORD:
DUCHESS PROPERTIES LTD., a
Washington corporation
By /s/ Andrew B. Bassetti
----------------------------------------
Its Secretary
TENANT:
INTERMIND, INC., a Washington corporation
By /s/ Drummond S. Reid
----------------------------------------
Its President
-17-
<PAGE>
FIRST AMENDMENT TO OFFICE LEASE
This Agreement is made as of September 1, 1996 between DUCHESS PROPERTIES
LTD., a Washington corporation ("Landlord"), and INTERMIND CORPORATION, a
Washington corporation, formerly known as Seven League Corp. ("Tenant").
RECITALS:
A. Tenant is the successor in interest by assignment of the tenant's
interests under that certain Lease dated August 29, 1995 (the "Lease"), between
Landlord, as landlord, and InterMind, Inc., as tenant. Pursuant to the Lease,
Tenant is leasing certain premises containing approximately 4,921 rentable
square feet, situated on the 8th floor of a building currently known as Olympic
Tower, located at 217 Pine Street in Seattle, King County, Washington (the
"Building").
B. Tenant desires to lease additional space in the Building from Landlord
with an agreed area of 2,442 rentable square feet of space, located on the 4th
floor of the Building, commonly known as Suite 420, and more particularly shown
on the floor plan attached to this Agreement as Exhibit A (the "Temporary
Space"). Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings given to them in the Lease.
AGREEMENT:
In consideration of the mutual covenants contained in this Agreement and
the mutual covenants contained in the Lease, Landlord and Tenant agree as
follows:
1. Expansion. Effective as of the date this Agreement is fully executed
by both Landlord and Tenant, the Lease shall be amended to include the Temporary
Space and thereafter all references in the Lease to the "Premises" shall include
the Temporary Space. Except for the provisions in the Lease concerning the Lease
Term, and except as otherwise provided in Paragraphs 2 and 3 below, all of the
terms and conditions of the Lease shall apply to Tenant's use and occupancy of
the Premises.
2. Terms and Conditions. This Agreement and Tenant's rights to use and
occupy the Temporary Space shall expire on October 31, 1996 (the "Termination
Date"), and on or before the Termination Date Tenant shall vacate and surrender
possession of the Temporary Space in accordance with Section 15 of the Lease,
unless otherwise agreed in writing by Landlord and Tenant on or prior to such
date. During the term of this Agreement, as additional Base Rent under the
Lease, Tenant shall pay Landlord pursuant to Section 4 of the Lease the sum of
$2,594.63. The Temporary Space shall not be considered as part of the Premises
for purposes of calculating Tenant's Share of Operating Costs and Real Property
Taxes and Section 5 of the Lease shall not be applicable with respect to the
Temporary Space.
3. Improvements to Expansion Space. The Temporary Space is leased by
Landlord to Tenant in its current condition, "AS IS." Tenant represents and
warrants to Landlord it has inspected the Temporary Space, is familiar with the
condition of the Temporary Space, and Tenant shall accept possession of the
Temporary Space, in its present condition, "AS IS." Any alterations or
improvements which Tenant desires to make to the Temporary Space shall be
subject to Landlord's approval and to the requirements of Section 11 of the
Lease. Exhibit C of the Lease shall not be applicable to the Temporary Space.
4. Miscellaneous. Except as expressly modified or amended by this
Agreement, all of the terms and conditions of the Lease are unchanged and shall
remain in full force and effect. To the extent any of the terms or conditions
of the Lease conflict with any of the terms or conditions of this Agreement,
this Agreement shall control.
5. Brokers. Tenant represents and warrants to Landlord it has dealt with
no real estate brokers or salespersons in connection with this Agreement, other
than the property manager of the Building, Colliers Real Estate Services
("Colliers"). Landlord shall pay Colliers such commissions, if any, as are due
and payable to Colliers in connection with this Agreement, as set forth in a
separate agreement between Landlord and Colliers. If any person or entity other
than Colliers claims a real estate fee or commission or other such fee in
connection with
-1-
<PAGE>
the subject transaction, and such claim is based on actual or alleged oral or
written agreements or understandings with Tenant, Tenant shall indemnify, defend
and hold Landlord harmless from any such claims or demands, including attorneys'
fees incurred by Landlord as a result of any such claim or demand.
DATED as of the day and year first written above.
LANDLORD:
DUCHESS PROPERTIES LTD., a Washington
corporation
By /s/ Andrew B. Bassetti
---------------------------------------
Its Secretary
-------------------------------------
TENANT:
INTERMIND CORPORATION, a Washington
corporation
By /s/ Drummond S. Reid
---------------------------------------
Its Vice President
------------------------------------
-2-
<PAGE>
SECOND AMENDMENT TO OFFICE LEASE
This Agreement is made as of February 1, 1997 (the "Effective Date")
between DUCHESS PROPERTIES LTD., a Washington corporation ("Landlord'), and
INTERMIND CORPORATION, a Washington corporation, formerly known as Seven League
Corp. ("Tenant").
RECITALS:
A. Tenant is the successor in interest by assignment of the tenant's
interests under that certain Lease dated August 29, 1995 (the "Lease"), between
Landlord, as landlord, and InterMind, Inc., as tenant. The Lease has been
amended by a First Amendment to Office Lease dated as of August 16, 1996 (the
"First Amendment"). The term of the Lease will expire on November 30, 2000.
Pursuant to the Lease and the First Amendment, Tenant is leasing certain
premises containing approximately 4,921 rentable square feet, situated on the
8th floor of a building currently known as Olympic Tower, located at 217 Pine
Street in Seattle, King County, Washington (the "Building") and approximately
2,442 rentable square feet of space, located on the 4' floor of the Building.
Pursuant to a Sublease dated July 19, 1996, between Nationwide Credit, Inc. and
Tenant (the "Sublease") Tenant is occupying the entire third floor of the
Building, which consists of approximately 11,097 rentable square feet (the
"Third Floor Space"). The term of the Sublease will expire on September 15,
1997 (the "Expansion Date").
B. Tenant desires to lease the remainder of the 4th floor of the Building
and obtain an option to include the Third Floor Space in the Lease. Landlord is
willing to agree to Tenant's requests subject to the terms of this Agreement.
Capitalized terms used in this Agreement and not otherwise defined shall have
the meanings given to them in the Lease.
AGREEMENT:
In consideration of the mutual covenants contained in this Agreement and
the mutual covenants contained in the Lease as amended by the First Amendment,
Landlord and Tenant agree as follows:
1. Expansion of Premises. As of the Effective Date, the Lease shall be
amended to include the entire 4th floor of the Building (the "Fourth Floor
Space"), and Section 1 of the Lease shall be amended as follows:
(a) Section 1(b) is amended to provide that the Premises shall
consist of an agreed area of approximately 9,341 rentable square feet,
consisting of 4,921 rentable square feet located on the 8th floor of the
Building and 4,420 rentable square feet located on the 4th floor of the
Building, and Exhibit B to the Lease is replaced with Exhibit B to this
Agreement. After the Effective Date, all references in the Lease to the Floor
Plan shall mean Exhibit B to this Agreement. The Building's load factor shall be
calculated in accordance with the standards of the Building Owners and Managers
Association ("BOMA"), provided, however, in calculating the square foot areas of
the Premises in no event will the Building's load factor exceed twelve percent
(12%).
(b) Section 1(f) is amended as follows:
Period of Lease Term Monthly Base Rent
Effective Date to 11/30/97 $10,406.10
12/1/97 to 11/30/98 $10,979.48
12/1/98 to 11/30/99 $11,368.69
12/1/99 to 11/30/2000 $11,942.06
(c) Section 1(g) is amended to provide that the Base Year for all of
the space on the 8th floor and one-half of the Fourth Floor Space shall be
calendar year 1996, and the Base Year for the remainder of the Fourth Floor
Space shall be calendar year 1997.
(d) Section 1(i) is amended to provide that Tenant's Share is 12.13%.
-1-
<PAGE>
2. Parking. Section 28 of the Lease is amended to provide that Tenant
shall be entitled to purchase up to five (5) parking permits for monthly parking
in the Building parking garage. The current monthly charge for parking in the
Building garage is $155.00.
3. Extension Option. So long as Tenant is not then in default under the
Lease, on the terms and conditions stated in this Paragraph 3, Tenant shall have
the option to extend the term of the Lease for up one (1) additional five (5)
year period commencing December 1, 2000 and expiring on November 30, 2005 (the
"Additional Term"). To exercise its option to extend the Lease for the
Additional Term, Tenant must deliver to Landlord a written notice (an "Option
Notice") exercising its extension option at least six (6) months (but not more
than twelve (12) months) prior to the date the then Lease Term will expire,
together with a then current financial statement of Tenant. If such financial
statement shows a material adverse change in Tenant's financial condition since
the date of this Agreement, at Landlord's option, Tenant's exercise of its
extension option shall be null and void. The extension option granted to Tenant
pursuant to this Paragraph 3 is personal to Tenant and may not be exercised by
or for the benefit of any assignee or sublessee of Tenant, except for assignees
or sublessees which are affiliates of Tenant (i.e., an entity which owns, is
owned by, is under common control with or results from a merger or consolidation
with Tenant). All of the terms and conditions of the Lease, as it may be
amended, shall apply during the Additional Term except (i) the base annual rent
shall be the "fair market rent" (defined below) for the Premises as agreed to by
Landlord and Tenant or determined by arbitration as set forth below; (ii) unless
otherwise agreed by Landlord in writing, there shall be no further renewal
options after the commencement of the Additional Term; and (iii) Landlord shall
have no tenant improvement obligations with respect to the Premises except as
otherwise agreed in writing by Landlord. When the rental rate for the
Additional Term is determined, whether by agreement of the parties or pursuant
to arbitration as provided below, Landlord and Tenant shall enter into an
amendment to the Lease setting forth the new base rent for the Premises, the
extended term and such other terms as may be applicable. The term "fair market
rent" means the rate per rentable square foot that a willing, non-equity tenant
would pay in an arms-length transaction for comparable space in the Building and
in comparable buildings in the central business district of Seattle, Washington,
for leases having a sixty (60) month term, taking into account the then
condition of the improvements in the Premises and concessions, credits and
discounts then typically offered by landlords of comparable buildings in the
central business district of Seattle, Washington. Landlord and Tenant agree the
base annual rent for the Additional Term shall be determined as follows:
(a) Landlord shall advise Tenant in writing ("Landlord's Notice") of
Landlord's determination of fair market rent not later than thirty (30) days
after receiving the Option Notice. Within thirty (30) days after receiving
Landlord's Notice, Tenant shall notify Landlord in writing ("Tenant's Notice")
whether or not Tenant accepts Landlord's determination of the fair market rent.
If Tenant disagrees with Landlord's determination of fair market rent, Tenant's
Notice shall set forth Tenant's determination of fair market rent. If Tenant
fails to give Tenant's Notice to Landlord within such thirty (30) day period,
then the Option Notice shall be deemed null and void, unless otherwise agreed in
writing by Landlord and Tenant. If Tenant does not accept Landlord's
determination of fair market rent, and Tenant has given Tenant's Notice, the
parties (or their designated representatives) shall promptly meet and attempt to
agree on the fair market rent. If the parties have not agreed on the fair
market rent within ninety (90) days after Landlord receives the Option Notice,
and Tenant's renewal option is still in effect in accordance with the terms of
this paragraph, then unless otherwise agreed in writing by the parties, the
parties shall submit the matter to arbitration in accordance with the terms of
the following paragraphs. The last day of such ninety (90) day period (as the
same maybe extended by the written agreement of the parties) is referred to in
this Lease as the "Arbitration Commencement Date."
(b) The arbitration will be conducted by three MAI real estate
appraisers who have been active over the five (5) year period ending on the
Arbitration Commencement Date in the appraisal of downtown properties in
Seattle, Washington. One appraiser will be selected by Tenant, one appraiser
will be selected by Landlord, and the third appraiser will be selected by the
two appraisers so chosen. If the two appraisers chosen by the parties cannot
agree on a third appraiser within ten (10) days after the date the second
appraiser has been appointed, the third appraiser will be appointed by the
Seattle office of the American Arbitration Association upon the application of
either party. Each party shall select its appraiser not later than ten (10)
days after the Arbitration Commencement Date. If either party fails to select
its appraiser by ten (10) days after the Arbitration Commencement Date, and the
other party timely selects its appraiser, then the appraiser selected by the
other party shall be the sole arbitrator for determining fair market rent.
-2-
<PAGE>
(c) Within thirty (30) days after the selection of the third
appraiser (or if only one appraiser is to render the decision as provided in
subparagraph (b) above, within thirty (30) days after the last day of the above-
referenced ten (10) day period), the appraiser(s) shall determine fair market
rent. If more than one appraiser has been appointed, the decision of a majority
of the appraisers shall control. If a majority of the appraisers do not agree
within the stipulated time period, then each appraiser shall in writing render
his or her separate determination as to fair market rent within five (5) days
after the expiration of the thirty (30) day period. In such case, the three
determinations shall be averaged to determine the fair market rent; however, if
the lowest fair market rent or the highest fair market rent is ten percent (10%)
lower or higher, as applicable, than the middle fair market rent, then the low
fair market rent and/or the high fair market rent, as applicable, shall be
disregarded and the remaining fair market rent(s) will be averaged in order to
establish the fair market rent.
(d) Both parties may submit any information to the arbitrators for
their consideration, with copies to the other party. The arbitrators shall have
the right to consult experts and competent authorities for factual information
or evidence pertaining to the determination of fair market rent. The
arbitrators shall render their decision and award in writing with counterpart
copies to each party. The arbitrators shall have no power to modify the
provisions of the Lease. The determination of the arbitrators will be final and
binding upon Landlord and Tenant. The cost of the arbitration will be paid by
Landlord if the fair market rent determined by arbitration is ninety percent
(90%) or less than the fair market rent specified in Landlord's Notice; by
Tenant if the fair market rent determined by arbitration is one hundred ten
percent (110%) or more than the fair market rent specified in Tenant's Notice;
and otherwise shall be shared equally by Landlord and Tenant.
4. Expansion Option. Tenant shall have an option to expand the Premises
to include the Third Floor Space in accordance with and subject to the terms of
this Paragraph 4. To exercise its option to expand the Premises to include the
Third Floor Space, Tenant must give Landlord written notice (the "Expansion
Notice") no sooner than March 15, 1997 and no later than April 1, 1997. If the
Premises are so expanded to include the Third Floor Space, the Lease shall be
further amended as follows as of the Expansion Date:
(a) Section 1(a) shall be amended to provide that the Premises shall
consist of an agreed area of 20,438 rentable square feet, consisting of 4,921
rentable square feet located on the 8th floor of the Building, 4,420 rentable
square feet located on 4th floor of the Building, and 11,097 rentable square
feet located on the 3rd floor of the Building. From and after the Expansion
Date, all references in the Lease to the Floor Plan shall mean Exhibit B-1 so
initialed by the parties and attached to this Agreement.
(b) Section 1(f) shall be amended as follows:
Period of Lease Term Monthly Base Rent
Expansion Date to 11/30/97 $23,583.79
12/1/97 to 11/30/98 $24,619.54
12/l/98 to 11/30/99 $25,471.13
12/1/99 to 11/30/2000 $26,506.87
(c) Section 1(g) shall be amended to provide that the base year for
all of the Third Floor Space shall be calendar year 1997.
(d) Section 1(i) shall be amended to provide the Tenant's Share is
26.54%.
(e) Section 28 of the Lease shall be amended to provide that Tenant
shall be entitled to purchase up to ten (10) parking permits for monthly parking
in the Building parking garage.
5. Improvements; Allowances. The Fourth Floor Space is leased by Landlord
to Tenant in its current condition, "AS IS," and if Tenant elects to expand the
Premises to include the Third Floor Space, the Third Floor Space shall be leased
to Tenant in its AS-IS condition existing on the date the Expansion Notice is
delivered by Tenant to Landlord, normal wear and tear excepted. Tenant
represents and warrants to Landlord it has inspected the Fourth Floor Space and
the Third Floor Space, is familiar with the condition of the Fourth Floor Space
and the Third Floor Space (latent conditions excepted), and Tenant shall accept
possession of the Fourth Floor Space and the Third
-3-
<PAGE>
Floor Space, in its present condition, "AS IS" (latent conditions excepted). Any
improvements Tenant desires to make to the Third Floor Space or the Fourth Floor
Space shall be made in accordance with the procedures set forth in Exhibit C to
the Lease, with the following changes:
(a) "Architect" shall mean a Washington State licensed architect,
selected by Tenant and reasonably acceptable to Landlord.
(b) "Construction Allowance" means, with respect to the Fourth Floor
Space, the amount of $25,000, and with respect to the Third Floor Space, the
amount of $60,000. The Construction Allowance for the Third Floor Space will
only be made available to Tenant if Tenant elects to expand the Premises to
include the Third Floor Space in accordance with the terms of this Agreement.
(c) "Contractor" shall mean a Washington State licensed contractor,
selected by Tenant and reasonably acceptable to Landlord.
(d) "Interior Drawings" shall mean plans and specifications for the
planned improvements, prepared by the Architect, and approved by Landlord.
Landlord shall not unreasonably withhold, delay or condition its approval.
In addition to the amount of the applicable Construction Allowances, Landlord
will make available to Tenant an architectural allowance in the amount of
$530.40 to pay for costs associated with designing the improvements to the
Fourth Floor Space and an architectural allowance in the amount of $1,331.64 to
pay for costs associated with designing the improvements to the Third Floor
Space.
6. Floor Security. At no cost to Tenant, Landlord will program the
Building elevators so that access to the Fourth Floor Space, and access to the
Third Floor Space so long as Tenant occupies such space, requires a security
card outside of normal building hours. Security cards providing such after hours
access will be issued only to employees of Tenant designated by Tenant and
Building management personnel designated by Landlord.
7. Restroom Heating. Prior to the end of calendar year 1997, Landlord
will install a heating system so that the restrooms on the 3rd, 4th and 8th
floors of the Building are heated.
8. Miscellaneous. Except as expressly modified or amended by this
Agreement, all of the terms and conditions of the Lease are unchanged and shall
remain in full force and effect. To the extent any of the terms or conditions
of the Lease conflict with any of the terms or conditions of this Agreement,
this Agreement shall control.
9. Brokers. Tenant represents and warrants to Landlord it has dealt with
no real estate brokers or salespersons in connection with this Agreement, other
than the property manager and leasing agent of the Building, Colliers Real
Estate Services ("Colliers"), and Larry Blackett of Kidder Mathews & Segner,
Inc. ("Broker"). Landlord shall pay Colliers such commissions, if any, as are
due and payable to Colliers in connection with this Agreement, as set forth in a
separate agreement between Landlord and Colliers. Tenant shall pay Broker such
commissions as are due and payable to Broker in connection with this Agreement.
If Broker or any person or entity other than Colliers claims a real estate fee
or commission or other such fee in connection with the subject transaction, and
such claim is based on actual or alleged oral or written agreements or
understandings with Tenant, Tenant shall indemnify, defend and hold Landlord
harmless from any such claims or demands, including attorneys' fees incurred by
Landlord as a result of any such claim or demand.
10. Authorization. The individual signing this Agreement on behalf of
Landlord represents and warrants to Tenant that he has the requisite corporate
power and authority to execute this Agreement on behalf of and to bind Landlord,
and the individual signing this Agreement on behalf of Tenant represents and
warrants to Landlord that he or she has the requisite corporate power and
authority to execute this Agreement on behalf of and to bind Tenant.
-4-
<PAGE>
DATED as of the day and year first written above.
LANDLORD:
DUCHESS PROPERTIES LTD., a Washington
corporation
By /s/ Andrew B. Bassetti
--------------------------------------
Andrew B. Bassetti, Secretary
TENANT:
INTERMIND CORPORATION, a Washington
corporation
By /s/ Gordon A. Gardiner
--------------------------------------
Its V.P. and Chief Financial Officer
-----------------------------------
-5-
<PAGE>
EXHIBIT 10.3
CONSULTING AGREEMENT
This Agreement is made and entered into this 11th day of July, 1997,
between Interactive Objects, Inc. (the "Company") and Northwest Capital
Partners, L.L.C. (the "Consultant"), and sets forth the terms and conditions
upon which the Consultant will act as financial advisor to the Company in
connection with the completion of the financing described in Exhibit "A"
attached hereto (the "Financing").
In consideration for the mutual promises and covenants contained herein,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURPOSE. The Company hereby engages the Consultant during the term
hereof to arrange financing, as a finder, for the Company upon terms and
conditions as set forth herein and in accordance with the requirements set forth
in Exhibit "A" (the "Financing"). Consultant shall also have a right of first
refusal to consult with the Company regarding appropriate financings subsequent
to the Financings set forth in Exhibit "A" for a period of three years following
the term of this Agreement.
2. TERM. The term of this Agreement shall be for a period of 36 months,
provided that the Interim Financing shall be completed no later than August 30,
1997. An offering pursuant to Rule 504 or other applicable Rule adopted
pursuant to the Securities Act of 1933, as amended (the "Act"), shall be
completed within 30 days of the Company's approval and, following the quotation
of the Company's common stock on the NASD OTC Bulletin Board and a third round
of financing, shall be completed within the 90 day period following the date the
Company's common stock is quoted on the NASD OTC Bulletin Board.
3. DUTIES OF THE CONSULTANT. During the term hereof, Consultant shall
provide the Company with the benefit of its best judgment and efforts to
complete the Financing on a reasonable business basis in accordance with the
requirements set forth in Exhibit "A." It shall be Consultant's duty to suggest
and evaluate from the standpoint of financial soundness, the Company's business
plans and programs, corporate financial structures, and corporate organization,
and any other financial matters involving the Company. In connection with the
financing contemplated by this Agreement, Consultant agrees that it will advise
and work with the Company to complete the Financing successfully in accordance
with Rule 504 or other applicable Rule under the Act and the related and
applicable Blue Sky laws of the states in which the financing is completed.
Consultant shall advise the Company of each proposed broker or other financing
or referral source identified by Consultant prior to authorizing any
participation in the Financing. Consultant shall use its best efforts, after
receiving information from Company sufficient to comply with the informational
requirements of Rule 15c2-11 under the Securities Exchange Act of 1934 (the
"1934 Act"), to arrange for the shares of common stock of the Company to be
quoted on the NASD OTC Bulletin Board either by direct application and approval
through the NASD or by reverse merger. The Company and the Consultant shall
review the potential filing of a Form 10 (1934 Act form) with the U.S.
Securities and Exchange Commission following the Second Stage Financing.
Company agrees that it will accept Financing amounts at each closing
contemplated by Exhibit "A" which are in excess of the amounts in Exhibit "A" if
Consultant is able to raise such additional amounts in accordance with the
appropriate disclosure and the securities registration exemption provisions of
the Act and the relevant Blue Sky laws. Consultant's duties shall also include,
but not be limited to:
3.1 Assist the Company's management in the development and execution of a
strategic short-term, intermediate term and long-term financial plan;
3.2 Assist the Company in the negotiation of the terms of the Financings;
3.3 Assist the management of the Company in connection with inquiries made
by or on behalf of any proposed brokers and investors;
3.4 Assist the management of the Company in the preparation of
presentation materials for the purpose of pursuing the Financing;
-1-
<PAGE>
3.5 Using its best efforts, on terms acceptable to the Company, to arrange
the Financings as described in Exhibit "A" attached hereto.
3.6 If the Company and the Consultant determine that a direct application
to the NASD is not in the best interest of the Company and determine that the
Company go public by way of a reverse merger with an existing publicly traded
company the Consultant will be responsible for the location and acquisition of
such public company including all costs associated with its acquisition.
4. CONSULTANT'S COMPENSATION.
4.1 The Company shall pay Consultant a fee of $3,000 for each month or
partial month this Agreement has been in effect, providing that such payment
shall be paid, as accrued. at the closing of the Interim Financing and then
continuing through the closing of the Second and Third Stage Financings, as
described in Exhibit "A," by the Consultant. Such fee shall be payable
commencing with the signing of this Agreement and monthly thereafter to the date
of each closing, payable at the time of such closing. Upon the closing of the
Third Stage of Financing. the fee shall be increased to $4,000 per month for an
additional 36 months, for duties to be mutually agreed upon by the parties.
4.2 The Company agrees that, at the closing of the Interim Financing, as
described in Exhibit "A," by the Consultant or at the time the Company goes
public, the Company will issue to the Consultant 1,200,000 shares of common
stock of the Company. The Consultant's shares shall be held in escrow by the
Company's lawyer pursuant to an escrow agreement that releases the Consultant's
shares to the Consultant based upon the following terms and conditions:
Upon the completion of the Interim Financing. as described in Exhibit "A",
the Consultant shall have earned 600,000 shares of the Company and such shares
will be delivered to the Consultant. Upon the completion of the Second Stage
Financing, as described in Exhibit "A", the Consultant shall have earned an
additional 300,000 shares of the Company and such shares will be delivered to
the Consultant. Upon the completion of the Third Stage Financing, as described
in Exhibit "A", the Consultant shall have earned an additional 300,000 shares of
the Company and such shares will bc delivered to the Consultant. Upon the
Company's receipt of the aggregate amount of $1,150,000 through any combination
of the Interim, Second or Third Stage financings as described in Exhibit "A",
the Consultant shall have earned all 1,200,000 shares of the Company and such
shares will be delivered to the Consultant. In the event that the Company
terminates this agreement the Company retains the right to purchase all of the
Consultant's shares that remain in escrow for $0.01 per share.
4.3 The Company agrees that it shall reimburse Consultant for reasonable,
out-of-pocket expenses incurred by Consultant in performing the services
provided pursuant to this Agreement, provided that such out-of-pocket expense
reimbursement shall not exceed $3,000 in any calendar month or partial month,
and provided that any expenses in excess of $500 in any calendar month shall
require advance approval by the Company. Such reimbursement shall be paid upon
the within 15 days of the Company's receipt of the Consultant's invoice. Such
reimbursement may be claimed for any month commencing with the signing of this
Agreement and monthly thereafter to the date of each closing, payable within 15
days of receipt.
4.4 If the Consultant is unsuccessful in introducing investors to the
Company (either directly or through a broker) who would be willing to fund the
Financings contemplated in Exhibit "A" within the time periods set forth, this
Agreement may be terminated at the Company's discretion, unless otherwise
extended by mutual consent. Such consent will be implied should thc Company be
in or continue negotiation with investors which should reasonably result in
successful Financing or should the Company accept funds from one of the sources
introduced to the Company by the Consultant during this period. Following
termination, however, Consultant will be entitled to tile consideration above as
to those stages of the Financing completed and in the event that after
termination a financing of any kind or amount is consummated with any party
introduced to the Company by the Consultant during a period of twelve months
after termination of this Agreement.
5. INDEMNIFICATION.
5.1 The Company agrees to indemnify the Consultant, its agents and
employees against any and all claims, lawsuits, and litigation arising from
representations of the Company made to Consultant or prospective
-2-
<PAGE>
investors concerning its business plan and financial condition. Such
indemnification shall include reasonable attorney's fees to defend any such
actions or claims.
5.2 The Consultant agrees to indemnify the Company, its agents and
employees against any and all claims, lawsuits, and litigation arising from
representations of the Consultant made to prospective investors concerning the
Company except for those representations constituting information provided by
the Company. Such indemnification shall include reasonable attorney's fees to
defend any such actions or claims.
5.3 Promptly after receipt by an indemnified party of notice of any claim
or commencement of any action in respect of which indemnity may be sought, the
indemnified party will notify the indemnifying party in writing of the receipt
or commencement thereof and the indemnifying party shall have the right to
assume the defense of any such claim or action (including the employment of
counsel reasonably satisfactory to the indemnified party and the payment of fees
and expenses of such counsel), after which the indemnifying party shall not be
liable to the indemnified party for any legal fees incurred by the indemnified
party in connection with the defense of such claim or action. Notwithstanding
the prior sentence, the indemnified party shall have the right to control its
defense if, in the opinion of its counsel, the indemnified party's defense is
unique or separate to it, as the case may be, as opposed to a defense pertaining
to the indemnifying party. In such event., the indemnified party shall have the
right to retain counsel reasonably satisfactory to the indemnifying party at the
indemnifying party's expense, to represent it in any claim or action in respect
of which indemnity may he sought and agrees to cooperate with the indemnifying
party and the indemnifying party's counsel on the defense of any such claim of
action, it being understood, however, that the indemnifying party shall not in
connection with any such claim or action or separate but substantially similar
or related claim or action in the same jurisdiction arising out of the same
general circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys, unless the defense of one indemnified party
is unique or separate from that of another indemnified party subject to the same
claim or action. No party shall be liable for any settlement of any claim or
action effected without its written consent.
6. REPRESENTATION AND WARRANTIES. Company represents and warrants as
follows:
6.1 The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of Washington and is
qualified as a foreign corporation where required.
6.2 The shares of common stock of the Company which will be delivered to
the investors and Consultant will be duly authorized and validly issued and
fully paid and nonassessable.
7. CONDITIONS PRECEDENT. Consultant's duties to use its best efforts to
complete the Financings contemplated herein shall be subject to:
7.1 The Company will not change or modify the Company's capital structure
without the prior written consent of Consultant, which consent shall not be
unreasonably withheld.
7.2 The Company will submit quarterly budgets to Consultant during the
period of the Financing and for one year after successful completion of the
Financing.
7.3 The Company will provide all pertinent information in connection with
the Company's assets, including, but not limited to, all tangible and intangible
assets, and all copyright and trademark information.
7.4 The Company shall have received executed employment agreements from
each of its officers and directors and other key individuals in a form
reasonably appropriate in accordance with industry standards.
7.5 The Company will provide Consultant with all information and
verifications thereof which Consultant or its legal counsel may reasonably
request from the Company in a manner and form satisfactory to Consultant and its
legal counsel.
7.6 Receipt by Consultant of suitable financial Statements of the Company
that are in form and substance satisfactory to Consultant, in its sole
discretion. The Company shall provide financial statements consisting of a
balance sheet and a related statement of income for the period then ended, which
fairly present the financial condition of each as of their respective dates and
for the periods involved, and such statements shall be
-3-
<PAGE>
prepared in accordance with generally accepted accounting principles
consistently applied or upon such other basis as the parties shall mutually
agree and for the periods mutually agreed upon among the parties.
7.7 All existing shares of the Company have or will be issued in
accordance to Rule 4(2) of the 1933 Act and consequently, such securities will
be "Restricted Securities" as such term is defined in Rule 144 as promulgated
under the 1933 Act and thus will be subject to certain resale limitations as
contained in Rule 144 and the certificates shall bear the following restrictive
legend limiting their resale under Rule 144 of the Act.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED PURSUANT
TO A TRANSACTION EFFECTED IN RELIANCE UPON SECTION 4(2) OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE NOT BEEN THE SUBJECT OF A
REGISTRATION STATEMENT UNDER TIJE ACT OR ANY STATE SECURITIES ACT. THESE
SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR APPLICABLE EXEMPTION THEREFROM UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES ACT."
8. CONDITIONS SUBSEQUENT.
8.1 For a period of three years from the date of closing of a Financing
arranged by Consultant pursuant to this Agreement, the Company will provide
Consultant, at its expense, following a reasonable request by Consultant for the
purpose of reviewing and/or protecting the Company's shareholder's interests,
with copies of stock transfer sheets from the Company's Transfer Agent, as well
as weekly DTC Reports from the Depository Trust Company to the extent such
reports can be made available to a party that is not an affiliate of the
Company, and will provide Consultant with all publicly available financial
reports and publicly available reports of material developments regarding the
Company and its compliance with laws and regulations applicable thereto.
8.2 For a period of three years after the date that the Company's shares
of common stock commence trading on the NASD OTC Bulletin Board, the Company's
executive officers and directors who own at least five percent (5%) of the
Company's common stock ("Principal Stockholders") and the Company shall provide
the Company with the right of first refusal with respect to any offering (public
or private) of the Company's securities by either the Company or the Principal
Stockholders involving more than 1000 shares of stock.
For a period of three years after the date that the Company's shares of
common stock commence trading on the NASD OTC Bulletin Board, the Company's
executive officers and directors who own at least five percent (5%) of the
Company's common stock ("Principal Stockholders") and the Company shall provide
the Consultant with the second right of first refusal with respect to any
offering (public or private) of the Company's securities by either the Company
or the Principal Stockholders involving more than 1000 shares of stock.
For a period of three years after the date that the Company's shares of
common stock commence trading on the NASD OTC Bulletin Board, the Company's
executive officers and directors who own at least five percent (5%) or the
Company's common stock ("Principal Stockholders") and the Company shall provide
the other Principal Stockholders of the Company with the third right of first
refusal with respect to any offering (public or private) of the Company's
securities by either the Company or the Principal Stockholders involving more
than 1000 shares of stock.
8.3 The Company's officers and directors will use their best efforts to
cause each Principal Shareholder and each other holder of 5% or more of the
Company's common stock to enter into an agreement with Consultant pursuant to
the terms of which each such person shall agree not to sell any shares owned by
such person on the NASD OTC Bulletin Board, for a period of twelve months after
the date that the Company's shares of common stock commence trading on the NASD
OTC Bulletin Board, without Consultant's prior written consent, which consent
will not be unreasonably withheld. Provided that each such person may sell up
to 1,000 shares every three months after the first 180 days has passed after the
date that the Company's shares of common stock commence trading on the NASD OTC
Bulletin Board.
8.4 Consultant shall be entitled for a period of five years to nominate a
director for the Company's board of directors which the Company's existing
directors will support. Such director shall be paid the same salary as other
directors (for director's duties performed) and shall participate in all bonus
programs granted to the Company's board of directors.
-4-
<PAGE>
9. TERMINATION OF RELATIONSHIP. This Agreement shall terminate upon the
happening of any one of the following events:
9.1 Either party may terminate this Agreement upon ten days written notice
to the other that a material breach by the other of the terms or covenants of
this Agreement shall have occurred and such breach shall not have been cured
within ten days after such notice.
9.2 Either party shall have the right (but not the obligation) to
terminate this Agreement upon written notice to the other party if such
terminating party reasonably determines that the other party or any of its
directors, officers or controlling shareholders has engaged in any unlawful,
wrongful, or fraudulent act.
9.3 Either party shall have the right (but not the obligation) to
terminate this Agreement upon written notice to the other party if such
terminating party shall determine that any material fact concerning the other
party represented to them during the course of performing their undertakings
under this Agreement are misstated or untrue or that the other party bas
intentionally failed to provide the terminating party with material facts
concerning the other party.
9.4 Either party may terminate this Agreement at any time: (i) in the
event of war; (ii) in the event of any material adverse change in the business,
property or financial condition of the Company (of which terminating party shall
be the sole judge); (iii) in the event of any action, suit or proceeding at law
or at equity against the Company or Consultant, or by any Federal, State or
other commission or agency where any unfavorable decision would materially
adversely affect the business, property, financial condition or income of a
party; (iv) in the event of adverse market conditions of which event the
terminating party is to be the sole judge. Further, Consultant's commitment
will be subject to receipt by Consultant of all information and verifications
thereof which Consultant or their counsel may reasonably request from the
Company in a manner and form satisfactory to Consultant.
In the event of Termination by Consultant, upon grounds stated herein
above, Consultant shall be entitled to accrued fees and expense reimbursements
and shares otherwise payable shall be paid as though this Agreement was not
terminated.
10. MISCELLANEOUS.
10.1 Authorization. This Agreement has been duly authorized, executed
and delivered by and on behalf of the Company and the Consultant.
10.2 Notices. Any notice or other communication required or permitted by
any provision of this Agreement shall be in writing and shall be deemed to have
been given or served for all purposes if delivered personal]y or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
To Consultant: Northwest Capital Partners, L.L.C.
Mr. Brent Nelson
10900 NE 8th Street., Suite 900
Bellevue, Washington 98004
To the Shareholders
and to the Company: Interactive Objects, Inc.
Mr. Ryan Smith
17720 NE 65th Street, Suite 202
Redmond, Washington 98052
10.3 Validity; Complete Agreement. The validity and enforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision hereof. This Agreement sets forth the entire understanding
and embodies the entire agreement of the parties with respect to the subject
matter covered hereby and supersedes all prior or contemporaneous oral or
written agreements, understandings, arrangements, negotiations or communications
among the parties hereto.
-5-
<PAGE>
10.4 Amendment. This Agreement shall not be modified or amended except
by written agreement of the parties hereto.
10.5 Governing Law. This Agreement shall be governed by the laws of the
state of Washington giving effect to that state's conflict of laws principle.
In witness whereof, the parties hereto have executed this Agreement as of
the date first above written.
NORTHWEST CAPITAL PARTNERS, L.L.C.
By: /s/ Brent Nelson
-------------------------
Brent Nelson, President
INTERACTIVE OBJECTS, INC.
By: /s/ Ryan Smith
-------------------------
Ryan Smith, President
-6-
<PAGE>
EXHIBIT"A"
Interactive Objects, Inc.
Financing Requirements
Attached hereto and made a part hereof the
Agreement between Interactive Objects, Inc.
and Northwest Capital Partners. L.L.C.
Dated July 11, 1997
MINIMUM AMOUNT APPROXIMATE DATE
- -------------- ----------------
$250,000 (Interim Financing, (1) August 31. 1997
$400,000 (Second Stage Financing, (2) October 31, 1997
$500,000 (Third Stage Financing, (3) December 31, 1997
Future financings as required, (4)
(1) The price per share of common stock shall be determined by the Company
following consultation with Consultant.
(1) The term "Interim Financing" as used in the Agreement shall include segment
I above.
(2) The price per share of common stock shall be determined by the Company
following consultation with Consultant.
(2) Within 30 days of the Company's approval and following the quotation of the
Company's common stock on the NASD OTC Bulletin Board.
(3) The price per share of common stock shall be determined by the Company
following consultation with Consultant.
(3) Within 90 days of the Company's approval and following the quotation of the
Company's common stock on the NASD OTC Bulletin Board.
(4) Within 9 months after the date the Company's common stock is quoted on the
NASD OTC Bulletin Board, provided that the Company has subsequently filed
with the U.S. Securities and Exchange Commission a Form 10 pursuant to
Section 12(g) of the 1934 Act.
-7-
<PAGE>
INTERACTIVE OBJECTS, INC.
APPROVAL OF CAPITAL RESTRUCTURE
The undersigned hereby agree to revise the Capital Structure of Interactive
Objects, Inc. as indicated below. Furthermore. the undersigned agree to allow
the Interactive Objects, Inc. Compensation Committee to grant stock options
from those shares of stock reserved in the Employee Pool to new or existing
hires., in accordance with the option package structure guidelines to be
determined by the Interactive Objects, Inc. Compensation Committee, and at the
Committee's discretion.
Signed this 11th day of July, 1997 by:
/s/ Brent Nelson
- ----------------------
Brent Nelson
President, Northwest Capital Partners, L.L.C.
/s/ Ryan Smith
- ----------------------
Ryan Smith
President, Interactive Objects, Inc.
Number of Shares of Common Stock
Shareholder Present After Restructuring
Ryan Smith 210,000 1,680,000
Steve Jackson 80,000 640,000
Jay Paulson 200,000 1,600,000
John Guarino 150,000 1,200,000
Thad Wordall 130,000 1,040,000
Past Employees 12,000 96,000
Stock Option (pool) 10,000 500,000 (pool)
Northwest Capital 0 1,200,000
------- ---------
TOTAL 792,000 7,956,000
Financing Required Dollars Received # of Shares to be Issued
Immediate $ 250,000
3 - 6 months $ 900,000
---------- ------------------------
TOTAL $1,150,000 less than or = 4,400,000
-8-
<PAGE>
EXHIBIT 10.3A
FIRST AMENDMENT TO CONSULTING AGREEMENT
This Amendment (the "Amendment") is entered into and made effective as of
August 25, 1998, and amends that certain Consulting Agreement (the "Agreement")
dated as of July 11, 1997 between Interactive Objects, Inc., a Washington
corporation (the "Company"), and Northwest Capital Partners, L.L.C. (the
"Consultant").
The parties hereby agree as follows:
1. The last sentence of Section 4.1 of the Agreement is amended to read
as follows:
"Effective upon the closing of the Third Stage of Financing, the fee shall
be increased to $5,000 per month for an additional 36 months, for duties to
be mutually agreed upon by the parties."
2. The first sentence of Section 8.1 of the Agreement is amended by
replacing the phrase "For a period of three years from the date of closing of a
Financing arranged by Consultant pursuant to this Agreement" with the phrase
"For a period of three years from December 31, 1997."
3. The first sentences of each of the three paragraphs in Section 8.2 of
the Agreement are amended by replacing the phrase "For a period of three years
from the date that the Company's shares of common stock commence trading on the
NASD OTC Bulletin Board" with the phrase "For a period of three years from
September 10, 1997."
4. Except as amended above, the Agreement shall continue in full force
and effect as though set forth in this Amendment.
DATED as of the date first above written.
INTERACTIVE OBJECTS, INC.
By: /s/ Ryan Smith
----------------
Ryan Smith, Chief Executive Officer
NORTHWEST CAPITAL PARTNERS, L.L.C.
By: /s/ Brent Nelson
------------------
Brent Nelson, President
<PAGE>
EXHIBIT 10.4
COMPENSATION AGREEMENT
This Compensation Agreement (this "Agreement") is dated and made effective
the 1st day of January, 1998 (the "Effective Date") between Interactive Objects,
Inc. a Utah corporation (the "Company") and Ryan Smith (the "Employee").
1. Employment. Company employs and Employee accepts employment on the
terms and conditions in this Agreement.
2. Duties. Employee is employed in the capacity of Chief Executive
Officer and President. Employee shall perform the duties customarily performed
by a Chief Executive Officer and President, provided that Employee's precise
duties may be changed, extended or curtailed, from time to time, at the
Company's direction, and Employee shall assume and perform the further
reasonable responsibilities and duties that the Company may assign from time to
time.
3. Intensity of Effort; Other Business. Employee shall devote Employee's
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve Employee
providing any advice or services to the businesses in which the investments are
made.
4. Term. The term of this Agreement starts on the Effective Date and
expires one year later (the "Initial Term"). This Agreement shall automatically
be renewed for successive one-year terms (each referred to as an "Extended
Term") unless either party gives written notice of nonrenewal at least thirty
(30) days before the expiration of the term. Unless stated otherwise, the word
"year" as used in this Agreement refers to incremental periods of 365 days each
(366 days in the case of a leap year), not calendar years. This Agreement may
terminate before the expiration of any term as provided below.
5. Compensation. Employee's compensation shall be as follows:
a. Employee's salary initially shall be $10,417 per month ($125,000
per year on an annualized basis), which shall be computed and paid in equal
installments consistent with Company's normal payroll procedures. At the end of
each calendar year, Employee's salary shall be reviewed by the Board and
adjusted as determined by the Board in its sole discretion, provided that,
absent cause or Employee's consent, it may not be adjusted downward.
b. Employee may receive annual bonuses, profit sharing and/or
incentive compensation based on Company's profitability as determined by the
Board in its sole discretion.
c. Employee shall be eligible for such other compensation as may be
provided by the Board in its sole discretion.
6. Benefit Plans. Employee shall be eligible for all benefit plans
(including retirement or pension plans, profit sharing plans and stock option
plans) that are provided generally to Company's executive employees.
7. Vacation and Personal Leave. Employee shall be entitled to such paid
vacation and personal days per calendar year (prorated if this Agreement begins
and/or ends in the middle of a calendar year) as provided in the Company's
benefit plan set forth in the Company's Employee Handbook.
8. Disability. Employee shall be entitled to such disability benefits as
provided in the Company's benefit plan set forth in the Company's Employee
Handbook.
Page -1-
<PAGE>
9. Business Expenses. Employee is authorized to incur reasonable travel
and entertainment expenses to promote Company's business. Company shall
reimburse Employee for those expenses. Employee shall provide to Company the
itemized expense account information that Company reasonably requests.
10. Termination. Employee's employment may be terminated before the
expiration of this Agreement as follows, in which event Employee's compensation
and benefits shall terminate except as otherwise provided below:
a. By Company Without Cause. Company may terminate Employee's
employment at anytime, without cause or good reason or advance notice. If
Company terminates Employee's employment without cause, however, and provided
that Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company, Company
shall pay to Employee termination payments equal to three months' salary, based
on Employee's total base salary (excluding bonuses, commissions and other
compensation) for the year in which Employee is terminated. These termination
payments shall be paid out at Employee's normal salary rate on regular payroll
days subject to normal payroll deductions. Employee shall not be required to
mitigate the amount of these termination payments by seeking other employment or
otherwise, and no income to Employee of any kind shall reduce the termination
payments.
b. By Company for Cause. Company may terminate Employee's employment
for cause. If Company wishes to terminate Employee's employment for cause it
shall first give Employee 30 days' written notice of the circumstances
constituting cause and an opportunity to cure, unless the circumstances are not
subject to being cured. Following the notice and opportunity to cure (if cure
is not made), or immediately if notice and opportunity to cure are not required,
Company may terminate Employee's employment for cause by giving written notice
of termination. The notice may take effect immediately or at such later date as
Company may designate, provided that Employee may accelerate the termination
date by giving five business days' written notice of the acceleration. Any
termination of Employee's employment for cause must be approved by a majority of
the Board other than Employee. Employee must be given reasonable advance notice
of the meeting at which termination is to be considered, and a reasonable
opportunity to address the Board.
For purposes of this Agreement "cause" means and is limited to dishonesty,
fraud, commission of a felony or of a crime involving moral turpitude,
destruction or theft of Company property, physical attack to a fellow employee,
intoxication at work, use of narcotics or alcohol to an extent that materially
impairs Employee's performance of his or her duties, willful malfeasance or
gross negligence in the performance of Employee's duties, violation of law in
the course of employment that has a material adverse impact on Company or its
employees, misconduct materially injurious to Company, or any material breach of
Employee's duties or obligations to Company that results in material harm to
Company.
c. By Employee Without Good Reason. Employee may terminate
Employee's employment at any time, with or without good reason, by giving ninety
(90) days' advance written notice of termination.
d. By Employee for Good Reason. Employee may terminate Employee's
employment for good reason, in which event Employee shall be entitled to the
same rights under this Agreement as if Company had terminated Employee's
employment without cause. If Employee wishes to terminate employment for good
reason Employee shall first give Company 30 days' written notice of the
circumstances constituting good reason and an opportunity to cure, unless the
circumstances are not subject to being cured. Following the notice and
opportunity to cure (if cure is not made), or immediately if notice and
opportunity to cure are not required, Employee may terminate employment for good
reason by giving written notice of termination. The notice may take effect
immediately or at such later date as Employee may designate, provided that
Company may accelerate the termination date by giving five business days'
written notice of the acceleration.
For purposes of this Agreement, "good reason" means and is limited to the
occurrence without cause and without Employee's consent of a material reduction
in the character of Employee's duties, level of work responsibility or working
conditions, a reduction in Employee's salary and/or benefits greater than 10% of
the level initially established at the commencement of this Agreement, Company
requiring Employee to be based anywhere other than the greater Seattle area,
except for reasonable travel on Company's business, or any material breach by
Company of its duties or obligations to Employee that results in material harm
to Employee.
Page -2-
<PAGE>
e. Death. Employee's employment shall terminate automatically upon
Employee's death.
11. Indemnification. Company shall defend and indemnify Employee from and
against any and all claims that may be asserted against Employee by third
parties (including derivative claims asserted by third parties on behalf of
Company) that are connected with Employee's employment by Company, to the extent
permitted by applicable law. The foregoing notwithstanding, Company shall not
be required to defend or indemnify Employee (a) in criminal proceedings, (b) in
civil proceedings where Employee is the plaintiff or (c) to the extent it is
finally adjudicated that Employee did not act in good faith and in the
reasonable belief that Employee's actions were appropriate in the discharge of
Employee's duties for Company. Company may fulfill its duty of defense by
providing competent legal counsel of Company's choosing. The foregoing rights
are in addition to any other rights to which Employee may be entitled under any
other agreement, policy, bylaw, insurance policy, ordinance, statute or other
provision.
12. Invention, Confidentiality, Nonraiding and Noncompetition Agreement.
Employee shall execute an Invention, Confidentiality, Nonraiding and
Noncompetition Agreement in the form attached as EXHIBIT A, which is a part of
this Agreement.
13. Dispute Resolution. All disputes between Employee and Company that
otherwise would be resolved in court shall be resolved instead by the following
alternate dispute resolution process (the "Process").
a. Disputes Covered. This Process applies to all disputes between
Employee and Company, including those arising out of or related to this
Agreement or Employee's employment at Company. Disputes subject to this Process
include but are not limited to pay disputes, contract disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes.
This Process applies to disputes Employee may have with Company and also applies
to disputes Employee may have with any of Company's employees or agents so long
as the employee or agent with whom Employee has the dispute is also bound by or
consents to this Process. This Process applies regardless of when the dispute
arises and will remain in effect after Employee's employment with Company ends,
regardless of the reason it ends. This Process does not apply, however, to
workers' compensation or unemployment compensation claims.
b. Mediation. Before having an arbitration hearing, Employee and
Company agree to attempt to resolve all disputes by mediation using the
Employment Mediation Rules of the American Arbitration Association. Mediation
is a nonbinding process in which a neutral person helps the parties to try to
reach an agreement to resolve their disputes. If the mediation is done after
one party has started the arbitration process, the mediation shall not delay the
arbitration hearing date. Temporary or interim relief may be sought without
mediating first. Any failure to mediate shall not affect the validity of an
arbitration award or the obligation to arbitrate.
c. Arbitration. All disputes that are not resolved by agreement (in
mediation or otherwise) shall be determined by binding arbitration. Arbitration
is a process in which one or more neutral people decide the case after hearing
evidence presented by both sides. The arbitration shall be governed by the
rules of the American Arbitration Association.
d. Injunctive Relief. Either party may request a court to issue such
temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after mediation
or arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of mediation or arbitration. No such request shall
be a waiver of the right to submit any dispute to mediation or arbitration.
e. Attorneys' Fees, Venue and Jurisdiction in Court. In any lawsuit
arising out of or related to this Agreement or Employee's employment at Company,
the prevailing party shall recover reasonable costs and attorneys' fees,
including on appeal. Venue and jurisdiction of any such lawsuit shall exist
exclusively in state and federal courts in King County, Washington, unless
injunctive relief is sought by Company and, in Company's judgment, that relief
might not be effective unless obtained in some other venue. These provisions do
not give any party a right to proceed in court in violation of the agreement to
arbitrate described above.
Page -3-
<PAGE>
f. Employment Status. This Dispute Resolution Process does not
guarantee continued employment, require discharge only for cause or require any
particular corrective action or discharge procedures.
14. Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
15. Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this
Agreement is held to be unenforceable as written, it shall be enforced to the
maximum extent allowed by applicable law. The indemnification, confidentiality,
limitations on publicity, possession of materials, noncompetition, nonraiding
and dispute resolution provisions of this Agreement shall survive after
Employee's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Employee may have against Company.
16. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this Agreement or failure to enforce any
provision of this Agreement shall not waive any later breach.
17. Assignment; Successors. Company may assign its rights and delegate
its duties under this Agreement. Employee may not assign Employee's rights or
delegate Employee's duties under this Agreement.
18. Binding Effect. This Agreement is binding upon the parties and their
personal representatives, heirs, successors and permitted assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
20. Legal Representation. In connection with this Agreement, the law firm
of Cairncross & Hempelmann has represented only Company and has not represented
Employee. Employee acknowledges that Employee has been advised to consult with
independent legal counsel before signing this Agreement and has had the
opportunity to do so.
21. Complete Agreement. This Agreement, together with the attached
Exhibits, is the final and complete expression of the parties' agreement
relating to Employee's employment, and supercedes any prior employment
agreements and/or understandings between the parties. This Agreement may be
amended only by a writing signed by both parties; it may not be amended orally
or by course of dealing. The parties are not entering into this Agreement
relying on anything not set out in this Agreement. This Agreement shall control
over any inconsistent policies or procedures of Company, whether in effect now
or adopted later, but Company's policies and procedures that are consistent with
this Agreement, whether in effect now or adopted later, shall apply to Employee
according to their terms.
DATED as of the date first written above.
EMPLOYEE: RYAN SMITH
/s/ Ryan Smith
----------------------------------------
INTERACTIVE OBJECTS, INC.:
By: /s/ Ryan Smith
------------------------------------
Its: Chairman/CEO
Page -4-
<PAGE>
AMENDMENT TO COMPENSATION AGREEMENT
This Amendment (the "Amendment") is entered into and made effective as of
the 1st day of July, 1998 and amends that certain Compensation Agreement (the
"Agreement") dated as of January 1, 1998 between Interactive Objects, Inc., a
Washington corporation (the "Company"), and Ryan Smith (the "Employee").
The parties hereby agree as follows:
1. The first phrase of the first sentence in Section 5(a) of the Agreement
is amended to read as follows:
"Employee's salary initially shall be $14,853.33 per month ($175,000 per
year on an annualized basis), ...".
2. Section 10(a) of the Agreement is amended to read in its entirety as
follows:
"a. By Company Without Cause. Company may terminate Employee's
employment at any time, without cause or good reason or advance notice."
3. A new Section 10(e) is added to the Agreement to read in its entirety
as follows:
"e. Severance. If (i) Company terminates Employee's employment for
any reason other than fraud or (ii) Employee terminates Employee's
employment for any reason or no reason, and, in any event, provided that
Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company,
Company shall pay to Employee termination payments equal to twelve months'
salary, based on Employee's total base salary (excluding bonuses,
commissions and other compensation) for the year in which Employee is
terminated."
4. Except as amended above, the Agreement shall continue in full force and
effect as though set forth in this Amendment.
DATED as of the date first above written.
EMPLOYEE: INTERACTIVE OBJECTS, INC.
/s/ Ryan Smith By: /s/ Steve G. Wollach
- -------------------------------- ----------------------------------
Ryan Smith Its: Chief Financial Officer/Treasurer
<PAGE>
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is dated and made
effective the 1st day of January, 1998 (the "Effective Date") between
Interactive Objects, Inc. a Utah corporation (the "Company") and John J. Guarino
(the "Employee").
1. Employment. Company employs and Employee accepts employment on the
terms and conditions in this Agreement.
2. Duties. Employee is employed in the capacity of Executive Vice
President. Employee shall perform the duties customarily performed by an
Executive Vice President, provided that Employee's precise duties may be
changed, extended or curtailed, from time to time, at the Company's direction,
and Employee shall assume and perform the further reasonable responsibilities
and duties that the Company may assign from time to time.
3. Intensity of Effort; Other Business. Employee shall devote Employee's
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve Employee
providing any advice or services to the businesses in which the investments are
made.
4. Term. The term of this Agreement starts on the Effective Date and
expires one year later (the "Initial Term"). This Agreement shall automatically
be renewed for successive one-year terms (each referred to as an "Extended
Term") unless either party gives written notice of nonrenewal at least thirty
(30) days before the expiration of the term. Unless stated otherwise, the word
"year" as used in this Agreement refers to incremental periods of 365 days each
(366 days in the case of a leap year), not calendar years. This Agreement may
terminate before the expiration of any term as provided below.
5. Compensation. Employee's compensation shall be as follows:
a. Employee's salary initially shall be $8,333 per month ($100,000
per year on an annualized basis), which shall be computed and paid in equal
installments consistent with Company's normal payroll procedures. At the end of
each calendar year, Employee's salary shall be reviewed by the Board and
adjusted as determined by the Board in its sole discretion, provided that,
absent cause or Employee's consent, it may not be adjusted downward.
b. Employee may receive annual bonuses, profit sharing and/or
incentive compensation based on Company's profitability as determined by the
Board in its sole discretion.
c. Employee shall be eligible for such other compensation as may be
provided by the Board in its sole discretion.
6. Benefit Plans. Employee shall be eligible for all benefit plans
(including retirement or pension plans, profit sharing plans and stock option
plans) that are provided generally to Company's executive employees.
7. Vacation and Personal Leave. Employee shall be entitled to such paid
vacation and personal days per calendar year (prorated if this Agreement begins
and/or ends in the middle of a calendar year) as provided in the Company's
benefit plan set forth in the Company's Employee Handbook.
8. Disability. Employee shall be entitled to such disability benefits as
provided in the Company's benefit plan set forth in the Company's Employee
Handbook.
9. Business Expenses. Employee is authorized to incur reasonable travel
and entertainment expenses to promote Company's business. Company shall
reimburse Employee for those expenses. Employee shall provide to Company the
itemized expense account information that Company reasonably requests.
Page -1-
<PAGE>
10. Termination. Employee's employment may be terminated before the
expiration of this Agreement as follows, in which event Employee's compensation
and benefits shall terminate except as otherwise provided below:
a. By Company Without Cause. Company may terminate Employee's
employment at anytime, without cause or good reason or advance notice. If
Company terminates Employee's employment without cause, however, and provided
that Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company, Company
shall pay to Employee termination payments equal to two months' salary, based on
Employee's total base salary (excluding bonuses, commissions and other
compensation) for the year in which Employee is terminated. These termination
payments shall be paid out at Employee's normal salary rate on regular payroll
days subject to normal payroll deductions. Employee shall not be required to
mitigate the amount of these termination payments by seeking other employment or
otherwise, and no income to Employee of any kind shall reduce the termination
payments.
b. By Company for Cause. Company may terminate Employee's
employment for cause. If Company wishes to terminate Employee's employment for
cause it shall first give Employee 30 days' written notice of the circumstances
constituting cause and an opportunity to cure, unless the circumstances are not
subject to being cured. Following the notice and opportunity to cure (if cure is
not made), or immediately if notice and opportunity to cure are not required,
Company may terminate Employee's employment for cause by giving written notice
of termination. The notice may take effect immediately or at such later date as
Company may designate, provided that Employee may accelerate the termination
date by giving five business days' written notice of the acceleration. Any
termination of Employee's employment for cause must be approved by a majority of
the Board other than Employee. Employee must be given reasonable advance notice
of the meeting at which termination is to be considered, and a reasonable
opportunity to address the Board.
For purposes of this Agreement "cause" means and is limited to dishonesty,
fraud, commission of a felony or of a crime involving moral turpitude,
destruction or theft of Company property, physical attack to a fellow employee,
intoxication at work, use of narcotics or alcohol to an extent that materially
impairs Employee's performance of his or her duties, willful malfeasance or
gross negligence in the performance of Employee's duties, violation of law in
the course of employment that has a material adverse impact on Company or its
employees, misconduct materially injurious to Company, or any material breach of
Employee's duties or obligations to Company that results in material harm to
Company.
c. By Employee Without Good Reason. Employee may terminate
Employee's employment at any time, with or without good reason, by giving ninety
(90) days' advance written notice of termination.
d. By Employee for Good Reason. Employee may terminate Employee's
employment for good reason, in which event Employee shall be entitled to the
same rights under this Agreement as if Company had terminated Employee's
employment without cause. If Employee wishes to terminate employment for good
reason Employee shall first give Company 30 days' written notice of the
circumstances constituting good reason and an opportunity to cure, unless the
circumstances are not subject to being cured. Following the notice and
opportunity to cure (if cure is not made), or immediately if notice and
opportunity to cure are not required, Employee may terminate employment for good
reason by giving written notice of termination. The notice may take effect
immediately or at such later date as Employee may designate, provided that
Company may accelerate the termination date by giving five business days'
written notice of the acceleration.
For purposes of this Agreement, "good reason" means and is limited to the
occurrence without cause and without Employee's consent of a material reduction
in the character of Employee's duties, level of work responsibility or working
conditions, a reduction in Employee's salary and/or benefits greater than 10% of
the level initially established at the commencement of this Agreement, Company
requiring Employee to be based anywhere other than the greater Seattle area,
except for reasonable travel on Company's business, or any material breach by
Company of its duties or obligations to Employee that results in material harm
to Employee.
e. Death. Employee's employment shall terminate automatically upon
Employee's death.
Page -2-
<PAGE>
11. Indemnification. Company shall defend and indemnify Employee from and
against any and all claims that may be asserted against Employee by third
parties (including derivative claims asserted by third parties on behalf of
Company) that are connected with Employee's employment by Company, to the extent
permitted by applicable law. The foregoing notwithstanding, Company shall not be
required to defend or indemnify Employee (a) in criminal proceedings, (b) in
civil proceedings where Employee is the plaintiff or (c) to the extent it is
finally adjudicated that Employee did not act in good faith and in the
reasonable belief that Employee's actions were appropriate in the discharge of
Employee's duties for Company. Company may fulfill its duty of defense by
providing competent legal counsel of Company's choosing. The foregoing rights
are in addition to any other rights to which Employee may be entitled under any
other agreement, policy, bylaw, insurance policy, ordinance, statute or other
provision.
12. Invention, Confidentiality, Nonraiding and Noncompetition Agreement.
Employee shall execute an Invention, Confidentiality, Nonraiding and
Noncompetition Agreement in the form attached as Exhibit A, which is a part of
this Agreement.
13. Dispute Resolution. All disputes between Employee and Company that
otherwise would be resolved in court shall be resolved instead by the following
alternate dispute resolution process (the "Process").
a. Disputes Covered. This Process applies to all disputes between
Employee and Company, including those arising out of or related to this
Agreement or Employee's employment at Company. Disputes subject to this Process
include but are not limited to pay disputes, contract disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes.
This Process applies to disputes Employee may have with Company and also applies
to disputes Employee may have with any of Company's employees or agents so long
as the employee or agent with whom Employee has the dispute is also bound by or
consents to this Process. This Process applies regardless of when the dispute
arises and will remain in effect after Employee's employment with Company ends,
regardless of the reason it ends. This Process does not apply, however, to
workers' compensation or unemployment compensation claims.
b. Mediation. Before having an arbitration hearing, Employee and
Company agree to attempt to resolve all disputes by mediation using the
Employment Mediation Rules of the American Arbitration Association. Mediation is
a nonbinding process in which a neutral person helps the parties to try to reach
an agreement to resolve their disputes. If the mediation is done after one party
has started the arbitration process, the mediation shall not delay the
arbitration hearing date. Temporary or interim relief may be sought without
mediating first. Any failure to mediate shall not affect the validity of an
arbitration award or the obligation to arbitrate.
c. Arbitration. All disputes that are not resolved by agreement (in
mediation or otherwise) shall be determined by binding arbitration. Arbitration
is a process in which one or more neutral people decide the case after hearing
evidence presented by both sides. The arbitration shall be governed by the rules
of the American Arbitration Association.
d. Injunctive Relief. Either party may request a court to issue such
temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after mediation
or arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of mediation or arbitration. No such request shall be
a waiver of the right to submit any dispute to mediation or arbitration.
e. Attorneys' Fees, Venue and Jurisdiction in Court. In any lawsuit
arising out of or related to this Agreement or Employee's employment at Company,
the prevailing party shall recover reasonable costs and attorneys' fees,
including on appeal. Venue and jurisdiction of any such lawsuit shall exist
exclusively in state and federal courts in King County, Washington, unless
injunctive relief is sought by Company and, in Company's judgment, that relief
might not be effective unless obtained in some other venue. These provisions do
not give any party a right to proceed in court in violation of the agreement to
arbitrate described above.
f. Employment Status. This Dispute Resolution Process does not
guarantee continued employment, require discharge only for cause or require any
particular corrective action or discharge procedures.
Page -3-
<PAGE>
14. Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
15. Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this
Agreement is held to be unenforceable as written, it shall be enforced to the
maximum extent allowed by applicable law. The indemnification, confidentiality,
limitations on publicity, possession of materials, noncompetition, nonraiding
and dispute resolution provisions of this Agreement shall survive after
Employee's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Employee may have against Company.
16. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this Agreement or failure to enforce any
provision of this Agreement shall not waive any later breach.
17. Assignment; Successors. Company may assign its rights and delegate
its duties under this Agreement. Employee may not assign Employee's rights or
delegate Employee's duties under this Agreement.
18. Binding Effect. This Agreement is binding upon the parties and their
personal representatives, heirs, successors and permitted assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
20. Legal Representation. In connection with this Agreement, the law firm
of Cairncross & Hempelmann has represented only Company and has not represented
Employee. Employee acknowledges that Employee has been advised to consult with
independent legal counsel before signing this Agreement and has had the
opportunity to do so.
21. Complete Agreement. This Agreement, together with the attached
Exhibits, is the final and complete expression of the parties' agreement
relating to Employee's employment, and supercedes any prior employment
agreements and/or understandings between the parties. This Agreement may be
amended only by a writing signed by both parties; it may not be amended orally
or by course of dealing. The parties are not entering into this Agreement
relying on anything not set out in this Agreement. This Agreement shall control
over any inconsistent policies or procedures of Company, whether in effect now
or adopted later, but Company's policies and procedures that are consistent with
this Agreement, whether in effect now or adopted later, shall apply to Employee
according to their terms.
DATED as of the date first written above.
EMPLOYEE: JOHN J. GUARINO
--------
/s/ John J. Guarino
--------------------------
INTERACTIVE OBJECTS, INC.:
--------------------------
By: /s/ Ryan Smith
---------------------
Its: Chairman/CEO
----------------
Page -4-
<PAGE>
AMENDMENT TO COMPENSATION AGREEMENT
This Amendment (the "Amendment") is entered into and made effective as of
the 1st day of July, 1998 and amends that certain Compensation Agreement (the
"Agreement") dated as of January 1, 1998 between Interactive Objects, Inc., a
Washington corporation (the "Company"), and John J. Guarino (the "Employee").
The parties hereby agree as follows:
1. The first phrase of the first sentence in Section 5(a) of the
Agreement is amended to read as follows:
"Employee's salary initially shall be $11,250 per month ($135,000 per year
on an annualized basis), ...".
2. Section 10(a) of the Agreement is amended to read in its entirety as
follows:
"a. By Company Without Cause. Company may terminate Employee's
employment at any time, without cause or good reason or advance notice."
3. A new Section 10(e) is added to the Agreement to read in its entirety
as follows:
"e. Severance. If (i) Company terminates Employee's employment for
any reason other than fraud or (ii) Employee terminates Employee's
employment for any reason or no reason, and, in any event, provided that
Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company,
Company shall pay to Employee termination payments equal to twelve months'
salary, based on Employee's total base salary (excluding bonuses,
commissions and other compensation) for the year in which Employee is
terminated."
4. Except as amended above, the Agreement shall continue in full force
and effect as though set forth in this Amendment.
DATED as of the date first above written.
EMPLOYEE: INTERACTIVE OBJECTS, INC.:
/s/ John J. Guarino By: /s/ Ryan Smith
- -------------------------------- ----------------------
JOHN J. GUARINO Its: Chairman/CEO
----------------------
<PAGE>
EXHIBIT 10.6
COMPENSATION AGREEMENT
This Compensation Agreement (this "Agreement") is dated and made effective
the 1st day of January, 1998 (the "Effective Date") between Interactive Objects,
Inc. a Utah corporation (the "Company") and Steven G. Wollach (the "Employee").
1. Employment. Company employs and Employee accepts employment on the
terms and conditions in this Agreement.
2. Duties. Employee is employed in the capacity of a Chief Financial
Officer. Employee shall perform the duties customarily performed by a Chief
Financial Officer, provided that Employee's precise duties may be changed,
extended or curtailed, from time to time, at the Company's direction, and
Employee shall assume and perform the further reasonable responsibilities and
duties that the Company may assign from time to time.
3. Intensity of Effort; Other Business. Employee shall devote Employee's
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve Employee
providing any advice or services to the businesses in which the investments are
made.
4. Term. The term of this Agreement starts on the Effective Date and
expires one year later (the "Initial Term"). This Agreement shall automatically
be renewed for successive one-year terms (each referred to as an "Extended
Term") unless either party gives written notice of nonrenewal at least thirty
(30) days before the expiration of the term. Unless stated otherwise, the word
"year" as used in this Agreement refers to incremental periods of 365 days each
(366 days in the case of a leap year), not calendar years. This Agreement may
terminate before the expiration of any term as provided below.
5. Compensation. Employee's compensation shall be as follows:
a. Employee's salary initially shall be $8,333 per month ($100,000
per year on an annualized basis), which shall be computed and paid in equal
installments consistent with Company's normal payroll procedures. At the end of
each calendar year, Employee's salary shall be reviewed by the Board and
adjusted as determined by the Board in its sole discretion, provided that,
absent cause or Employee's consent, it may not be adjusted downward.
b. Employee shall receive a signing bonus in the form of an option to
purchase 60,000 shares of Common Stock of the Company at $2.31 per share, which
option shall vest 100 percent one year from the date of hire and be subject to
the terms and conditions of the Company's 1998 stock option plan.
c. Employee may receive annual bonuses, profit sharing and/or
incentive compensation based on Company's profitability as determined by the
Board in its sole discretion.
d. Employee shall be eligible for such other compensation as may be
provided by the Board in its sole discretion.
6. Benefit Plans. Employee shall be eligible for all benefit plans
(including retirement or pension plans, profit sharing plans and stock option
plans) that are provided generally to Company's executive employees.
7. Vacation and Sick Leave. Employee shall be entitled to such paid
vacation and personal days per calendar year (prorated if this Agreement begins
and/or ends in the middle of a calendar year) as provided in the Company's
benefit plan set forth in the Company's Employee Handbook.
8. Disability. Employee shall be entitled to such disability benefits as
provided in the Company's benefit plan set forth in the Company's Employee
Handbook.
Page -1-
<PAGE>
9. Business Expenses. Employee is authorized to incur reasonable travel
and entertainment expenses to promote Company's business. Company shall
reimburse Employee for those expenses. Employee shall provide to Company the
itemized expense account information that Company reasonably requests.
10. Termination. Employee's employment may be terminated before the
expiration of this Agreement as follows, in which event Employee's compensation
and benefits shall terminate except as otherwise provided below:
a. By Company Without Cause. Company may terminate Employee's
employment at anytime, without cause or good reason or advance notice. If
Company terminates Employee's employment without cause, however, and provided
that Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company, Company
shall pay to Employee termination payments equal to one month's salary, based on
Employee's total base salary (excluding bonuses, commissions and other
compensation) for the year in which Employee is terminated. These termination
payments shall be paid out at Employee's normal salary rate on regular payroll
days subject to normal payroll deductions. Employee shall not be required to
mitigate the amount of these termination payments by seeking other employment or
otherwise, and no income to Employee of any kind shall reduce the termination
payments.
b. By Company for Cause. Company may terminate Employee's employment
for cause. If Company wishes to terminate Employee's employment for cause it
shall first give Employee 30 days' written notice of the circumstances
constituting cause and an opportunity to cure, unless the circumstances are not
subject to being cured. Following the notice and opportunity to cure (if cure is
not made), or immediately if notice and opportunity to cure are not required,
Company may terminate Employee's employment for cause by giving written notice
of termination. The notice may take effect immediately or at such later date as
Company may designate, provided that Employee may accelerate the termination
date by giving five business days' written notice of the acceleration. Any
termination of Employee's employment for cause must be approved by a majority of
the Board other than Employee. Employee must be given reasonable advance notice
of the meeting at which termination is to be considered, and a reasonable
opportunity to address the Board.
For purposes of this Agreement "cause" means and is limited to dishonesty,
fraud, commission of a felony or of a crime involving moral turpitude,
destruction or theft of Company property, physical attack to a fellow employee,
intoxication at work, use of narcotics or alcohol to an extent that materially
impairs Employee's performance of his or her duties, willful malfeasance or
gross negligence in the performance of Employee's duties, violation of law in
the course of employment that has a material adverse impact on Company or its
employees, misconduct materially injurious to Company, or any material breach of
Employee's duties or obligations to Company that results in material harm to
Company.
c. By Employee Without Good Reason. Employee may terminate
Employee's employment at any time, with or without good reason, by giving ninety
(90) days' advance written notice of termination.
d. By Employee for Good Reason. Employee may terminate Employee's
employment for good reason, in which event Employee shall be entitled to the
same rights under this Agreement as if Company had terminated Employee's
employment without cause. If Employee wishes to terminate employment for good
reason Employee shall first give Company 30 days' written notice of the
circumstances constituting good reason and an opportunity to cure, unless the
circumstances are not subject to being cured. Following the notice and
opportunity to cure (if cure is not made), or immediately if notice and
opportunity to cure are not required, Employee may terminate employment for good
reason by giving written notice of termination. The notice may take effect
immediately or at such later date as Employee may designate, provided that
Company may accelerate the termination date by giving five business days'
written notice of the acceleration.
For purposes of this Agreement, "good reason" means and is limited to the
occurrence without cause and without Employee's consent of a material reduction
in the character of Employee's duties, level of work responsibility or working
conditions, a reduction in Employee's salary and/or benefits greater than 10% of
the level initially established at the commencement of this Agreement, Company
requiring Employee to be based anywhere other than the greater Seattle area,
except for reasonable travel on Company's business, or any material breach by
Page -2-
<PAGE>
Company of its duties or obligations to Employee that results in material harm
to Employee.
e. Death. Employee's employment shall terminate automatically upon
Employee's death.
11. Indemnification. Company shall defend and indemnify Employee from and
against any and all claims that may be asserted against Employee by third
parties (including derivative claims asserted by third parties on behalf of
Company) that are connected with Employee's employment by Company, to the extent
permitted by applicable law. The foregoing notwithstanding, Company shall not
be required to defend or indemnify Employee (a) in criminal proceedings, (b) in
civil proceedings where Employee is the plaintiff or (c) to the extent it is
finally adjudicated that Employee did not act in good faith and in the
reasonable belief that Employee's actions were appropriate in the discharge of
Employee's duties for Company. Company may fulfill its duty of defense by
providing competent legal counsel of Company's choosing. The foregoing rights
are in addition to any other rights to which Employee may be entitled under any
other agreement, policy, bylaw, insurance policy, ordinance, statute or other
provision.
12. Invention, Confidentiality, Nonraiding and Noncompetition Agreement.
Employee shall execute an Invention, Confidentiality, Nonraiding and
Noncompetition Agreement in the form attached as EXHIBIT A, which is a part of
this Agreement.
13. Dispute Resolution. All disputes between Employee and Company that
otherwise would be resolved in court shall be resolved instead by the following
alternate dispute resolution process (the "Process").
a. Disputes Covered. This Process applies to all disputes between
Employee and Company, including those arising out of or related to this
Agreement or Employee's employment at Company. Disputes subject to this Process
include but are not limited to pay disputes, contract disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes.
This Process applies to disputes Employee may have with Company and also applies
to disputes Employee may have with any of Company's employees or agents so long
as the employee or agent with whom Employee has the dispute is also bound by or
consents to this Process. This Process applies regardless of when the dispute
arises and will remain in effect after Employee's employment with Company ends,
regardless of the reason it ends. This Process does not apply, however, to
workers' compensation or unemployment compensation claims.
b. Mediation. Before having an arbitration hearing, Employee and
Company agree to attempt to resolve all disputes by mediation using the
Employment Mediation Rules of the American Arbitration Association. Mediation is
a nonbinding process in which a neutral person helps the parties to try to reach
an agreement to resolve their disputes. If the mediation is done after one party
has started the arbitration process, the mediation shall not delay the
arbitration hearing date. Temporary or interim relief may be sought without
mediating first. Any failure to mediate shall not affect the validity of an
arbitration award or the obligation to arbitrate.
c. Arbitration. All disputes that are not resolved by agreement (in
mediation or otherwise) shall be determined by binding arbitration. Arbitration
is a process in which one or more neutral people decide the case after hearing
evidence presented by both sides. The arbitration shall be governed by the
rules of the American Arbitration Association.
d. Injunctive Relief. Either party may request a court to issue such
temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after mediation
or arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of mediation or arbitration. No such request shall
be a waiver of the right to submit any dispute to mediation or arbitration.
e. Attorneys' Fees, Venue and Jurisdiction in Court. In any lawsuit
arising out of or related to this Agreement or Employee's employment at Company,
the prevailing party shall recover reasonable costs and attorneys' fees,
including on appeal. Venue and jurisdiction of any such lawsuit shall exist
exclusively in state and federal courts in King County, Washington, unless
injunctive relief is sought by Company and, in Company's judgment, that relief
might not be effective unless obtained in some other venue. These provisions do
not give any party a right to proceed in court in violation of the agreement to
arbitrate described above.
Page -3-
<PAGE>
f. Employment Status. This Dispute Resolution Process does not
guarantee continued employment, require discharge only for cause or require any
particular corrective action or discharge procedures.
14. Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
15. Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this
Agreement is held to be unenforceable as written, it shall be enforced to the
maximum extent allowed by applicable law. The indemnification, confidentiality,
limitations on publicity, possession of materials, noncompetition, nonraiding
and dispute resolution provisions of this Agreement shall survive after
Employee's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Employee may have against Company.
16. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this Agreement or failure to enforce any
provision of this Agreement shall not waive any later breach.
17. Assignment; Successors. Company may assign its rights and delegate
its duties under this Agreement. Employee may not assign Employee's rights or
delegate Employee's duties under this Agreement.
18. Binding Effect. This Agreement is binding upon the parties and their
personal representatives, heirs, successors and permitted assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
20. Legal Representation. In connection with this Agreement, the law firm
of Cairncross & Hempelmann has represented only Company and has not represented
Employee. Employee acknowledges that Employee has been advised to consult with
independent legal counsel before signing this Agreement and has had the
opportunity to do so.
21. Complete Agreement. This Agreement, together with the attached
Exhibits, is the final and complete expression of the parties' agreement
relating to Employee's employment, and supercedes any prior employment
agreements and/or understandings between the parties. This Agreement may be
amended only by a writing signed by both parties; it may not be amended orally
or by course of dealing. The parties are not entering into this Agreement
relying on anything not set out in this Agreement. This Agreement shall control
over any inconsistent policies or procedures of Company, whether in effect now
or adopted later, but Company's policies and procedures that are consistent with
this Agreement, whether in effect now or adopted later, shall apply to Employee
according to their terms.
DATED as of the date first written above.
EMPLOYEE: STEVEN G. WOLLACH
/s/ Steven G. Wollach
---------------------
INTERACTIVE OBJECTS, INC.:
By: /s/Ryan Smith
-------------------
Its: Chairman/CEO
Page -4-
<PAGE>
AMENDMENT TO COMPENSATION AGREEMENT
This Amendment (the "Amendment") is entered into and made effective as of
the 1st day of July, 1998 and amends that certain Compensation Agreement (the
"Agreement") dated as of January 1, 1998 between Interactive Objects, Inc., a
Washington corporation (the "Company"), and Steven G. Wollach (the "Employee").
The parties hereby agree as follows:
1. The first phrase of the first sentence in Section 5(a) of the
Agreement is amended to read as follows:
"Employee's salary initially shall be $11,250 per month ($135,000 per year
on an annualized basis), ...".
2. Section 10(a) of the Agreement is amended to read in its entirety as
follows:
"a. By Company Without Cause. Company may terminate Employee's
employment at any time, without cause or good reason or advance notice."
3. A new Section 10(e) is added to the Agreement to read in its entirety
as follows:
"e. Severance. If (i) Company terminates Employee's employment for
any reason other than fraud or (ii) Employee terminates Employee's
employment for any reason or no reason, and, in any event, provided that
Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company,
Company shall pay to Employee termination payments equal to twelve months'
salary, based on Employee's total base salary (excluding bonuses,
commissions and other compensation) for the year in which Employee is
terminated."
4. The Company desires to increase the number of shares underlying stock
options granted to Employee from 60,000 shares to 200,000 shares. Accordingly,
Section 5(b) of the Agreement is amended to read as follows:
"b. Employee shall receive a signing bonus in the form of options to
purchase up to 200,000 shares of Common Stock of the Company at an exercise
price of $2.31 per share, which option shall be subject to the terms and
conditions of the Company's 1998 stock option plan. The options shall vest
as follows: options for 60,000 shares shall be "incentive stock options"
(as defined under Section 422 of the Internal Revenue Code of 1986, as
amended) and shall vest one year from the date of hire, and the remaining
options for 140,000 shares shall be "nonqualified stock options" and shall
vest ratably in one month increments over the subsequent two years;
provided, however, that notwithstanding the above, all options shall be
accelerated and immediately exercisable in the event that (i) Company
terminates Employee's employment for any reason other than fraud or (ii)
Employee terminates Employee's employment for any reason or no reason."
5. Except as amended above, the Agreement shall continue in full force
and effect as though set forth in this Amendment.
DATED as of the date first above written.
EMPLOYEE: INTERACTIVE OBJECTS, INC.
/s/ Steven G. Wollach By: /s/ Ryan Smith
- --------------------- ----------------------
Steven G. Wollach Its: Chairman/CEO
<PAGE>
EXHIBIT 10.7
COMPENSATION AGREEMENT
This Compensation Agreement (this "Agreement") is dated and made effective
the 1st day of January, 1998 (the "Effective Date") between Interactive Objects,
Inc. a Utah corporation (the "Company") and Daren Kloes (the "Employee").
1. Employment. Company employs and Employee accepts employment on the
terms and conditions in this Agreement.
2. Duties. Employee is employed in the capacity of a Vice President of
Marketing. Employee shall perform the duties customarily performed by a Vice
President of Marketing, provided that Employee's precise duties may be changed,
extended or curtailed, from time to time, at the Company's direction, and
Employee shall assume and perform the further reasonable responsibilities and
duties that the Company may assign from time to time.
3. Intensity of Effort; Other Business. Employee shall devote Employee's
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve Employee
providing any advice or services to the businesses in which the investments are
made.
4. Term. The term of this Agreement starts on the Effective Date and
expires one year later (the "Initial Term"). This Agreement shall automatically
be renewed for successive one-year terms (each referred to as an "Extended
Term") unless either party gives written notice of nonrenewal at least thirty
(30) days before the expiration of the term. Unless stated otherwise, the word
"year" as used in this Agreement refers to incremental periods of 365 days each
(366 days in the case of a leap year), not calendar years. This Agreement may
terminate before the expiration of any term as provided below.
5. Compensation. Employee's compensation shall be as follows:
a. Employee's salary initially shall be $8,333 per month ($100,000
per year on an annualized basis), which shall be computed and paid in equal
installments consistent with Company's normal payroll procedures. At the end of
each calendar year, Employee's salary shall be reviewed by the Board and
adjusted as determined by the Board in its sole discretion, provided that,
absent cause or Employee's consent, it may not be adjusted downward.
b. Employee may receive annual bonuses, profit sharing and/or
incentive compensation based on Company's profitability as determined by the
Board in its sole discretion.
c. Employee shall be eligible for such other compensation as may be
provided by the Board in its sole discretion.
6. Benefit Plans. Employee shall be eligible for all benefit plans
(including retirement or pension plans, profit sharing plans and stock option
plans) that are provided generally to Company's executive employees.
7. Vacation and Personal Leave. Employee shall be entitled to such paid
vacation and personal days per calendar year (prorated if this Agreement begins
and/or ends in the middle of a calendar year) as provided in the Company's
benefit plan set forth in the Company's Employee Handbook.
8. Disability. Employee shall be entitled to such disability benefits as
provided in the Company's benefit plan set forth in the Company's Employee
Handbook.
Page -1-
<PAGE>
9. Business Expenses. Employee is authorized to incur reasonable travel
and entertainment expenses to promote Company's business. Company shall
reimburse Employee for those expenses. Employee shall provide to Company the
itemized expense account information that Company reasonably requests.
10. Termination. Employee's employment may be terminated before the
expiration of this Agreement as follows, in which event Employee's compensation
and benefits shall terminate except as otherwise provided below:
a. By Company Without Cause. Company may terminate Employee's
employment at anytime, without cause or good reason or advance notice. If
Company terminates Employee's employment without cause, however, and provided
that Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company, Company
shall pay to Employee termination payments equal to two weeks' salary, based on
Employee's total base salary (excluding bonuses, commissions and other
compensation) for the year in which Employee is terminated. These termination
payments shall be paid out at Employee's normal salary rate on regular payroll
days subject to normal payroll deductions. Employee shall not be required to
mitigate the amount of these termination payments by seeking other employment or
otherwise, and no income to Employee of any kind shall reduce the termination
payments.
b. By Company for Cause. Company may terminate Employee's
employment for cause. If Company wishes to terminate Employee's employment for
cause it shall first give Employee 30 days' written notice of the circumstances
constituting cause and an opportunity to cure, unless the circumstances are not
subject to being cured. Following the notice and opportunity to cure (if cure is
not made), or immediately if notice and opportunity to cure are not required,
Company may terminate Employee's employment for cause by giving written notice
of termination. The notice may take effect immediately or at such later date as
Company may designate, provided that Employee may accelerate the termination
date by giving five business days' written notice of the acceleration. Any
termination of Employee's employment for cause must be approved by a majority of
the Board other than Employee. Employee must be given reasonable advance notice
of the meeting at which termination is to be considered, and a reasonable
opportunity to address the Board.
For purposes of this Agreement "cause" means and is limited to dishonesty,
fraud, commission of a felony or of a crime involving moral turpitude,
destruction or theft of Company property, physical attack to a fellow employee,
intoxication at work, use of narcotics or alcohol to an extent that materially
impairs Employee's performance of his or her duties, willful malfeasance or
gross negligence in the performance of Employee's duties, violation of law in
the course of employment that has a material adverse impact on Company or its
employees, misconduct materially injurious to Company, or any material breach of
Employee's duties or obligations to Company that results in material harm to
Company.
c. By Employee Without Good Reason. Employee may terminate Employee's
employment at any time, with or without good reason, by giving ninety (90) days'
advance written notice of termination.
d. By Employee for Good Reason. Employee may terminate Employee's
employment for good reason, in which event Employee shall be entitled to the
same rights under this Agreement as if Company had terminated Employee's
employment without cause. If Employee wishes to terminate employment for good
reason Employee shall first give Company 30 days' written notice of the
circumstances constituting good reason and an opportunity to cure, unless the
circumstances are not subject to being cured. Following the notice and
opportunity to cure (if cure is not made), or immediately if notice and
opportunity to cure are not required, Employee may terminate employment for good
reason by giving written notice of termination. The notice may take effect
immediately or at such later date as Employee may designate, provided that
Company may accelerate the termination date by giving five business days'
written notice of the acceleration.
For purposes of this Agreement, "good reason" means and is limited to the
occurrence without cause and without Employee's consent of a material reduction
in the character of Employee's duties, level of work responsibility or working
conditions, a reduction in Employee's salary and/or benefits greater than 10% of
the level initially established at the commencement of this Agreement, Company
requiring Employee to be based anywhere other than the greater Seattle area,
except for reasonable travel on Company's business, or any material breach by
Company of its duties or obligations to Employee that results in material harm
to Employee.
Page -2-
<PAGE>
e. Death. Employee's employment shall terminate automatically upon
Employee's death.
11. Indemnification. Company shall defend and indemnify Employee from and
against any and all claims that may be asserted against Employee by third
parties (including derivative claims asserted by third parties on behalf of
Company) that are connected with Employee's employment by Company, to the extent
permitted by applicable law. The foregoing notwithstanding, Company shall not be
required to defend or indemnify Employee (a) in criminal proceedings, (b) in
civil proceedings where Employee is the plaintiff or (c) to the extent it is
finally adjudicated that Employee did not act in good faith and in the
reasonable belief that Employee's actions were appropriate in the discharge of
Employee's duties for Company. Company may fulfill its duty of defense by
providing competent legal counsel of Company's choosing. The foregoing rights
are in addition to any other rights to which Employee may be entitled under any
other agreement, policy, bylaw, insurance policy, ordinance, statute or other
provision.
12. Invention, Confidentiality, Nonraiding and Noncompetition Agreement.
Employee shall execute an Invention, Confidentiality, Nonraiding and
Noncompetition Agreement in the form attached as EXHIBIT A, which is a part of
this Agreement.
13. Dispute Resolution. All disputes between Employee and Company that
otherwise would be resolved in court shall be resolved instead by the following
alternate dispute resolution process (the "Process").
a. Disputes Covered. This Process applies to all disputes between
Employee and Company, including those arising out of or related to this
Agreement or Employee's employment at Company. Disputes subject to this Process
include but are not limited to pay disputes, contract disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes.
This Process applies to disputes Employee may have with Company and also applies
to disputes Employee may have with any of Company's employees or agents so long
as the employee or agent with whom Employee has the dispute is also bound by or
consents to this Process. This Process applies regardless of when the dispute
arises and will remain in effect after Employee's employment with Company ends,
regardless of the reason it ends. This Process does not apply, however, to
workers' compensation or unemployment compensation claims.
b. Mediation. Before having an arbitration hearing, Employee and
Company agree to attempt to resolve all disputes by mediation using the
Employment Mediation Rules of the American Arbitration Association. Mediation is
a nonbinding process in which a neutral person helps the parties to try to reach
an agreement to resolve their disputes. If the mediation is done after one party
has started the arbitration process, the mediation shall not delay the
arbitration hearing date. Temporary or interim relief may be sought without
mediating first. Any failure to mediate shall not affect the validity of an
arbitration award or the obligation to arbitrate.
c. Arbitration. All disputes that are not resolved by agreement (in
mediation or otherwise) shall be determined by binding arbitration. Arbitration
is a process in which one or more neutral people decide the case after hearing
evidence presented by both sides. The arbitration shall be governed by the rules
of the American Arbitration Association.
d. Injunctive Relief. Either party may request a court to issue
such temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after mediation
or arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of mediation or arbitration. No such request shall be
a waiver of the right to submit any dispute to mediation or arbitration.
e. Attorneys' Fees, Venue and Jurisdiction in Court. In any lawsuit
arising out of or related to this Agreement or Employee's employment at Company,
the prevailing party shall recover reasonable costs and attorneys' fees,
including on appeal. Venue and jurisdiction of any such lawsuit shall exist
exclusively in state and federal courts in King County, Washington, unless
injunctive relief is sought by Company and, in Company's judgment, that relief
might not be effective unless obtained in some other venue. These provisions do
not give any party a right to proceed in court in violation of the agreement to
arbitrate described above.
Page -3-
<PAGE>
f. Employment Status. This Dispute Resolution Process does not
guarantee continued employment, require discharge only for cause or require any
particular corrective action or discharge procedures.
14. Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
15. Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this Agreement
is held to be unenforceable as written, it shall be enforced to the maximum
extent allowed by applicable law. The indemnification, confidentiality,
limitations on publicity, possession of materials, noncompetition, nonraiding
and dispute resolution provisions of this Agreement shall survive after
Employee's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Employee may have against Company.
16. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this Agreement or failure to enforce any
provision of this Agreement shall not waive any later breach.
17. Assignment; Successors. Company may assign its rights and delegate
its duties under this Agreement. Employee may not assign Employee's rights or
delegate Employee's duties under this Agreement.
18. Binding Effect. This Agreement is binding upon the parties and their
personal representatives, heirs, successors and permitted assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
20. Legal Representation. In connection with this Agreement, the law firm
of Cairncross & Hempelmann has represented only Company and has not represented
Employee. Employee acknowledges that Employee has been advised to consult with
independent legal counsel before signing this Agreement and has had the
opportunity to do so.
21. Complete Agreement. This Agreement, together with the attached
Exhibits, is the final and complete expression of the parties' agreement
relating to Employee's employment, and supercedes any prior employment
agreements and/or understandings between the parties. This Agreement may be
amended only by a writing signed by both parties; it may not be amended orally
or by course of dealing. The parties are not entering into this Agreement
relying on anything not set out in this Agreement. This Agreement shall control
over any inconsistent policies or procedures of Company, whether in effect now
or adopted later, but Company's policies and procedures that are consistent with
this Agreement, whether in effect now or adopted later, shall apply to Employee
according to their terms.
DATED as of the date first written above.
EMPLOYEE: DAREN KLOES
--------
/s/ Daren Kloes
--------------------------------
INTERACTIVE OBJECTS, INC.:
By: /s/ Ryan Smith
----------------------------
Its: Chairman/CEO
-----------------------
Page -4-
<PAGE>
EXHIBIT 10.8
COMPENSATION AGREEMENT
This Compensation Agreement (this "Agreement") is dated and made effective
the 1st day of January, 1998 (the "Effective Date") between Interactive Objects,
Inc. a Utah corporation (the "Company") and Jay Paulson (the "Employee").
1. Employment. Company employs and Employee accepts employment on the
terms and conditions in this Agreement.
2. Duties. Employee is employed in the capacity of Vice President of
Documentation. Employee shall perform the duties customarily performed by a
Vice President of Documentation, provided that Employee's precise duties may be
changed, extended or curtailed, from time to time, at the Company's direction,
and Employee shall assume and perform the further reasonable responsibilities
and duties that the Company may assign from time to time.
3. Intensity of Effort; Other Business. Employee shall devote Employee's
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve Employee
providing any advice or services to the businesses in which the investments are
made.
4. Term. The term of this Agreement starts on the Effective Date and
expires one year later (the "Initial Term"). This Agreement shall automatically
be renewed for successive one-year terms (each referred to as an "Extended
Term") unless either party gives written notice of nonrenewal at least thirty
(30) days before the expiration of the term. Unless stated otherwise, the word
"year" as used in this Agreement refers to incremental periods of 365 days each
(366 days in the case of a leap year), not calendar years. This Agreement may
terminate before the expiration of any term as provided below.
5. Compensation. Employee's compensation shall be as follows:
a. Employee's salary initially shall be $8,333 per month ($100,000
per year on an annualized basis), which shall be computed and paid in equal
installments consistent with Company's normal payroll procedures. At the end of
each calendar year, Employee's salary shall be reviewed by the Board and
adjusted as determined by the Board in its sole discretion, provided that,
absent cause or Employee's consent, it may not be adjusted downward.
b. Employee may receive annual bonuses, profit sharing and/or
incentive compensation based on Company's profitability as determined by the
Board in its sole discretion.
c. Employee shall be eligible for such other compensation as may be
provided by the Board in its sole discretion.
6. Benefit Plans. Employee shall be eligible for all benefit plans
(including retirement or pension plans, profit sharing plans and stock option
plans) that are provided generally to Company's executive employees.
7. Vacation and Personal Leave. Employee shall be entitled to such paid
vacation and personal days per calendar year (prorated if this Agreement begins
and/or ends in the middle of a calendar year) as provided in the Company's
benefit plan set forth in the Company's Employee Handbook.
8. Disability. Employee shall be entitled to such disability benefits as
provided in the Company's benefit plan set forth in the Company's Employee
Handbook.
9. Business Expenses. Employee is authorized to incur reasonable travel
and entertainment expenses to promote Company's business. Company shall
reimburse Employee for those expenses. Employee shall provide
Page -1-
<PAGE>
to Company the itemized expense account information that Company reasonably
requests.
10. Termination. Employee's employment may be terminated before the
expiration of this Agreement as follows, in which event Employee's compensation
and benefits shall terminate except as otherwise provided below:
a. By Company Without Cause. Company may terminate Employee's
employment at anytime, without cause or good reason or advance notice. If
Company terminates Employee's employment without cause, however, and provided
that Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company, Company
shall pay to Employee termination payments equal to two months' salary, based on
Employee's total base salary (excluding bonuses, commissions and other
compensation) for the year in which Employee is terminated. These termination
payments shall be paid out at Employee's normal salary rate on regular payroll
days subject to normal payroll deductions. Employee shall not be required to
mitigate the amount of these termination payments by seeking other employment or
otherwise, and no income to Employee of any kind shall reduce the termination
payments.
b. By Company for Cause. Company may terminate Employee's employment
for cause. If Company wishes to terminate Employee's employment for cause it
shall first give Employee 30 days' written notice of the circumstances
constituting cause and an opportunity to cure, unless the circumstances are not
subject to being cured. Following the notice and opportunity to cure (if cure is
not made), or immediately if notice and opportunity to cure are not required,
Company may terminate Employee's employment for cause by giving written notice
of termination. The notice may take effect immediately or at such later date as
Company may designate, provided that Employee may accelerate the termination
date by giving five business days' written notice of the acceleration. Any
termination of Employee's employment for cause must be approved by a majority of
the Board other than Employee. Employee must be given reasonable advance notice
of the meeting at which termination is to be considered, and a reasonable
opportunity to address the Board.
For purposes of this Agreement "cause" means and is limited to dishonesty,
fraud, commission of a felony or of a crime involving moral turpitude,
destruction or theft of Company property, physical attack to a fellow employee,
intoxication at work, use of narcotics or alcohol to an extent that materially
impairs Employee's performance of his or her duties, willful malfeasance or
gross negligence in the performance of Employee's duties, violation of law in
the course of employment that has a material adverse impact on Company or its
employees, misconduct materially injurious to Company, or any material breach of
Employee's duties or obligations to Company that results in material harm to
Company.
c. By Employee Without Good Reason. Employee may terminate
Employee's employment at any time, with or without good reason, by giving ninety
(90) days' advance written notice of termination.
d. By Employee for Good Reason. Employee may terminate Employee's
employment for good reason, in which event Employee shall be entitled to the
same rights under this Agreement as if Company had terminated Employee's
employment without cause. If Employee wishes to terminate employment for good
reason Employee shall first give Company 30 days' written notice of the
circumstances constituting good reason and an opportunity to cure, unless the
circumstances are not subject to being cured. Following the notice and
opportunity to cure (if cure is not made), or immediately if notice and
opportunity to cure are not required, Employee may terminate employment for good
reason by giving written notice of termination. The notice may take effect
immediately or at such later date as Employee may designate, provided that
Company may accelerate the termination date by giving five business days'
written notice of the acceleration.
For purposes of this Agreement, "good reason" means and is limited to the
occurrence without cause and without Employee's consent of a material reduction
in the character of Employee's duties, level of work responsibility or working
conditions, a reduction in Employee's salary and/or benefits greater than 10% of
the level initially established at the commencement of this Agreement, Company
requiring Employee to be based anywhere other than the greater Seattle area,
except for reasonable travel on Company's business, or any material breach by
Company of its duties or obligations to Employee that results in material harm
to Employee.
e. Death. Employee's employment shall terminate automatically upon
Employee's death.
Page -2-
<PAGE>
11. Indemnification. Company shall defend and indemnify Employee from and
against any and all claims that may be asserted against Employee by third
parties (including derivative claims asserted by third parties on behalf of
Company) that are connected with Employee's employment by Company, to the extent
permitted by applicable law. The foregoing notwithstanding, Company shall not
be required to defend or indemnify Employee (a) in criminal proceedings, (b) in
civil proceedings where Employee is the plaintiff or (c) to the extent it is
finally adjudicated that Employee did not act in good faith and in the
reasonable belief that Employee's actions were appropriate in the discharge of
Employee's duties for Company. Company may fulfill its duty of defense by
providing competent legal counsel of Company's choosing. The foregoing rights
are in addition to any other rights to which Employee may be entitled under any
other agreement, policy, bylaw, insurance policy, ordinance, statute or other
provision.
12. Invention, Confidentiality, Nonraiding and Noncompetition Agreement.
Employee shall execute an Invention, Confidentiality, Nonraiding and
Noncompetition Agreement in the form attached as EXHIBIT A, which is a part of
this Agreement.
13. Dispute Resolution. All disputes between Employee and Company that
otherwise would be resolved in court shall be resolved instead by the following
alternate dispute resolution process (the "Process").
a. Disputes Covered. This Process applies to all disputes between
Employee and Company, including those arising out of or related to this
Agreement or Employee's employment at Company. Disputes subject to this Process
include but are not limited to pay disputes, contract disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes.
This Process applies to disputes Employee may have with Company and also applies
to disputes Employee may have with any of Company's employees or agents so long
as the employee or agent with whom Employee has the dispute is also bound by or
consents to this Process. This Process applies regardless of when the dispute
arises and will remain in effect after Employee's employment with Company ends,
regardless of the reason it ends. This Process does not apply, however, to
workers' compensation or unemployment compensation claims.
b. Mediation. Before having an arbitration hearing, Employee and
Company agree to attempt to resolve all disputes by mediation using the
Employment Mediation Rules of the American Arbitration Association. Mediation is
a nonbinding process in which a neutral person helps the parties to try to reach
an agreement to resolve their disputes. If the mediation is done after one party
has started the arbitration process, the mediation shall not delay the
arbitration hearing date. Temporary or interim relief may be sought without
mediating first. Any failure to mediate shall not affect the validity of an
arbitration award or the obligation to arbitrate.
c. Arbitration. All disputes that are not resolved by agreement (in
mediation or otherwise) shall be determined by binding arbitration. Arbitration
is a process in which one or more neutral people decide the case after hearing
evidence presented by both sides. The arbitration shall be governed by the
rules of the American Arbitration Association.
d. Injunctive Relief. Either party may request a court to issue such
temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after mediation
or arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of mediation or arbitration. No such request shall
be a waiver of the right to submit any dispute to mediation or arbitration.
e. Attorneys' Fees, Venue and Jurisdiction in Court. In any lawsuit
arising out of or related to this Agreement or Employee's employment at Company,
the prevailing party shall recover reasonable costs and attorneys' fees,
including on appeal. Venue and jurisdiction of any such lawsuit shall exist
exclusively in state and federal courts in King County, Washington, unless
injunctive relief is sought by Company and, in Company's judgment, that relief
might not be effective unless obtained in some other venue. These provisions do
not give any party a right to proceed in court in violation of the agreement to
arbitrate described above.
f. Employment Status. This Dispute Resolution Process does not
guarantee continued employment, require discharge only for cause or require any
particular corrective action or discharge procedures.
Page -3-
<PAGE>
14. Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
15. Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this
Agreement is held to be unenforceable as written, it shall be enforced to the
maximum extent allowed by applicable law. The indemnification, confidentiality,
limitations on publicity, possession of materials, noncompetition, nonraiding
and dispute resolution provisions of this Agreement shall survive after
Employee's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Employee may have against Company.
16. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this Agreement or failure to enforce any
provision of this Agreement shall not waive any later breach.
17. Assignment; Successors. Company may assign its rights and delegate
its duties under this Agreement. Employee may not assign Employee's rights or
delegate Employee's duties under this Agreement.
18. Binding Effect. This Agreement is binding upon the parties and their
personal representatives, heirs, successors and permitted assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
20. Legal Representation. In connection with this Agreement, the law firm
of Cairncross & Hempelmann has represented only Company and has not represented
Employee. Employee acknowledges that Employee has been advised to consult with
independent legal counsel before signing this Agreement and has had the
opportunity to do so.
21. Complete Agreement. This Agreement, together with the attached
Exhibits, is the final and complete expression of the parties' agreement
relating to Employee's employment, and supercedes any prior employment
agreements and/or understandings between the parties. This Agreement may be
amended only by a writing signed by both parties; it may not be amended orally
or by course of dealing. The parties are not entering into this Agreement
relying on anything not set out in this Agreement. This Agreement shall control
over any inconsistent policies or procedures of Company, whether in effect now
or adopted later, but Company's policies and procedures that are consistent with
this Agreement, whether in effect now or adopted later, shall apply to Employee
according to their terms.
DATED as of the date first written above.
EMPLOYEE: JAY PAULSON
/s/ Jay Paulson
----------------------
INTERACTIVE OBJECTS, INC.:
By: /s/ Ryan Smith
-------------------
Its: Chairman/CEO
------------------
Page -4-
<PAGE>
EXHIBIT 10.9
COMPENSATION AGREEMENT
This Compensation Agreement (this "Agreement") is dated and made effective
the 1st day of January, 1998 (the "Effective Date") between Interactive Objects,
Inc. a Utah corporation (the "Company") and Steve Jackson (the "Employee").
1. Employment. Company employs and Employee accepts employment on the
terms and conditions in this Agreement.
2. Duties. Employee is employed in the capacity of Chief Technology
Officer. Employee shall perform the duties customarily performed by a Chief
Technology Officer, provided that Employee's precise duties may be change,
extended or curtailed, from time to time, at the Company's direction, and
Employee shall assume and perform the further reasonable responsibilities and
duties that the Company may assign from time to time.
3. Intensity of Effort; Other Business. Employee shall devote Employee's
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve Employee
providing any advice or services to the businesses in which the investments are
made.
4. Term. The term of this Agreement starts on the Effective Date and
expires one year later (the "Initial Term"). This Agreement shall automatically
be renewed for successive one-year terms (each referred to as an "Extended
Term") unless either party gives written notice of nonrenewal at least thirty
(30) days before the expiration of the term. Unless stated otherwise, the word
"year" as used in this Agreement refers to incremental periods of 365 days each
(366 days in the case of a leap year), not calendar years. This Agreement may
terminate before the expiration of any term as provided below.
5. Compensation. Employee's compensation shall be as follows:
a. Employee's salary initially shall be $8,333 per month ($100,000
per year on an annualized basis), which shall be computed and paid in equal
installments consistent with Company's normal payroll procedures. At the end of
each calendar year, Employee's salary shall be reviewed by the Board and
adjusted as determined by the Board in its sole discretion, provided that,
absent cause or Employee's consent, it may not be adjusted downward.
b. In addition to the salary stated in Section 5.a., Employee, in
his first year of employment from the Effective Date with the Company, will
receive, on an annual basis, a cash bonus amount equal to five percent (5%) of
the Company's net profit from consulting contracts on which Employee
participated, and, at the end of the year, such stock options which may have
accrued for Employee under the Company's Executive Stock Option Plan. In
subsequent years in which Employee continues to be employed by the Company,
Employee will receive, in addition to salary, the same percentage of consulting
contracts as stated above, and, at Employee's option to be decided at the
beginning of the year, either cash bonus amounts to which Employee is entitled
under the Developer Incentive Program attached hereto as EXHIBIT A (the
"Incentive Program"), or stock options pursuant to the Company's Executive Stock
Option Plan as stated above. All cash bonus amounts that accumulate for Employee
from consulting contracts shall be payable to Employee within ninety (90) days
after completion of the contract and receipt of final payment on the contract by
the Company. Otherwise, cash bonus amounts for consulting contracts shall be
subject to the same terms as cash bonus amounts for software product sales under
the Incentive Program regarding termination, and Company decisions and changes.
c. Employee may receive annual bonuses, profit sharing and/or incentive
compensation based on Company's profitability as determined by the Board in its
sole discretion.
d. Employee shall be eligible for such other compensation as may be
provided by the Board in its sole discretion.
Page -1-
<PAGE>
6. Benefit Plans. Employee shall be eligible for all benefit plans
(including retirement or pension plans, profit sharing plans and stock option
plans) that are provided generally to Company's executive employees.
7. Vacation and Personal Leave. Employee shall be entitled to such paid
vacation and personal days per calendar year (prorated if this Agreement begins
and/or ends in the middle of a calendar year) as provided in the Company's
benefit plan set forth in the Company's Employee Handbook.
8. Disability. Employee shall be entitled to such disability benefits as
provided in the Company's benefit plan set forth in the Company's Employee
Handbook.
9. Business Expenses. Employee is authorized to incur reasonable travel
and entertainment expenses to promote Company's business. Company shall
reimburse Employee for those expenses. Employee shall provide to Company the
itemized expense account information that Company reasonably requests.
10. Termination. Employee's employment may be terminated before the
expiration of this Agreement as follows, in which event Employee's compensation
and benefits shall terminate except as otherwise provided below:
a. By Company Without Cause. Company may terminate Employee's
employment at anytime, without cause or good reason or advance notice. If
Company terminates Employee's employment without cause, however, and provided
that Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company, Company
shall pay to Employee termination payments equal to one month's salary, based on
Employee's total base salary (excluding bonuses, commissions and other
compensation) for the year in which Employee is terminated. These termination
payments shall be paid out at Employee's normal salary rate on regular payroll
days subject to normal payroll deductions. Employee shall not be required to
mitigate the amount of these termination payments by seeking other employment or
otherwise, and no income to Employee of any kind shall reduce the termination
payments.
b. By Company for Cause. Company may terminate Employee's
employment for cause. If Company wishes to terminate Employee's employment for
cause it shall first give Employee 30 days' written notice of the circumstances
constituting cause and an opportunity to cure, unless the circumstances are not
subject to being cured. Following the notice and opportunity to cure (if cure is
not made), or immediately if notice and opportunity to cure are not required,
Company may terminate Employee's employment for cause by giving written notice
of termination. The notice may take effect immediately or at such later date as
Company may designate, provided that Employee may accelerate the termination
date by giving five business days' written notice of the acceleration. Any
termination of Employee's employment for cause must be approved by a majority of
the Board other than Employee. Employee must be given reasonable advance notice
of the meeting at which termination is to be considered, and a reasonable
opportunity to address the Board.
For purposes of this Agreement "cause" means and is limited to dishonesty,
fraud, commission of a felony or of a crime involving moral turpitude,
destruction or theft of Company property, physical attack to a fellow employee,
intoxication at work, use of narcotics or alcohol to an extent that materially
impairs Employee's performance of his or her duties, willful malfeasance or
gross negligence in the performance of Employee's duties, violation of law in
the course of employment that has a material adverse impact on Company or its
employees, misconduct materially injurious to Company, or any material breach of
Employee's duties or obligations to Company that results in material harm to
Company.
c. By Employee Without Good Reason. Employee may terminate
Employee's employment at any time, with or without good reason, by giving ninety
(90) days' advance written notice of termination.
d. By Employee for Good Reason. Employee may terminate Employee's
employment for good reason, in which event Employee shall be entitled to the
same rights under this Agreement as if Company had terminated Employee's
employment without cause. If Employee wishes to terminate employment for good
reason Employee shall first give Company 30 days' written notice of the
circumstances constituting good reason and an opportunity to cure, unless the
circumstances are not subject to being cured. Following the notice and
opportunity to cure (if cure is not made), or immediately if notice and
opportunity to cure are not required, Employee may terminate employment for good
reason by giving written notice of termination. The notice may take effect
Page -2-
<PAGE>
immediately or at such later date as Employee may designate, provided that
Company may accelerate the termination date by giving five business days'
written notice of the acceleration.
For purposes of this Agreement, "good reason" means and is limited to the
occurrence without cause and without Employee's consent of a material reduction
in the character of Employee's duties, level of work responsibility or working
conditions, a reduction in Employee's salary and/or benefits greater than 10% of
the level initially established at the commencement of this Agreement, Company
requiring Employee to be based anywhere other than the greater Seattle area,
except for reasonable travel on Company's business, or any material breach by
Company of its duties or obligations to Employee that results in material harm
to Employee.
e. Death. Employee's employment shall terminate automatically upon
Employee's death.
11. Indemnification. Company shall defend and indemnify Employee from and
against any and all claims that may be asserted against Employee by third
parties (including derivative claims asserted by third parties on behalf of
Company) that are connected with Employee's employment by Company, to the extent
permitted by applicable law. The foregoing notwithstanding, Company shall not
be required to defend or indemnify Employee (a) in criminal proceedings, (b) in
civil proceedings where Employee is the plaintiff or (c) to the extent it is
finally adjudicated that Employee did not act in good faith and in the
reasonable belief that Employee's actions were appropriate in the discharge of
Employee's duties for Company. Company may fulfill its duty of defense by
providing competent legal counsel of Company's choosing. The foregoing rights
are in addition to any other rights to which Employee may be entitled under any
other agreement, policy, bylaw, insurance policy, ordinance, statute or other
provision.
12. Invention, Confidentiality, Nonraiding and Noncompetition Agreement.
Employee shall execute an Invention, Confidentiality, Nonraiding and
Noncompetition Agreement in the form attached as EXHIBIT B, which is a part of
this Agreement.
13. Dispute Resolution. All disputes between Employee and Company that
otherwise would be resolved in court shall be resolved instead by the following
alternate dispute resolution process (the "Process").
a. Disputes Covered. This Process applies to all disputes between
Employee and Company, including those arising out of or related to this
Agreement or Employee's employment at Company. Disputes subject to this Process
include but are not limited to pay disputes, contract disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes.
This Process applies to disputes Employee may have with Company and also applies
to disputes Employee may have with any of Company's employees or agents so long
as the employee or agent with whom Employee has the dispute is also bound by or
consents to this Process. This Process applies regardless of when the dispute
arises and will remain in effect after Employee's employment with Company ends,
regardless of the reason it ends. This Process does not apply, however, to
workers' compensation or unemployment compensation claims.
b. Mediation. Before having an arbitration hearing, Employee and
Company agree to attempt to resolve all disputes by mediation using the
Employment Mediation Rules of the American Arbitration Association. Mediation is
a nonbinding process in which a neutral person helps the parties to try to reach
an agreement to resolve their disputes. If the mediation is done after one party
has started the arbitration process, the mediation shall not delay the
arbitration hearing date. Temporary or interim relief may be sought without
mediating first. Any failure to mediate shall not affect the validity of an
arbitration award or the obligation to arbitrate.
c. Arbitration. All disputes that are not resolved by agreement (in
mediation or otherwise) shall be determined by binding arbitration. Arbitration
is a process in which one or more neutral people decide the case after hearing
evidence presented by both sides. The arbitration shall be governed by the rules
of the American Arbitration Association.
d. Injunctive Relief. Either party may request a court to issue
such temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after mediation
or arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of mediation or arbitration. No such request shall be
a waiver of the right to submit any dispute to mediation or arbitration.
Page -3-
<PAGE>
e. Attorneys' Fees, Venue and Jurisdiction in Court. In any lawsuit
arising out of or related to this Agreement or Employee's employment at Company,
the prevailing party shall recover reasonable costs and attorneys' fees,
including on appeal. Venue and jurisdiction of any such lawsuit shall exist
exclusively in state and federal courts in King County, Washington, unless
injunctive relief is sought by Company and, in Company's judgment, that relief
might not be effective unless obtained in some other venue. These provisions do
not give any party a right to proceed in court in violation of the agreement to
arbitrate described above.
f. Employment Status. This Dispute Resolution Process does not
guarantee continued employment, require discharge only for cause or require any
particular corrective action or discharge procedures.
14. Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
15. Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this
Agreement is held to be unenforceable as written, it shall be enforced to the
maximum extent allowed by applicable law. The indemnification, confidentiality,
limitations on publicity, possession of materials, noncompetition, nonraiding
and dispute resolution provisions of this Agreement shall survive after
Employee's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Employee may have against Company.
16. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this Agreement or failure to enforce any
provision of this Agreement shall not waive any later breach.
17. Assignment; Successors. Company may assign its rights and delegate
its duties under this Agreement. Employee may not assign Employee's rights or
delegate Employee's duties under this Agreement.
18. Binding Effect. This Agreement is binding upon the parties and their
personal representatives, heirs, successors and permitted assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
20. Legal Representation. In connection with this Agreement, the law firm
of Cairncross & Hempelmann has represented only Company and has not represented
Employee. Employee acknowledges that Employee has been advised to consult with
independent legal counsel before signing this Agreement and has had the
opportunity to do so.
21. Complete Agreement. This Agreement, together with the attached
Exhibits, is the final and complete expression of the parties' agreement
relating to Employee's employment, and supersedes any prior employment
agreements and/or understandings between the parties. This Agreement may be
amended only by a writing signed by both parties; it may not be amended orally
or by course of dealing. The parties are not entering into this Agreement
relying on anything not set out in this Agreement. This Agreement shall control
over any inconsistent policies or procedures of Company, whether in effect now
or adopted later, but Company's policies and procedures that are consistent with
this Agreement, whether in effect now or adopted later, shall apply to Employee
according to their terms.
DATED as of the date first written above.
EMPLOYEE: STEVE JACKSON INTERACTIVE OBJECTS, INC.:
/s/ Steve Jackson By: /s/ Ryan Smith
- ------------------------ ---------------------------------
Its: Chairman/CEO
---------------------------------
Page -4-
<PAGE>
EXHIBIT 10.10
COMPENSATION AGREEMENT
This Compensation Agreement (this "Agreement") is entered into as of the
20th day of July, 1998 (the "Effective Date") by and between Interactive
Objects, Inc., a Washington corporation (the "Company"), and Robert Diez (the
"Employee").
1. Employment. Company employs and Employee accepts employment on the
terms and conditions in this Agreement.
2. Duties. Employee is employed in the capacity of Vice President of
Sales and Marketing. Employee shall perform the duties customarily performed by
a Vice President of Sales and Marketing and shall report directly to the
Company's Chief Executive Officer and President. Employee's precise duties may
be changed, extended or curtailed, from time to time, at the Company's
direction, and Employee shall assume and perform the further reasonable
responsibilities and duties that the Company may assign from time to time.
3. Intensity of Effort; Other Business. Employee shall devote Employee's
entire working time, attention and efforts to Company's business and affairs,
shall faithfully and diligently serve Company's interests and shall not engage
in any business or employment activity that is not on Company's behalf (whether
or not pursued for gain or profit) except for (a) activities approved in writing
in advance by the Board and (b) passive investments that do not involve Employee
providing any advice or services to the businesses in which the investments are
made.
4. Term. The term of this Agreement starts on the Effective Date and
expires one year later (the "Initial Term"). This Agreement shall automatically
be renewed for successive one-year terms (each referred to as an "Extended
Term") unless either party gives written notice of nonrenewal at least thirty
(30) days before the expiration of the term. Unless stated otherwise, the word
"year" as used in this Agreement refers to incremental periods of 365 days each
(366 days in the case of a leap year), not calendar years. This Agreement may
terminate before the expiration of any term as provided below.
5. Compensation. Employee's compensation shall be as follows:
a. Employee's annual salary initially shall be $120,000 per year (or
$10,000 per month), which shall be computed and paid in equal installments
consistent with Company's normal payroll procedures. At the end of each calendar
year, Employee's salary shall be reviewed by the Board and adjusted as
determined by the Board in its sole discretion, provided that, absent cause or
Employee's consent, it may not be adjusted downward.
b. Employee shall receive a signing bonus in the form of an option
to purchase 10,000 shares of Company Common Stock, which option shall vest 100
percent ninety (90) days from the Effective Date and be subject to the other
terms and conditions of the Company's 1998 stock option plan. In addition, the
Company shall grant to Employee a stock option to purchase up to 100,000 shares
of Common Stock, which shall vest at a rate of twenty-five percent (25%) per
year over four years on each anniversary of the Effective Date, and be subject
to the other terms and conditions of the Company's 1998 stock option plan. The
exercise price for the above two options shall be the last trade price of the
Common Stock as reported on the OTC Bulletin Board on the Effective Date.
c. Employee may receive annual bonuses, profit sharing and/or
incentive compensation based on Company's profitability as determined by the
Board in its sole discretion. Employee's eligibility to participate, if at all
as determined by the Board in its sole discretion, in the Company's executive
bonus plan for calendar year 1998 shall be pro rated from the Effective Date.
d. Employee shall be eligible for such other compensation as may be
provided by the Board in its sole discretion.
6. Benefit Plans. Employee shall be eligible for all benefit plans
(including retirement or pension plans, profit sharing plans and stock option
plans) that are provided generally to Company's executive employees.
Page -1-
<PAGE>
7. Vacation and Personal Leave. Employee shall be entitled to such paid
vacation and personal days as provided in the Company's benefit plan set forth
in the Company's Employee Handbook.
8. Disability. Employee shall be entitled to such disability benefits as
provided in the Company's benefit plan set forth in the Company's Employee
Handbook.
9. Business Expenses. Employee is authorized to incur reasonable travel
and entertainment expenses to promote Company's business. Company shall
reimburse Employee for those expenses. Employee shall provide to Company the
itemized expense account information that Company reasonably requests.
10. Termination. Employee's employment may be terminated before the
expiration of this Agreement as follows, in which event Employee's compensation
and benefits shall terminate except as otherwise provided below:
a. By Company Without Cause. Company may terminate Employee's
employment at anytime, without cause or good reason or advance notice. If
Company terminates Employee's employment without cause, however, and provided
that Employee releases Company and its agents from any and all claims in a
signed, written release satisfactory in form and substance to Company, Company
shall pay to Employee termination payments equal to two weeks' salary, based on
Employee's total base salary (excluding bonuses, commissions and other
compensation) for the year in which Employee is terminated. These termination
payments shall be paid out at Employee's normal salary rate on regular payroll
days subject to normal payroll deductions. Employee shall not be required to
mitigate the amount of these termination payments by seeking other employment or
otherwise, and no income to Employee of any kind shall reduce the termination
payments.
b. By Company for Cause. Company may terminate Employee's
employment for cause. If Company wishes to terminate Employee's employment for
cause it shall first give Employee 30 days' written notice of the circumstances
constituting cause and an opportunity to cure, unless the circumstances are not
subject to being cured. Following the notice and opportunity to cure (if cure is
not made), or immediately if notice and opportunity to cure are not required,
Company may terminate Employee's employment for cause by giving written notice
of termination. The notice may take effect immediately or at such later date as
Company may designate, provided that Employee may accelerate the termination
date by giving five business days' written notice of the acceleration. Any
termination of Employee's employment for cause must be approved by a majority of
the Board other than Employee. Employee must be given reasonable advance notice
of the meeting at which termination is to be considered, and a reasonable
opportunity to address the Board.
For purposes of this Agreement "cause" means and is limited to dishonesty,
fraud, commission of a felony or of a crime involving moral turpitude,
destruction or theft of Company property, physical attack to a fellow employee,
intoxication at work, use of narcotics or alcohol to an extent that materially
impairs Employee's performance of his or her duties, willful malfeasance or
gross negligence in the performance of Employee's duties, violation of law in
the course of employment that has a material adverse impact on Company or its
employees, misconduct materially injurious to Company, or any material breach of
Employee's duties or obligations to Company that results in material harm to
Company.
c. By Employee Without Good Reason. Employee may terminate
Employee's employment at any time, with or without good reason, by giving ninety
(90) days' advance written notice of termination.
d. By Employee for Good Reason. Employee may terminate Employee's
employment for good reason, in which event Employee shall be entitled to the
same rights under this Agreement as if Company had terminated Employee's
employment without cause. If Employee wishes to terminate employment for good
reason Employee shall first give Company 30 days' written notice of the
circumstances constituting good reason and an opportunity to cure, unless the
circumstances are not subject to being cured. Following the notice and
opportunity to cure (if cure is not made), or immediately if notice and
opportunity to cure are not required, Employee may terminate employment for good
reason by giving written notice of termination. The notice may take effect
immediately or at such later date as Employee may designate, provided that
Company may accelerate the termination date by giving five business days'
written notice of the acceleration.
Page -2-
<PAGE>
For purposes of this Agreement, "good reason" means and is limited to the
occurrence without cause and without Employee's consent of a material reduction
in the character of Employee's duties, level of work responsibility or working
conditions, a reduction in Employee's salary and/or benefits greater than 10% of
the level initially established at the commencement of this Agreement, Company
requiring Employee to be based anywhere other than the greater Seattle area,
except for reasonable travel on Company's business, or any material breach by
Company of its duties or obligations to Employee that results in material harm
to Employee.
e. Death. Employee's employment shall terminate automatically upon
Employee's death.
11. Indemnification. Company shall defend and indemnify Employee from and
against any and all claims that may be asserted against Employee by third
parties (including derivative claims asserted by third parties on behalf of
Company) that are connected with Employee's employment by Company, to the extent
permitted by applicable law. The foregoing notwithstanding, Company shall not be
required to defend or indemnify Employee (a) in criminal proceedings, (b) in
civil proceedings where Employee is the plaintiff or (c) to the extent it is
finally adjudicated that Employee did not act in good faith and in the
reasonable belief that Employee's actions were appropriate in the discharge of
Employee's duties for Company. Company may fulfill its duty of defense by
providing competent legal counsel of Company's choosing. The foregoing rights
are in addition to any other rights to which Employee may be entitled under any
other agreement, policy, bylaw, insurance policy, ordinance, statute or other
provision.
12. Invention, Confidentiality, Nonraiding and Noncompetition Agreement.
Employee shall execute an Invention, Confidentiality, Nonraiding and
Noncompetition Agreement in the form attached as EXHIBIT A, which is a part of
this Agreement.
13. Dispute Resolution. All disputes between Employee and Company that
otherwise would be resolved in court shall be resolved instead by the following
alternate dispute resolution process (the "Process").
a. Disputes Covered. This Process applies to all disputes between
Employee and Company, including those arising out of or related to this
Agreement or Employee's employment at Company. Disputes subject to this Process
include but are not limited to pay disputes, contract disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes.
This Process applies to disputes Employee may have with Company and also applies
to disputes Employee may have with any of Company's employees or agents so long
as the employee or agent with whom Employee has the dispute is also bound by or
consents to this Process. This Process applies regardless of when the dispute
arises and will remain in effect after Employee's employment with Company ends,
regardless of the reason it ends. This Process does not apply, however, to
workers' compensation or unemployment compensation claims.
b. Mediation. Before having an arbitration hearing, Employee and
Company agree to attempt to resolve all disputes by mediation using the
Employment Mediation Rules of the American Arbitration Association. Mediation is
a nonbinding process in which a neutral person helps the parties to try to reach
an agreement to resolve their disputes. If the mediation is done after one party
has started the arbitration process, the mediation shall not delay the
arbitration hearing date. Temporary or interim relief may be sought without
mediating first. Any failure to mediate shall not affect the validity of an
arbitration award or the obligation to arbitrate.
c. Arbitration. All disputes that are not resolved by agreement (in
mediation or otherwise) shall be determined by binding arbitration. Arbitration
is a process in which one or more neutral people decide the case after hearing
evidence presented by both sides. The arbitration shall be governed by the rules
of the American Arbitration Association.
d. Injunctive Relief. Either party may request a court to issue
such temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after mediation
or arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of mediation or arbitration. No such request shall be
a waiver of the right to submit any dispute to mediation or arbitration.
e. Attorneys' Fees, Venue and Jurisdiction in Court. In any lawsuit
arising out of or related to this Agreement or Employee's employment at Company,
the prevailing party shall recover reasonable costs and
Page -3-
<PAGE>
attorneys' fees, including on appeal. Venue and jurisdiction of any such lawsuit
shall exist exclusively in state and federal courts in King County, Washington,
unless injunctive relief is sought by Company and, in Company's judgment, that
relief might not be effective unless obtained in some other venue. These
provisions do not give any party a right to proceed in court in violation of the
agreement to arbitrate described above.
f. Employment Status. This Dispute Resolution Process does not
guarantee continued employment, require discharge only for cause or require any
particular corrective action or discharge procedures.
14. Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions thereof related
to choice of laws or conflict of laws.
15. Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this Agreement
is held to be unenforceable as written, it shall be enforced to the maximum
extent allowed by applicable law. The indemnification, confidentiality,
limitations on publicity, possession of materials, noncompetition, nonraiding
and dispute resolution provisions of this Agreement shall survive after
Employee's employment by Company ends, regardless of the reason it ends, and
shall be enforceable regardless of any claim Employee may have against Company.
16. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing, signed by the party against whom the waiver is sought to be
enforced. The waiver of any breach of this Agreement or failure to enforce any
provision of this Agreement shall not waive any later breach.
17. Assignment; Successors. Company may assign its rights and delegate
its duties under this Agreement. Employee may not assign Employee's rights or
delegate Employee's duties under this Agreement.
18. Binding Effect. This Agreement is binding upon the parties and their
personal representatives, heirs, successors and permitted assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute a single agreement.
20. Legal Representation. In connection with this Agreement, the law firm
of Cairncross & Hempelmann has represented only Company and has not represented
Employee. Employee acknowledges that Employee has been advised to consult with
independent legal counsel before signing this Agreement and has had the
opportunity to do so.
21. Complete Agreement. This Agreement, together with the attached
Exhibits, is the final and complete expression of the parties' agreement
relating to Employee's employment, and supercedes any prior employment
agreements and/or understandings between the parties. This Agreement may be
amended only by a writing signed by both parties; it may not be amended orally
or by course of dealing. The parties are not entering into this Agreement
relying on anything not set out in this Agreement. This Agreement shall control
over any inconsistent policies or procedures of Company, whether in effect now
or adopted later, but Company's policies and procedures that are consistent with
this Agreement, whether in effect now or adopted later, shall apply to Employee
according to their terms.
DATED as of the date first written above.
EMPLOYEE: ROBERT DIEZ
/s/ Robert Diez
-------------------------------
COMPANY: INTERACTIVE OBJECTS, INC.:
By /s/ Ryan Smith
----------------------------
Its: Chairman/CEO
-----------------------
Page -4-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Neoteric Media, Inc., a Washington corporation
<PAGE>
EXHIBIT 23.1
PETERSON SULLIVAN PLLC
601 Union Street Suite 2300 Seattle, WA 98101
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement, relating to 4,000,018
shares of common stock, of Interactive Objects, Inc. on form SB-2 of our report
dated March 4, 1998, appearing in the Prospectus which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Peterson Sullivan PLLC
Peterson Sullivan PLLC
Seattle, Washington
August 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The following schedule contains summary financial information as of December 31,
1997 and June 30, 1998 that has been extracted from the financial statements of
Interactive Objects, Inc. (the "Company") and is qualified in its entirety by
reference to such financial statements. The company's financial statements as of
December 31, 1997 has been audited by Peterson Sullivan, PLLC, Independent
Auditors and the financial information as of June 30, 1998 is unaudited.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 214,967 5,245,737
<SECURITIES> 101,309 101,309
<RECEIVABLES> 10,698 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 373,531 5,383,201
<PP&E> 221,562 283,373
<DEPRECIATION> 31,111 56,495
<TOTAL-ASSETS> 694,862 5,786,508
<CURRENT-LIABILITIES> 311,332 724,590
<BONDS> 0 0
0 0
0 0
<COMMON> 19,417 19,417
<OTHER-SE> 364,113 5,042,501
<TOTAL-LIABILITY-AND-EQUITY> 694,862 5,786,508
<SALES> 365,631 1,815,463
<TOTAL-REVENUES> 365,631 1,841,238
<CGS> 1,263,890 3,265,972
<TOTAL-COSTS> 1,263,890 3,265,972
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,007 16,118
<INCOME-PRETAX> (905,266) (1,440,852)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (905,266) (1,440,852)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (905,266) (1,440,852)
<EPS-PRIMARY> (.10) (.10)
<EPS-DILUTED> (.10) (.10)
</TABLE>
