SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999
[ ] Transition Report under Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________ to __________
Commission file number 001-14827
EDUCATIONAL VIDEO CONFERENCING, INC.
(Name of small business issuer in its charter)
Delaware 061488212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 East Grassy Sprain Road, Suite 200, Yonkers, New York 10710
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (914) 787-3500
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock, Boston Stock Exchange
$.0001 par value per share Pacific Exchange, Inc.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock,
$.0001 value per share
----------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X
No___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB.
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The issuer's revenues for its most recent fiscal year were $1,190,422.
As of March 1, 2000, the aggregate market value of the issuer's common
equity held by non-affiliates was $95,702,009, based on the closing price of
$31.50 for its common stock on the Nasdaq Small Cap Market on March 1, 2000.
4,347,243 shares of the issuers common stock were outstanding as of March
1, 2000.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Formats (check one): Yes___ No_X_
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Table of Contents
PART I.......................................................................1
Item 1. Description of Business...........................................1
Item 2. Description of Property..........................................17
Item 3. Legal Proceedings............... ................................17
Item 4. Submission of Matters to a Vote of Security Holders..............17
PART II.....................................................................18
Item 5. Market for Common Equity and Related Stockholder Matters.........18
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................18
Item 7. Financial Statements.............................................23
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures............................................23
PART III....................................................................23
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act............23
Item 10. Executive Compensation..........................................27
Item 11. Security Ownership of Certain Beneficial Owners and Management..30
Item 12. Certain Relationships and Related Transactions..................32
Item 13. Exhibits and Reports on Form 8-K................................32
SIGNATURES..................................................................38
INDEX TO FINANCIAL STATEMENTS..............................................F-1
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PART I
Item 1. Description of Business
General
Educational Video Conferencing, Inc. is a leading aggregator and
distributor, via live interactive video conferencing systems, of accredited
college courses and degree programs, as well as corporate training, professional
development and continuing education programs. The instructor can see and hear
the students as the students see and hear the instructor and communicate with
the instructor and other students at multiple locations. Educational content is
currently being delivered by EVCI over high speed point-to-point or multi-point
digital data lines (T-1 or ISDN). EVCI is deploying its proprietary broadband
network design which, using Internet Protocol infrastructure technology, permits
EVCI to continue to provide two-way multi-point, multi-media voice, video and
data transmissions, including over the Internet, but with controlled bandwidth
and throughput. Using its broadband network design, EVCI can deliver educational
content at 30 frames per second (broadcast quality) through DSL, ATM, T-1 lines,
cable modems or satellite.
EVCI can deliver content to conference and training rooms and desktop
computers equipped with video conferencing capability. EVCI believes that its
distance learning technology and content delivery services comes closest to
replicating the classroom experience. EVCI also provides the consultative,
marketing and administrative services necessary to recruit and enroll students
and deliver courses and programs to them.
EVCI presently can offer more than 2,100 courses and 200 degree programs
from education providers that include St. John's University, Adelphi University,
Clemson University, Manhattan College, The College of Insurance, Mercy College,
Concordia College, Touro University International, Interboro Institute and
Kaplan Educational Centers. Commencing in the Fall 2000, EVCI expects to begin
offering courses and programs provided by San Francisco-based Golden Gate
University and by Interboro Institute, a two year college in New York City that
EVCI has owned and operated since January 2000. EVCI can also offer over 1,000
training, professional development, and continuing education courses from
several providers. Since beginning to offer courses in February 1998, EVCI has
delivered 237 classes that have resulted in 3,246 completed courses. EVCI is
currently delivering 1,176 courses to 91 sites located in more than 15 cities.
This includes 51 asynchronous courses being delivered via the Internet.
EVCI customers include:
o Major Corporations, including Citibank, N.A., American
International Group, Inc., Merrill Lynch & Co., Inc., Reliance
National, Travelers Indemnity Company, and Lockheed Martin Corp.
o Community outreach programs in New York City and Rochester with
economically disadvantaged constituents who can qualify for
substantial tuition grants.
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o The City of Rochester School District and the Board of Education of
the City of New York School (school district 10).
EVCI has co-marketing agreements with Bell Atlantic and @Home Network that
will give EVCI marketing access to more major corporations and more than 75
million U.S. households. EVCI also has a co-marketing agreement with We Media,
Inc. that gives EVCI marketing access to 54 million disabled Americans.
EVCI was organized in March 1997. EVCI completed an underwritten initial
public offering of its common stock in the first quarter of 1999. EVCI maintains
a world wide web site at www.evcinc.com. This reference to EVCI's world wide web
site address does not constitute incorporation by reference of the information
contained therein.
Forward Looking Information
This Form 10-KSB contains forward-looking statements that involve
assumptions, risks and uncertainties. The words "anticipate," "estimate,"
"expect," "will," "could," "may," "is targeting" and similar words are intended
to identify forward-looking statements. EVCI's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including (i) insufficient demand for EVCI's content
and broadband services, (ii) delays in rolling out co-marketing programs or in
implementing existing customer agreements, (iii) delays in deploying EVCI's
broadband network, (iv) an inability to satisfy demand for EVCI's content or
broadband services, (v) the need for additional capital to operate and grow,
(vi) competition, and (vii) dependence on EVCI's chairman, president and other
management. Should any one of these or other risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated by forward-looking statements. EVCI
undertakes no obligation to update forward-looking statements.
Distance Learning Industry Overview
There are two main categories of distance learning: synchronous and
asynchronous. In the synchronous model, students and instructors interact in
real time via virtual classrooms, using a combination of delivery methods. The
asynchronous approach provides self-paced learning. The student can choose from
a variety of media, complete the coursework according to the class syllabus or
outline, then submit the competed material to the instructor for evaluation.
Online learning has opened many options, including the ability to download
course content from a virtual classroom using a Web browser; interaction with
instructors and fellow students via chat rooms, e-mail or audio; participation
in videoconferencing-based sessions; and access to online labs and simulations
and real-time updates to course content. In addition, offline computer based
training, using CD-roms and audio and video cassettes continue to be readily
available.
A number of national, economic, demographic and social trends are
contributing to the growing demand for career oriented education that can be
accessed remotely via high speed Internet and telecommunications lines.
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Recognition of need for training and professional development continuing
education. EVCI believes that employers recognize the need for continuous
enhancement of employee education and skill levels and that employees recognize
that training, professional development are essential to maintaining and
advancing their employment position and, consequently, their standard of living.
According to the October 1999 issue of Training magazine, corporations with over
100 employees budgeted approximately $62.5 billion for training in 1998 compared
to approximately $48.2 billion in 1992.
Increasing demand for remote access to education and training. Burdened by
the competing and stressful time demands of work and family, adults increasingly
want education and training that can be accessed remotely from the workplace or
home. According to a recent report published by International Data Corporation,
the number of college students enrolled in distance learning courses will reach
2.2 million in 2002 as compared to 710,000 in 1998.
Fastest growing occupations. EVCI believes that the continuing shift from
unskilled to skilled jobs in the U.S. results from, among other things, the
transformation of the U.S. economy from an industrial to a knowledge-based
economy and increased competition for such jobs. The U.S. Bureau of Labor
Statistics' 1998-99 Occupational Outlook Handbook indicates that of the 25
occupations with the largest and fastest employment growth, high pay and low
unemployment, 18 will require at least a bachelor's degree and are projected to
grow nearly twice as fast as the average for all occupations.
Additional sources of revenue. Education providers are seeking additional
sources of revenue and recognize that increasing adult student enrollment, using
distance learning technologies, is an important opportunity for economic growth.
Funding. Corporate and federal and state tuition assistance programs are
available to pay training and tuition costs. In addition to budgets for employee
training, many corporations have budgets to pay for their employees' elective
higher education through tuition reimbursement or direct payment plans.
Typically, these plans reimburse employees or pay for courses at any accredited
academic institution as long as the course has some relevance to the employee's
job and the employee achieves a specified grade. The availability of grants for
qualified non-traditional students presents other important market opportunities
for distance learning via video conferencing.
Strategy
EVCI's primary goal is to become the leading worldwide aggregator and
distributor of educational content via broadband high speed networks and
interactive video conferencing systems. As a result of the positive reception
EVCI is receiving to its broadband network design, EVCI recently decided to
apply its technology to create broadband networks that can be used, and licensed
to others, by EVCI. EVCI is pursuing its goals by:
o Using the best and readily available technology. EVCI was conceived on
the principle of providing access to quality education and training
with locational convenience. User demand for improvement in the
quality and consistency of video conferencing, motivated EVCI to
design its proprietary broadband network. While EVCI believes its
network design is currently the only available technology that can
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simultaneously deliver broadcast quality video, audio and data over
high speed connections (while controlling bandwidth and throughput to
the recipient), EVCI is not predisposed to any single technology. EVCI
is focused on identifying and using the most state-of-the-art voice,
data and image technology that is available to distribute educational
content.
o Making alliances with telecommunications, cable and Internet service
providers. EVCI seeks alliances with telecommunications, cable,
Internet access providers and affinity groups that have large customer
bases, can benefit from bundling EVCI's content and video conferencing
services with their product or service offerings, and have large sales
forces that EVCI can train to sell EVCI's services.
o Growing through selected acquisitions, joint ventures and strategic
investments. EVCI frequently evaluates potential acquisitions, joint
ventures and strategic investments as a means to obtain additional
customers or education providers, improve the quality and efficiency
of services, and generally accelerate the growth of EVCI's revenue
base. In November 1999, EVCI became a founder and principal
stockholder of Visiocom USA Incorporated, which is a provider to
businesses, via the Internet and video conferencing, of one-on-one
instruction on using business software and learning foreign languages.
Seeking more content for EVCI's outreach customers, in January 2000,
EVCI acquired Interboro Institute, a two-year college with a student
body consisting mostly of non-traditional students who pay their
tuition using federal and New York state tuition grants.
o Targeting major organizations for content delivery services. EVCI is
primarily targeting organizations with more than 5,000 employees and
that have significant budgets for employee training and professional
development and for employee higher education. These organizations
should also reimburse or pay at least 80% of higher education tuition
costs, have policies to encourage their employees to pursue higher
education and agree to actively promote EVCI's programs to their
employees.
o Targeting major organizations requiring virtual private broadband
networks. Of particular interest to EVCI in marketing its broadband
network services are companies in knowledge based industries with
multiple locations and significant training, data and information
exchange requirements. Large corporations typically require better
visual, voice and data connections and have the resources to build out
their own networks. EVCI believes savings achievable from the
locational convenience of training and personal development using
video conferencing will facilitate the marketing of EVCI's broadband
network services.
o Targeting more outreach programs. Encouraged by enrollment and
retention rates, EVCI is dedicating more resources to accelerate the
growth of its outreach customer base. EVCI expects to begin offering
Interboro Institute programs via video conferencing in the Fall 2000,
after obtaining required regulatory approval.
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o Making alliances with providers of higher education, training and
continuing education. EVCI seeks alliances with colleges and
universities, training organizations and remediation and exam
preparation services that offer courses and programs and have
admissions policies fitting the needs, interests and qualifications of
a broad cross-section of employers and their employees. EVCI is also
targeting geographically dispersed education providers in order to
gain greater recognition in regional markets and to be able to offer
courses during more hours of each day as a result of time zone
differences.
o Increasing emphasis on aggregating training content. EVCI's greater
emphasis on aggregating training content is primarily motivated by the
size of employer budgets for training (in comparison to their budgets
for higher education), the higher priority given by employers for
training than for higher education and the fact that payments to EVCI
for its content aggregation, delivery and other services is not
contingent upon a student's successfully completing the training.
o Staging the rollout of courses and programs. Increasing in stages the
number of employees to whom courses are offered and the number of
sites to which course are delivered enables EVCI to better determine
which courses, programs and locations will have the greatest demand
for enrollment. A staged rollout allows EVCI to use its resources more
effectively to market to potential students and to seek contracts with
a larger number of customers.
Services
EVCI differentiates itself from other distance learning companies by
functioning as a telecommunications, technology and marketing bridge between
EVCI's customers and education providers. EVCI's comprehensive services
encompass the technical, marketing and administrative services necessary to:
o offer courses and degree programs from multiple education providers;
o determine course and degree program preferences;
o recruit and enroll students;
o provide and install video conferencing equipment at
education
providers;
o install or enhance the video conferencing systems of its customers
when required;
o train teachers how to teach effectively using interactive video
conferencing systems (including by using charts, graphs, pictures,
video tapes and presentation software) so as to maintain a
student-centered, active learning environment;
o arrange for high speed data lines for signal transmission;
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o provide the multi-conferencing units required to permit live,
interactive multimedia communications between multiple parties; and
o coordinate the delivery of courses from the education providers to
the students.
Broadband Network and Interactive Video Conferencing Systems
EVCI network. EVCI has designed a proprietary broadband network that allows
it to offer high-speed Internet Protocol communication for video, audio and data
transmission, in several different formats, between numerous parties at
diversified sites. The network design includes proprietary software,
communications and network infrastructure, and hardware. This combination allows
EVCI to transmit video over the network at 30 frames per second quality. EVCI
expects its broadband network services will be available by the Fall 2000.
The EVCI design uses broadband ATM standards, ATM core switches and lines
leased from major carriers. EVCI transmits signals using Internet Protocol by
creating a virtual circuit from the point of origin directly to the customer's
premises while controlling the bandwidth at 416Kb. The network will allow EVCI
to connect with end-users whether they use DSL, ATM, cable modem or Direct PC
via satellite. The EVCI broadband network has universal application for all
digital information.
EVCI spent approximately $1,150,000 in 1999 and approximately $80,000 in
1998 in developing its broadband network design, including approximately
$800,000 for equipment purchases.
EVCI's Video conferencing system. The hardware for EVCI's interactive video
conferencing systems is generally off-the-shelf equipment, currently
manufactured by Intel, that is modified by EVCI's proprietary software. The
basic end-user equipment involves either video kits or teamstations, depending
on the requirements of the user. Both are functionally identical on the EVCI
network. The Intel video kit is installed on any Pentium III, or better, desktop
computer, loaded with the EVCI proprietary software. The Intel teamstations are
also computer-based and have a larger monitor in order to facilitate use by
larger groups. While the Intel equipment is readily available, equipment
manufactured by others can be used with modified EVCI software.
In addition to the standard voice video and data transmission, auxiliary
equipment connected to the EVCI video conferencing equipment provides a number
of other features. For example, the instructor can display visual presentations
to the class using a separate document video camera or a VCR unit can be
installed and used for pre-taped instructional material. A caller add-on feature
can also be used to invite a subject matter expert to interact verbally with the
class without having to be physically present. EVCI has not encountered any
limitation on the types of subjects that can be taught by its interactive video
conferencing systems.
EVCI's proprietary software applications dictate the manner in which the
video conferencing takes place. The software is a user friendly, Windows NT
based, program developed by EVCI. The software varies depending upon the
application and can be modified to
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address any foreseeable use of the EVCI network. The software is icon
activated. EVCI's software currently permits the following applications:
o Classroom. The visual image available to the student and instructor
differ and different functionality is provided to the instructor and
the student. The equipment is configured so that it can be used
easily by instructors and students.
o The instructor controls the class through the use of various icons
on his/her screen. The instructor can control which and when
students may speak. Students may be permitted to see, hear and talk
to all attending class or the instructor may break the class into
smaller sections where only those in the section can hear and talk
to each other. A whiteboard can simultaneously be used by each
student and the instructor. The instructor can access the Internet
with the class and lead the class through web sites while
controlling the web sites that the students access. Currently under
development for EVCI, is software that will enable the instructor to
test the students and assess the test results immediately.
The student can see and hear the instructor and any other students
called upon by the instructor. By clicking an icon, the student may
"raise his or her hand" to get the instructor's attention and be
called upon to comment on the material presented. Each student can
share information with all the other students.
To optimize educational attainment effectiveness, EVCI plans to
limit delivery of courses using video-enabled desktop computers to
approximately 24 students per class.
o Training sessions. In the one-on-one or small group training
sessions, EVCI's software interfaces allow the participants to fully
share information, data, voice and video.
o Seminars. Using the EVCI network, a seminar application allows
several tiers of participation in a seminar. One group can
participate live at the seminar while a second group can fully
participate with live two-way interactive audio and video. A third
group may participate with one-way video and audio and can
simultaneously ask questions via e-mail while a fourth group may opt
to receive only video or audio.
o Selectivity. The caller can assign different rights to different
participants. Some participants may have full audio and video rights
and others may be limited to audio only participation. A stationary
camera, focused on a specific target may also be included.
Customers
EVCI is offering and delivering educational and training content to
corporate customers, outreach programs and school districts.
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Corporations. EVCI currently delivers higher education courses to employees
of Citibank, N.A., American International Group, Inc., Merrill Lynch & Co.,
Inc., Travelers Indemnity Company, Zurich Insurance Company (U.S. branch),
Reliance National, General Reinsurance Corporation and Lockheed Martin Corp.
Substantially all courses are being delivered to video conferencing room
systems at the corporate customer's facilities at more than 91 sites in 15
cities. In the third quarter of 2000, EVCI expects to begin delivering courses
to video enabled desktop computers located at the offices or homes of the
employees of its corporate customers and the general public.
Corporate customer agreements. Generally, EVCI's agreements with its
corporate customers have terms of three to five years, are subject to automatic
extensions and typically include the following provisions.
o EVCI delivers courses over its corporate customers' existing installed
base of video conferencing room systems. If surveys of the customer's
employees indicate there is a sufficient demand for courses, EVCI will
install or enhance equipment at the customer's site.
o The customer reimburses its eligible employees or pays directly for
the tuition cost of completed courses for which a specified grade is
received. EVCI generally will not accept a corporation as a customer
unless its policy is to reimburse or pay at least 80% of the tuition
cost, although changes in the policy are within the customer's sole
discretion. The student is ultimately responsible for payment of the
tuition.
o EVCI and the customer jointly market the available courses and
programs to the customer's employees using material prepared and paid
for by EVCI.
Outreach programs. Economically disadvantaged students who can qualify for
substantial federal and state tuition assistance are receiving educational
content delivered by EVCI to the facilities of churches, community centers and
schools. Courses are being delivered to sites located in the New York City and
Rochester metropolitan areas. EVCI has a multi-year agreement, made in July
1999, with the Atlantic District Lutheran Church Missouri Synod under which EVCI
will offer to deliver courses and programs to at least ten churches located
primarily in the New York City metropolitan area. A similar agreement will
enable EVCI to deliver courses and programs to National Baptist Churches in
California.
School districts. Under its multi-year agreements with the City of
Rochester School District, made in December 1998, and the Board of Education of
the City of New York (school district 10), made in July 1999, EVCI is offering
area residents, district employees and school students access to educational
content that includes accredited graduate and undergraduate college degree
programs and non-degree courses, professional development programs, test
preparation, advance placement courses and K-12 after school programs.
Under co-marketing agreements described below under "Marketing and Sales,"
EVCI is, or will be, offering to distribute educational and training and
professional development content to, among others, disabled Americans, existing
and potential customers of Bell Atlantic and
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@Home Network and members of unions participating in the programs offered by
the Consortium for Worker Education.
Education Providers
Higher education. Information about the principal colleges and universities
providing courses and programs that are being, or will be, offered for remote
delivery by EVCI to its customers follows.
St. John's University College of Business offers courses leading to a
Bachelor of Science and Master of Business Administration degrees, with
specializations in finance, international business or marketing as well as
non-credit courses in business. EVCI expects to begin offering in September 2000
courses and programs from St. John's University, College for Professional
Studies, leading to a Bachelor of Science or Associate of Science degree, with
specializations in 24 areas that include computer information systems, legal
studies, sports management, television and film and communication arts.
Clemson University's Office of Off-Campus, Distance and Continuing
Education offers continuing education courses that include management,
engineering, manufacturing, textiles, professional development for women and
managing for diversity.
Manhattan College offers courses leading to a Master of Science degree in
electrical, computer and mechanical engineering.
Adelphi University offers courses given by its School of Management and
Business leading to a Bachelor of Business Administration, with a specialization
in finance, human resources or marketing, and a Masters of Business
Administration, with specialization in, among other areas, accounting, banking
and financial markets, corporate finance and investments, international
business, human resource management and personnel administration.
Mercy College offers courses leading to a Bachelor of Science in Business
with a specialization in banking, direct marketing, finance, general business,
international business, marketing or management. Mercy College also offers
courses leading to a Master of Science in direct marketing and a Master of
Business Administration. In addition, EVCI recruits students who want to
participate in Mercy College's Merlin program, an Internet asynchronous course
delivery system. EVCI can in the future offer all of the Mercy College
non-degree and degree courses in more than 75 areas that include education,
health care, journalism, medical technology, veterinary technology and liberal
arts and sciences.
Concordia College offers degree courses leading to a Bachelor of Science in
Business Administration and Bachelor of Arts in Behavioral Science. Concordia
has an accelerated degree program that permits students with two years of
college credit to obtain their degree within one year by attending class for 52
consecutive weeks.
The College of Insurance offers courses leading to undergraduate and
graduate degrees in insurance and risk management, along with courses leading to
insurance certification or designation, with specializations in property and
casualty, reinsurance, ocean marine, life-health
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and risk management. The College of Insurance also offers preparation
courses for insurance licensing exams. An executive M.B.A. program is scheduled
for initial delivery by Spring 2001.
Touro University International offers courses leading to a Bachelor of
Science in Business Administration, with specializations in finance, general
management, internal auditing, health care management, information technology
and tourism and hospitality. Touro University International also offers degree
courses leading to a Master of Business Administration, and a Ph.D. in Business
Administration or Health Sciences. One of the unique features of Touro
University International is its cyber-library, which allows students to obtain
textbooks for courses and do research via the Internet. EVCI can offer all other
courses and degree programs provided by Touro University International.
Touro College offers both non-degree and degree courses in business
management and administration, computer science, education, human services,
liberal arts and sciences, social sciences and psychology.
Golden Gate University. Under a multi-year agreement, made in March 2000,
EVCI can offer all of Golden Gate's undergraduate, graduate and doctoral degree
programs and continuing education programs. Golden Gate has advised EVCI that
approximately 70% of its approximately 7,700 students work full-time while
attending classes and that, accordingly, its programs are career focused,
contemporary, practical and based on real marketplace needs. Golden Gate offers
courses leading to degrees which include concentrations in law, business
administration, taxation, applied psychology, english, international relations,
public administration, hospitality administration and tourism, computer
information systems, e-commerce software engineering and telecommunications
management. EVCI expects to begin offering Golden Gate courses in the Fall 2000.
Interboro Institute. Seeking additional sources of educational content for
its outreach programs, EVCI acquired Interboro in January 2000. Interboro is a
two-year college that offers degree programs leading to the Associate of
Occupational Studies Degree in Business Administration (accounting and business
management), ophthalmic dispensing, paralegal studies, administrative
secretarial arts (executive, legal, correspondence or medical secretary) and
security services and management. Interboro Institute continues to operate as a
campus college and will apply for New York state approval to provide content for
remote delivery by EVCI beginning in the Fall 2000 semester.
Interboro presently has approximately 700 students. Most of Interboro
Institute's student body consist of non-traditional students who pay their
tuition using Federal (Pell) and New York State (TAP) tuition grants.
Training and professional development. Information about training,
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professional developments and other content being offered by EVCI follows.
Computer Generated Solutions, Inc. Under a multi-year co-marketing and
education provider agreement, made in February 2000, CGS will market EVCI's
services and EVCI will market CGS's information technology corporate training
programs. Marketing is expected to begin in the second quarter of 2000. As a
premier IBM business partner, and Microsoft solutions
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provider, CGS offers over 250 instructor-led courses, Web-based training,
multi-media computer based training and custom-developed applications courses.
Kaplan Educational Centers, Inc. Under a multi-year agreement, made in
March 1999, EVCI is offering Kaplan's SAT and GMAT test preparation and K-12
after-school programs.
Dearborn Institute. Under its agreement with Kaplan Educational Centers,
Inc., EVCI is offering Dearborn securities and insurance licensing preparation,
training and professional development courses.
Visiocom USA Incorporated. EVCI and Visiocom USA will each market the
other's services. Visiocom USA provides one-on-one individual and customized
live software training directly to employees at their workplace. Courses include
instruction on using Microsoft Office, Lotus Smart Suite, WordPerfect Office,
Lotus Notes, the Internet, Java and the employer's proprietary software. EVCI is
a founder and principal stockholder of Visiocom USA together with Visiocom
Worldwide, S.A. under an agreement effective in November 1999.
Corporate Scenes, Inc. Under a multi-year agreement, made in March 2000,
EVCI will be offering professional development courses designed to enhance
leadership skills. Course subjects include cultural diversity, team building,
leadership training and handling conflict.
Education provider agreements. EVCI's education provider agreements
generally have terms of three to five years and are subject to automatic
extensions and, in addition to the services provided by EVCI, typically include
the following terms:
o The education provider obtains the necessary licenses and
accreditation for course and program offerings.
o Generally, the education provider is required to schedule courses
between 8:00 A.M. and 11:00 P.M. Monday through Friday and 9:00 A.M.
to 3:00 P.M. on Saturdays. The courses to be delivered by EVCI and
their time slots are determined each semester by EVCI and the
education provider. By adding Golden Gate University and other
geographically dispersed education providers, EVCI can offer more
course hours per day to students in other time zones.
o For its services, EVCI receives a fee based on tuition payments
actually received by the education provider.
o Most of EVCI's education providers have agreed not to offer courses
via competing interactive video conferencing systems to EVCI's
corporate customers and their employees during the term of the
education provider's agreement with EVCI and for one year after its
termination.
o All of EVCI's education provider agreements were made since EVCI's
IPO, except those with Adelphi University, Mercy College and The
College of Insurance.
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Marketing and Sales
EVCI's chairman and president oversee the development of EVCI's marketing
strategies and the conduct of sales activities. EVCI's sales force currently
consists of 20 full-time employees and four independent sales representatives.
Long-term relationships with customers, education providers and
co-marketing partners are pursued by means of referrals and introductions by
co-marketing partners and independent consultants, direct mail, telemarketing,
and demonstrations of EVCI's video conferencing delivery method.
Co-marketing agreements. Obtaining and implementing co-marketing
agreements, such as those described below, are significant components of EVCI's
strategy.
Bell Atlantic. Under a multi-year co-marketing agreement, made in September
1999, EVCI will provide accredited college courses, degree programs and other
training programs through synchronous, multi-point video conferencing technology
while Bell Atlantic will market EVCI's services to both its existing and
potential users of Bell Atlantic's digital subscriber lines (DSL). On February
14, 2000, Bell Atlantic and EVCI announced the introduction of Remote Learning
Solutions, the distance learning solution that facilitates a "virtual" classroom
using the video conferencing room systems or desk top computers. EVCI has been
advised by Bell Atlantic that the Remote Learning Solutions campaign has been
selected as one of Bell Atlantic's most significant marketing initiatives for
the year 2000. Approximately 900 Bell Atlantic account executives will be
trained to sell the Bell Atlantic/EVCI Remote Learning Solutions.
Exite @Home Network. Under two multi-year co-marketing agreements, made in
August and September 1999, Excite @Home and EVCI will market and promote EVCI
throughout the @Home broadband Internet portal and Excite.com. EVCI's initial
co-marketing initiative with @Home will be with the Excite @Work division of
Excite @Home. EVCI and @Work will co-market EVCI education and training to the
approximately 5,000 customers that have signed up for @Work broadband services.
Additionally, EVCI and @Work will develop joint promotional brochures and joint
sales initiative by bundling EVCI's content together with @Work broadband
services. Excite @Home has advised EVCI that it has access, through cable
television lines, to approximately 65 million households.
We Media, Inc. Under a multi-year co-marketing agreement, made in August
1999, We Media committed $7.5 million over five years, ($1.5 million per year),
to promote EVCI educational content to a market of approximately 54 million
Americans with disabilities, their families and friends. We Media is promoting
EVCI through its publications and web site and radio and television advertising.
Under another multi-year agreement, made in September 1999, We Media is
marketing EVCI services to not-for-profit organizations servicing the disabled,
and their families and friends.
Consortium for Worker Education. Under a multi-year co-marketing agreement,
made in May 1999, EVCI can offer courses and programs to union members and
dislocated workers. CWE has advised EVCI that, annually, over 32,000 employed
and
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unemployed workers receive educational, skills training and re-employment
services from CWE. EVCI is working with CWE on securing contracts with unions
and corporations using CWE's services.
edcor Data Services. EVCI is marketing edcor's tuition assistance
processing services to EVCI's current and potential customers. edcor's services
in educational and training administration include processing applications and
registrations; identifying appropriate accredited colleges, universities and
technical schools for students; preparing checks and reimbursing employees;
making training site arrangements; and determining that employees receive
training that contributes to the employer's goals. edcor plans to market EVCI's
content and delivery services to edcor's current and potential customers. edcor
currently provides its services primarily to approximately 70 Fortune 500
companies.
AT&T Corp. The AT&T co-marketing agreement, made in September 1998, is
being renegotiated as a result of AT&T's and EVCI's shift in focus from ISDN to
broadband services.
Marketing to students. EVCI assumes primary responsibility for marketing
its education providers' courses and programs to potential students. EVCI
produces promotional brochures and videotapes that may include or be accompanied
by endorsements by management of its customers. Other marketing tools include
using demand analysis surveys to collect demographic and preference data from a
corporate customer's employees to determine the courses and programs to be
offered. EVCI recently began outsourcing student admission counseling and
enrollment under its agreement made in October 1999 with Learningforce, Inc.
Government Regulation
Distance learning. Federal, state and local authorities, as well as
independent educational accreditation organizations, have taken an increasing
interest in distance learning in recent years. Federal departments and agencies
are seeking to balance governmental interests in encouraging new technologies
against other interests such as protecting the integrity of federally-funded
educational programs and ensuring that the benefits of new technologies will be
available to all Americans. State and local authorities are reevaluating
licensing requirements and are joining multi-jurisdictional collaborative
efforts to address complex issues that are unique to distance learning.
Much of this activity reflects general governmental support for the needs
and goals of distance learning providers. Several federal departments, including
the Departments of Agriculture, Defense, Labor and Education, have authorized
pilot programs that utilize or promote distance learning. These authorizations
may provide additional sources of funding for EVCI and other distance learning
companies.
Other governmental and regulatory activities could have a less-favorable
impact on EVCI's business. For example, the Higher Education Act imposes
numerous restrictions on students and institutions participating in federal
student financial aid programs. Lawmakers are reevaluating these restrictions in
response to rapid advances in distance learning programs and technologies, but
there can be no guarantee that the restrictions will be relaxed, or that the
Department of Education, Congress or other state or local regulatory entity will
not impose
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<PAGE>
stricter or additional requirements on distance learning providers. Increased
federal regulations, continued uneven licensing or approval processes by and
among state governments or accreditation organizations, or changes to other
laws, such as copyright or telecommunications laws, could increase EVCI's costs
or make it harder for EVCI to attract and retain the educational providers upon
which EVCI's business depends. All of these issues are in various stages of
review throughout all levels of government. EVCI cannot predict the scope,
outcome or impact on EVCI of these reviews, or the extent to which these reviews
will be favorable or adverse to EVCI.
Interboro Institute. EVCI has owned and operated Interboro Institute since
January 14, 2000.
Accreditation. The New York Board of Regents accredits Interboro.
Accreditation provides the basis for (i) the recognition and acceptance by
employers, other higher education institutions and governmental entities of the
degrees and credits earned by students and (ii) qualification to participate in
Title IV of the Higher Education Act.
Following the acquisition of Interboro by EVCI, the Board of Regents
approved the registration of Interboro's degree granting programs for a two-year
period ending on or about December 31, 2002. Pursuant to Regents regulations
governing a change of ownership, the Regents will issue degrees earned by
Interboro students during this period. At a time yet to be determined by the
Regents during this two-year period, it will review Interboro for purposes of
reaccreditation and the return of degree granting authority to Interboro. As a
result of Interboro's financial difficulties prior to its acquisition by EVCI,
the Regents is requiring Interboro to continue to submit quarterly financial and
related progress reports.
Interboro's Associate of Occupational Sciences degree in Ophthalmic
Dispensing is also accredited by the Commission of Opticianry. This degree
program accreditation was last issued in March 1999 for a six year period.
Pell grants. Interboro Institute's participation in the Pell Grant program
subjects it to substantial regulatory oversight by the U.S. Department of
Education under Title IV. For the period July 1, 1999 through January 13, 2000,
approximately 38.3% of Interboro's revenue was derived from Title IV funding.
During its fiscal year ended June 30, 1999, the percentage of funds derived from
Title IV funding by Interboro was 42.5%.
Aid under the Pell Grant and other Title IV programs is awarded on the
basis of financial need, generally defined as the difference between the cost of
attendance and the amount a student can reasonably contribute to that cost.
Under the Pell program, Interboro is subject to frequent reviews and
detailed oversight and must comply with a complex framework of laws and
regulations. Periodic revisions of regulations and changes in interpretation of
existing laws and regulations could affect Interboro's continuing eligibility to
participate in the Pell Grant program.
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Factors that could affect Interboro's participation in the Pell Grant
program include:
o Interboro must satisfy minimum standards established to assess its
financial condition at the end of its fiscal year. Interboro
anticipates it will be able to satisfy the minimum standard at the end
of its current fiscal year.
o Interboro could lose its eligibility to participate in Title IV if it
receives in excess of 90% of its cash basis revenue from Title IV
programs for tuition, fees and institutional charges. Interboro's
percentage of Title IV funds continues to be less than 45%.
o Interboro cannot pay any commission, bonus, or other incentive payment
based directly or indirectly on success in securing enrollments or
financial aid to any person or entity engaged in any student
recruitment, admission or financial aid awarding activity. Interboro
believes that its current method of compensating enrollment counselors
complies with Title IV.
o Interboro's participation in Title IV is based, in part, on satisfying
administrative capability requirements.
o Interboro's administration of Title IV funds is audited annually by an
independent accounting firm and the resulting audit report is
submitted to the Department of Education for review. If it is
determined that Interboro improperly disbursed Title IV funds or
violated a provision of the Higher Education Act, it could be required
to repay such funds and might be assessed an administrative fine.
Interboro could also become subject to heightened monitoring or
transfer from the advance system of payment to the reimbursement
system, under which it must disburse its own funds to students and
document the student's eligibility for Title IV funds before receiving
funds from Department of Education.
o Violations of Title IV requirements could also subject Interboro to
other civil and criminal penalties.
TAP grants. Interboro is subject to extensive regulation in New York
State in connection with its participation in the New York State Tuition
Assistance Program. TAP is a tuition grant program in which many of Interboro's
students participate.
Upon audit, TAP program administrators disallowed approximately $4,800,000
of grants previously disbursed to Interboro for academic years 1989/1990 through
1991/1992. After protracted litigation, Interboro was required to repay
approximately $5,850,000, including $1,050,000 of interest, to the New York
State Higher Education Services Corporation.
The financial and administrative problems incurred by Interboro as a result
of this TAP disallowance and ensuing litigation, created the opportunity for
EVCI to acquire Interboro. Interboro is now receiving TAP disbursements in the
ordinary course.
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Funds disbursed to Interboro subsequent to academic year 1992 are still
subject to audit as are future disbursements. Interboro cannot predict if any
future disallowances might occur as a result of additional TAP audits. Interboro
does believe, however, that the problems identified in the prior TAP audit have
been corrected and that it is operating in compliance with TAP rules. The
purchase price payable by EVCI for Interboro would be reduced to the extent of
any disallowance under TAP or Pell with respect to periods prior to January 14,
2000.
Competition
Distance Learning. The distance learning market is fragmented, highly
competitive and encompasses a broad variety of learning formats. EVCI faces
substantial competition from distance learning companies, using asynchronous or
synchronous delivery methods, and other providers of educational content.
Traditional live classroom instruction by two and four year colleges is EVCI's
most significant competition. Some colleges and universities are using
interactive video conferencing systems to deliver their courses. Many education
providers have extension centers that attempt to address the issue of locational
and scheduling convenience.
In addition, EVCI is facing increasing competition from other distance
learning companies that offer, among other products and services, one-way
satellite video conferencing, self-paced correspondence courses, video and audio
cassettes, CD-roms and Internet-based instruction. Distance learning competitors
include Apollo Group, Inc.'s University of Phoenix, Caliber Learning Network,
Inc., eCollege.com, SkillSoft, Inc. and Career Education Corporation.
EVCI's primary focus has been to use interactive video conferencing to
enable students to experience an actual classroom environment more closely than
any other distance learning system currently available. However, EVCI recognizes
that not everyone can afford the high quality delivery method preferred by EVCI
for its customers or can make the time to attend regularly scheduled classes
using video conferencing enabled room systems or desktop computers. Accordingly,
EVCI is adding one-way video, two-way audio and text capabilities, offers text
only programs, and has the ability to archive and store content from its live
classes for retrieval by the user as he or she sees fit. EVCI's archived content
will be accessed either from narrowband regular Internet or from high speed
broadband Internet.
There are no significant barriers to entry into the distance learning
market. EVCI believes competition is primarily based on locational and
scheduling convenience, cost, relevance and quality of course content, quality
and reliability of content delivery and customer support.
EVCI believes its principal competitive strengths are:
o its business strategy;
o the relevance, range and sources of training, professional development
and higher education courses EVCI can deliver;
o its management;
o the breadth of its services;
o its co-marketing partners;
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o the similarity of the learning experience using interactive video
conferencing systems to the traditional classroom experience, as a
result of the level of interactivity; and
o its proprietary broadband network design.
Interboro Institute. Interboro competes with four-year and two-year degree
granting public and private colleges and universities as well as with a variety
of business providers, primarily in the proprietary training sector.
Intellectual Property
EVCI currently intends to protect its broadband network design as a trade
secret.
Employees
As of March 1, 2000, EVCI had 135 full-time employees, including 69
Interboro Institute employees. In addition, Interboro Institute had 18 adjunct
professors. None of EVCI's employees is covered by a collective bargaining
agreement. EVCI believes that its relationship with its employees is
satisfactory.
Item 2. Description of Property.
EVCI currently utilizes approximately 6,442 square feet of space in
Yonkers, New York for its corporate and administrative offices, under a lease,
expiring in August 2002, that provides for monthly rent payments of
approximately $13,000 subject to annual increases. EVCI's multi-point
conferencing units are located and serviced in Bohemia, New York, under an
agreement which expires in December 2000 and requires monthly payments of
approximately $11,000, subject to increase as equipment and digital data lines
are added. Video conferencing equipment is delivered to the installation sites
by the manufacturers. EVCI is looking for additional space for its operations
department in Westchester County, New York.
Interboro Institute occupies approximately 28,000 square feet at 450 West
56th Street, New York, New York, pursuant to a lease expiring on January 2004
and requiring monthly rent payments of approximately $40,000.
Item 3. Legal Proceedings.
On March 3, 2000, EVCI commenced an action in Supreme Court, New York
County, seeking, among other things, an injunction enjoining 444 Realty Company,
L.L.C., the landlord of the premises occupied by Interboro Institute, from
unlawfully terminating, effective March 6, 2000, the lease for such premises
based upon its contention, which EVCI believes is not meritorious, that EVCI's
purchase of all of the stock of Interboro Institute, Inc. constitutes an
improper assignment of the lease.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
EVCI's common stock is quoted on The Nasdaq SmallCap Market under the
symbol "EVCI," and on the Pacific Exchange and the Boston Stock Exchange under
the symbol "EVI." The following table sets forth the high and low sales prices
of the common stock for each quarter of 1999, since the commencement of trading,
as reported by Nasdaq.
High Low
--------- ---------
First Quarter (from February 23, 1999) $18.000 $13.875
Second Quarter 16.125 7.844
Third Quarter 15.750 6.000
Fourth Quarter 21.000 13.250
As of March 9, 2000 the number of stockholders of record of EVCI 's common
stock was 47, which excludes the number of stockholders whose shares are held in
street name.
EVCI has never declared or paid any cash dividends on its common stock and
does not expect to pay any cash dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the financial
statements of EVCI and the notes thereto appearing elsewhere in this report.
Operational Overview
General. Since its IPO, EVCI has been engaged primarily in implementing its
business strategies by activities that include:
o completing the proprietary design and testing of its high speed
broadband network and determining that the network should be a
separate product offering to major corporations and others.
o making co-marketing alliances with Bell Atlantic, Excite @Home
Network, We Media, edcor and the Consortium for Worker Education.
o placing significantly greater emphasis on the marketing of training
and professional development content to corporations because they have
significantly larger budgets and demand for this kind of content than
higher education content and payments to EVCI for delivering training
and professional development content are more predictable and timely.
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o obtaining access to training and professional content user agreements
from, among others, Dearborn Institute (under EVCI's agreement with
Kaplan Educational Centers), Computer Generated Solutions, and
Corporate Scenes, and by co-founding Visiocom USA.
o obtaining education provider agreements with St. John's University
College of Business and St. John's University College of Professional
Studies, Clemson University's Office of Off-Campus, Distance and
Continuing Education, Concordia College, Touro University
International, Touro College and Golden Gate University.
o acquiring Interboro Institute with expectations of increasing EVCI
revenues from existing on-campus programs and the remote delivery of
Interboro's educational content after obtaining requisite New York
State approvals.
o recruiting, hiring or retaining, training and redeploying management,
marketing, sales, technical and administrative personnel.
o allocating more time, personnel and other resources to accelerating
the implementation of agreements with corporate customers.
Revenue and accounts receivable. EVCI's distance learning revenue is
derived from sharing tuition payments received by education providers based on a
contractually agreed upon formula. The percentage of tuition payments that an
education provider pays to EVCI for its services is determined by negotiation
between the education provider and EVCI, and, to an extent, depends upon the
reputation and academic standing of, and the tuition charged by, the education
provider. Revenue attributable to a course is recognized ratably over the
duration of the course and, as this occurs, EVCI establishes a related accounts
receivable. EVCI's education providers generally permit tuition payments to be
deferred until after a course is completed and they control the billing and
collection process. The practices of the education provider to collect tuition,
and the timing of such collection, is subject to the billing practices of the
education provider and the tuition reimbursement and payment policies and
practices of the student's employer. To the extent tuition is not paid by the
employer, the ability to collect tuition is subject to the risk of
non-collection from the student, who is ultimately responsible for payment. If a
student does not successfully complete a course, the employer will generally not
pay the tuition.
In most cases, EVCI has been receiving its share of distance learning
tuition payments more than 90 days after completion of courses, and, in some
cases, more than nine months after completion of courses. Frustrated by attempts
to expedite billing practices by education providers and reimbursement practices
by corporations, and by students' failure to pay tuition after receiving
reimbursement, commencing after completion of the current semester, EVCI will
require at least 50% of tuition to be paid in advance or, alternatively, that
deferred payments be guaranteed by the corporate employer.
EVCI cannot predict whether its new policies regarding collection of
tuition will adversely impact its student enrollment and, therefore, its cash
flow. Accordingly, the continuation and further implementation of these policies
will depend upon their acceptance by students and their employers.
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A key component of EVCI's increasing emphasis on providing corporate
training and development content is its co-marketing agreement with Bell
Atlantic. EVCI and Bell Atlantic believe the cost savings for corporations
receiving EVCI content and the convenience to their employees, resulting from
the reduction of travel time, will justify the cost of Bell Atlantic's building
out the broadband networks of their corporate customers. EVCI is currently
targeting the fourth quarter of 2000 for positive cash flow based on the rate at
which EVCI's co-marketing partners (such as Bell Atlantic and WeMedia) believe
they can roll out their co-marketing programs with EVCI and the cash flow EVCI
anticipates receiving from the operations of Interboro Institute.
EVCI intends to license its broadband network design and service based on
factors that include usage, number of simultaneous sites, number of ports,
scheduling, monitoring, training, required bandwidth, equipment, and broadband
line changes.
Operation expenses. Cost of sales consists primarily of costs relating to
operating EVCI's video conferencing equipment and to certain telecommunications
costs. These costs will increase as EVCI delivers more courses to more
locations. EVCI has an agreement with AT&T that substantially lowers EVCI's long
distance usage costs.
Generally, marketing costs are expensed as incurred. However, costs of
courses and related materials are expensed over the duration of the course to
which they relate.
Seasonability. EVCI expects that revenues for its third quarter will be
substantially lower than other quarters because it anticipates substantially
lower student enrollment during June, July and August.
Fiscal 1999 Compared to Fiscal 1998
Net revenue increased by 114% to $752,777 in 1999 from $351,598 in 1998 due
primarily to a 126 % increase in student course completions to 1,436 in 1999
from 634 completed courses in 1998. To increase the rate and amount of student
enrollment by employees of EVCI's corporate customers, in addition to
emphasizing training and professional development content delivery, EVCI has
been:
o working more closely with education providers and customers to
implement and administer their agreements with the Company.
o increasing the number of student recruiters (by eight during fiscal
year 1999).
o focusing on obtaining education providers with national and
international reputations or with regional appeal outside of the
Northeast.
o training employees of co-marketing partners regarding student
recruitment.
Tuition payments received or receivable from Adelphi, The College of
Insurance and Mercy College constituted 60%, 27% and 11%, respectively, of net
revenue in 1999 and 64%, 19% and 17%, respectively, of net revenue in 1998. Net
revenue relates to tuition payments and accounts receivable that are
attributable to employees of EVCI's customers in 1999 and 1998 as
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follows: AIG, 16% and 41%; Citibank, 13% and 37%; and Merrill Lynch, 9% and 13%.
EVCI did not deliver any courses or generate revenue in 1997.
Interest income increased to $437,645 in 1999 from $56,369 in 1998 due to
the investment of the proceeds from the IPO.
Cost of sales increased by 41% to $295,640 in 1999, or 39% of net revenue,
from $210,326, or 60% of net revenue in 1998 due primarily to increased
communication costs for operating EVCI's multipoint conferencing units. The
improvement in gross margin results primarily from volume discounts given to
EVCI under its agreement with AT&T.
Selling, general and administrative expense increased by $3,771,211 to
$6,591,609 in 1999 as compared to $2,820,398 in 1998. The components and reasons
for the increase:
o Salaries and benefits increased by 121% to $3,167,196 in 1999 from
$1,435,525 in 1998 primarily due to the increase in EVCI's staff
during the year by 38 to 62 full-time employees. The increase also
includes bonuses of $412,185 in 1999 as compared to $120,000 in 1998.
o Marketing, brochures and student registration costs increased by 98%
to $1,170,755 in 1999 from $591,827 in 1998 due primarily to costs of
marketing EVCI's services to an increasing number of potential
students, attending trade shows, and utilizing independent sales
representatives.
o Depreciation and amortization increased to $458,410 in 1999 from
$234,984 in 1998 as a result of purchases of videoconferencing
equipment and other equipment required to test the delivery of classes
using the Company's proprietary broadband network design.
o Other selling and general administrative expenses increased 212% to
$1,740,623 in 1999 from $558,062 in 1998 primarily due to increases in
rent, professional fees, maintenance fees, office telephone expenses,
postage, insurance, computer expenses, travel costs, and investor
relations costs that were incurred to support EVCI's growth.
o Interest and financing costs of $5,519 in 1999 relates to interest on
capital lease obligations compared to $105,681 in 1998, which related
to private placements in 1997 of debt that was retired in 1998.
EVCI also incurred $425,533 in non cash expenses in 1999 relating to the
issuance of options and warrants to outside consultants for services
performed. These options and warrants are valued at their fair value at the date
of issuance using the Black-Scholes option pricing model.
In addition, EVCI incurred a loss of $54,715 on its investment in Visiocom
USA.
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Liquidity and Capital Resources
In its initial public offering, completed in the first quarter of 1999,
EVCI received net proceeds of approximately $13,399,000 from the sale of
1,338,334 shares of its common stock, at $12 per share. This includes EVCI's
sale of 138,334 shares, for net proceeds of $1,494,000, upon exercise of the
underwriters over allotment option. Three EVCI officers also participated in the
over allotment option sales by selling a total of 41, 666 shares, for which they
received net proceeds of $449,992.
Through December 31, 1999, the net proceeds of the IPO have been used as
follows:
Cash and investment grade obligations $6,926,000*
Purchasing and installing video conferencing equipment 1,896,000
Marketing 917,000
Net payment for equity & other investments 296,000
Hiring and training additional personnel 420,000
Other working capital and operating expenses 2,944,000
-----------
$13,399,000
===========
---------------
* Cash in non-interest bearing accounts was approximately $38,000.
On February 3, 2000, EVCI received net proceeds of approximately
$3,740,000 from the sale to The Shaar Fund Ltd. of 400,000 shares of a newly
designated Series A, 7.5% convertible preferred stock having a stated value of
$10.00 per share and three year warrants to purchase 40,000 shares of EVCI's
common stock.
Capital expenditures for twelve months ended December 31, 1999 were
$1,969,351 compared to $449,883 for the twelve months ended December 31, 1998.
The additional purchases were directly attributable to purchases of video
conferencing equipment required at EVCI's education providers and corporate
customers' sites where the EVCI's video conferenced programs are offered and for
the purchase of equipment to test EVCI's proprietary broadband network design.
EVCI will continue to use its cash resources as needed to implement the plan of
operations described in its IPO prospectus.
On January 14, 2000, EVCI's newly formed wholly-owned subsidiary, Interboro
Holding, Inc., acquired all of the outstanding stock of Interboro Institute,
Inc.
The purchase price for the outstanding stock of Interboro is contingent
upon Interboro having earnings before interest, taxes, depreciation, and
amortization, as determined by EVCI's auditors, over the three fiscal years
commencing July 1, 2000 (or January 1, 2001 if EVCI changes Interboro's fiscal
year to a calendar year). The purchase price has two components: (i) a fixed
portion of $672,500, and (ii) a percentage portion equal to 50% of EBITA. The
purchase price is payable out of between 20% and 50% of EBITDA that is allocated
first to the fixed and then to the percentage portion of the purchase price. Any
earned but deferred percentage portion
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becomes payable in eight quarterly installments after the fixed portion has
been fully paid. Unless Interboro has sufficient EBITDA, the fixed portion is
not payable.
In addition, EVCI has agreed to issue to Mr. Kalisch warrants to purchase
up to 25,000 shares of EVCI's common stock at the rate of 5,000 warrants per
year provided Interboro has at least $500,000 of EBITDA for the applicable
fiscal year during the five year period commencing July 1, 2001 (or January 1,
2002 if registrant charges Interboro's fiscal year to a calendar year).
EVCI has infused $1,000,000 into Interboro for working capital and to
satisfy certain net worth and other financial requirements.
See Note 3 of Notes to Financial Statements for information regarding
EVCI's agreement with Learningforce, Inc.
EVCI anticipates, based on current plans and assumptions relating to its
operations, that cash flow from operations and the proceeds from its IPO and
recent preferred stock offering will be sufficient to satisfy its cash
requirements for at least until December 31, 2000. EVCI expects to require
additional funding in order to operate and grow and is considering various
available financing options. If, however, EVCI is underestimating its cash
requirements, it will require additional debt or equity financing sooner. There
can be no assurance that any such required debt or equity financing will be
available on acceptable terms.
Item 7. Financial Statements.
The financial information required by this item is set forth beginning on
page F-1.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Information about the current directors, executive officers and key
employees of EVCI and their respective positions is set forth below:
Name Age Positions Held
- ---- --- --------------
Dr. Arol I. Buntzman 56 Chairman of the board and chief executive
officer
Dr. John J McGrath 46 President and director
Richard Goldenberg 54 Chief financial officer, secretary and director
James H. Mollitor 54 Chief technical officer
Frederick H. Zolla 49 Vice president - corporate development
Royce N. Flippin Jr. 65 Director
Arthur H. Goldberg 57 Director
Philip M. Getter 63 Director
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Dr. Arol I. Buntzman has served as chairman of the board and chief
executive officer of EVCI since it's inception in March 1997 and as a member of
the compensation committee since February 1999. From October 1996 until he
founded EVCI with Dr. John McGrath, Dr. Buntzman worked with Dr. McGrath on
EVCI's business plan. From August 1995 to October 1996 he was chairman of the
board and chief executive officer and a principal stockholder of Educational
Televideo Communications, Inc. a provider of distance learning services. From
July 1995 through June 1996, he served as director of interactive video
conferencing distance learning of Fordham University. From September 1992
through July 1995 he was an adjunct professor and the director of the weekend
program, a college program for working adults, at Mercy College, Dobbs Ferry,
New York.
Dr. Buntzman received a doctorate in education through the executive
leadership program of Fordham University Graduate School of Education in May
1995, a professional diploma in educational administration from Fordham
University Graduate School of Education in May 1993 and a Masters of Business
Administration from Arizona State University in finance and management in
September 1970. His doctoral dissertation focused on the usage of live
interactive video conferencing as an educational delivery method and its use for
graduate education programs.
Dr. John J. McGrath has served as president and a director of EVCI since
it's inception in March 1997. From October 1996 until he founded EVCI with Dr.
Buntzman, he worked with Dr. Buntzman on EVCI's business plan. From August 1995
to October 1996, he was president, a director and a principal stockholder of
Educational Televideo Communications, Inc.
From January 1995 to February 1997, Dr. McGrath served as special
assistant to the president of the Mercy College, Dobbs Ferry, New York. Through
December 1994, he served as assistant vice-president for extension Centers of
Mercy College where he was responsible for establishing and managing seven
college extension centers in New York City and Westchester County, New York. He
also served as the dean of the White Plains Campus of Mercy College from 1990
through 1993.
Dr. McGrath holds a Ph.D. from the Fordham University Graduate School of
Arts and Sciences, with a specialization in law and criminal justice.
Richard Goldenberg has served as chief financial officer, secretary and a
director of EVCI since its inception. From October 1996 until October 1997, Mr.
Goldenberg served as chief financial officer, treasurer and secretary of RDX
Acquisition Corp., a company that provides proprietary electronic messaging and
automation software. From 1986 through September 1996, he served as
vice-president, treasurer and secretary of Celadon Group, Inc., a publicly
traded transportation company. He has a B.B.A. in accounting from Baruch
College, CUNY.
James H. Mollitor joined EVCI in July 1998 as vice president of operations.
He became EVCI's chief technical officer in December 1999. From May 1997 to May
1998 he served as director of the Manhattan Data Center of Lockheed Martin, a
defense contractor. From June 1976 to March 1997, he served as chief information
officer of Loral Electronics Systems, Inc., a military electronics manufacturer.
24
<PAGE>
Frederick H. Zolla joined EVCI in July 1999 as director of business
development. He became EVCI's vice-president of corporate development in
November 1999. From May 1997 through June 1999, Mr. Zolla was a consultant
(d/b/a as Professional Consultants) to The Hispanic Telecommunication Network,
The New York City Board of Education, PBS -Channel 13, The JASON Classroom
Network and Claire Transportation Services, where he utilized his distance
learning expertise and knowledge of education sales and marketing.
From November1992 to May 1997 he was the sole stockholder and director and
president and Chief Executive Officer of Distance Learning Associates, Inc. DLA
was the first marketing company to organize distance learning programs from a
variety of providers into a package that made it possible for K-12 school
districts to utilize distance learning resources. Under Mr. Zolla's leadership,
DLA established distance learning programs in over 1,800 school districts
throughout the country. During this time, Mr.Zolla also served as a guest
lecturer at the University of Southern Connecticut. Through a program initiated
from the State Department of Education in Georgia, Mr. Zolla lectured on the
integration of distance learning resources in the classroom and workplace at
Georgia Tech, Valdosda University and the regional educational service centers
throughout Georgia. DLA ceased operations in May 1997 as the education market
changed from satellite delivered resources to Internet delivered resources. Mr.
Zolla declared and was discharged from personal bankruptcy in 1997 as a result
of having personally guaranteed approximately $800,000 in DLA liabilities. To
his knowledge, DLA did not file for bankruptcy protection.
In 1996, Mr.Zolla served on the White House advisory committee for
educational technology and in 1995 was appointed to the National Infrastructure
Awards committee, headed by Vice President Al Gore.
Royce N. Flippin, Jr. has been a director and a member of EVCI's audit
committee since February 1999. He has served, since 1992, as president of
Flippin Associates, a consulting firm focusing on the development of resources,
programs and new markets and human resource management for career planning,
communication and leadership skills. After serving as a tenured professor and
director of athletics at MIT from 1980 to 1992, he has been a director of
program advancement at MIT from 1992 to 1999, in which capacity he provided
consulting services to the MIT Office of Individual Giving -Resource Development
regarding projects that include technology transfers, individual gift bequests
and the planned MIT athletic center. Mr. Flippin is a trustee or board member of
several profit and non-profit organizations, including Ariel Capital Management
Funds (trustee since 1986), Radkowsky Thorium Power Corporation, a
privately-held company that is developing non-proliferative nuclear fuels
(director since 1994 and chairman from 1995-1997), Kinematic, Inc., a privately
held company that is developing a virtual environment training system for the
improvement of motor skills under an exclusive license from MIT (director since
1994), Newark Boys Chorus School (trustee since 1993) and Asphalt Green Acqua
Center, New York, NY (director since 1993). Mr. Flippin holds an A.B. degree
from Princeton University and an M.B.A. degree from Harvard University Graduate
School of Business Administration.
Arthur H. Goldberg has been a director and member of EVCI's audit and
compensation committees since February 1999. He has served as president of
Manhattan Associates, L.L.C., an investment and merchant banking firms, since
1994. From 1990 through 1993, he served as
25
<PAGE>
chairman of Reich & Co., a New York Stock Exchange member firm that
specialized in investment banking and corporate finance for small-cap companies.
Mr. Goldberg holds a B.S. degree from New York University Stern School of
Business and a J.D. degree from New York University School of Law.
Philip M. Getter has been a director since May 1999. Since March 1996, he
has served as a managing director and head of corporate finance of Prime Charter
Ltd., the lead underwriter of EVCI's IPO. From 1992 to March 1996, he was a
senior vice president, investment banking, at Josephthal Lyon & Ross. Mr. Getter
has more than 30 years of experience in the securities industry. From 1975 to
1981 he was chairman and chief executive officer of Generics Corporation of
America, a public company that was one of the largest generic drug companies in
the U.S. He is a member of the League of American Theatres and Producers, serves
on the Board of the American Theatre Wing and is a Trustee of the Kurt Weill
Foundation for Music. Mr. Getter has produced events for Broadway, film and
television. Mr. Getter received his B.S. in industrial relations from Cornell
University.
Executive officers of EVCI are appointed by the board of directors and
serve as the discretion of the Board. There are no family relationships among
any of the directors or executive officers of EVCI.
As set forth above, each of Drs. Buntzman and McGrath was an executive
officer, director and principal stockholder of Educational Televideo. From
February 1995 through July 1996, Educational Televideo had delivered courses to
one customer, using video conferencing equipment and dedicated phone lines.
Educational Televideo ceased business operations in September 1996. Drs.
Buntzman and McGrath terminated their affiliation with Educational Televideo in
October 1996 when it became apparent to them that anticipated financing needed
to resume Educational Televideo's business would not be provided. Drs. Buntzman
and McGrath believe that, when they resigned, Educational Televideo's remaining
liabilities consisted solely of approximately $300,000 of accounts payable to
vendors, primarily for equipment and supplies. To the knowledge of Drs. Buntzman
and McGrath, bankruptcy proceedings have not been commenced or threatened by or
against Educational Televideo.
Classified Board
In December 1998 EVCI adopted a classified board of directors pursuant to
which the directors are divided into three classes. The term of office of each
class of directors will expire as follows:
o Class 1, at the first annual meeting of stockholders following the
date of this report.
o Class 2, at the second annual meeting of stockholders following the
date of this report.
o Class 3, at the third annual meeting of stockholders following the
date of this report.
Thereafter, the term of office of each director will expire at the third
annual meeting of stockholders following his or her election. The directors in
each class are: Class 1: Arol I.
26
<PAGE>
Buntzman and Philip M. Getter; Class 2, John J. McGrath and Royce N.
Flippin, Jr.; and Class 3, Richard Goldenberg and Arthur H. Goldberg.
Section 16(a) Beneficial Ownership Reporting Compliance
A review of Forms 3 and 4 furnished to EVCI during its fiscal year ended
December 31, 1999, Forms 5 furnished to EVCI with respect to its fiscal year
ended December 31, 1999 and the written representations, if any, of the relevant
reporting persons, indicates that Philip M. Getter did not file his Form 3 in a
timely manner.
Item 10. Executive Compensation.
The following table shows compensation paid for the years ended December
31, 1999, 1998 and 1997 to EVCI's chief executive officer and its other highest
paid executive offices who earned more than $100,000 in 1999.
<TABLE>
<CAPTION>
Summary Compensation Table Long Term
Annual Compensation Compensation
-------------------------------------------------------------------------------------- ---------------------
Awards
Securities
Other Annual Underlying
Salary Bonus Compensation Options
Name and Principal Position Year ($) ($) ($) (#)
- ------------------------------------------------------------------------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C>
Dr. Arol I. Buntzman 1999 270,000 293,333 (1) --- 120,000
Chairman of the 1998 210,000 70,000 --- ---
board and chief 1997 136,000 35,600 --- ---
executive officer
Dr. John J. McGrath 1999 158,666 91,667 (2) --- 40,000
President 1998 126,500 5,750 --- ---
1997 50,000 --- --- ---
Richard Goldenberg 1999 117,666 55,000 (3) --- 15,000
Chief financial officer 1998 102,000 4,750 13,200 (4) ---
1997 18,750 --- 11,100 (4) ---
James H. Mollitor 1999 120,000 5,000 --- ---
Chief technical officer 1998 57,500 2,000 --- 50,000
1997 --- --- ---
---
- ----------------------
</TABLE>
(1) Includes $43,333 of bonus earned in 1998, payment of which was deferred at
the election of Dr. Buntzman.
(2) Includes $21,667 of bonus earned in 1998, payment of which was deferred
at the election of Dr. McGrath.
(3) Includes $15,000 of bonus earned in 1998, payment of which was deferred
at the election of Mr. Goldenberg.
(4) Consulting fees earned prior to Mr. Goldenberg's full-time employment by
EVCI, the payment of which was deferred at the election of Mr. Goldenberg.
(5) Was not employed by EVCI prior to July 1998.
27
<PAGE>
Options Grants in Last Fiscal Year
The following table sets forth information regarding options granted during
the year ended December 31, 1999, under EVCI's Incentive stock option plan, to
the executive officers named in the immediately preceding table.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Percent of Total
Options Granted Options Granted to Excercise Price
Name (#) Employees in 1999 ($/sh) Expiration Date
- ---- --------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Arol I. Buntzman 120,000 47.1% 10.375 May 06, 2004
John J. McGrath 40,000 15.7% 10.375 May 06, 2004
Richard Goldenberg 15,000 5.9% 10.375 May 06, 2004
Aggregate Option Exercises in 1999 and Year-End Option Values
</TABLE>
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised options at Value of Unexercised In-The-Money
December 31, 1999 (#) Options at December 31, 1999 ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------------------------- ---------------------------------
<S> <C> <C>
Dr. Arol I. Buntzman 0/120,000 0/1,185,000
Dr. John J. McGrath 0/40,000 0/395,000
Dr. Richard Goldenberg 0/15,000 0/148,125
James H. Mollitor 10,000/40,000 2,500/0
</TABLE>
Compensation of Directors
Directors who are not officers or employees of EVCI are paid $1,000 for
attendance at each meeting of the board of directors or any committee thereof
and travel expenses. In addition, EVC1's Amended and Restated 1998 Incentive
Plan authorizes the automatic grant of an option to purchase 5,000 shares of
common stock to non-employee directors on the date on which such person first
becomes a non-employee director. Each non-employee director is automatically
granted an option to purchase 5,000 of common stock shares on March 1 of each
year, provided he or she is then a non-employee director and, as of such date,
he or she has served on the board of directors for at least the preceding six
months. Options granted to non-employee directors vest in three annual
installments commencing on the first anniversary of the date of grant and have a
term of ten years. The exercise price of options granted to non-employee
directors is 100% of the fair market value per share of common stock on the date
of grant. A non-employee director who has been granted stock or options by EVCI
under a consulting or other arrangement is ineligible to receive any subsequent
automatic grants unless the compensation committee determines otherwise.
28
<PAGE>
Employment Agreements
Each of Dr. Buntzman, Dr. McGrath, Mr. Goldenberg and Mr. Mollitor has an
employment agreement with EVCI.
The employment agreement with Dr. Buntzman provides for his employment as
chairman and chief executive officer at an annual salary of $330,000 since
September 1, 1999.
The employment agreement with Dr. McGrath provides for his employment as
president at an annual salary of $200,000 since September 1, 1999.
The employment agreement with Mr. Goldenberg provides for his employment as
chief financial officer at an annual salary of $125,000 since September 1, 1999.
The employment agreement with Mr. Mollitor provides for his employment as
chief technical officer at an annual salary of $120,000.
Each of the employment agreements expires December 31, 2001. Dr. Buntzman's
and Dr. McGrath's agreements expressly permit increases in salary as the Board
determines. The employment agreements entitle the officers to participate in the
health, insurance, pension and other benefits, if any, generally provided to
employees of EVCI and Dr. Buntzman's and Dr. McGrath's agreements entitle them
to additional life insurance equal to three times their respective salaries. The
employment agreements also provide that, with certain exceptions, until 18
months after the termination of employment with EVCI, the officer may not induce
employees to leave the employ of EVCI or participate in any capacity in any
business activities that compete with the business conducted by EVCI during the
term of the employment agreement.
EVCI may terminate the employment of the officers upon death or extended
disability or for cause (as defined in each respective agreement), except that
Mr. Mollitor's agreement can be terminated by EVCI at any time. If employment is
terminated by EVCI without cause, the agreements generally provide EVCI must pay
the officer's salary and health and insurance benefits until the earlier of a
specified date or the scheduled termination date of the employment agreement or,
in the case of each of Drs. Buntzman and Dr. McGrath, until 36 months after
termination of his employment.
EVCI entered has an agreement with Dr. Arol I. Buntzman providing for
payments to him, in the event his employment with EVCI is terminated after a
change in control of EVCI during the time of the agreement. A change of control
means any of the following:
o any person becomes the beneficial owner of 25% or more of EVCI's
voting securities; or
o during any consecutive three years, EVCI's directors at the beginning
of such three year period and any new director whose election was
approved by at least 662/3% of the directors, cease to constitute a
majority of the board; or
29
<PAGE>
o EVCI's stockholders approve a merger or consolidation other than one
where EVCI's outstanding voting securities before the transaction
constitute 50% or more of the outstanding securities of the entity
surviving the transaction or where a recapitalization is effected in
which no person acquires 25% or more of EVCI's voting securities; or
o EVCI's stockholders approve a total liquidation of EVCI or sale of all
or substantially all of EVCI's assets.
The agreement expires September 30, 2001, but is subject to automatic
extension to December 31, 2001, and, thereafter, for successive one-year terms,
unless otherwise terminated by either party. The agreement requires severance
payments to Dr. Buntzman of 2.99 times the sum of his base salary and the
highest annual bonus, if any, paid to him during the three previous years and
the continuation of his medical and dental insurance benefits. The agreement
requires these payments to be made in equal installments over a 36 month period
and for the insurance benefits to continue for 36 months.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 1, 2000, the beneficial
ownership of common stock by each person (or group of affiliated persons) known
by EVCI to own beneficially more than 5% of the outstanding shares of common
stock, each director and executive officer of EVCI, and all directors and
executive officers as a group. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
[Intentionally left blank]
30
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock Percentage of
Name of Beneficial Owner(1) Beneficially Owned Total Shares
- --------------------------- ------------------ ------------
<S> <C> <C>
Dr. Arol I. Buntzman 1,276,834(2) 29.4%
Dr. John J. McGrath 420,146 9.7
Richard Goldenberg (3) 84,127 1.9
James H. Mollitor 16,250(4) 0.4
Frederick H. Zolla - -
Tayside Trading Ltd. (5) 417,705(6) 9.3
125/5 Sanhedria Murchevet, Jerusalem, Israel
DEWI Investments Limited (7) 533,334 12.3
37 Bar Ilan Street, Jerusalem, Israel
B&H Investments Ltd (8) 268,409 (9) 6.1
50 Town Range, Gibraltar
Royce N. Flippin, Jr. 3,333 (10) -
Arthur H. Goldberg 114,000 (11) 2.6
Philip Getter 29,417 (12) .7
All directors and executive officers as a group 1,439,834 (13) 32.2
(8 persons)
</TABLE>
(1) Unless otherwise indicated, the address for each stockholder is c/o
Educational Video Conferencing, Inc., 35 East Grassy Sprain Road,
Suite 200, Yonkers, New York 10710.
(2) Includes the 420,146 and 84,127 shares beneficially owned,
respectively, by Dr. McGrath and Mr. and Mrs. Goldenberg. An agreement
between Drs. Buntzman and McGrath gives Dr. Buntzman the right to
direct the vote of the shares of common stock owned by Dr. McGrath as
Dr. Buntzman directs until December 31, 2001. Additionally, Dr.
Buntzman has the right to direct the vote of the shares owned by Mr.
and Mrs. Goldenberg until December 31, 2001 pursuant to an agreement
with them.
(3) Owned jointly by Mr. Goldenberg and his wife and excludes 15,000
shares of common stock owned by Mr. Goldenberg's adult children, as to
which Mr. and Mrs. Goldenberg disclaim beneficial ownership.
(4) Includes currently exercisable options to purchase 10,000 shares.
(5) The ultimate beneficial owner is Mr. Esriel Pines.
(6) Includes 167,705 shares underlying currently exercisable warrants.
(7) The ultimate beneficial owner is Mr. Aron Gee.
(8) The ultimate beneficial owns are Mr. Chaim Segal and Mr. Simcha
Senerovitch.
(9) Includes 46,545 shares underlying currently exercisable warrants.
(10) Comprised of shares underlying currently exercisable options.
(11) Includes currently exercisable options and warrants to purchase 79,000
shares.
(12) Includes 3,750 shares owned by Mr. Getter's wife, as to which Mr.
Getter disclaims beneficial ownership, 1,667 shares underlying
currently exercisable options and 24,000 shares underlying currently
exercisable warrants.
(13) Includes 118,000 shares underlying currently exercisable options and
warrants.
31
<PAGE>
Item 12. Certain Relationships and Related Transactions.
In January and February 1998, EVCI issued to Tayside Trading Ltd., a
principal stockholder of EVCI, warrants to purchase 17, 705 shares of common
stock at $6.00 per share as a finder's fee in connection with EVCI's receipt of
a portion of the gross proceeds to $1,072,500 from the issuance in a private
placement of 195,000 shares of common and warrants to purchase 78,000 shares of
common stock at $6.00 per share. Tayside and B&H acquired their other EVCI
securities disclosed in Item 11 of this report prior to the foregoing
transactions and at a time when they had no relationship with EVCI or any
officer or director of EVCI.
In March 1998, EVCI entered into a three year consulting agreement with
Arthur H. Goldberg, a director of EVCI. The agreement provides that Mr. Goldberg
will help EVCI to obtain financing and agreements with corporate customers and
education providers and in strategic planning and corporate development. The
agreement entitles Mr. Goldberg to 5% of revenues received by EVCI from
activities, if any, with one education provider with which EVCI does not
currently have an agreement. The agreement also grants Mr. Goldberg seven year
options to purchase 100,000 shares of common stock at $7.00 per share, of which
options to purchase 75,000 shares have vested overtime and options to purchase
25,000 shares vested on March 4, 2001 if the agreement remains in effect.
The transactions described above between EVCI and each of Tayside, B&H and
Mr. Goldberg were consummated when such companies and individuals were not
affiliates of EVCI. EVCI believes the terms of such transactions were negotiated
at arms length and were as favorable to EVCI as it could obtain from
unaffiliated third parties.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this Report:
Exhibit No.* Description of Exhibit
- ------------ ----------------------
3.1[1] -- Certificate of Incorporation of the Registrant.
3.1.(a)[6] -- Certificate of Amendment to Certificate of
Incorporation.
3.2[6] -- Amended and Restated By-Laws of the Registrant.
3.3[1] -- Certificate of Merger of Educational Video Conferencing,
Inc. (a New York Corporation) into the Registrant
(a Delaware Corporation).
3.4[1] -- Certificate of Correction of the Certificate of
Incorporation of the Registrant.
3.5[10] -- Second Amended Certificate of Designation of Series A
7.5% Convertible Preferred Stock of the Registrant.
32
<PAGE>
3.5(a)[11] -- Certificate of Correction of Second Amended Certificate
of Designation of Series A 7.5% Convertible Preferred
Stock of the Registrant.
4.1[1] -- Form of Common Stock Purchase Warrant issued to
investors in private placements and for services
provided in connection with such private placements.
4.2[1] -- Tayside Common Stock Purchase Warrant.
4.3[5] -- Adelphi Common Stock Purchase Warrant.
4.4[5] -- Form of Representative's Warrant Agreement (including
Form of Representative's Warrant).
4.5[5] -- Form of Common Stock certificate.
4.6[5] -- Amended and Restated 1998 Incentive Stock Option Plan of
the Registrant.
4.7[9] -- Warrant Agreement, dated as of January 14, 2000, between
Educational Video Conferencing, Inc. and Bruce R.
Kalisch.
4.8[10] -- Common Stock Purchase Warrant, dated as of February 3,
2000, issued to The Shaar Fund Ltd.
4.9(10] -- Form of Finder's Warrant (relating to the issuance
of warrants to purchase 3,870 shares of the
Registrant's common stock).
+10.1[3] -- Agreement between the Registrant and Adelphi University
for the Offering of Interactive Televideo Courses,
dated May 13, 1997.
+10.2[2] -- Agreement between the Registrant and The College of
Insurance for the Offering of Interactive
Televideo Courses, dated September 16, 1997.
+10.3[2] -- Agreement between the Registrant and Mercy College
for the Offering of Interactive Video Conferenced and
Computer Courses, dated March 10, 1998. Agreement
between the Registrant and Reliance National for the
Offering of Interactive Televideo Courses and Distance
Learning Programs, dated October 7, 1998.
10.4[1] -- Agreement between the Registrant and Reliance National
for the Offering of Interactive Televideo Courses and
Distance Learning Programs, dated October 7, 1998
10.5[1] -- Agreement between the Registrant and Citibank, dated May
20, 1997.
10.6[1] -- Agreement between the Registrant and American
International Group, dated May 21, 1997.
10.7[1] -- Agreement between the Registrant and Merrill Lynch
for the Offering of Interactive Televideo Courses and
Distance Learning Programs, dated June 3, 1998.
33
<PAGE>
10.7(a)[8] -- Agreement between the Registrant and Merrill
Lynch, Pierce, Fenner & Smith Incorporated for the
Offering of Interactive Televideo Courses and
Distance Learning Programs, dated June 30, 1999.
10.8[5] -- Agreement for Interactive Televideo Courses and Distance
Learning Programs between the Registrant and Travelers
Indemnity Company, dated July 24, 1998.
10.9[1] -- Agreement between the Registrant and Zurich Insurance
Company, U.S. Branch for the Offering of Interactive
Televideo Courses and Distance Learning Programs, dated
August 12, 1998.
10.11[6] -- Lease Agreement between the Registrant and Realty Co.
(doing business as Royal Realty), dated as of December
15, 1998.
10.12[1] -- Employment Agreement between the Registrant and Dr. Arol
I. Buntzman, dated October 1, 1998.
10.13[1] -- Employment Agreement between the Registrant and Dr. John
J. McGrath, dated October 1, 1998.
10.14[1] -- Employment Agreement between the Registrant and Richard
Goldenberg, dated October 1, 1998.
10.15 -- Intentionally omitted.
10.16[1] -- Employment Agreement between the Registrant and James H.
Mollitor, dated October 1, 1998.
10.17[1] -- Consulting Agreement between the Registrant and Arthur
H. Goldenberg, dated March 4, 1998.
10.18[4] -- Consulting Agreement between the Registrant and William
R. Coda, dated May 10, 1998.
10.19 -- Intentionally omitted.
10.20[1] -- Chief Executive Officer Change in Control Agreement
between the Registrant and Dr. Arol I. Buntzman, dated
October 1, 1998.
10.21[1] -- Form of Indemnification Agreement.
10.22[5] -- Intentionally omitted.
10.23[4] -- ICS Network Systems Equipment Collocation and
Services Agreement, dated November 20, 1997.
34
<PAGE>
10.24[4] -- Agreement between the Registrant and General
Reinsurance Corporation for the Offering of
Interactive Televideo Courses and Distance Learning
Programs, dated November 6, 1998.
+10.25[4] -- Agreement between the Registrant and Manhattan
College for the Offering of Interactive Video
Conferenced Courses, dated November 23, 1998.
10.26[4] -- Comarketing Agreements between AT&T Corp. and the
Registrant.
10.27[4] -- Tariff agreement between the Registrant and AT&T Corp.
dated in June 1998.
10.28 -- Agreement between Arol I. Buntzman and Richard and
Bonnie Goldenberg, dated March 1, 2000.
10.29 -- Agreement between Arol I. Buntzman and John J. McGrath,
dated March1, 2000.
10.30 -- Intentionally omitted.
10.31[6] -- Agreement between the Rochester City School District and
the Registrant, dated December 22, 1998.
10.32[6] -- National Agreement between Lockheed Martin Corporation
and the Registrant dated as of February 17, 1999.
+10.33[6] -- Educational Provider Agreement between Kaplan
Educational Centers, Inc. and Educational Video
Conferencing, Inc. dated March 23, 1999.
10.34[7] -- EVC and CWE Co-Marketing Agreement, dated May 21, 1999,
between the Registrant and the Consortium for Workers
Education.
10.35[8] -- Video Conferencing and Telecommunications Services
Agreement, dated as of July 1, 1999, between the
Board of Education of the City School District of the
City of New York on behalf of Community School
District No. 10 and the Registrant.
10.36[8] -- Agreement between the Registrant and Atlantic
District Lutheran Church Missouri Synod for the
Offering of Interactive Televideo Courses, dated July
21, 1999.
10.37[8] -- Letter Agreement between Excite @Home Network and
the Registrant, dated July 26, 1999.
+10.38[8] -- Agreement between the Registrant and Concordia
College for the Offering of Interactive Video
Conferenced Courses, dated August 19, 1999.
35
<PAGE>
+10.39(a)[8] -- Agreement, dated August 26, 1999, between We Media,
Inc. and the Registrant.
+10.39(b)[8] -- Agreement, dated September 22, 1999, between We Media,
Inc. and the Registrant.
+10.40[8] -- Co-Marketing Agreement, dated September 1, 1999, between
the Registrant and Bell Atlantic Network Services, Inc.
+10.41[8] -- Agreement, dated September 1, 1999, between the
Registrant and Touro College and Touro University
College and Touro University International.
+10.42[8] -- Agreement, between the Registrant and St. John's
University for the Offering of Interactive Video
Conferenced and Internet-Based Courses, dated
September 24, 1999.
10.43[9] -- Stock Purchase Agreement, dated as of January 14, 2000,
among Bruce R. Kalisch, Interboro Holding, Inc. and
Interboro Institute, Inc.
10.44[9] -- Escrow Agreement, dated January 14, 2000, among Bruce R.
Kalisch, Interboro Holding, Inc. and Fischbein Badillo
Wagner Harding.
10.45[10] -- Securities Purchase Agreement, dated as of February 3,
2000, between Educational Video Conferencing, Inc.
and The Shaar Fund Ltd.
10.46[10] -- Registration Rights Agreement, dated as of February 3,
2000, between Educational Video Conferencing, Inc.
and The Shaar Fund Ltd.
++10.50 -- Agreement between Educational Video Conferencing, Inc.
and Golden Gate University for the Offering of
Interactive video conference courses, dated March 3,
2000.
10.51 -- License and services agreement between Educational Vide
Conferencing, Inc. and Learningforce Inc. dated as
of October 18, 1999.
10.52 -- Educational Provider/Co-Marketing Agreement between
Educational Video Conferencing, Inc. and Computer
Generated Solutions, Inc. dated as of January 13, 2000.
10.53 -- Stock Subscription and Stockholders' Agreement, dated as
of November 29, 1999 among Educational Video
Conferencing, Inc., Visiocom Worldwide, S.A., the
individuals set forth in Exhibit A to such agreement,
and Visiocom USA Incorporated ("VUSA"), including
Exhibits.
27 -- Financial Data Schedule
36
<PAGE>
99.1[9] -- Press Release of Educational Video Conferencing, Inc.,
dated January 20, 2000.
- ------------------------------
[1] Incorporated by reference to the Registrant's Registration Statement
on Form SB-2, dated October 23, 1998, registration no. 333-66085.
[2] Incorporated by reference to Amendment No. 1, dated November 12, 1998,
to the Registrant's Form SB-2, Registration no. 333-66085.
[3] Incorporated by reference to Amendment No. 2, dated November 20, 1998,
to the Registrant's Form SB-2, Registration No. 333-66085.
[4] Incorporated by reference to Amendment No. 3, dated December 23, 1998,
to the Registrant's Form SB-2, Registration No. 333-66085.
[5] Incorporated by reference to Amendment No. 4, dated February 10, 1999,
to the Registrant's Form SB-2, Registration No. 333-66085.
[6] Incorporated by reference to Registrant's Form 10-QSB, for the quarter
ended March 31, 1999.
[7] Incorporated by reference to Registrant's Form 10-QSB, for the quarter
ended June 30, 1999.
[8] Incorporated by reference to Registrant's Form 10-QSB for the quarter
ended September 30, 1999.
[9] Incorporated by reference to the Registrant's Form 8-K dated January
14, 2000.
[10] Incorporated by reference to the Registrant's Form 8-K dated February
3, 2000.
[11] Incorporated by reference to the Registrant's Form 8-K/A dated March
3, 2000.
* Numbers inside brackets indicate documents from which exhibits have
been incorporated by reference.
+ Confidential treatment has been granted with respect to the redacted
portions of this exhibit.
++ Confidential treatment has been requested with respect to the redacted
portions of this exhibit.
(b) EVCI did not file any reports on Form 8-K during the fourth quarter of 1999.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EDUCATIONAL VIDEO CONFERENCING, INC.
Date: March 29, 2000 By: /s/ Dr. Arol I. Buntzman
-------------------------------------
Dr. Arol I. Buntzman
Chairman and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Date
- --------- ----
/s/ Dr. Arol I. Buntzman March 29, 2000
- -------------------------------------------------------
Dr. Arol I. Buntzman
Chairman and Chief Executive Officer
/s/ Dr. John J. McGrath March 29, 2000
- -------------------------------------------------------
Dr. John J. McGrath
President and Director
/s/ Richard Goldenberg March 29, 2000
- -------------------------------------------------------
Richard Goldenberg
Chief Financial Officer, Secretary and Director (Principal
Financial and Accounting Officer)
/s/ Royce N. Flippin, Jr. March 29, 2000
- -------------------------------------------------------
Royce N. Flippin, Jr.
Director
/s/ Philip M. Getter March 29, 2000
- -------------------------------------------------------
Philip M. Getter
Director
March 29, 2000
- -------------------------------------------------------
Arthur H. Goldberg
Director
38
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Report F-2
Financial Statements:
Balance Sheet as of December 31, 1999 and 1998 F-3
Statement of Operations for the Years Ended December 31, 1999 and 1998 F-4
Statement of Stockholders' Equity for the Years Ended December 31, 1999 and 1998 F-5
Statement of Cash Flows for the Years Ended December 31, 1999 and 1998 F-6
Notes to Financial Statements F-7 - F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Educational Video Conferencing, Inc.
We have audited the accompanying balance sheets of Educational Video
Conferencing, Inc. ("EVC") as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of EVC'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 Educational Video Conferencing,
Inc. as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 28, 2000, except for Note 12 as
to which the date is February 3, 2000
F-2
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,925,823 $ 914,700
Accounts receivable, net of allowance for doubtful accounts of
$75,000 and $35,000, respectively 461,234 226,776
Prepaid expenses and other current assets 138,583 80,846
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 7,525,640 1,222,322
Property and Equipment, net 2,916,091 1,405,150
License Agreement 200,000 -
Deferred Income Tax Asset, net of valuation allowance of $856,000 and
$520,000, respectively - -
Equity and Other Investments 240,533 -
Other Assets 15,246 7,832
Deferred Offering Costs - 900,000
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $10,897,510 $ 3,535,304
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 524,539 $ 920,643
Current portion of capital lease obligation 15,717 -
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 540,256 920,643
Capital Lease Obligation, net of current portion 46,034 -
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 586,290 920,643
- ----------------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' Equity:
Preferred stock - $.0001 par value; authorized 1,000,000 shares, none issued - -
Common stock - $.0001 par value; authorized 20,000,000 shares,
issued and outstanding 4,347,243 shares and 3,008,909 shares, respectively 435 301
Additional paid-in capital 19,889,224 6,064,920
Accumulated deficit (9,578,439) (3,450,560)
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 10,311,220 2,614,661
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $10,897,510 $ 3,535,304
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenue $ 752,777 $ 351,598
Interest income 437,645 56,369
- ----------------------------------------------------------------------------------------------------------------------
Total revenue 1,190,422 407,967
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of sales 295,640 210,326
Selling, general and administrative 6,591,609 2,820,398
Noncash consulting services 425,533 -
Interest and financing costs 5,519 105,681
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses 7,318,301 3,136,405
- ----------------------------------------------------------------------------------------------------------------------
Net loss $(6,127,879) $(2,728,438)
======================================================================================================================
Basic loss per common share $ (1.48) $ (1.03)
======================================================================================================================
Weighted-average number of common shares outstanding 4,147,604 2,641,636
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Additional
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 2,329,279 $233 $ 1,857,027 $ (722,122) $ 1,135,138
Issuance of common stock for cash 533,334 53 3,599,954 - 3,600,007
Issuance of common stock in connection
with private placement 69,546 7 349,130 - 349,137
Issuance of common stock upon conversion
of notes payable 66,250 7 248,310 - 248,317
Issuance of common stock for services
relating to raising equity 7,000 1 (1) - -
Issuance of common stock for services 3,500 - 10,500 - 10,500
Net loss - - - (2,728,438) (2,728,438)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,008,909 301 6,064,920 (3,450,560) 2,614,661
Issuance of common stock in connection with
initial public offering 1,338,334 134 13,398,771 - 13,398,905
Issuance of common stock purchase warrants
and stock options for services - - 425,533 - 425,533
Net loss - - - (6,127,879) (6,127,879)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 4,347,243 $435 $19,889,224 $(9,578,439) $10,311,220
============================================================================================================================
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
EDUCATIONAL VIDEO CONFERENCING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,127,879) $(2,728,438)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 458,410 234,984
Amortization of debt issue costs 81,903
Allowance for doubtful accounts 40,000 35,000
Common stock options and warrants issued for services 425,533 10,500
Loss from equity method investment 54,717 -
Changes in operating assets and liabilities:
Increase in accounts receivable (274,458) (261,776)
Increase in prepaid expenses and other current assets (57,737) (69,608)
Increase in licensing agreements (200,000) -
(Increase) decrease in other assets (7,414) 6,460
(Decrease) increase in accounts payable and accrued expenses (396,104) 385,995
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (6,084,932) (2,304,980)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
Purchase of property and equipment (1,896,013) (449,883)
Net payments for equity and other investments (295,250) -
- ----------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (2,191,263) (449,883)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 13,398,905 4,639,144
Deferred offering costs 900,000 (900,000)
Principal payments on capital lease obligation (11,587) -
Repayment of notes payable - (160,177)
Expenses incurred in the conversion of notes payable to common stock - (36,683)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 14,287,318 3,542,284
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 6,011,123 787,421
Cash and cash equivalents at beginning of year 914,700 127,279
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,925,823 $ 914,700
======================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 5,519 $ 47,979
======================================================================================================================
Supplemental schedule of noncash investing and
financing activities:
Conversion of notes payable to common stock $ - 0 - $ 285,000
======================================================================================================================
Capital lease obligation incurred $ 73,338 $ - 0 -
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PRINCIPAL Educational Video Conferencing, Inc. ("EVC") was
BUSINESS formed on March 4, 1997. EVC delivers educational
ACTIVITY AND courses and programs to employees of major
SUMMARY OF corporations via interactive video conferencing
SIGNIFICANT systems. Interactive video conferencing allows the
ACCOUNTING instructor to see, hear and interact with students
POLICIES: as the students see, hear and interact with their
instructor and other students at multiple
locations. EVC provides its corporate customers
with access to a number of educational providers
and the marketing and administrative services
necessary to recruit, enroll and deliver courses
and programs to the corporation's employees. EVC
serves as a marketing and technology bridge
between accredited colleges, universities and
training organizations that want to increase
enrollment and tuition revenue from student
populations they otherwise could not serve, and
corporations that want to raise the education and
skill levels of their employees.
EVC commenced its planned principal operations in
February 1998.
In April 1998, pursuant to an agreement and plan
of merger (reincorporation), Educational Video
Conferencing, Inc. ("EVC-NY"), a New York
corporation, merged into and with Educational
Video Conferencing, Inc. ("EVC-DE"), a newly
formed, inactive Delaware corporation owned by the
stockholders of EVC-NY. EVC-DE is the surviving
corporation and EVC-NY has ceased to exist. The
merger was accounted for at historical cost in a
manner similar to a pooling of interests.
EVC considers all highly liquid instruments
purchased with a maturity of three months or less
to be cash equivalents.
EVC maintains its cash in bank deposit accounts
which, at times, may exceed federally insured
limits. It has not experienced any losses in such
accounts.
EVC reviews long-lived assets and identified
intangibles for impairment whenever events or
changes in circumstances indicate that the
carrying value of an asset may not be fully
recoverable. EVC performs nondiscounted cash flow
analyses to determine if an impairment exists.
EVC recognizes income ratably over the semester in
which courses are given. EVC began offering
courses in February 1998. The courses range from
8-week to 16-week periods meeting 1 or 2 times a
week.
During the year ended December 31, 1999, three
education providers accounted for 98% (60%, 27%
and 11%) of EVC's net revenue. During the year
ended December 31, 1998, three education providers
accounted for 100% (64%, 19% and 17%) of EVC's
revenue.
Property and equipment is recorded at cost.
Depreciation is provided for by the straight-line
method over the estimated useful lives of the
property and equipment. Amortization of leasehold
improvements is provided for by the straight-line
method over the term of the lease.
The preparation of financial statements in
accordance with generally accepted accounting
principles requires the use of estimates by
management. Actual results could differ from these
estimates.
Deferred offering costs represent costs
attributable to the initial public offering
F-7
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
("IPO") (see Note 2) which were offset against the
proceeds from this transaction.
Advertising costs are expensed as incurred. The
cost of brochures are capitalized and amortized
over the semester to which the specific courses
relate. Advertising expenses approximated $635,000
and $483,000 for the years ended December 31, 1999
and 1998, respectively.
EVC employs the liability method of accounting for
income taxes pursuant to SFAS No. 109, under which
method recorded deferred income taxes reflect the
tax consequences on future years of temporary
differences (differences between the tax basis of
assets and liabilities and their financial amounts
at year-end). EVC provides a valuation allowance
that reduces deferred tax assets to their net
realizable value.
SFAS No. 128, Earnings per Share, requires dual
presentation of basic earnings per share ("EPS")
and diluted EPS on the face of all statements for
all entities with complex capital structures.
Basic EPS is computed as net earnings divided by
the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from
common shares issuable through stock-based
compensation including stock options, restricted
stock awards, warrants and other convertible
securities. Diluted EPS is not presented since the
effect would be antidilutive.
In December 1998, EVC's board of directors
approved a 1-for-2 reverse stock split which was
effective on the date of the initial public
offering. All references to the number of common
shares and per share amounts elsewhere in the
financial statements and related footnotes have
been restated as appropriate to reflect the effect
of the reverse split for all periods presented.
EVC accounts for employee stock options in
accordance with Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock
Issued to Employees. Under APB No. 25, EVC applies
the intrinsic value method of accounting and
therefore does not recognize compensation expense
for options granted, because options are only
granted at a price equal to the market price on
the day of grant. SFAS No. 123, Accounting for
STOCK-BASED Compensation, prescribes the
recognition of compensation expense based on the
fair value of options as determined on the grant
date. However, SFAS No. 123 allows companies to
continue applying APB No. 25 if certain pro forma
disclosures are made assuming hypothetical fair
value method application (see Note 10).
2. INITIAL PUBLIC In February 1999, EVC completed an IPO of
OFFERING: 1,200,000 shares of its common stock at $12.00 per
share. The net proceeds to the Company, after
deducting underwriting commissions and expenses of
the offering of approximately $2,500,000, were
approximately $11,900,000. Additionally, the
Company received net proceeds of approximately
$1,500,000 from the issuance of 138,334 shares of
common stock and the underwriters' warrant to
purchase an aggregate of 120,000 shares of common
stock pursuant to an over-allotment option.
F-8
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
During October 1999, EVC entered into a five-year
3. LICENSE exclusive limited license and services agreement
AGREEMENT: with an entity (the "Licensor") to utilize any and
all educational data management and college
advising-related software developed by the
Licensor, including any and all software code
developed for use on the Internet. The license fee
under the agreement is $50,000 per year of which
EVC has prepaid the Licensor $200,000 and will pay
an additional $50,000 upon the delivery of certain
software, as defined. In addition, under the
agreement, EVC shall reimburse the Licensor an
amount not to exceed $59,000 a month with a
minimum payment of $700,000 during the first 12
months from the effective date, as defined.
Additionally, EVC shall be entitled to receive 30%
of all revenue generated by the Licensor for the
Licensor's fee-based advising and remediation
services.
4. EQUITY AND Equity and other investments
OTHER consist of the following:
INVESTMENTS:
Investment in Visiocom (a) $195,533
Advance to Interboro Institute
(see Note 11) 45,000
- --------------------------------------------------------------------------------
$240,533
================================================================================
(a) On November 29, 1999, EVC invested $250,000
for a 50% interest (33-1/3% of voting rights)
in Visiocom USA Incorporated ("Visiocom"), a
newly formed Delaware corporation. Visiocom
provides business employees with "one-on-one"
training, via the Internet and
video-conferencing, on how to use business
software programs and, using the same
teaching methods, also provides business
employees with language courses. The
investment in Visiocom is accounted for under
the equity method of accounting whereby
earnings or losses from the investment are
reflected in EVC's earnings based on EVC's
pro rata ownership interest. The net loss
from this investment for the year ended
December 31, 1999 aggregated approximately
$55,000.
F-9
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. PROPERTY AND Property and equipment, at cost, consists of the
EQUIPMENT: following:
<TABLE>
<CAPTION>
Estimated
December 31, 1999 1998 Useful Life
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Furniture and fixtures $ 71,034 $ 58,187 7 years
Office computers 506,250 182,865 5 years
Video teaching equipment 2,774,201 1,292,813 5 years
Computer software 102,565 83,946 5 years
Automobile 22,233 22,233 5 years
Leasehold improvements 59,774 - Term of lease
Equipment acquired under
capital lease 73,338 - 5 years
- ----------------------------------------------------------------------------------------------------------------------
3,609,395 1,640,044
- ----------------------------------------------------------------------------------------------------------------------
Less accumulated depreciation and amortization:
Equipment acquired under
capital lease 7,334 -
Other 685,970 234,894
- ----------------------------------------------------------------------------------------------------------------------
693,304 234,894
- ----------------------------------------------------------------------------------------------------------------------
$2,916,091 $1,405,150
======================================================================================================================
</TABLE>
6. ACCOUNTS PAYABLE AND Accounts payable and accrued expenses consist of
ACCRUED EXPENSES: the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts payable $212,635 $101,652
Accrued bonuses - 77,445
Accrued professional fees 25,586 586,285
Accrued marketing brochures 31,617 74,405
Computer and video equipment payable 61,025 80,856
Accrued telephone 122,456 -
Accrued other 71,220 -
- ----------------------------------------------------------------------------------------------------------------------
$524,539 $920,643
======================================================================================================================
</TABLE>
7. OBLIGATIONS The Company leases office equipment under a
UNDER CAPITAL capital lease expiring in 2003. The lease requires
LEASE: monthly payments of principal and interest,
imputed at 14.2% per annum.
F-10
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Minimum future obligations under this lease are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
2000 $24,155
2001 24,155
2002 24,155
2003 8,053
- ----------------------------------------------------------------------------------------------------------------------
80,518
Less amount representing interest 18,767
- ----------------------------------------------------------------------------------------------------------------------
61,751
Less current portion 15,717
- ----------------------------------------------------------------------------------------------------------------------
$46,034
======================================================================================================================
</TABLE>
8. INCOME TAXES: The tax effects of loss carryforwards and the
valuation allowance that give rise to deferred tax
assets are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating losses $ 856,000 $ 520,000
Less valuation allowance (856,000) (520,000)
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax assets $ - 0 - $ - 0 -
======================================================================================================================
The provision (benefit) for income taxes differs from the amount computed using the
federal statutory rate of 34% as a result of the following:
Year ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Federal statutory rate (34)% (34)%
Increase in valuation allowance 34 34
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax assets - 0 -% - 0 -%
======================================================================================================================
</TABLE>
As of December 31, 1999, EVC had net operating
loss carryforwards available to offset future
taxable income of approximately $9,084,000 which
expire in various years through 2019. Between
October 1997 and August 1998, EVC completed
private offerings of securities. In February 1999,
EVC had an IPO of its securities. Under Section
382 of the Internal Revenue Code, these activities
effect an ownership change and thus may severely
limit, on an annual basis, EVC's ability to
utilize its net operating loss carryforwards. EVC
uses the lowest marginal U.S. corporate tax of 15%
to determine deferred tax amounts and the related
valuation allowance because EVC had no taxable
earnings through December 31, 1999.
F-11
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMMITMENTS: EVC leases office space under noncancelable
operating leases which expire in August 2002. EVC
also leases space and other services for its
multiport control units that expires in 2000. The
leases are subject to escalations for increases in
EVC's share of increases in real estate taxes and
other expenses.
Minimum future obligations under these leases are
as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
2000 $278,410
2001 168,002
2002 117,353
- ----------------------------------------------------------------------------------------------------------------------
$563,765
======================================================================================================================
</TABLE>
Rent expense charged to operations for the years
ended December 31, 1999 and 1998 amounted to
approximately $267,000 and $160,000, respectively.
EVC has entered into employment agreements with
executive officers of EVC which provide for
compensation and other benefits as defined in the
agreements.
Aggregate compensation under the agreements is as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
2000 $ 845,000
2001 845,000
- ----------------------------------------------------------------------------------------------------------------------
$1,690,000
======================================================================================================================
</TABLE>
In 1998, EVC entered into a consulting agreement
with an individual which entitles the consultant
to 2.5% of payments actually collected by EVC for
services provided by it to corporate customers
with which EVC contracts as a result of the
consultant's direct involvement. The agreement
also provides for payment of $5,000 per month to
the consultant. The agreement expires in May 2003,
unless earlier terminated, including upon 30 days
notice to the consultant.
In 1998, EVC also entered into a consulting
agreement with another individual who became a
director of EVC upon the commencement of the IPO.
The agreement entitles the consultant to 5% of
revenue received by EVC from activities, if any,
with an education provider with which EVC does not
currently have an agreement. The agreement grants
the consultant seven-year options to purchase up
to 100,000 shares of common stock at $7.00 per
share, of which options to purchase 25,000 shares
are vested and options to purchase an additional
25,000 shares of common stock vest each March of
the years 1999 through 2001.
10. STOCKHOLDERS' In December 1998, EVC's board of directors
EQUITY: approved a 1-for-2 reverse stock split which was
effective on the date of the initial public
offering. All references to the number of common
shares and per share amounts elsewhere in the
financial statements and related footnotes have
been restated as appropriate to reflect the effect
of the reverse split for all periods presented.
F-12
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Between January 1998 and April 1998, EVC received
gross proceeds of $1,072,500 from the issuance of
195,000 shares of common stock and warrants,
expiring in 2003, to purchase 78,000 shares of
common stock at $6.00 per share. As of December
31, 1997, EVC had received subscriptions for an
aggregate of $690,000 to purchase 125,000 shares
of common stock and warrants, expiring in 2003, to
purchase 50,200 shares of common stock. The
$690,000 was received by EVC by January 13, 1998.
Transaction costs incurred in connection with this
private placement were approximately $99,000.
Additionally, warrants to purchase 51,752 shares
of common stock for $6.00 per share were issued as
a finder's fee in connection with these
transactions.
In March 1998, in connection with the employment
of its chief technology officer, EVC issued
options to purchase 50,000 shares of common stock.
The options vest ratably over 10 years with
exercise prices ranging from $20.00 per share to
$40.00 per share.
Between May and August 1998, EVC received gross
proceeds of $4,000,000 for the issuance of 533,334
shares of common stock. The transaction costs
incurred in connection with this private placement
were approximately $400,000 and the issuance to a
finder of warrants, expiring in 2003, to purchase
25,000 shares of common stock at $12.00 per share.
In May 1999, EVC issued warrants to an
unaffiliated entity to purchase up to 50,000
shares of common stock for $12.00 per share as
additional consideration under a consulting
agreement. The warrants are exercisable upon
issuance and expire after seven years.
In September 1999, in connection with a consulting
agreement, EVC issued warrants to an individual to
purchase 5,000 shares of common stock at $17.50
per share. Warrants are exercisable upon issuance
and expire on February 22, 2004. Pursuant to the
terms of the agreement, EVC will issue an
additional 7,500 warrants at $22.50 per share in
January 2000, and another 7,500 shares at $25.00
per share in May 2000.
In October 1998, the board of directors of EVC
adopted an incentive stock option plan in which
356,000 shares of common stock have been reserved
for future issuance through September 30, 2008.
The plan provides for grants of incentive stock
options, nonqualified stock options and shares of
common stock to employees, nonemployee directors
and others. The option price cannot be less than
the fair market value of the shares of the
incentive stock options at the date of grant.
Vesting of options and stock awards and certain
other conditions are determined by, or a committee
appointed by, the board of directors. During the
year ended December 31, 1999, 255,000 options were
granted under this plan.
F-13
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table represents the warrants outstanding as of December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Exercise Warrants Outstanding
Price Per December 31,
Expiration Date Warrant 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 2002 $ 2.00 11,500 11,500
August 2002 4.00 5,500 5,500
October 2002 4.00 100,000 100,000
October 2002 20.00 50,000 50,000
December 2002 4.00 18,000 18,000
January 2003 6.00 88,252 88,252
February 2003 6.00 37,500 37,500
April 2003 6.00 12,000 12,000
August 2003 12.00 25,000 25,000
February 2004 17.50 5,000 -
February 2004 19.80 120,000 -
February 2004 20.00 10,000 -
February 2005 5.44 37,500 37,500
May 2006 12.00 50,000 -
- ----------------------------------------------------------------------------------------------------------------------
570,252 385,252
======================================================================================================================
</TABLE>
Presented below is a summary of stock option activity for the periods
shown:
<TABLE>
<CAPTION>
Wtd.-Avg. Wtd.-Avg.
Exercise Exercise Options Exercise
Price Range Options Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Granted 165,000
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 165,000 $13.76 12,500 $7.00
Granted 255,000
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 420,000 $11.84 55,000 $9.09
======================================================================================================================
</TABLE>
F-14
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes information for options currently outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- -------------------
Wtd.- Wtd.- Wtd.-
Avg. Avg. Avg.
Exercise Remaining Exercise Exercise
Price Range Number Life Price Number Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.80 15,000 10 yrs. $ 4.80 - -
$ 7.00 100,000 7 yrs. $ 7.00 50,000 $ 7.00
$10.00 - $20.00 255,000 4 yrs. $10.60 - -
$20.00 - $40.00 50,000 10 yrs. $30.00 5,000 -
- ----------------------------------------------------------------------------------------------------------------------
$ 4.80 - $40.00 420,000 6 yrs. $11.84 55,000 $ 9.09
======================================================================================================================
</TABLE>
EVC has elected, in accordance with the provisions
of SFAS No. 123, to apply the current accounting
rules under APB Opinion No. 25 and related
interpretations in accounting for stock options
and, accordingly, is presenting the
disclosure-only information as required by SFAS
No. 123. If EVC had elected to recognize
compensation cost based on the fair value of the
options granted at the grant date as prescribed by
SFAS No. 123, EVC's net loss and net loss per
common share would approximate the pro forma
amounts shown in the following table.
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reported net loss $(6,127,879) $(2,728,438)
=======================================================================================================================
Pro forma net loss $(6,498,459) $(2,791,468)
=======================================================================================================================
Reported net loss per common share $ (1.48) $ (1.03)
=======================================================================================================================
Pro forma net loss per common share $ (1.57) $ (1.03)
=======================================================================================================================
</TABLE>
The fair value of options granted (which is
amortized to expense over the option vesting
period in determining the pro forma impact) is
estimated on the date of grant using the
Black-Scholes option-pricing model with the
following assumptions: no dividend yield,
volatility of 78% in 1999 and 0% in 1998,
risk-free interest rates ranging from 5.18% to
6.7% and an expected life of 2 to 10 years from
the date of vesting.
F-15
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The weighted-average fair value of options granted
is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of each option granted $ 1.274 $ 1.54
Total number of options granted 260,000 150,000
- ----------------------------------------------------------------------------------------------------------------------
Total fair value of all options granted $331,240 $231,089
======================================================================================================================
</TABLE>
In accordance with SFAS No. 123, the
weighted-average fair value of stock options
granted is required to be based on a theoretical
statistical model using the preceding
Black-Scholes assumptions. In actuality, because
EVC's incentive stock options do not trade on a
secondary exchange, employees can receive no value
or derive any benefit from holding stock options
under these plans without an increase in the
market price of EVC. Such an increase in stock
price would benefit all stockholders
commensurately.
11. ACQUISITION OF On January 14, 2000, EVC acquired the outstanding
INTERBORO shares of Interboro Institute for $672,500 plus
INSTITUTE: 50% of earning before interest, taxes, debt and
amortization ("EBITDA") for the three fiscal years
ending June 30, 2001, 2002 and 2003. Payment of
Interboro's purchase price is contingent upon
there being EBITDA. The acquisition was accounted
for under the purchase method of accounting and,
accordingly, the results of operations will be
included in the financial statements as of the
date of the acquisition, and the assets and
liabilities will be recorded based upon their fair
values at the date of the acquisition. EVC
acquired assets with a fair value of approximately
$900,000 and assumed liabilities of approximately
$1,500,000.
In connection with the acquisition of Interboro
Institute, EVC recorded approximately $750,000 in
goodwill, which will be amortized on a
straight-line basis over a period of 10 years.
The following summarized pro forma consolidated
statement of income (unaudited) assumes the
acquisition of the business of Interboro Institute
as if it had occurred at the beginning of the
period:
<TABLE>
<CAPTION>
<S> <C> <C>
Net revenue $ 7,181,825
======================================================================================================================
Net loss $(9,009,179)
======================================================================================================================
Basic loss per common share $ (2.17)
======================================================================================================================
</TABLE>
This pro forma financial information is presented
for informational purposes only and is not
necessarily indicative of the operating results
that would have occurred had the acquisition been
consummated as of the assumed date, nor is it
necessarily indicative of future operating
results.
F-16
<PAGE>
EDUCATIONAL VIDEO CONFERENCING INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. PREFERRED STOCK: On February 3, 2000, EVC received gross proceeds
of $4,000,000 for the issuance of 400,000 shares
of 7.5% convertible preferred stock and warrants
to purchase 40,000 shares of common stock.
Transaction costs incurred in connection with this
placement were approximately $260,000.
F-17
<PAGE>
EXHIBIT INDEX
Exhibit 10.28
Exhibit 10.29
Exhibit 10.50
Exhibit 10.51
Exhibit 10.52
Exhibit 10.53
EXHIBIT 10.28
March 1, 2000
Dr. Arol I. Buntzman
325 Mile Square Road
Yonkers, New York 10701
Dear Arol:
This will confirm our agreement regarding the shares of capital stock of
Educational Video Conferencing, Inc. owned by me. Until December 31, 2001, all
of such shares shall be voted as you direct on any matter requiring the vote or
consent of stockholders.
Sincerely yours,
/s/ Richard Goldenberg
Richard Goldenberg
/s/ Bonnie Goldenberg
Bonnie Goldenberg
AGREED:
/s/ Dr. Arol I. Buntzman
- ------------------------
Dr. Arol I. Buntzman
EXHIBIT 10.29
March 1, 2000
Dr. Arol I. Buntzman
325 Mile Square Road
Yonkers, New York 10701
Dear Arol:
This will confirm our agreement regarding the shares of capital stock of
Educational Video Conferencing, Inc. owned by me. Until December 31, 2001, all
of such shares shall be voted as you direct on any matter requiring the vote or
consent of stockholders.
Sincerely yours,
/s/ Dr. John J. McGarth
John J. McGarth
AGREED:
/s/ Dr.Arol I. Buntzman
- -----------------------
Dr. Arol I. Buntzman
EXHIBIT 10.50
AGREEMENT BETWEEN EDUCATIONAL VIDEO CONFERENCING, INC.
AND GOLDEN GATE UNIVERSITY FOR THE OFFERING OF INTERACTIVE
VIDEO CONFERENCED COURSES
W I T N E S S E T H
AGREEMENT made this 3rd day of 2000, between GOLDEN GATE UNIVERSITY
with offices located at 536 Mission Street, San Francisco, CA 94105 (hereinafter
referred to as "Golden Gate"), and Educational Video Conferencing Inc.,
(hereinafter "EVC"), with offices located at 35 East Grassy Sprain Road,
Yonkers, New York 10710.
WHEREAS, Golden Gate is an institution of higher learning
accredited by the Western Association of Schools and Colleges to offer
undergraduate and graduate courses, and,
WHEREAS, EVC is a domestic corporation engaged in the business
of providing access to such courses to consumers by way of interactive video
conferencing and computer conferencing, and,
WHEREAS, Golden Gate and EVC wish to enter into a mutually
beneficial agreement whereby EVC will provide access to Golden Gate courses to
such consumers,
NOW, THEREFORE in consideration of the mutual promises and
covenants contained herein, the parties hereby agree as follows:
1. a.) EVC shall have the right, for the duration of this
agreement and any renewal hereof, to offer all undergraduate
and graduate degree programs, courses, and continuing
education programs offered by Golden Gate via Interactive
Video Conferencing/Distance Learning (hereinafter "IVC/DL")
commencing with the Summer 2000 term. Subject to the terms set
forth herein in paragraphs 24 and 25, Golden Gate may continue
to offer courses and programs via interactive video under
agreements with third parties, including applicable successor
organizations, entered into prior to the initiation of this
agreement, which may continue at Golden Gate's sole
discretion.
b.) For the purposes of this agreement, IVC/DL shall be
defined as live, two way video conferencing, either over
desktop computers equipped for video conferencing or video
conferencing room systems, as the case may be, in which the
student can see and hear the professor/instructor and the
professor/instructor can see and hear the individual student.
IVC/DL also shall include one-way video and two-way audio
distance learning.
c.) Unless Golden Gate and EVC agree otherwise in writing, the
minimum class size for the offering of an ITV/DL course shall
be twenty-five (25) students.
<PAGE>
2. EVC will provide all hardware (except personal computers,
modems, keyboards and monitors), software, and video
conferencing equipment (collectively referred to as
"equipment") necessary to provide access for Golden Gate
courses to IVC/DL students. Students taking IVC/DL courses on
desktop computers must have modern computers capable of being
video enabled and function as an IVC/DL desktop system. The
parties acknowledge that it is the primary goal of EVC to
solicit students from corporations, governmental agencies, and
institutions (hereinafter "Institutional Employers") with
substantial tuition reimbursement and that EVC shall address
all student use equipment issues with the Institutional
Employers and their employees. In any event, Golden Gate shall
not be responsible for the cost of any equipment whatsoever at
Institutional Employer locations and/or students homes.
3. EVC is responsible for costs for marketing, advertising, and
promotion regarding EVC's offering of access to Golden Gate
courses. Unless otherwise agreed, Golden Gate will provide a
reasonable quantity of brochures, catalogues, course
schedules, program and course descriptions, posters, etc., to
EVC for distribution to employees of EVC's corporate,
governmental and institutional clients promoting the Golden
Gate programs and courses offered through EVC.
4. Golden Gate shall provide and maintain rooms capable of
becoming teacher stations. This includes installing and
maintaining adequate telecommunication lines (ISDN, DSL, or
cable, or regular telephone lines) and electrical outlets.
Golden Gate will be responsible for the cost of the
telecommunication signal transport for video conferenced
courses from teacher stations to the MCU Bridge. EVC assumes
responsibility or cost for obtaining, providing, or paying for
telecommunication signal transport for video conferenced
courses from the MCU Bridge to corporate locations and/or
students homes.
5. EVC will be responsible for installing and maintaining up to
three (3) teaching stations in the rooms provided by Golden
Gate to videoconference IVC/DL courses offered through EVC,
subject to enrollment. All teaching stations installed and
paid for by EVC shall remain the exclusive property of EVC. On
termination of this Agreement, all such equipment shall be
promptly removed by EVC at their expense.
6. All equipment supplied by EVC is the sole and exclusive
property of EVC, including but not limited to any and all
patents, copyrights and trademarks, if any, associated
therewith. All classroom, course and program materials or
other information supplied by Golden Gate, and all rights and
interests in said materials will remain the sole and exclusive
property of Golden Gate.
7. a.) EVC is responsible for the necessary maintenance, repair
and/or replacement of video conferencing equipment supplied to
Golden Gate for IVC/DL courses.
b.) EVC will provide reasonably prompt service for repair or
replacement of defective interactive video conferencing
equipment and software as necessary.
c.) Golden Gate will be responsible for the prompt repair
and/or replacement of interactive video conferencing equipment
located at Golden Gate, which may be damaged through improper
or unauthorized use.
d.) Golden Gate is responsible for the repayment to EVC of the
economic value of any EVC equipment, which is lost or stolen
while in Golden Gate's custody and control.
2
<PAGE>
8. Neither party shall utilize the other's name or any associated
names, trademarks, copyrights, etc., without prior written
consent, except with regard to EVC's marketing, advertising,
and promotion of Golden Gate courses. Such permission shall
not be unreasonably denied.
9. a.) EVC will provide faculty development to Golden Gate
faculty reasonably required for the offering of Golden Gate
courses through EVC.
b.) Golden Gate shall be responsible for obtaining the
services of and paying all faculty participating in courses
offered through EVC, including but not limited to said
faculty's salary, benefits (if any) and verification of
qualifications. EVC assumes no responsibility for any costs
associated therewith.
10. EVC is solely responsible to provide site locations for IVC/DL
students to participate in Golden Gate courses. Golden Gate
assumes no responsibility for obtaining or maintaining said
sites, nor for any rent or other costs associated therewith.
11. EVC is not responsible for curriculum, course content, faculty
qualifications, course materials or any other aspect of the
academic content of any courses offered hereunder. However,
Golden Gate agrees to be receptive to and consider EVC input
as to course content presentation and delivery of IVC/DL
courses consistent with required academic standards.
12. EVC agrees to make every reasonable effort to maintain its
equipment in good working order. However, EVC is not
responsible for service or repair delays or interruption of
service caused by strikes, labor actions, power outages (other
than those limited to site locations alone), acts of God or
other matters beyond EVC's control.
13. Golden Gate hereby acknowledges that the IVC/DL programs
marketed by EVC are targeted toward the non-traditional
working adult student market and therefore agrees to offer
IVC/DL courses at dates and times appropriate to the target
market, including the hours of 8:00 a.m. to 11:00 p.m., seven
days per week, and at such other times requested by EVC's
Institutional Employers and their employees, subject to
enrollment. And, including but not limited to the three
academic semesters offered each year by Golden Gate, i.e.,
Fall, Spring and Summer.
14. a.) The parties hereby acknowledge that this agreement is
intended by the parties to facilitate the offering of college
courses, degree programs and/or courses of study.
b.) Golden Gate shall attempt to obtain and/or maintain
accreditation necessary to the offering of college programs
courses and credits under the applicable law. Should Golden
Gate lose its accreditation at any time during the term of
this agreement or any renewal hereof, EVC shall have the right
to cancel this contract at the end of the semester in
progress, if applicable, or immediately if no semester is
underway.
c.) EVC shall make all reasonable efforts to meet its
obligation under this agreement to provide high quality
delivery and access of Golden Gate's courses offered through
EVC. If at any time after the third anniversary date of the
execution of this agreement, EVC has failed to meet its
obligations under the contract, then and in that event only,
Golden Gate may:
i. provide EVC with written notice (the "Default
Notice") specifying the manner in which EVC is in
default under the contract;
3
<PAGE>
ii. EVC shall have six months from receipt of the
Default Notice to cure the default;
iii. if at the end of such period EVC has not cured the
default, then this agreement shall terminate at
the end of the then current term or if classes are
not in session, immediately. In that event, Golden
Gate shall have the right to take such action as
it believes necessary or prudent to complete the
delivery of all courses or programs to students
that theretofore had been in programs delivered by
EVC.
d.) Any dispute which may arise between the parties in
connection with whether the deficiencies identified in the
default notices are breaches of EVC's obligations under this
contract, or in the event that EVC contends that it has cured
such deficiencies as set forth in the default notice and
Golden Gate contends it has not, shall be arbitrated under the
commercial arbitration rules of the American Arbitration
Association. The award rendered therein shall be final and
binding between the parties and may be entered as a judgment
in any court of competent jurisdiction. The sole questions to
be presented to the arbitrator shall be whether those matters
identified as decencies in the Default Notice are in fact a
breach of this agreement and if they were, then were the
deficiencies cured. The arbitrator shall be chosen from a list
of persons who have substantial academic experience in the
distance learning field. Subject to the American Arbitration
Associations rules, the following time periods shall apply to
such a preceding:
i. the arbitrator shall be selected from a list of
supplied by the American Arbitration Association
within 15 days after the filing of the claim;
ii. the hearing shall be held within 30 days following
the date of the selection of the Arbitrator and
completed within 5 business days from the starting
date;
iii. the award shall be rendered within 15 days of the
completion of the completion of the hearing.
iv. If the arbitrator finds in favor of Golden Gate on
both issues (or on one issue if only one issue is
contested), then the remedy shall be the immediate
termination of this contract, unless a term is in
session, in which case the contract shall
terminate at the end if the then current term. If
the award is in favor of EVC then the remedy shall
be the continuation of the contract.
15. a.) Golden Gate shall be responsible for all of its own
administrative functions (admissions, academic advising,
registration, financial aid, etc.) associated with the
offering of IVC/DL courses through EVC.
b.) Golden Gate will provide to EVC all necessary
administrative forms, applications, written instructions,
catalogues, etc. in advance of marketing courses to any
organization. It is understood by the parties that EVC is
merely a conduit and assumes no liability whatever for the
accuracy or correctness of the information in said forms
provided by Golden Gate nor for return of any of the aforesaid
documents to Golden Gate.
4
<PAGE>
16. Fees
a.) Golden Gate shall pay to EVC, on the 10th day of each
month, [*] of the net tuition actually collected by
Golden Gate the preceding month, from any source whatever,
from or on behalf of any student registered for and attending
accredited college degree courses being offered through EVC,
except as noted below, said payments to commence the month
immediately following the collection of any such tuition by
Golden Gate. All checks for courses taken will be made out to
Golden Gate. Net tuition shall be defined as the difference
between the publicly marketed tuition price and any
scholarships or discounts provided by Golden Gate as a sales
discount for purposes of increasing enrollment and/or
affecting the student mix of any given class. Any and all
scholarships or discounts will be mutually agreed upon between
Golden Gate and EVC.
b.) For students registered for and attending accredited
college degree courses being offered through EVC, if the
aforementioned student was enrolled in any Golden Gate for
credit course during the twelve month period immediately
preceding this agreement, Golden Gate shall be required to pay
EVC 40% of the net tuition actually collected.
c.) EVC shall have the right, on a semi-annual basis, to
examine the books and records of Golden Gate, pertaining to
all students taking courses through EVC, in order to audit any
accounts due and owing the respective parties. Golden Gate
shall have the right to audit EVC accounts for students taking
Golden Gate courses on the same basis.
d.) Commencing on April 10, 2000, and continuing on the 10th
day of every month thereafter, Golden Gate will supply EVC
with a list of all students who have applied to Golden Gate,
and/or registered, for courses through EVC, the said list to
include as available, each student's name, address, telephone
number, social security number, registration, financial aid
loans and payment status. EVC shall provide to Golden Gate
updated information relating to Golden Gate students each
month.
e.) EVC shall require that each student registering for a
course offered through EVC, sign a waiver and release granting
EVC access to said student's records, said waiver and release
form to be provided to Golden Gate by EVC, the format of which
shall be subject to Golden Gate's approval, which approval
shall not be unreasonably withheld. It is understood by EVC
that Golden Gate will not consent to any requested release of
student records which is, or may be, in violation of any
Federal or State law or regulation relating to student record
access.
f.) Within THIRTY (30) DAYS of the completion of each Fall,
Spring, and Summer Semester, Golden Gate shall present to EVC,
in writing, any requests for adjustments or credits on moneys
already paid to EVC, which credits or adjustments have been
made necessary by an EVC student having dropped a course,
bounced a check, etc. EVC will credit any such valid
adjustment to Golden Gate's account in three equal
installments over the three months immediately following such
request by Golden Gate.
[*] Confidential Portion
5
<PAGE>
g.) Students registering for Golden Gate courses through EVC
who are employed by an Institutional Employer customer of EVC
which have a tuition reimbursement policy for their employees
shall be eligible for tuition deferment from Golden Gate until
completion of the course, thereby enabling said students to
register for Golden Gate completion of the course, thereby
enabling said students to register for Golden Gage courses
through EVC without payment of tuition or fees up front. Said
students shall be required to sign a tuition payment guarantee
providing that they are fully responsible for 100% of all
tuition in the event that, for any reason, they are not
reimbursed by their employer.
h.) Students registering for Golden Gate courses offered
through EVC who are not employed by an Institutional Employer
customer of EVC providing tuition reimbursement to their
employees shall be required to pay tuition and fees up front
when registering.
17. a.) Golden Gate will provide a minimum of three(3__) dedicated
rooms which will accommodate teaching stations in order to
facilitate IVC/DL courses marketed by EVC emanating from its
campus and will grant EVC, its agents and subcontractors,
reasonable access to said facilities as is required for proper
installation, operation, maintenance and repair of all
equipment contemplated herein, including but not limited to
IVC/DL equipment. Said room shall be a minimum of 10 feet by
16 feet with adequate electrical, air conditioning, lighting,
etc., and be otherwise suitable for use as a video
conferencing teacher station. Said rooms will be provided one
at a time subject to registration demand.
b.) Rooms at Golden Gate equipped by EVC for IVC/DL may not be
used by the college for any class, function or other purpose,
without the prior written permission of EVC. Such permission
shall not be unreasonably withheld.
18. Golden Gate's Public Relations Department will provide
reasonable cooperation with EVC in promoting EVC/Golden Gate
Telecommute to College Program and the IVC/DL courses offered
through EVC.
19. Golden Gate and EVC will, whenever possible, cooperate in
applying for and obtaining, any grants, awards, stipends,
fellowships, etc., which are mutually beneficial to the
parties.
20. Golden Gate shall maintain academic control over all courses
and will be receptive to EVC input as to IVC/DL presentation.
21. Golden Gate will assign at least one person who at all times
will act as liaison between Golden Gate and EVC.
22. Term of Agreement
a.) The basic term of this agreement shall be FIVE (5) YEARS.
b.) The parties hereby acknowledge the necessity for allowing
IVC/DL students continuity and ongoing access to courses and
programs, so long as there is adequate registration.
6
<PAGE>
c.) In light of the foregoing, the parties agree that
commencing on the 1st anniversary date this agreement, and
every anniversary date thereafter, this agreement shall
automatically be extended for an additional period of one
year, subject to the conditions hereinafter contained. For the
purpose of this paragraph, it is agreed that the "Anniversary
Date" shall be April 1.
d.) In the event that either party should desire not to
automatically extend this agreement, then and in that event,
such party shall so notify the other in writing, by Certified
Mail, Return Receipt Requested, no later than the anniversary
date of any given year, after which the agreement will not be
extended for an additional ONE (1) YEAR, but will have only
the Four (4) YEARS of the existing term remaining.
23. Golden Gate shall have the right to offer courses via IVC/DL
on its own to Institutional Employer and/or the employees of
any Institutional Employer not under contract with EVC. In
such event, EVC shall not have any obligation to market,
provide any services or equipment, permit the use of EVC's
equipment, or incur any costs in connection with such
offerings.
24. Golden Gate agrees that, for the duration of this agreement
and any extensions hereof, as well as for a period of ONE (1)
YEAR immediately following any termination or expiration
thereof, Golden Gate will not independently video conference
or computer conference its college courses or programs offered
under this contract to EVC students or institutional clients.
If this agreement is terminated pursuant to paragraph 14(c)
then , and in that event only, nothing within this contract
shall prohibit Golden Gate to deliver curriculum, coursework
and instruction in any and all means necessary, to include
using video conference or computer conference methodologies,
in order to allow a student to complete a course of study
which was initiated with Golden Gate and EVC while this
agreement was in effect. This paragraph is not intended to,
and shall not be interpreted as, permitting Golden Gate
University to directly target and market to persons on account
of their status as employees of EVCI institutional clients.
25. Asynchronous Programs
a.) Golden Gate and EVC agree that asynchronous programs are
not a part of this contract. Notwithstanding the above,
Golden Gate agrees that, for the duration of this
agreement and any extensions hereof, as well as for a
period of ONE (1) YEAR immediately following any
termination or expiration thereof, Golden Gate will not
independently offer asynchronous college courses or
programs, to EVCI's students or institutional clients. A
list of EVCI's current institutional clients is attached
hereto as Exhibit A and made a part hereof. This paragraph
is not intended to, and shall not be interpreted as
permitting Golden Gate University to directly target and
market to persons on account of their status as employees
of EVCI institutional clients.
b.) During the term of this agreement, when EVC signs a
contract with an institutional employer, EVC shall advise
Golden Gate, in writing, of the institutional employer and
offer Golden Gate the opportunity to include its
asynchronous programs in the content EVC shall provide for
that employer. If Golden Gate wishes to participate it
shall notify EVC, in writing, of its intent. In that
event, the programs shall be incorporated into this
agreement.
7
<PAGE>
c.) If Golden Gate opts not to offer its asynchronous courses
to that employer, then Golden Gate may not independently
offer asynchronous college courses or programs, to that
employer for the duration of this agreement and any
extensions hereof, as well as for a period of ONE (1) YEAR
immediately following any termination or expiration
thereof,
26. Nothing in this agreement shall preclude Golden Gate from
offering or from providing: a.) non-EVC courses to non-EVC
students, non-EVC institutional clients or their employees;
b.) asynchronous programs currently offered by Golden Gate;
c.) synchronous programs currently offered by Golden Gate; d.)
live programs currently offered to corporate clients.
27. The parties agree that disclosure of the terms of this
agreement to others will cause EVC irreparable damage to its
business.. The parties agree that Golden Gate, without the
prior consent of EVC, shall not disclose the terms of this
agreement to any person, except as follows:
(i) to any employee of Golden Gate;
(ii) to any person or entity with whom Golden Gate
has a professional relationship and who has a
need to know of the terms of this agreement;
(iii) pursuant to a valid court order or subpoena
issued by a court or arbitral tribunal".
28. It is expressly agreed and understood that neither party shall
be liable for incidental, special or consequential damages for
any breach or violation of this agreement.
29. The foregoing constitutes the entire agreement between the
parties, and any other agreements or representations, whether
verbal or written, if not contained herein, are void, of no
effect, and are not binding upon the parties.
30. No valid modification, amendment, or deletion may be made to
this agreement except in writing and executed by the parties
in substantially the same manner as this agreement.
31. Any and all notices required hereunder shall be by Certified
Mail, Return Receipt Requested, to each party's last known
address and shall be deemed given at the time of mailing.
Notices for Golden Gate shall be sent to:
Golden Gate University
536 Mission Street
San Francisco CA 94105
Attention::
Jeff Bialik
Vice President for Operations
8
<PAGE>
Notice for EVC shall be sent to
Educational Video Conferencing
35 East Grassy Sprain Road
Yonkers, NY 10710
Attention:
Arol Buntzman
Chief Executive Officer
32. If any portion of this agreement shall be found to be void,
voidable or unenforceable, it shall not effect the validity of
the remainder of the agreement.
33. This agreement shall be binding on the respective parties'
heirs, successors, and assigns. The parties agree that any
disputes or disagreements arising hereunder or in connection
herewith shall be mediated under the Commercial Mediation
rules of the American Arbitration Association In the event
that such dispute or disagreement cannot be successfully
settled through mediation, it shall be arbitrated under the
Commercial Arbitration Rules of the American Arbitration
Association then in effect, and any award rendered thereunder
may be entered in any court of appropriate jurisdiction, and
will have full force and effect therein.
34 This agreement shall be construed in accordance with, and
governed by, the laws of the State of New York.
In witness whereof the parties have hereunto set their hands and seal
the date first appearing above.
GOLDEN GATE UNIVERSITY
By: /s/ Philip Friedman
--------------------------
Philip Friedman, Ph.D.
President
EDUCATIONAL VIDEO CONFERENCING, INC.
By: /s/ John J. McGrath
---------------------------
John J. McGrath, Ph.D.
President
9
EXHIBIT 10.51
LICENSE AND SERVICES AGREEMENT
This agreement (the "Agreement") is made and entered into between
Educational Video Conferencing, Inc., ("EVCINC"), 35 East Grassy Sprain Road,
Suite 200, Yonkers, New York, 10710, and Learningforce, Inc. ("Learningforce"),
4455 Connecticut Avenue, NW, Washington, D.C. 20008, (collectively the
"Parties")
WHEREAS, EVCINC is in the business of marketing educational courses to
adult learners and, therefore, requires an educational-oriented tracking and
data management system; and,
WHEREAS, Learningforce has, over the course of a decade, already developed
and refined an extensive educational data management system; and
WHEREAS, EVCINC has the need to assist potential customers in choosing
among its course and/or degree offerings; and
WHEREAS, Learningforce has developed a proprietary, computer-driven,
academic advising and admissions process for adult learners which integrates
seamlessly with its data management system;
NOW, THEREFORE, the Parties do hereby agree as follows:
I. LICENSE
A. Use of Software. This Agreement shall provide to EVCINC an exclusive
limited license ("License") to utilize any and all educational data management
and college advising-related software developed by Learningforce, including any
and all software code developed for use on the world-wide Internet web (the
"Software"). Learningforce will insure the compatibility and transfer of data
between EVCINC corporate offices and any other outsourced support operation at
the request of EVCINC. Exclusive limited license shall be defined as
Learningforce granting the rights to EVCINC to use its software to support
EVCINC's enrollment and academic advising systems or for any other reason
related to enrolling students in EVCINC's educational courses. Further,
Exclusive Limited License shall mean that Learningforce may not license or use
the software for any company or entity in direct competition with EVCINC
according to EVCINC's definition of "Direct Competitor" without EVCINC's written
permission.
B. Future Improvements. The License shall include any enhancements,
improvements, or additional capabilities developed by Learningforce at any time,
for any reason, and for any client, throughout the effective period of this
Agreement, except in such cases as Learningforce is contractually obligated to
restrict usage of software developed exclusively for the use of a single client.
C. No License to Competitive Parties. Except for Learningforce's
unrestricted use of the Software for its own data management and marketing
purposes and to provide services to Learningforce clients, Learningforce will
not provide a license for the Software to any third party which shall enhance
such party's capability to compete with EVCINC without the written consent
<PAGE>
of EVCINC. While this Agreement is in effect, Learningforce shall not engage in
any activity considered in direct competition with EVCINC according to EVCINC's
definition of "Direct Competition," without the express written consent of
EVCINC. For the purposes of this agreement, "Direct Competition" shall be
defined as selling educational programs of any kind, through any electronic
distance learning delivery method using Learningforce enrollment and advising
service or any other method of placing students with educational providers as to
create direct competition to EVCINC.
II. Learningforce Services To EVCINC
Learningforce shall provide the services listed below (the "Services") to
EVCINC. Learningforce shall commit to meet the timelines desired by EVCINC for
the development of EVCINC-specific software and for Learningforce's role in the
development of an EVCINC enrollment website.
A. Software Customization
1. Learningforce will customize the Software. The Software shall
include, but not be limited to, the screens and scripts required to create
prospect\customer records, capture information as required by EVCINC, create all
documents to assist academic advisors located at Learningforce and other offices
in a professional process focused on enrolling students in EVCINC classes and
all related computer driven systems required by EVCINC in the enrollment
process. Learningforce will have the Software fully functional (subject to
normal operational adjustments), ready for beta testing and capable of handling
a minimum of 20 complete degree programs, as prioritized by EVCINC, to meet
EVCINC's enrollment and academic advisement requirements by the end of the sixth
week following the signing of this Agreement, at which time the system will be
fully operational (subject to normal operational adjustments). At such time, a
two week beta testing period ("Initial Beta Period") will occur, during which
time software corrections will be made as identified. Learningforce will
continue to meet the specific needs of EVCINC by adding EVCINC programs into the
functioning system on a continuing basis beyond the Initial Beta Period. Failure
to meet the above time schedule will be a material breach of this agreement by
Learningforce. Any delay caused by EVCINC for approvals or any other reason
beyond the control of Learningforce will adjust the time lines accordingly.
(note: at the beginning of the
Initial Beta Period website visitors will, at a minimum, be able to see and
choose from the entire list of available EVCINC degree programs; however only
the prioritized programs as designated by EVCINC will be required to have
advising-level detail.) Learningforce will provide the following services
throughout the entire process:
a. Analysis of EVCINC current system and long-term needs;
b. Strategic data management planning;
c. Initial and as needed on-going programming to tailor the
Software to EVCINC offerings, corporate and consumer client bases and data
management structures
d. Development of an interface for seamless electronic data
exchange between Learningforce and EVCINC.
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e. Use of the software as part of the EVCINC interactive Web
Site
B. Customized Academic Advising Learningforce will provide customized
academic advising to potential customers of EVCINC, providing the following
services:
1. Advisement of in-bound callers regarding the academic
credibility and suitability of EVCINC offerings so as to maximize EVCINC
revenue;
2. Out-bound follow-up calls to non-responding leads to determine
their continued interest in EVCINC programs and convert them to customers.
3. Enrollment by Learningforce advisors of customers interested in
EVCINC programs.
C. Additional Academic Advising
1. It is further anticipated that some potential EVCINC customers may
have little or no prior college experience, and/or considerable doubt about
their secondary-level skills. In such instances, and where appropriate,
Learningforce shall encourage potential customers to enroll in EVCINC
video-assisted, at-home remedial courses available through Learningforce or
through EVCINC providers through various delivery and program design methods, in
order to increase their opportunity for success in EVCINC college level courses.
Learningforce shall make best efforts to secure the rights from the appropriate
copyright holders of the programs currently distributed by Learningforce, to be
offered to and used by EVC students. EVC shall set the market price of these
courses. Learningforce will be paid 70% of the current Learningforce published
price regardless of the price EVCINC charges its students for these courses.
EVCINC would be free to charge a surcharge, for whatever amount it considers
appropriate, at its discretion, to students taking the Learningforce remedial
courses. If courses are offered through other EVCINC providers Learningforce
will not be entitled to any compensation for this service beyond the
compensation described as part of the "Service" in this agreement.
D. Personalized Learner Educational Website
1. Learningforce will create a customized online capability for EVCINC
students to track their progress toward degrees, certificates and/or other
educational credentials available through EVCINC delivery mechanisms. The
website will be functional, ready for beta testing and capable of handling a
minimum of 20 complete degree programs, as prioritized by EVCINC, to meet
EVCINC's enrollment and academic advisement requirements by the end of the sixth
week following the signing of this Agreement, at which time the system will be
fully operational (subject to normal operational adjustments). At such time, a
two week beta testing period ("Initial Beta Period") will occur, during which
time software corrections will be made as identified. Learningforce will
continue to meet the specific needs of EVCINC by adding EVCINC programs into the
functioning system on a continuing basis beyond the Initial Beta Period. Failure
to meet the above time schedule is a material breech of this agreement by
Learningforce Any delay caused by EVCINC for approvals or any other reason
beyond the control of Learningforce will adjust the time lines accordingly.
(note: at the beginning of the
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<PAGE>
Initial Beta Period website visitors will, at a minimum, be able to see and
choose from the entire list of available EVCINC degree programs; however only
the prioritized programs as designated by EVCINC will be required to have
advising-level detail which will continue to grow during the ongoing Beta period
as stated above). The features of this capability will include, but not be
limited to:
a. The ability to view, on a course-by-course basis, the
precise courses remaining to be completed to earn the desired credential;
b. The ability to enroll in additional EVCINC courses via
the website;
c. The ability to network with other EVCINC students around
the nation via a student bulletin board;
d. If provided information by EVCINC, the ability to access
information about their corporate tuition reimbursement policy.
III. TERM
The term of the Agreement (the "Term") shall be for a period of five (5)
years from the date of signature of the Agreement, subject to an earlier
termination under Section VI below.
IV. Financial Provisions
A. License Fees A license fee of $250,000 ("License Fee") shall be
earned over the Term of the Agreement. In consideration for the License
provisions described in Paragraphs IA-B, such fee will be calculated at a rate
of $50,000 per annum. Payment of the license fee will be $150,000 upon signing
of this Agreement, $50,000 three weeks after the signing of the Agreement and
$50,000 upon the timely delivery of functional Software for the Initial Beta
Period. In the event that the closing of the acquisition of 51% of Learningforce
by EVCINC occurs prior to any of the payments set forth above, then all payments
not yet made shall be made upon closing of such acquisition. A working copy of
the software and all upgrades, will be immediately held in escrow as security
for the advanced payment of the License, and shall be updated every quarter to
include specific software code written for EVCINC under this Agreement. In the
event that Learningforce commits a material breach of this Agreement, then any
software code specifically written for EVCINC by Learningforce for the purpose
of performing under this Agreement shall become the property of EVCINC.
B. Compensation for Learningforce Services
1. Cost Reimbursement. EVCINC shall reimburse Learningforce for
costs, not to exceed a monthly fee of $59,000 which does not include the profit
percentage described below, without the express written consent of EVCINC.
Learningforce is required to provide the Services according to the following
terms and mechanisms:
a. Learningforce shall submit to EVCINC purchase orders for all
start-up equipment expenses as approved by EVCINC official representatives.
EVCINC will
4
<PAGE>
order and pay for all computer equipment and furniture directly. Computer
equipment and furniture purchased under this agreement shall be inventoried and
remain the property of EVCINC. In the event of termination, EVCINC shall have
the right to remove the equipment and furniture and any other items specifically
purchased by EVCINC and placed in the Learningforce office for the express
purpose of supporting Learningforce in its execution and delivery of services to
EVCINC under this agreement.
b. EVCINC shall pay all direct costs for services by submitting
invoices to EVCINC representatives. Checks or electronic transfers will be
issued on the 15th and last day of each month, except for payroll costs for
EVCINC-approved personnel, for which a mechanism shall be developed to ensure
that Learningforce receives such funds prior to the bimonthly payroll periods
for which such personnel costs must be paid.
1) Prior to incurring an obligation for a cost required for
the performance of the Services, Learningforce shall obtain the written approval
of EVCINC to make such an expenditure unless the expenditure is clearly
identified as part of the official budget. Any of the following line item
categories, subject to budget approval by EVCINC, shall be considered legitimate
direct costs (not general or administrative costs) expenditures required for the
performance of the Services:
i) Fulfillment, advising and project management
personnel and personnel-related costs (agency
fees, ad placements, payroll taxes, approved
benefits, etc.)
ii) Training costs (detailed time charges to be
provided)
iii) Programming for database and website software
customization (detailed time charges to be
provided)
iv) Telephone line and time charges
v) New telephone, computer equipment and required
over-the-counter software expenditures
vi) New furniture expenditures
vii) Rent (pro rata)
viii) Postage
ix) Consulting, legal and accounting fees for reports
and services at EVCINC's request (not to include
legal and accounting fees expended by
Learningforce for the purpose of executing this
Agreement)
x) Travel, as approved by EVCINC.
2. Documenting Costs. Learningforce shall document the actual
costs, without mark-up, incurred by Learningforce (the "Costs") for line items
approved by EVCINC. Documented costs within the approved budgets shall be paid
directly to the vendor or to Learningforce as appropriate.
5
<PAGE>
3. Margin Fee On the 15th day of each month, a sum equal to 30%
of the Costs (excluding Costs for capital expenditures) documented and expended
from the budget during the prior calendar month ("Margin Fee") shall be paid to
Learningforce if the proposed acquisition of 51% of Learningforce stock is
consummated. In the event that the acquisition of Learningforce by EVCINC does
not happen, the margin fee will be 20% of the Costs (excluding Costs for capital
expenditures) documented and expended from the budget during the prior calendar
month.
4. Minimum Expenditure EVC guarantees to spend a minimum of
$700,000 in Costs (excluding Costs for capital expenditures) in the first twelve
(12) months from the effective date of the customized software and commencement
of customized service from Learningforce to EVCINC (The Guarantee Period)
provided that Learningforce is not in default of any provision of this agreement
and the acquisition of 51% of Learningforce stock by EVCINC is completed and
closed before December 31, 1999. If the sum of the documented costs for the
Guarantee Period does not total $700,000, then EVC shall pay to Learningforce on
the fifteen day of the thirteenth month the difference between the guarantee and
the total Margin Fees paid to Learningforce during the Guarantee Period if all
other conditions as described in this agreement are met.
5. Revenue to EVCINC In the event EVCINC does not make an equity
investment in Learningforce, EVCINC shall be entitled to a fee of 30 % of all
revenue generated by Learningforce for Learningforce fee-based advising and
remediation services ("EVCINC Revenue Share").
6. Executive management consulting services specifically
requested of Michael Falk by EVCINC, including those services required in order
for Learningforce to meet its obligations under this Agreement shall be provided
by Mr. Falk to whatever extent required as his obligation as president of
Learningforce in completing the required services of EVCINC. Mr. Falk's efforts
on behalf of EVCINC and the timely completion of this agreement are the primary
considerations for EVCINC to pay the five year licensing fee in advance and the
reason for consideration of the acquisition of Learningforce by EVCINC. Mr. Falk
shall consider EVCINC his highest priority and function accordingly.
V. Confidentiality.
A. On its part, Learningforce shall treat all information regarding EVCINC
operations, corporate matters of which it may become knowledgeable in the course
of the execution of the Agreement and non-public knowledge regarding its
proprietary technology and other properties ("EVCINC Information") as
confidential. Learningforce shall not disclose EVCINC Information to any other
party, nor shall Learningforce sell or otherwise use the names of EVCINC
students or potential students provided to Learningforce in order to provide the
Services described in this Agreement in any way except as specifically directed
by EVCINC for the execution of the provisions of the Agreement, or for joint
marketing ventures which shall be set forth in such other written agreements as
EVCINC and Learningforce may elect to jointly execute.
6
<PAGE>
B. On its part, EVCINC acknowledges that it has been informed that it is
the policy of Learningforce to maintain as secret and confidential all software
programs and systems heretofore or hereafter acquired, developed and/or used by
Learningforce in the implementation of this Agreement, and that all such
confidential information is of great value to Learningforce. EVCINC agrees that
it shall not disclose, use, permit or cause to authorize any third parties to
disclose or use, any such confidential information , or any other information
relating to the business or interests of Learningforce which EVCINC knows is
regarded as confidential and valuable to Learningforce, except as provided by
this Agreement.
C. In the event of a breach or threatened breach by either Party of the
provisions of A. or B., above, the other Party shall be entitled to an
injunction restraining the first from disclosing, in whole or in part, such
information. With respect to any action for injunction or other equitable
relief, the Parties agree that there is no adequate remedy at law for such a
breach and the Parties agree not to assert such an equitable defense.
VI. TERMINATION.
A. Termination Without Cause by EVCINC In the event that EVCINC terminates
this Agreement without cause, then:
1. The License granted herein shall be revoked upon the effective date
of termination and, commencing upon such date, EVCINC shall no longer have the
right to utilize the Software, or any customizations made thereto by
Learningforce as a result of this Agreement, and,
2. EVC shall be entitled to a pro-rata refund for licensing and other
fees paid in advance of the termination date. The formula used will be based on
number of months used vs. total contract of 60 months.
B. Termination without Cause by Learningforce will not be permitted.
C. Termination for Cause. Either Party may terminate the Agreement for
cause upon thirty (30) days prior written notice of termination (the "Notice")
to the other, except that, within such thirty day period, the Party receiving
such Notice has the opportunity to cure within 30 days. In such case as a cause
is cured in a timely manner, the Agreement will continue in full force and
effect. For the purposes of this Agreement, cause shall mean a material breach
of this Agreement and a notice of default with specificity of the material
breach shall be delivered to the other party by the accusing party.
1. In the event that Learningforce fails to deliver ongoing services
as detailed in this agreement, and in consideration of the five year licensing
agreement paid in advance, if EVCINC terminates this Agreement for cause, the
License granted herein shall remain in full force and effect throughout the
stated term of this Agreement. Further, Learningforce shall be required to
refund to EVCINC a pro rate portion of the License Fee as of the date of
termination. The Software held in escrow will become the property of EVCINC.
7
<PAGE>
2. For Learningforce, cause to terminate would be considered to
include, but not limited to, EVCINC not generating a minimum expenditure in any
given calendar year equal to the guaranteed expenditure during the Guarantee
Period. In such an event, 30 days shall be given to correct the situation. If
the breach is not resolved within the time period either party can request
immediate arbitration to resolve the breach.
VII. Entire Agreement.
----------------
This Agreement contains the entire understanding of the parties with
respect of the subject matter hereof and may not be changed or terminated
orally. No change, termination or attempted waiver of any of the provisions
hereof shall be binding unless in writing and signed by both parties.
VIII. Successors and Assigns.
----------------------
Learningforce shall not assign , transfer, subcontract or otherwise
dispose of all or any of its obligations under this Agreement, without the
written consent of EVCINC.
IX. Notices.
-------
Any notices required or permitted under this Agreement shall be in
writing and effectively given upon personal delivery or upon deposit with the
United States Postal Service, faxed, sent electronically or via next day mail
service to the respective address set forth at the head of this Agreement or
such other address as either party hereto may properly give to the other.
X. Non-Waiver of Rights.
--------------------
The failure to enforce at any time any of the provisions of this
Agreement or to require at any time performance by the other party of any of the
provisions hereof shall in no way be construed to be a waiver of such provisions
or to affect either the validity of this Agreement, or any part hereof, or the
right of either party thereafter to enforce each and every provisions in
accordance with the terms of this Agreement.
XI. Severability.
------------
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provisions were
omitted.
XII. Governing Law.
-------------
All matters concerning the validity and interpretation of and
performance of this Agreement shall be governed by the laws of the State of New
York .
XIII. Dispute Resolution.
------------------
Except for violations or threatened violations of Article V, which
shall entitle a Party to seek immediate injunctive relief, neither party will
file an action or institute legal proceedings
8
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with respect to any dispute, controversy, or claim arising out of, relating to,
or in connection with, this Agreement until first complying with the following
procedures:
A. Good Faith Negotiation. The parties will hold a meeting
("Meeting"), attended by senior executives for both parties with decision-making
power. During such Meeting, the parties will make good faith efforts to achieve
an amicable means of resolution. Should the parties achieve a resolution to the
dispute, such resolution shall be set out in writing in the form of a cure plan
or settlement agreement, signed by an authorized signatory for each party.
B. Arbitration. Any dispute or claim arising under or with respect to
this Agreement shall be settled in accordance with the Commercial Rules of the
American Arbitration Association (Association) before a single arbitrator
selected in accordance with the procedures of the Association. The award of the
arbitrator shall be final and binding upon the parties and any such award shall
be entered as a judgment in any competent court having jurisdiction. The
prevailing party in any such arbitration shall be entitled to the entry of an
award of reasonable attorney fees and costs associated with said arbitration
proceeding, including the reimbursement of the arbitrator fees in connection
with the proceeding. The arbitration shall take place in New York City, New
York, and the law of the State of New York shall apply
IN WITNESS WHEREOF, the parties hereto have executed this instrument
the day and year first above written.
LEARNINGFORCE, INC.
Michael Falk President
---------------------------------- ------------------------
Printed Name Title
/s/ Michael Falk October 18, 1999
---------------------------------- ------------------------
Signature Date
EDUCATIONAL VIDEO CONFERENCING, INC.
Dr. Arol I. Buntzman Chairman & CEO
---------------------------------- ------------------------
Printed Name Title
/s/ Dr. Arol I. Buntzman 10/18/99
---------------------------------- ------------------------
Signature Date
9
EXHIBIT 10.52
Educational Providers/Co-Marketing Agreement
This AGREEMENT, dated as of January 13th 2000 (this "Agreement"), by and
between Educational Video Conferencing, Inc., a Delaware corporation, with
principal executive offices located at 35 Grassy Sprain Road, Yonkers, NY 10710
(the "Company"), and Computer Generated Solutions, Inc., a Delaware corporation,
with principal executive offices located at 1675 Broadway, New York, New York
10019 ("Educational Provider and/or Co-Marketer").
WHEREAS, upon the terms and conditions set forth herein the parties hereto
agree as follows:
Nature of Transaction A joint venture between Computer Generated
Solutions (CGS) and Educational Video
Conferencing, Inc. (EVC) whereby both companies
shall cross-market each other's products and
services to their respective client bases.
Scope of Services Computer Generated Solutions
will make available its entire inventory of
corporate training programs except for courses
that CGS does not have capability to deliver due
to current contractual obligations. Individual
programs will be selected and mutually agreed upon
by CGS and EVC based on client requirements as
identified in the individual "Project Memo." EVC
will be permitted to market and distribute said
CGS's programs as live, synchronous video
conferenced courses and asynchronous distance
learning courses. CGS, at its discretion will
grant EVC permission to migrate the live
interactive synchronous video conferenced programs
to an asynchronous on-line service maintained by
EVC. CGS will also provide (where appropriate and
mutually agreed upon) technical and non-technical
help desk services, network and equipment
installation, systems maintenance, marketing,
enrollment and sales activities.
Educational Video Conferencing, Inc. will provide
network services which include, but are not
limited to, hardware, software, switching and
bridging, telecommunications services, IP services
1
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and billing. EVC shall also provide program
content from colleges, universities and training
institutes. EVC will also provide training to CGS
instructors to maximize the effectiveness of their
teaching presentation of materials using EVC's
distance learning technologies. EVC will also
provide marketing, sales, academic advising,
employee skill assessment, tuition reimbursement
program administration and enrollment services.
EVC and CGS will participate in co-marketing
opportunities. These opportunities will include,
but not be limited to, an initial joint press
release highlighting the CGS/EVC relationship,
development of a joint CGS/EVC promotional
brochure, promotional video DVD, direct mail
campaign, direct introductions to each other's
clients, joint sponsorship of professional
seminars highlighting the combined services of
each company.
Fees and Commissions Both parties will identify approved non-inflated
direct costs on a project-by-project and\or
client- by-client basis, take the direct costs off
the top of all client charges and split the
balance, i.e. the profit 50\50 between EVC and
CGS. An example of approved direct costs is: EVC -
Network Services including equipment,
installation, testing, software licensing,
communication connections, switching, bridging,
network support services, multi-point connections,
teleco usage charges, tuition fees to providers,
teacher training, marketing, sales, enrollment
services and fees. CGS - Equipment, installation,
instructors, maintenance services, marketing,
sales and enrollment services.
(Note Software licensing will be treated as a
billable item only in the case where clients are
purchasing technology and not content services.
Software licensing will be included in fees and
tuition to clients that are purchasing bundled
services that include technology and content as
detailed in the individual "Project Memo" agreed
to by both CGS and EVC. EVC will establish the
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software license price. CGS will be free to
increase this fee up to a total 50/50 split on the
total deal.)
Projects A separate "Project Memo" will be agreed upon for
each individual project detailing the scope of
services, direct costs, individual
responsibilities, objective of the project and any
other detail that would identify the direction and
intention of the project.
Payments All payments received from the client for all
direct costs, profits, fees and commissions will
be paid by the collecting party within 30 days of
receipt of payment. If advance retainers, or early
funding for capital outlays are involved, the
collecting party shall make payment to the other
party within seven working days from receipt of
payment from client. Retainers will be split
pro-rata in relation to expense projected by each
project detailed in the "Project Memo".
Teacher Stations CGS will provide facilities to initially install
one or two teacher stations. Teacher station
installations will be increased according to the
demand for service in the market. CGS shall
provide space capable of housing teacher
station(s). All costs related to the purchase,
installation and maintenance of said teacher
stations shall be equally divided by CGS and EVC.
Primary Relationship EVC will be CGS's primary, but not
exclusive, supplier of two-way interactive video
conferencing, both asynchronous and synchronous
mode, provided it is technologically and
financially competitive in the marketplace.
CGS will be EVC's primary, but not exclusive,
vendor for technical distance learning programs
where CGS has the expertise and is technologically
and financially competitive in the marketplace.
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The determination of technological, competitive
and feasibility of the partnership for a given
engagement (project) will be reasonably decided by
the party with the direct client relationship.
Financial Statements CGS and EVC agree that a complete financial
accounting will be delivered to each other in the
form of a financial status report every quarter.
Each company agrees that they will make available
books and records relevant to this agreement,
regarding CGS and EVC transactions, to the other
company during regular business hours for the
purposes of auditing, reconciling or verification
of the activity between both companies. Notice of
financial review will be given at least seven days
in advance of the actual review.
Term A) Three years with automatic one-year renewal
in absence of written notice not to renew.
B) This agreement may be terminated for breach of
any provision in this agreement or any individual
"Project Memo" that is not cured within 10
business days after receiving written notice from
the other party.
C) In the event of termination, the physical
equipment purchased during this agreement shall be
divided equally, as mutually agreed between the
-------------------
parties with the exception of any proprietary
items, software or hardware.
D) In the event of termination any project started
shall continue to completion, including any
renewal clauses as determined by the client and
detailed in either the Project Memo and\or the
client contract. Neither EVC nor CGS shall
discontinue providing services to clients, for any
reason, while either party is still a functioning
business, for the term of the client contract.
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Arbitration The parties agree that any disputes or
disagreements arising hereunder or in connection
herewith shall be settled by binding arbitration
before the American Arbitration Association at
their offices located in New York, New York, and
that any judgment awarded thereunder may be
entered in any court of appropriate jurisdiction,
and will have full force and effect therein.
Agreed this 13 Day of January, 2000
/s/ Dr. Arol Buntzman
-------------------------------------------------------------------------------
Dr. Arol Buntzman CEO, EVC
/s/ Victor Freeman
- --------------------------------------------------------------------------------
Mr. Victor Freeman Executive Vice President, CGS
EXHIBIT 10.53
Stock Subscription and Stockholders' Agreement
----------------------------------------------
Agreement made as of the 29th day of November, 1999 between
Educational Video Conferencing, Inc., a Delaware corporation with offices at 35
East Grassy Sprain Road, Suite 200, Yonkers, NY 10710 ("EVCI"), Visiocom
Worldwide, S.A., a Belgian corporation with offices at 13/15 Avenue Charles
Madoux, Brussels, Belgium 1160 ("Visio"), the individuals whose names and
residence addresses are set forth in Exhibit A hereto (each, an "Investor" and
collectively, the "Investors") and Visiocom USA Incorporated, a Delaware
corporation that was incorporated on October 1, 1999 (the "Company"). EVCI and
Visio are collectively referred to as the "Founders". EVCI, Visio and the
Investors are sometimes each referred to as a "Subscriber" or "Stockholder" and
collectively referred to as the "Subscribers" or the "Stockholders".
W I T N E S S E T H:
- - - - - - - - - -
EVCI delivers accredited college courses and degree programs, and
professional development, corporate training and other programs, to
corporations, government organizations and others by means of interactive video
conferencing systems.
Visio provides business employees with "one-on-one" training, via the
Internet and video conferencing, on how to use business software programs and,
using the same teaching methods, Visio also provides business employees with
language courses (the "Training Business").
EVCI and Visio desire to finance, from their own resources and from
the resources of the Investors, and operate the Company.
The Investors desire to participate in the financing of the Company.
The parties desire to formalize their agreement with respect to the
initial financing, management and other matters affecting the Company and also
with respect to the transfer or other disposition of their shares of the
Company.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and obligations hereinafter set forth, EVCI, Visio and the Investors
agree as follows:
1. Business and Offices of the Company. (a) The Company will engage in
the Training Business in North America, including the co-marketing activities
referred to in Section 8.
(b) The principal office of the Company shall be located in Fairfield
County, Connecticut, or Westchester County, New York. The Company shall have
such other office or offices as its Board of Directors ("Board") shall
determine.
2. Stock Subscription and Issuance. (a) EVCI and Visio each hereby
subscribes for the number of shares of the Company's Series A Preferred Stock,
("Series A Preferred"), the terms of which are set forth in the Certificate of
Designations attached hereto as Exhibit B, and common stock, $.0001 par value
per share ("Common Stock"), for the aggregate price set forth below:
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EVCI VISIO
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No. and aggregate price of shares 10,000 10,000
of Series A Preferred $250,000 $250,000
No. and aggregate price of shares 150,000 150,000
of Common Stock $15 $15
(b) Each Investor hereby subscribes for the number of shares of Series
A Preferred (for a total of 40,000 shares by all the Investors) for the
aggregate price ($25 per share) set forth opposite such Investor's name in
Exhibit A to this Agreement.
(c) The certificates for the Series A Preferred and Common Stock
subscribed for above shall be issued and delivered promptly after receipt by the
Company of full payment of the applicable subscription price, which could be
occurring simultaneously with the execution and delivery of this Agreement.
(d) The form of promissory note referred to in Section 8(e) of Exhibit
B hereto is attached hereto as Exhibit B-1.
3. Subscriber Representations and Warranties.
Each of the Subscribers severally represents and warrants to the other
and the Company:
(a) The Subscriber understands that none of the shares of Series A
Preferred (or underlying Common Stock) or the Common Stock (collectively, the
"Securities") has been registered under the Securities Act of 1933, as amended
("Securities Act"), or any state securities laws in reliance on exemptions for
private offerings; although federal securities laws will not prevent the resale
of the Securities, the Securities cannot be resold or otherwise disposed of
unless they are subsequently registered under the Securities Act and applicable
state securities laws or an exemption from registration is available, and the
certificates representing the Securities will bear a restrictive legend to such
effect; there may be no public market for the Securities and there is no
assurance one will develop in the future; the Subscriber may have to hold the
Securities indefinitely and it may not be possible for the Subscriber to
liquidate the Subscriber's investment in the Company; and the Subscriber should
not purchase the Securities unless the Subscriber can afford a complete loss of
the Subscriber's investment and can bear the burden of owning the Securities for
an indefinite period of time.
(b) The Subscriber is subscribing for the Securities solely for the
Subscriber's own account for investment and not with a view to or for the
resale, assignment, distribution, subdivision or fractionalization thereof. No
other person has a direct or indirect beneficial interest in the Securities.
(c) The Subscriber understands that the purchase of the Securities is
a speculative investment which involves a high degree of risk of loss.
(d) The Subscriber is an "accredited investor" as that term is defined
under Rule 501(a) of Regulation D promulgated under the Securities Act because
the Subscriber:
(i) is a natural person whose individual net worth, or joint net
worth with the Subscriber's spouse, exceeds $1,000,000; or
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(ii) is a natural person who had individual income exceeding
$200,000 in each of the two most recent calendar years or joint income with the
Subscriber's spouse exceeding $300,000 in each of those years and the Subscriber
has a reasonable expectation of reaching the same level of income in the current
year; or
(iii) is a corporation, Massachusetts or similar business trust
or a partnership, limited liability company or similar entity not formed for the
specific purpose of acquiring the Securities, with total assets exceeding
$5,000,000; or
(iv) is an entity in which all of the equity owners are
accredited investors; or
(v) is an accredited investor for another reason that has been
disclosed to the Company in writing.
(e) The Subscriber, alone, or together with the Subscriber's purchaser
representative, if any, has such knowledge and experience in financial matters,
including investments in securities that are restricted as to their
transferability, that, the Subscriber is capable of evaluating the risks and
merits of an investment in the Securities and of making an informed investment
decision.
(f) The address set forth above or in Exhibit A hereto is the
Subscriber's correct home address or, if the Subscriber is other than an
individual, the correct address of the Subscriber's principal office, and the
Subscriber has no present intention of changing such address.
(g) If a corporation, partnership or other entity, the Subscriber is
duly authorized to purchase and hold the Securities.
(h) All documents, records and other materials pertaining to an
investment in the Company which were requested by the Subscriber have been made
available or delivered to the Subscriber.
(i) The Subscriber has read and understands Exhibit C hereto regarding
the disqualifications under the Connecticut "blue sky" law and has no knowledge
of any disqualification, after giving effect to the transactions contemplated by
this Agreement, with respect to the Company or any of the Company's directors,
officers, beneficial owners of 10 percent or more of any class of the Company's
equity securities, or any promoters (including the Founders) connected with the
Company in any capacity.
4. The Company's Representations and Warranties. The Company hereby
represents and warrants to the Subscribers as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the corporate
power to conduct the business which it proposes to conduct. A conformed copy of
the Company's certificate of incorporation, prior to filing the Certificate of
Designations, is attached as Exhibit D-1 hereto and a copy of the Company's
bylaws is attached as Exhibit D-2 hereto.
(b) All corporate action required to authorize the execution, delivery
and performance of this Agreement has been duly taken.
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(c) The Securities have been duly and validly authorized and, when
issued, paid for and delivered in accordance with the terms of this Agreement,
will be duly and validly issued, fully paid and nonassessable. After giving
effect to the issuance of the Securities, (i) the Company's outstanding capital
stock will consist of 60,000 shares of Series A Preferred and 300,000 shares of
Common Stock, (ii) the Company will not have any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
except as provided in the Certificate of Designation, (iii) except for 300,000
shares of Common Stock reserved for issuance upon conversion of the Series A
Preferred and 66,668 shares of Common Stock reserved for issuance upon the
exercise of options granted to Timothy Gilbert and Patrick Dessein (to each
purchase 33,334 shares), the Company will not have any shares of its capital
stock reserved for issuance, and (iv) except for the Series A Preferred and the
joint venture contemplated by this Agreement, there will be no outstanding
subscriptions, options, warrants, rights, calls or convertible securities, stock
appreciation rights (phantom or otherwise), joint venture, partnership or other
commitments of any nature relating to shares of the capital stock of the
Company. As of the date hereof, the Company has no liability or indebtedness for
dividends or other distributions declared or accumulated but unpaid with respect
to any shares of stock.
(d) This Agreement is a legal, valid and binding agreement of the
Company enforceable in accordance with its terms except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by equitable principles.
5. Board; Committees; Officers. (a) The Board shall consist of nine
members. Of the nine directors, three shall be designated by EVCI, three shall
be designated by Visio and three shall be designated by the Investors. Each of
the Stockholders agrees to vote its shares of the Company to elect the designees
of the other; provided, however, that each Stockholder shall have a right to
approve the designees of the other Stockholders, which approval shall not be
unreasonably withheld or delayed. In the event a vacancy occurs on the Board by
reason of resignation, death, disability, or any other reason, the
Stockholder(s) who designated the director who has vacated his or her position
shall likewise be entitled to designate his or her replacement, and the
Stockholders shall vote as stockholders, or cause their designees on the Board
to vote as directors, to so fill any such vacancy as promptly as possible.
(b) The Board shall hold at least one meeting per calendar quarter.
The presence of five directors shall be necessary to constitute a quorum of the
Board for the transaction of business. Except as provided below in this Section
5(b), the affirmative vote of five directors shall likewise be necessary for the
passage of any resolution or the taking of any action at meetings of the Board.
The bylaws of the Company shall provide that the following matters shall require
the affirmative vote of at least seven members of the Board:
(i) The merger, reorganization, consolidation, sale or other
disposition of substantially all the assets or dissolution and liquidation of
the Company.
(ii) The amendment of the certificate of incorporation or bylaws
of the Company.
(iii) Subject to Section 5(c), the election of officers of the
Company and the assignment of authority and duties to any officer who is
required to act solely in accordance with the authority and duties, if any,
assigned to such officer from time to time by the Board.
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(iv) The approval, or modification by more than $25,000, of any
Budget (defined in Section 6(b)).
(v) The incurrence or assumption by the Company of any liability
for money borrowed, or the guarantee by the Company of any obligation of any
person, firm or corporation, in each case in excess of the greater of $25,000 or
an amount designated for such purpose in the current Budget.
(vi) The establishment and maintenance of bank accounts and the
designation of authorized signatories on such accounts otherwise than in
accordance with Section 9(b) or in the event the Finance Committee of the Board
is unwilling or unable to act with respect thereto.
(vii) Any loan made by the Company.
(viii) The issuance or repurchase of any shares of any class of
the Company.
(ix) The establishment, modification or termination or any
employee stock grant or option agreement or plan or any other benefit, pension,
profit sharing, fringe benefit or similar plan.
(x) The declaration of any dividend in any form.
(xi) The approval of any employment arrangement with any employee
providing for compensation, including fringe benefits, in excess of $50,000 per
annum; provided, however, such approval shall not be required if the
compensation level and the position the employee is being hired to fill has been
included in a Budget approved pursuant to Section 5(b)(iv).
(xii) The institution, or consenting to the institution, of any
bankruptcy, insolvency, reorganization, readjustment of debt or similar
proceeding relating to the Company under the law of any jurisdiction; an
assignment for the benefit of creditors; or an application for or consenting to
the appointment of any receiver, trustee or similar officer for any or all of
the property of the Company.
(xiii) Any material change in the principal business of the
Company or the establishment of a new line of business or class of product or
service.
(xiv) The entering into of any transaction with a Stockholder or
any of a Stockholder's affiliates.
(xv) The designation or change of any committee of the Board.
(xvi) The engagement or discharge of legal counsel or independent
auditors.
(xvii) The dissolution and liquidation of the Company.
(xviii) As required by Section 12(a).
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(xix) Any Board determination or selection (including the
selection of an independent appraiser) required pursuant to the terms of the
Series A Preferred set forth in the Company's certificate of incorporation.
(xx) The discharge of any officer of the Company whose employment
was approved pursuant to Section 5(b)(xi).
(c) The officers of the Company shall be as set forth in the Company's
bylaws. The Chairman of the Board and the Chief Executive Officer of the Company
shall be designated by EVCI and the Vice Chairman of the Board and Chief
Operating Officer of the Company shall be designated by Visio. Initially, the
Chairman of the Board shall be Dr. Arol I. Buntzman, the Vice Chairman of the
Board shall be Patrick Lang, the Chief Executive Officer shall be Timothy
Gilbert and the Chief Operating Officer shall be Patrick Dessein. The Board
shall elect such officers to serve in accordance with the Company's bylaws. In
addition to presiding at meetings of stockholders or the Board in the absence of
the Chairman of Board, the authority and duties of the Vice Chairman of the
Board shall be limited to the specific authority and duties, if any, assigned to
him or her by the Board in accordance with Section 5(b)(iii). The Stockholders
shall each cause their respective designees on the Board to vote for the
election of persons so designated as officers pursuant to this Section 5(c);
provided, however, that any person designated by a Stockholder who is not named
above shall be approved by the other Stockholders, which approval shall not be
unreasonably withheld or delayed.
6. Financial Statements; Budgets; Finance Committee. (a) In order to
keep the Board currently apprised of the financial condition and results of
operations of the Company, there shall be delivered to each Board member (i)
until the Company has audited financial statements showing at least one year of
net income, monthly financial statements containing a balance sheet, statement
of operations and statement of cash flows which shall be unaudited but shall be
prepared in accordance with generally accepted accounting principles followed in
the United States ("GAAP") and delivered to Board members within 10 business
days after the end of the month to which they relate, (ii) thereafter, quarterly
financial statements which containing a balance sheet, statement of operations
and statement of cash flows which shall be unaudited but shall be prepared in
accordance with GAAP and delivered to Board members within 45 days after the end
of the calendar quarter to which they relate. Each quarterly financial statement
shall also include a statement of operations for the year to date. In addition
to the monthly and quarterly financial statements provided for above, the Board
shall retain independent auditors (initially authorized at the Board's first
meeting following the date of this Agreement), to audit the annual financial
statements of the Company and to prepare and deliver to the Board, within 90
days after the end of each fiscal year of the Company, their formal report and
opinion with respect thereto.
(b) There shall be delivered to the Board for its review and approval,
at least 45 days prior to the end of each fiscal year of the Company, a budget
and business plan for the next succeeding year (collectively, the "Budget"). The
Budget shall also set forth in reasonable detail, on a monthly basis, the
expected results of operations of the Company for the succeeding year.
(c) The Board of Directors shall designate a Finance Committee
consisting of three members of the Board. Each of EVCI, Visio and the Investors
shall have the right to designate one member of the Finance Committee from among
the members of the Board. The Stockholders shall cause their designees
on the Board to vote as directors to appoint EVCI's, Visio's and the
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Investors' designees and their successors as members of the Finance Committee.
The Finance Committee's duties and authority shall include the requirement that
it authorize, in advance, any single or related expenditures (including under an
agreement requiring periodic payments) of from $5,000 to $25,000, which has or
have not been included in a Budget that has been authorized by the Board
pursuant to Section 5(b)(iv).
7. Visio Royalty. Visio shall be entitled to receive royalties from
the Company in accordance with the provisions, that are consistent with the Term
Sheet dated October 19, 1999, of an agreement to be authorized by the
affirmative vote of at least seven members of the Board at its first meeting.
8. Co-Marketing Agreement. EVCI and VUSA shall provide co-marketing
services and receive compensation therefor in accordance with the provisions,
that are consistent with the Term Sheet dated October 19, 1999, of an agreement
to be authorized by the affirmative vote of at least seven members of the Board
at its first meeting.
9. Books and Records; Bank Accounts.(a) All books and records of the
Company shall be reasonably available for inspection at the offices of the
Company during normal business hours by the Stockholders or their
representatives. The Company shall maintain its books in accordance with GAAP.
(b) The Company shall maintain three bank accounts at a bank selected
by the Finance Committee that is proximate to the Company's principal offices.
One account shall be designated "Operating Account" and shall contain enough
funds to permit the Company to operate for one calendar quarter under the
current Budget. The second account shall be designated "Payroll Account" and
shall be funded from the Operating Account as required to pay payroll. The third
account shall be designated "Treasury Account" and shall contain the balance of
the Company's cash resources except to the extent such funds are invested in
short-term, interest-bearing, investment grade obligations. The signatories on
the Operating and Payroll Accounts shall be the Company's Chief Executive and
Chief Operating Officers and the signatories on the Treasury Account shall be
the Company's Chief Financial Officer and two members of the Finance Committee.
10. Restrictions on Transferability of Stock. (a) None of the shares
of the Company owned by the Stockholders shall be sold, assigned, donated,
mortgaged, pledged, hypothecated or in any other way disposed of or encumbered
by a Stockholder (each a "Transfer") without the prior written consent of the
other Stockholders, except as provided in this Agreement and the Company's
Certificate of Incorporation, as amended.
(b) Subject to the remaining provisions of this Section 10, the
restrictions on Transfer of Section 10(a) shall not apply to (A) any Transfer
among Stockholders or by a Stockholder to a Related Transferee (defined below)
of another Stockholder, or (B) any Transfer by a Stockholder who is an
individual (an "Individual Stockholder"): (i) to or among such Individual
Stockholder's spouse, children, grandchildren or other living descendants, or to
a trust or family partnership of which there are no principal (i.e., corpus)
beneficiaries or partners other than the grantor or one or more of such
Individual Stockholder, spouse, children, grandchildren or other living
descendants and, provided, in the case of a trust, that the existing
beneficiaries and/or trustee(s) and/or grantor(s) of such trust have the power
to act with respect to the trust's assets without court approval and, in the
case of a family partnership, that the partners thereof have the power to act
with respect to the partnership's assets without court approval and the
partnership is not permitted to (x)
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distribute assets to persons who are not among the relatives listed above or (y)
have partners who are not among the relatives listed above and (ii) to a legal
representative of such Individual Stockholder in the event such Individual
Stockholder becomes mentally incompetent or to such Individual Stockholder
becomes mentally incompetent or to such Individual Stockholder's personal
representative following the death of such Individual Stockholder, or (C) any
Transfer by any Stockholder that is an entity to its members, managers,
officers, directors, stockholders or employers or to an affiliate of such
Stockholder. An "affiliate" of a Stockholder is a person or entity that directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, the Stockholder. Transferees to whom Transfers
are permitted pursuant to this Section 10(b) are referred to herein as "Related
Transferees". References in this Agreement to a Founder or the Investors shall
be deemed to include their Related Transferees.
(c) No Transfer to a Related Transferee or pursuant to Section 11(d)
shall be effective unless the transferee shall execute and deliver to the
Company an appropriate document in form and substance satisfactory to the
Company in its reasonable judgment, confirming that the transferee takes such
shares subject to all the provisions of this Agreement to the same extent as its
transferor was bound by and entitled to the benefits of such provisions.
(d) In connection with an initial public offering of the Company's
equity securities ("IPO"), each Stockholder agrees to be subject to a lockup for
such period of time recommended by the underwriters, as the Board shall approve.
During such period, each Stockholder agrees not to Transfer any shares of the
Company without the prior written consent of the underwriter(s). This provision
is self-operating but each Stockholder agrees to execute and deliver a lockup
agreement in such form requested by the underwriter(s).
(e) In addition to the restrictive legend referred to in Section 3(a),
all certificates representing shares of the Company owned by the Stockholders
shall be inscribed with the following legend:
"Sale, assignment, pledge, encumbrance or other
disposition of any of the shares represented by this
Certificate is also limited and restricted in accordance
with the terms of a Subscription and Stockholders'
Agreement dated as of November 29, 1999, among Educational
Video Conferencing, Inc., Visiocom Worldwide S.A. and
other stockholders of the Company, a copy of which is on
file at the principal office of the Company."
11. Rights of First Refusal and Tag-Along Option. (a) If, at any time
after the second anniversary of the date of this Agreement, a Stockholder
receives an irrevocable and unconditional bona fide written offer (the "Bona
Fide Offer") from a financially responsible unaffiliated person (the "Bona Fide
Offeror") to purchase all or a portion of such Stockholder's shares of the
Company (the "Offered Shares"), then such Stockholder (the "Selling
Stockholder") shall give written notice thereof (the "Offering Notice") to the
other Stockholders (the "Remaining Stockholders"). The Offering Notice shall be
accompanied by a copy of the Bona Fide Offer, shall set forth the name and
address of the Bona Fide Offeror and shall offer to sell all such Offered Shares
to the Remaining Stockholders at the same price and on the same terms per share
set forth in the Bona Fide Offer. Any such Bona Fide Offer must also apply to
the purchase of not less than all of the Remaining Stockholder's shares of the
Company, if any, which become included in the "Offered
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Shares" under Section 11(c), at the same price and on the same terms per share
set forth in the Offering Notice.
(b) Each Remaining Stockholder shall have the right to purchase all or
any portion of its pro rata portion of the Offered Shares (determined according
to ownership of the Company's shares assuming conversion of the Series A
Preferred into Common Stock) by giving written notice of exercise to the Selling
Stockholder by the 30th day following the date the Offering Notice is given.
However, nothing contained herein shall prohibit the Remaining Stockholders from
agreeing among themselves or with the Bona Fide Offeror as to the number of
Offered Shares to be purchased by each of them.
(c) A Remaining Stockholder shall have the right to have a proportion
of its shares of the Company (determined according to ownership of the Company's
shares assuming conversion of the Series A Preferred into Common Stock) included
in the Offered Shares for sale to the Bona Fide Offeror at the same price and on
the same terms per share set forth in the Offering Notice by giving written
notice of exercise of such right by the 30th day following the date the Offering
Notice is given.
(d) In the event the Remaining Stockholders have not duly exercised
their rights to purchase a portion of the Offered Shares, the Selling
Stockholder shall be free to sell such portion of the Offered Shares for a
period of 40 days after the expiration of the period for such exercise but only
to the Bona Fide Offeror in accordance with the terms described in the Offering
Notice; provided that, in the event any Remaining Stockholder has not elected to
have all of its shares included in the Offered Shares and, subject to Section
16, as a condition of such sale, the Bona Fide Offeror shall agree that the
Offered Shares shall continue to be subject to the terms of this Agreement
following their transfer to the Bona Fide Offeror by executing and delivering
such instruments and documents as counsel for the Company shall deem necessary
and appropriate in order to make the Bona Fide Offeror a party to this
Agreement, for all purposes, in lieu of the Selling Stockholder. In addition,
the certificate representing such shares shall be inscribed with the legend
referred to in Section 10.
(e) The Offered Shares (including any Shares which become part of
the Offered Shares under Section 11(c)), if any, to be purchased by the
Remaining Stockholders or the Bona Fide Offeror shall be sold at a closing that
takes place at the offices of the attorneys for the Company within 10 business
days after the 30th day referred to above in Section 11(b). The purchaser shall
not receive valid title to any of such shares until all of them are purchased in
accordance with the terms of the Offering Notice. The purchase price for the
Offered Shares shall be paid against receipt of the certificate(s) representing
the Offered Shares being purchased endorsed in blank or accompanied by stock
powers endorsed in blank, in either case with signature guaranteed, together
with such other documents as counsel for the Company shall deem necessary to
permit the transfer of such shares.
12. Drag-Along Right. (a) If either of the Founders or any of the
Investors (the "Proposing Stockholder(s)") propose(s) to make a bona fide sale
of all of their shares of the Company held by the Proposing Stockholder(s) to a
non-affiliated party (the "Proposed Transferee"), pursuant to any sale or other
disposition of such shares, including, without limitation, a stock sale, merger,
recapitalization, consolidation, reorganization, restructuring or similar
transaction or series of transactions that has been approved by at least seven
of nine members of the Board at a meeting duly called and held for such purpose
(an "Exit Transaction"), then the Proposing Stockholder(s) shall have the right
(a "Drag-Along Right"), exercisable upon 30 days' prior written notice to the
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other Stockholders, to require the other Stockholders to sell all of their
shares of the Company and, at the election of the Proposing Stockholder(s),
options to purchase or any other award or right to receive or acquire shares of
Common Stock (whether vested or unvested) issued pursuant to employment
agreements, management agreements of otherwise ("Options"), to the Proposed
Transferee on the same terms and conditions and at the same price as the
Stockholders exercising the Drag-Along Right. In the case of Series A Preferred
or the Options, the purchase price of each share of Series A Preferred and
Option shall be equal to the purchase price attributable to the number of shares
of Common Stock issuable upon conversion of such Series A Preferred or exercise
of such Option less, in the case of the Option, the exercise price thereof.
(b) Each Stockholder selling shares of the Company in an Exit
Transaction (a "Drag-Along Seller"), agrees to cooperate in consummating the
Exit Transaction, including, without limitation, by becoming a party to the sale
agreement and all other appropriate related agreements, delivering at the
consummation of the Exit Transaction, stock certificates and other instruments
for such shares of Common Stock, Series A Preferred or Options duly endorsed for
transfer, free and clear of all liens and encumbrances, and voting or consenting
in favor of such Exit Transaction (to the extent a vote or consent is required)
and taking any other necessary or appropriate action in furtherance thereof,
including the execution and delivery of any other appropriate agreements,
certificates, instruments and other documents. The Proposing Stockholders shall
be responsible for all of the expenses of the Exit Transaction incurred by the
Proposing Stockholder(s) and the Drag Along Sellers (including the reasonable
fees and disbursements of one separate counsel for the Drag Along Sellers, as a
group).
13. Restriction on Competition. (a) So long as a Stockholder maintains
a stock interest in the Company,and, for a period of 12 months thereafter, such
Stockholder and its affiliates shall not, directly or indirectly,
(i) as a stockholder, partner, investor, lender, or otherwise,
participate or have any interest in the ownership, management, operation, or
control of any person, firm, corporation or enterprise, other than the Company,
which is a competitor of the Company in the business conducted by the Company
anywhere in North America; provided, however, such Stockholder and its
affiliates may own, as a group, up to one percent of the equity securities of a
corporation if the class of such equity securities is registered under Section
13(b) or 12(g) of the Securities Exchange Act of 1934 or,
(ii) hire an employee of the Company or a Founder, or solicit or
induce, or authorize any other person to solicit or induce any employee of the
Company or a Founder to leave such employment during the period of such
employee's employment with the Company or a Founder or within six months after
such employment terminates; provided, however, nothing herein shall prohibit a
Founder from continuing or resuming the employment of any person who left the
Founder's employment to become an employee of the Company or remained an
employee of the Founder while an employee of the Company, as long as employment
by the Founder is not prohibited by any contract between such person and the
Company.
(b) For the purposes of Section 13(a)(i), the Investors shall not be
deemed to be affiliates of one another solely because they are Investors
provided they are not acting in concert.
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14. Limits of Joint Venture. The applicable provisions of this
Agreement shall be construed and deemed to be a joint venture for the sole
purposes set forth therein. Nothing herein shall be construed to create a
general partnership among the parties for any purpose.
15. Confidential Information. (a) In connection with the business of
the Company and the performance of this Agreement, it is anticipated that EVCI
and Visio will disclose to the Company and one another, and that the Company
will disclose to the Investors, various technical information, know-how,
proprietary data, and other confidential information. In order to protect the
rights of each Founder and the Company to its confidential information, it is
agreed that, during the term of this Agreement and any period thereafter that a
Stockholder is bound by the non-compete provisions of Section 13, none of the
Stockholders nor their respective officers, directors, employees or agents shall
disclose or use any confidential information of the other, acquired in
connection with the business of the Company, other than for the purpose of
furthering the business of the Company. If requested by either Founder or by the
Company, the other Stockholders shall cause each of its officers, directors,
employees and agents having access to such confidential information to enter
into an appropriate secrecy and non-disclosure agreement, the form and content
of which shall be reasonably satisfactory to counsel for the parties.
Confidential information does not include (i) information that is or becomes
publicly available through no wrongful act of the recipient, (ii) information
obtained from third parties without a breach of any other non-disclosure
agreement, (iii) information that is independently developed by a recipient
without reference to the confidential information or, (iv) information that a
Stockholder is legally compelled to disclose, pursuant to any subpoena, court
order or similar process issued by a court or governmental body.
(b) A Stockholder shall give the Company prompt notice of any attempt
to legally compel the Stockholder to disclose Confidential Information so that
the Company can seek a protective order or waive the Stockholder's compliance
with the provisions of Section 13(a).
16. Termination. This Agreement shall terminate the earlier of (i) the
date written consent thereto is given by (x) the Founders and (y) Investors
owning 70 percent of outstanding Series A Preferred and Common Stock into which
the Series A Preferred has been converted; or (ii) the closing of an IPO; or
(iii) the closing of an Exit Transaction; or (iv) the date the Founders and the
Investors collectively cease to own a majority of the outstanding shares of
Series A Preferred and Common Stock.
17. Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and, accordingly, agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to compel specific performance of the obligations of the other party
under this Agreement in accordance with the terms and conditions of this
Agreement.
18. Titles. The titles, captions or headings of the Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
19. Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given upon receipt if personally delivered,
receipt acknowledged (which shall include Federal Express or similar service);
when transmitted if transmitted by telecopy, receipt confirmed; and upon
11
<PAGE>
receipt if sent by certified or registered mail, return receipt requested. In
each case notice shall be sent:
If to EVCI: Educational Video Conferencing, Inc.
35 East Grassy Sprain Road
Suite 200
Yonkers, NY 10710
Attn: Dr. Arol I. Buntzman, Chairman
Facsimile: (914) 395-5111
with a copy to: Fischbein Badillo Wagner Harding
909 Third Avenue
New York, NY 10022
Attn: Joseph D. Alperin, Esq.
Facsimile: (212) 644-3601
If to Visio: Visiocom Worldwide, S.A.
13/15 Avenue Charles Madoux
Brussels, Belgium 1160
Attn: Patrick Lang, President
Facsimile: 011-322-629-8971
with a copy to: Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: James Westra, Esq.
Facsimile: (617) 951-1295
If to the Investors: L&L Capital Partners LLC
274 Riverside Avenue
Westport, CT 06880
Attn: E. Bulkeley Griswold
Facsimile: (203) 222-3033
with a copy to: Levett Rockwood P.C.
33 Riverside Avenue
Westport, CT 06880
Attn: Cheryl L. Johnson, Esq.
Facsimile: (203) 226-8025
20. Jointly Drafted Agreement. The parties acknowledge that each of
them, and their attorneys, have had the opportunity to draft and comment upon
this Agreement, and have in fact done so, and that this Agreement is the joint
product of negotiations between them. The parties agree that in construing this
Agreement each term shall be given its ordinary meaning. Each party waives
application of the doctrine of construction against the drafter and acknowledges
that the parties shall jointly be considered to be the drafters of this
Agreement.
21. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective permitted
transferees of their shares of the
12
<PAGE>
Company. If any Stockholder or any such transferee shall acquire any shares of
the Company, in any manner, whether by operation of law or otherwise, such
shares shall be held subject to all of the terms of this Agreement and, by
taking and holding such shares, such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement.
22. Governing Law. This Agreement shall be governed and construed and
enforced in accordance with the laws of the State of Delaware, without regard to
the principles of conflicts of law.
23. Severability. If any term or provision of this Agreement shall to
any extent be invalid or unenforceable, the remainder of this Agreement shall
not be affected thereby, and each other term and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law. Upon the
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties shall negotiate in good faith to modify this
Agreement so as to effect their original intent as closely as possible to the
end that transactions contemplated hereby are fulfilled to the extent possible.
24. No Third Party Beneficiaries. The provisions of this Agreement
shall be only for the benefit of the parties to this Agreement and no other
person or entity shall have any third party beneficiary or other right
hereunder.
25. Entire Agreement; Amendments and Waivers. This Agreement, together
with all exhibits hereto, constitutes the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No amendment, supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby,
except that all of the Investors shall be bound if Investors owning 70 percent
of the Common Stock owned by all of the Investors, assuming for such purpose
that the Series A Preferred has been converted into Common Stock in accordance
with its terms. No waiver of any provision of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall any waiver constitute a continuing waiver unless otherwise
expressly provided therein.
26. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
27. Dispute Resolution. Any and all disputes, claims or controversies
arising out of or relating to this Agreement that are not resolved within 10
business days may be submitted to final and binding arbitration in New York City
before J-A-M-S, or its successor, pursuant to the United States Arbitration Act,
9 U.S.C. Sec. 1 et seq. A party may commence the arbitration process called for
in this Agreement by filing a written demand for arbitration with J-A-M-S, with
a copy to all persons and entities entitled to notices hereunder. The
arbitration will be conducted in accordance with the provisions of J-A-M-S'
Streamlined Arbitration Rules and Procedures in effect at the time of filing of
the demand for arbitration. The parties to the arbitration will cooperate with
J-A-M-S and with one another in selecting an arbitrator from J-A-M-S' panel of
neutrals, and in scheduling the arbitration proceedings so that a final
determination can be made within 30 days after submission to arbitration. The
parties to the arbitration covenant that they will participate in the
arbitration in good faith, and that they will share equally in its costs.
However, once an award is entered, the losing
13
<PAGE>
party shall be responsible for paying all of the winner's costs and expenses of
the arbitration, including attorneys' fees. The provisions of this Section 27
may be enforced by any Court of competent jurisdiction, and the party seeking
enforcement shall be entitled to an award of all costs, fees and expenses,
including attorneys' fees, to be paid by the party against whom enforcement is
ordered.
28. Survival. The provisions of 13, 15, 17, 18, 19, 20, 21, 22, 23, 27
and 28 shall survive the termination of this Agreement.
29. Expenses. The Company shall pay or reimburse all reasonable fees
and disbursements of legal counsel to EVCI, Visio and the Investors upon receipt
of appropriate invoices and all of the proceeds of the sale of the Securities
under this Agreement (the "Closing").
30. Consulting Fees. Promptly after the Closing, the Company shall pay
Alfus Financial Services LLC $30,000 and L&L Capital Partners, LLC $112,050 for
services rendered in connection with the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date and year first above written.
EDUCATIONAL VIDEO CONFERENCING, INC. VISIOCOM WORLDWIDE, S.A.
By:/s/ Arol I. Buntzman By:/s/ Patrick Lang
--------------------------------------- -----------------------------
Arol I. Buntzman, Chairman Patrick Lang, President
VISIOCOM USA INCORPORATED
By:/s/ Arol I. Buntzman By:/s/ E. Bulkeley Griswold
--------------------------------------- -----------------------------
Arol I. Buntzman, Chairman E. Bulkeley Griswold
NAKOMA INVESTMENTS, LLC
/s/ Kenneth Fadner By: /s/ Irwin F. Smith
- -------------------------------------------- ----------------------------
Kenneth Fadner Irwin F. Smith
Authorized Signatory
L&L CAPITAL PARTNERS, LLC SOUTH SHORE CAPITAL FUND LTD.
By: /s/ E. Bulkeley Griswold By: /s/ David K. Sing
--------------------------------------- ----------------------------
E. Bulkeley Griswold David S. King
Authorized Signatory Authorized Signatory
Navigator Management Ltd.
Director
14
<PAGE>
The undersigned hereby agree to be bound by the provisions of
Section 12 of the foregoing Subscription and Stockholder's Agreement and to also
be bound by, and to be deemed a Stockholder for all purposes under such
Agreement with respect to of any shares of Common Stock acquired by him upon
exercise of stock options or otherwise.
/s/ Timothy Gilbert
--------------------------------
Timothy Gilbert
/s/ Patrick Dessein
--------------------------------
Patrick Dessein
15
<PAGE>
Exhibit A
INVESTORS IN VISIOCOM USA INCORPORATED
--------------------------------------
<TABLE>
<CAPTION>
No. of Shares of Series A
Preferred Total
Name Address Purchased Purchase Price
---- ------- ------------------------- --------------
<S> <C> <C> <C>
E. Bulkeley Griswold L&L Capital Partners, LLC 3,000 $75,000
274 Riverside Avenue
Westport, CT 06880
L&L Capital Partners, LLC c/o Stephen T. Rossetter 1,000 25,000
274 Riverside Avenue
Westport, CT 06880
Nakoma Investments, LLC c/o Irwin F. Smith 12,000 300,000
7716 East Black Mountain Road
Scottsdale, AZ 85262
Southshore Capital Fund LTD c/o Daniel Pickett 6,000 150,000
Southridge Capital
90 Grove Street
Ridgefield, CT 06877
Kenneth Fadner 145 Pipers Hill Road 18,000 450,000
------ ----------
Wilton, CT 06897
40,000 $1,000,000
====== ==========
</TABLE>
<PAGE>
Exhibit B
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
(Pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware)
VISIOCOM USA INCORPORATED, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that
pursuant to authority conferred upon the Board of Directors of the Corporation
(the "Board") by Article FOURTH of the Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation") and Section 151(g) of the
General Corporation Law of the State of Delaware (the "DGCL"), the Board has
duly adopted the following resolutions, which are not in conflict with any
provisions of the Certificate of Incorporation or the Corporation's Bylaws.
RESOLVED, that the Board hereby fixes and determines the designation
of, the number of shares constituting, and the rights, preferences, privileges,
and restrictions relating to, a series of Preferred Stock, as follows:
1. Designation; Amount; Stated Value.
---------------------------------
From the Corporation's 100,000 authorized shares of Preferred Stock,
$.0001 par value, 60,000 shares are hereby designated Series A Preferred Stock
("Series A Preferred") with the rights, preferences, privileges and restrictions
specified herein. Each share of Series A Preferred shall have a stated value of
$25.00 (the "Stated Value") and all shares of Series A Preferred shall have an
aggregate Stated Value of $1,500,000.
2. Dividends.
---------
(a) The holders of record of the Series A Preferred shall be
entitled to receive dividends upon the occurrence of the first to occur of (i) a
liquidation pursuant to Section 3, (ii) an automatic conversion pursuant to
Section 5 and (iii) a redemption pursuant to Section 8, out of any surplus
legally available therefor, at a rate per annum equal to nine percent (9%) of
the Stated Value. Dividends shall accrue from the initial date of issuance of
the Series A Preferred (the "Original Issue Date") and shall be cumulative and
compounded annually.
(b) Shares of Series A Preferred that are automatically converted
pursuant to Section 5 or redeemed pursuant to Section 8 shall not accrue
dividends following the date the conversion or redemption is deemed effected. In
the case of conversion, all accrued and unpaid dividends shall be paid, either
in cash or by issuance to the record holder thereof a number of shares of the
Corporation's Common Stock, $.0001 par value (the "Common Stock"), which, when
multiplied by the Conversion Price, equals the aggregate amount of the dividend
to be paid. The Board shall determine, in its sole discretion, whether dividends
are to be paid in cash or by the issuance of shares of Common Stock. In the case
of redemption, all accrued and unpaid dividends shall be paid in cash.
<PAGE>
(c) No dividends or other distributions shall be paid, or set
apart for payment, on any shares of Common Stock or other capital stock of the
Corporation ranking junior as to dividends to the Series A Preferred, unless and
until all accrued and unpaid dividends on the Series A Preferred shall have been
paid or set apart for payment.
3. Liquidation Preference. Subject to Section 5, in the event of a
liquidation or dissolution and winding up of the Corporation, whether voluntary
or involuntary, the holders of record of the Series A Preferred shall be
entitled to receive ratably in full, out of lawfully available assets of the
Corporation, whether such assets are stated capital or surplus of any nature, an
amount in cash per outstanding share of Series A Preferred equal to the sum of
the Stated Value and all dividends (whether or not declared) accrued and unpaid
thereon, as of the date of final distribution hereunder to such holders, before
any payment shall be made or any assets distributed to the holders of the Common
Stock or other capital stock of the Corporation ranking junior as to liquidation
to the Series A Preferred. If, upon any liquidation, dissolution and winding up,
the amount available for such payment to the holders of Series A Preferred shall
not be sufficient to pay in full the amounts payable on the Series A Preferred,
the holders of the Series A Preferred, and any other class or series of the
Corporation's capital stock which may hereafter be created having parity as to
liquidation rights with the Series A Preferred, shall share in the distribution
of the amount available in proportion to the respective preferential amounts to
which each is entitled.
4. Voting Rights. Each share of a Series A Preferred shall entitle the
holder thereof to such number of votes per share on matters requiring the vote
or consent of the holders of Common Stock as shall equal the number (with
fractions being rounded to the nearest whole number) of shares of Common Stock
into which each share of Series A Preferred is convertible at the record date
for the determination of stockholders entitled to vote on such matters or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. The holders of shares of Series A
Preferred and the holders of Common Stock shall at all times vote as one class,
together with the holders of any other class of stock of the Corporation
accorded such general class voting right. In addition, the approval of any
action either (i) altering the rights, preferences or privileges of the Series A
Preferred or (ii) creating any new class or series of shares having rights,
preference or privileges senior to or on parity with the Series A Preferred,
shall require the consent of a majority in interest of the outstanding shares of
Series A Preferred.
5. Automatic Conversion.
--------------------
(a) All outstanding shares of Series A Preferred shall be
automatically converted into fully paid and non-assessable shares of Common
Stock, in the event of (i) an initial public offering of equity securities of
the Corporation, (ii) a liquidation or dissolution and winding up of the
Corporation, or (iii) the sale of the Corporation pursuant to a stock sale,
merger, consolidation, recapitalization, reorganization, restructuring, sale of
all or substantially all of the assets of the Corporation or similar transaction
or series of transactions (each of (i), (ii) and (iii) being a "Liquidity
Transaction"), and provided the Corporation's value in such Liquidity
Transaction is not less than $7,050,000. Such conversion shall be at the rate of
one share of Common Stock for each $5.00, subject to adjustment as provided in
Section 6 (the "Conversion Price") of an amount equal to the sum of (x) the
Stated Value of the Series A Preferred duly surrendered for conversion and (y)
any accrued and unpaid dividends thereon that the Corporation has elected to pay
in Common Stock. Written notice of such automatic conversion shall be given by
the Corporation to the holders of Series A
B-2
<PAGE>
Preferred at least 10 days prior to the closing of the Liquidity Transaction
(the "Liquidity Transaction Closing"), unless the Corporation reasonably
believes a holder of Series A Preferred has actual knowledge of such automatic
conversion.
(b) In order to receive certificates for shares of Common Stock
into which Series A Preferred shall have been automatically converted, a holder
of record of Series A Preferred shall surrender the certificate(s) representing
such shares, endorsed in blank or accompanied by stock powers endorsed in blank,
in either case with signature guaranteed, at the principal office of the
Corporation or the Corporation's transfer agent for its Common Stock, or at such
other office as the Corporation may designate, and shall give written notice to
the Corporation, that sets forth the name or names in which the certificate or
certificates for shares of Common Stock are to be issued; provided, however,
that nothing in this Certificate of Designations shall be deemed to permit any
holder of Series A Preferred to designate another person to be the holder of
Common Stock issuable upon conversion of the Series A Preferred if the issuance
to such other person would violate Federal or state securities laws or any
agreement a holder of Series A Preferred has with the Corporation regarding
restrictions on transferability of any securities of the Corporation held by
such holder. Within 10 business days after surrender of the certificate(s)
representing the Series A Preferred and payment by the holder of any applicable
transfer or similar taxes, the Corporation shall issue and deliver (i) a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, in the name or names and to the address or addresses
specified in the Conversion Notice, subject to any such restrictions on
transferability, and (ii) a check in payment for any fractional shares pursuant
to Section 10 and any accrued and unpaid dividends, if any, that the Corporation
has elected to pay in cash pursuant to Section 2(b).
(c) The conversion of the Series A Preferred shall be deemed to
have been effected simultaneously with the consummation of the Liquidity
Transaction Closing. Whereupon, each holder shall cease to be a stockholder with
respect to the Series A Preferred and all rights whatsoever with respect to such
shares shall terminate (except the rights of the holder to receive shares of
Common Stock and cash in respect of fractional shares pursuant to Section 10 and
to receive accrued and unpaid dividends pursuant to Section 2(b)), and the
person or persons in whose name any certificate(s) for Common Stock are issuable
upon such conversion shall be deemed to have become the holder of record of the
shares represented thereby.
6. Adjustment of Conversion Price.
------------------------------
(a) In the event the Corporation (i) declares any dividend on the
Common Stock in shares of its capital stock, (ii) subdivides the outstanding
shares of the Common Stock into a larger number of shares, (iii) combines the
outstanding shares of the Common Stock into a smaller number of shares, or (iv)
issues by reclassification of the Common Stock any shares of its capital stock,
then the Conversion Price in effect on the record date for such dividend or on
the effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the record holder of any shares of Series A
Preferred
B-3
<PAGE>
converted after such date shall be entitled to receive the kind and amount of
shares which such holder would have owned or have been entitled to receive had
such shares of Series A Preferred been converted immediately prior to such date.
Such adjustment shall be made successively whenever any event listed above shall
occur. If, as a result of an adjustment made hereunder, the holder of any shares
of Series A Preferred shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Corporation, the Board shall determine the allocation of the adjusted
Conversion Price between shares of such classes of capital stock or shares of
Common Stock and other capital stock.
(b) After each adjustment of the Conversion Price pursuant to
this Section 6, the Corporation will promptly prepare a certificate signed by
the Chief Financial Officer of the Corporation setting forth the Conversion
Price as so adjusted, and a brief statement of the facts accounting for such
adjustment. The Company will promptly cause a brief summary thereof to be sent
by ordinary first class mail to each record holder of Series A Preferred at such
holder's last address as it shall appear on the registry books of the
Corporation or its transfer agent, unless the Corporation reasonably believes a
holder of Series A Preferred has actual notice of the adjusted Conversion Price
and the facts accounting for such adjustment. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity thereof
except to the extent a holder of Series A Preferred shall have suffered actual
damages as a result thereof. The affidavit of the Secretary or an Assistant
Secretary of the Corporation that such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(c) As used in this Section 6, the term "Common Stock" shall mean
and include the Corporation's Common Stock authorized on the Original Issue Date
and shall also include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Corporation; provided, however, that the shares issuable upon
conversion of the Series A Preferred shall include only shares of such class
designated in the Corporation's Certificate of Incorporation as Common Stock on
the Original Issue Date or, in the case of any reclassification of the character
referred to in Section 6(a), such shares of Common Stock as so reclassified or
changed.
(d) Any determination as to whether an adjustment in the
Conversion Price in effect is required pursuant to this Section 6, or as to the
amount of any such adjustment, if required, shall be binding upon the holders of
the Series A Preferred and the Corporation if made in good faith by the Board.
7. Reservation of Shares; Payment of Taxes.
---------------------------------------
(a) The Corporation covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon conversion of the Series A Preferred, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding Series A
Preferred. The Corporation covenants that all shares of Common Stock which shall
be issuable upon conversion of the Series A Preferred shall, at the time of
delivery, be duly and validly issued, fully paid, nonassessable and free from
all taxes,
B-4
<PAGE>
liens and charges with respect to the issue thereof (other than those which the
Corporation shall promptly pay or discharge, subject to Section 7(b)).
(b) The Corporation shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of the Series A Preferred, or the issuance or delivery of any shares of
Common Stock upon conversion of the Series A Preferred; provided, however, that,
if the shares of Common Stock are to be delivered in a name other than the name
of the holder of record of the certificate representing any Series A Preferred
being converted, then no such delivery shall be made unless the person
requesting the same has paid to the Corporation the amount of transfer taxes or
charges incident thereto, if any.
8. Optional Redemption; Right of First Refusal.
-------------------------------------------
(a) Subject to Section 8(c), and in the event that a conversion
has not occurred pursuant to Section 5, the Series A Preferred shall be
redeemable at the sole option of the holder of Series A Preferred (the
"Redeeming Holder"), exercisable during the period of 90 days immediately
following the fourth anniversary of the Original Issue Date at a price per share
equal to the sum of the Stated Value and all dividends (whether or not declared)
accrued and unpaid thereon through the date the Redemption Notice is given
pursuant to Section 8(b) (the "Redemption Price").
(b) The holder of shares of Series A Preferred may exercise such
redemption right by giving notice to the Corporation (the "Redemption Notice"),
within such 90 day period, of such holder's intent to surrender to the
Corporation for redemption all or a specified portion of the Series A Preferred
(the "Redemption Shares"), at the principal office of the Corporation or the
Corporation's transfer agent, accompanied by the certificate(s) representing the
Redemption Shares being so surrendered for redemption endorsed in blank or
accompanied by stock powers endorsed in blank, in either case with signature
guaranteed.
(c) Within five days after receipt of the Redemption Notice and
such certificate(s), the Corporation shall transmit a copy of the Redemption
Notice to the Corporation's remaining stockholders (the "Remaining
Stockholders"). Each Remaining Stockholder shall have the right to purchase all
or any portion of its pro rata portion of the Redemption Shares (determined
according to ownership of the Corporation's shares, assuming conversion of
Series A Preferred into Common Stock), at a price per share equal to the higher
of the Per Share Market Price and the Redemption Price, by giving written notice
of exercise to the Redeeming Holder and the Corporation by the 45th day
following the date the Corporation transmits a copy of the Redemption Notice to
each Remaining Stockholder. "Per Share Market Price" means the price determined
by an independent appraiser selected by the Board. Nothing contained herein
shall prohibit the Remaining Stockholders from agreeing among themselves or with
the Redeeming Holder as to the number of Redemption Shares to be purchased by
each of them.
(d) The Redemption Shares to be purchased, if any, by the
Remaining Stockholders shall be sold at a closing that takes place at the
offices of the attorneys for the Corporation within 10 business days after the
45th day referred to in Section 8(c). The purchaser shall not receive valid
title to any of such shares until all of them are purchased. The purchase
B-5
<PAGE>
price (either the Redemption Price or the Per Share Market Price) for the
Redemption Shares shall be paid against receipt of the certificate(s)
representing the Redemption Shares being purchased endorsed in blank or
accompanied by stock powers endorsed in blank, in either case with signature
guaranteed, together with such other documents as counsel for the Company shall
deem necessary to permit the transfer of such shares.
(e) In the event the Remaining Stockholders have not duly
exercised their rights to purchase a portion of the Offered Shares, the
Corporation shall redeem such portion of shares (the "Redemption Shares") at the
Redemption Price. Payment of the Redemption Price shall be made, out of surplus
legally available therefor, in three equal installments, of which the first
shall be due the first day of the month next following the expiration of the 45
day period referred in Section 8(c) and the other two installments shall be due
on the first and second anniversary dates thereof. The obligation to pay the
Redemption Price shall be evidenced by a promissory note of the Corporation and
shall be secured by the Redemption Shares. The Corporation shall, simultaneously
with such first installation payment, issue and deliver to the Redeeming Holder
a Certificate for the shares of Series A Preferred, if any, owned by such
Redeeming Holder and not included in the Redemption Shares.
9. Status of Reacquired Shares. The shares of Series A Preferred which
have been issued and reacquired in any manner by the Corporation shall have the
status of authorized and unissued shares of Preferred Stock and may be
reclassified and reissued as a part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board.
10. No Fractional Shares. The Corporation shall not be required to
issue fractional shares of Common Stock upon any conversion of Series A
Preferred but shall pay, in lieu thereof, an amount in cash equal to the same
fraction of a share of Common Stock outstanding after a conversion multiplied by
the Conversion Price.
11. Determination of the Board. Whenever this Certificate of
Designations requires determination to be made by the Board, such determination
shall be conclusive and shall be set forth in a Board resolution.
12. Notices. Any notice required by these provisions to be given to
the holders of Series A Preferred shall be deemed given on the third business
day after mailing, first class mail, postage prepaid, or on the day of delivery
if sent by overnight courier, receipt confirmed, in each instance in an envelope
address to each holder of record of Series A Preferred at such holder's address
appearing on the books of the Corporation.
RESOLVED, FURTHER, that the Chairman of the Board, the Vice Chairman
of the Board and the Secretary of the Corporation are each hereby authorized and
directed to prepare and file a Certificate of Designations in accordance with
this resolution and as required by law.
B-6
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designations on behalf of Visiocom USA Incorporated and does affirm the
foregoing as true under the penalties of perjury this 29th day of November,
1999.
VISIOCOM USA INCORPORATED
By:____________________________
Dr. Arol I. Buntzman
Chairman of the Board
B-7
<PAGE>
Exhibit B-1
FORM OF
COLLATERAL INSTALLMENT PROMISSORY NOTE
--------------------------------------
$____________________ , 20__
FOR VALUE RECEIVED, Visiocom USA Incorporated, a Delaware corporation,
("Maker"), hereby promises to pay to the order of [insert name of Redeeming
Holder] ("Payee") at [insert address to which payment is to be sent] the
principal sum of $ in lawful money of the United State of America. The first
installment shall be due on [ ] and the remaining two installments shall be due
the first and second anniversary date respectively of the due date of the first
installment. Each such installment shall be deemed to include interest at a rate
necessary to avoid the imputation of interest under applicable provisions of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder. When ever any installment falls due on a Saturday, Sunday or
business holiday in New York City, such installment shall be paid on the
immediately succeeding business day with interest calculated to that date.
This Note may be prepaid at the option of Maker in whole, but not in
part, without premium or penalty.
In the event that Maker shall fail to pay any installment of this Note
when due, and such failure shall continue for 10 days after written notice
thereof shall have been given to Maker by the holder of this Note, the holder of
this Note, by further written notice to Maker, may at any time declare the
entire unpaid principal balance of this Note to be immediately due and payable
without demand, protest or notice, all of which are hereby waived. Past due
installment payments shall bear interest at nine percent (9%) per annum,
compounded annually, computed from the date of this Note.
As collateral for this Note, Maker has pledged, assigned and
transferred, and by this instrument and delivery of the stock Certificate No(s).
[ ] for [ ] shares of Makers [ ] (the "Shares") does hereby pledge, assign and
transfer, the Shares to Payee and to every subsequent holder of the Note (the
Shares and certificates and any property, including cash, hereafter distributed
as dividends paid or other distributions made upon or in respect of the Shares
or in exchange for any or all the Shares or property, being hereinafter
collectively called the "Pledged Shares"). Payee acknowledges receipt of
Certificate No(s). [ ] representing all of the Pledged Shares accompanied by
duly executed stock power(s).
The holder of this Note shall not be entitled to exercise any voting
and/or consensual powers pertaining to Pledged Shares or any part thereof until
Maker shall default in any payment of this Note as and when the same shall
become due and payable, whereupon the holder of the Note shall immediately, and
without notice to Maker, be entitled to exercise such powers.
Upon default in the payment by Maker of this Note, subject to
applicable securities laws, the holder of the Note shall have the rights and
remedies provided in the Uniform Commercial Code then in force in the State of
New York.
<PAGE>
Maker agrees to pay all costs and expenses, including reasonable
attorney's fees, incurred in connection with the collection of any of the
indebtedness evidenced hereby.
This Note and all the rights hereunder shall be governed in all
respects by the law of the State of New York.
VISIOCOM USA INCORPORATED
By:___________________________
Authorized Signatory
B-1-2
<PAGE>
Exhibit C
CONNECTICUT BLUE SKY DISQUALIFICATION PROVISIONS
------------------------------------------------
(D) (1) The exemption hereunder shall not be available to an issuer if the
issuer, any of the issuer's predecessors, any affiliated issuer, any of the
issuer's directors, officers, general partners, beneficial owners of ten percent
(10%) or more of any class of the issuer's equity securities, any of the
issuer's promoters presently connected with the issuer in any capacity, any
underwriter of the securities to be offered, or any partner, director, or
officer of such underwriter:
(a) Within the last five years, has filed a registration statement which is the
subject of a currently effective registration stop order entered by any state
securities administrator or the Securities and Exchange Commission;
(b) Within the last five years, has been convicted of any criminal offense in
connection with the offer, purchase or sale of any security, or involving fraud
or deceit;
(c) Is currently subject to any state or federal administrative enforcement
order or judgment, entered within the last five years, finding fraud or deceit
in connection with the purchase or sale of any security; or
(d) Is currently subject to any order, judgment or decree of any court of
competent jurisdiction, entered with the last five years, temporarily,
preliminarily or permanently restraining or enjoining such party from engaging
in or continuing to engage in any conduct or practice involving fraud or deceit
in connection with the purchase or sale of any security.
<PAGE>
Exhibit D-1
CERTIFICATE OF INCOROPORATION
OF
VISIOCOM USA INCORPORATED
(Under Section 102 of the General Corporation Law of the State of Delaware)
FIRST: The name of the corporation is VISIOCOM USA INCORPORATED (the
"Corporation").
SECOND: The registered office of Corporation is located at 9 East
Loockerman Street, in the City of Dover, in the County of Kent, in the State of
Delaware. The name of its registered agent at the address is National Registered
Agents, Inc..
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,100,000 shares, consisting of
1,000,000 shares of common stock, par value $0.0001; and 100,000 shares of
preferred stock, par value $0.0001.
The Board of Directors of the Corporation is expressly authorized to
fix by resolution or resolutions the designations and the powers (including
voting powers), preferences, and rights, and the qualifications, limitations, or
restrictions permitted by Section 151 of the General Corporation Law of the
State of Delaware in respect of any class or classes of stock or any series of
any class of stock of the Corporation which may be desired but which shall not
be fixed by this Certificate of Incorporation. Such grant of authority includes
the power to specify the number of shares in any series.
FIFTH: The name and mailing address of the sole incorporator is
Michael Sufott, Fischbein Badillo Wagner Harding, 909 Third Avenue, New York, NY
10022.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal all or any of the provisions of the bylaws of the
Corporation.
SEVENTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right
<PAGE>
or protection of a director of the Corporation hereunder in respect of any act
or omission occurring prior to the time of such amendment, modification or
repeal.
EIGHTH: (a) The Corporation shall, to the extent and in the manner
permitted by the General Corporation Law of the State of Delaware, as the same
now exists or may hereafter be amended, indemnify any person against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding in which such person was or is a party or
is threatened to be made a party by reason of the fact that such person is or
was a director or officer of the Corporation. For purposes of such
indemnification, a "director" or "officer" of the Corporation shall mean any
person (i) who is or was a director or officer of the Corporation, (ii) who is
or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the Corporation or of another enterprise at the request of such
predecessor Corporation.
The Corporation shall not be required to indemnify a director or
officer in connection with any action, suit, or proceeding (or part thereof)
initiated by such director or officer unless the initiation of such action,
suit, or proceeding (or part thereof) by the director or officer and such
indemnification was authorized by the Board of Directors of the Corporation.
The Corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the Corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Article Eighth in advance of its final disposition; provided, however, that
payment of expenses incurred by a director or officer of the Corporation in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by the director or officer to repay all
amounts advanced in the event that it should ultimately be determined that the
director or officer is not entitled to be indemnified under this Article Eighth
or otherwise.
The rights conferred on any person by this section (a) of Article
Eighth shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Corporation's bylaws or
any agreement, vote of the stockholders or disinterested directors or other
action provided that the same conforms to the provisions of this Certificate of
Incorporation, as the same may be amended from time to time, and the laws of the
State of Delaware.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
(b) The Corporation shall have the power, to the extent and in the
manner permitted by the General Corporation Law of the State of Delaware, as the
same now exists or may hereafter be amended, to indemnify any person, in
addition to directors and officers, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or
D-1-2
<PAGE>
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the Corporation. For purposes of this section (b) of Article Eighth, an
"employee" or "agent" of the Corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the Corporation
or (ii) who is or was serving at the request of the Corporation as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise including a predecessor corporation of the Corporation or another
enterprise at the request of such predecessor corporation.
(c) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
NINTH: The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors, and officers are subject to this reserved
power.
TENTH: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of the State of Delaware.
I, THE UNDERSIGNED, to form a corporation for the purposes hereinabove
stated, under and pursuant to the provisions of the General Corporation Law of
the State of Delaware, do hereby certify that the facts stated herein are true
and hereunto set my hand this 30th day of September, 1999.
/s/ Michael Sufott
-----------------------------
Michael Sufott, Incorporator
D-1-3
<PAGE>
Exhibit D-2
BYLAWS*
OF
VISIOCOM USA INCORPORATED
ARTICLE I
---------
Stockholders
------------
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
be held for the election of directors on such date and at such place as shall be
fixed from time to time by the Board of Directors. Any other proper business may
be transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Board of Directors.
Special meetings may not be called by any other person or persons.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
these bylaws, the written notice of any meeting shall be given not less than 10
nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. Any business which might have been transacted at the original meeting may
be transacted at the adjourned meeting. If the adjournment is for more than
thirty days or, if after the adjournment a new record date is fixed for the
adjourned meeting, notice, pursuant to Section 1.3 of these bylaws, of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
Section 1.5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these bylaws, at each meeting of stockholders
the presence in person or by
---------------------
*As of November 29, 1999.
<PAGE>
proxy of the holders of shares of stock having 70 percent of the votes which
could be cast by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders present may, by majority vote, adjourn the
meeting from time to time in the manner provided in Section 1.4 of these bylaws
until a quorum shall attend.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, or, in his or her absence, by the Vice
Chairman of the Board, if any, or in his or her absence by the Chief Executive
Officer, or in his or her absence, by the Chief Operating Officer, or in the
absence of the foregoing persons by a chairman designated by the Board of
Directors or, in the absence of such designation, by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his or her
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section 1.7. Voting; Proxies. Except as otherwise provided by the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient by law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary
of the corporation.
Voting at meetings of stockholders need not be by written ballot and,
unless otherwise required by law, need not be conducted by inspectors of
election unless so determined by the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote thereon which are present in person or by proxy
at such meeting.
All elections including the election of directors and questions shall,
unless otherwise provided by law, be decided by the vote of the holders of
shares of stock having 70 percent of the votes which could be cast by the
holders of all shares of stock outstanding and entitled to vote thereon.
Section 1.8. Fixing Date for Determination of Stockholders of Record. In
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than 60 nor less
than 10 days before the date of such meeting; (2) in the case of determination
of stockholders entitled to express consent to corporate action in writing
D-2-2
<PAGE>
without a meeting, shall not be more than 10 days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and (3)
in the case of any other action, shall not be more than 60 days prior to such
other action.
If no record date is fixed: (1) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the business day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held; (2) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action of the Board of
Directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action; and (3) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 1.9 List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Upon the willful neglect or refusal of the Board of Directors to
produce such a list at any meeting for the election of directors, they shall be
ineligible for election to any office at such meeting.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 1.10. Action By Consent of Stockholders. Any action required
or permitted to be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the
D-2-3
<PAGE>
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered by hand or by certified or registered
mail, return receipt requested) to the corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 1.11. Conduct of Meetings. The Board of Directors of the
corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (1) the establishment of an agenda
or order of business for the meeting; (2) rules and procedures for maintaining
order at the meeting and the safety of those present; (3) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (4) restrictions on entry to the
meeting after the time fixed for the commencement thereof; and (5) limitations
on the time allotted to questions or comments by participants. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
ARTICLE II
----------
Board of Directors
------------------
Section 2.1. Number; Qualifications. The Board of Directors shall
consist of nine members.
Section 2.2. Election; Resignation; Removal; Vacancies. At each annual
meeting of stockholders, the stockholders shall elect directors each of whom
shall hold office for a term of one year or until his or her successor is
elected and qualified. Any director may resign at any time upon written notice
to the corporation.
Any vacancy occurring in the Board of Directors for any cause may be
filled by the vote of seven members of the Board of Directors, or by the vote of
the stockholders, and each director so elected shall hold office until the
expiration of the term of office of the director whom he or she has replaced or
until his or her successor is elected and qualified.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors shall be held at least quarterly at such places within or without the
State of Delaware and at such times as the
D-2-4
<PAGE>
Board of Directors may from time to time determine, and if so determined notices
thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, Vice Chairman of the
Board, if any, or any three members of the Board of Directors. Notice of a
special meeting of the Board of Directors shall be given by the person or
persons calling the meeting at least forty-eight hours before the special
meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear and be heard by each other, and participation in a meeting
pursuant to this bylaw shall constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors five members of the whole Board of Directors shall constitute
a quorum for the transaction of business. The vote of five directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors except that the following actions shall require the affirmative vote
of seven directors at a meeting at which at least seven directors are present:
(a) The merger, reorganization, consolidation, sale or other
disposition of substantially all the assets, recapitalization, reorganization of
the corporation, or similar transaction or series of transactions.
(b) The amendment of the certificate of incorporation or bylaws
of the corporation.
(c) The election of officers of the corporation and the
assignment of authority and duties to any officer who is required to act solely
in accordance with the authority and duties to any officer who is required to
act solely in accordance with the authority and duties, if any, assigned to such
officer from time to time by the Board of Directors.
(d) The approval, or modification by more than $25,000, of an
annual budget ("Budget").
(e) The incurrence or assumption by the corporation of any
liability for money borrowed or the guarantee by the corporation of any
obligation, of any person, firm or corporation, in each case in excess of the
greater of $25,000 or an amount in the current Budget.
(f) The establishment and maintenance of bank accounts and the
designation of authorized signatories on such accounts in the event the Finance
Committee of the Board is unwilling or unable to act with respect thereto.
(g) Any loan made by the corporation.
(h) The issuance or repurchase of any shares of any class of the
corporation.
D-2-5
<PAGE>
(i) The establishment, modification or termination or any
employee stock grant or option agreement or plan or any other benefit, pension,
profit sharing, fringe benefit or similar plan.
(j) The declaration of any dividend in any form.
(k) The approval of any employment arrangement with any employee
providing for compensation, including fringe benefits, in excess of $50,000 per
annum; provided, however, such approval shall not be required if the
compensation level and the position the employee is being hired to fill has been
included in a Budget approved pursuant to Section 2.6(d).
(l) The institution, or consenting to the institution, of any
bankruptcy, insolvency, reorganization, readjustment of debt or similar
proceeding relating to the corporation under the law of any jurisdiction; an
assignment for the benefit of creditors; or application for or consenting to the
appointment for of any receiver, trustee or similar officer for any or all of
the property of the corporation.
(m) Any material change in the principal business of the
corporation or the establishment of a new line of business or class of product
or service.
(n) The entering into of any transaction with a stockholder of
the corporation or any of a stockholder's affiliates.
(o) The designation or change of any committee of the Board of
Directors.
(p) The engagement or discharge of legal counsel or independent
auditors.
(q) The dissolution and liquidation of the corporation.
(r) As required by Section 12(a) of the Stock Subscription and
Stockholders' Agreement dated November , 1999, as amended.
(s) Any Board determination or selection (including the selection
of an independent appraiser) required pursuant to the terms of the corporation's
Series A Preferred Stock.
(t) The discharge of any officer of the corporation whose
employment was approved pursuant to Section 2.6(k).
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or, in his or her absence by the
Vice Chairman of the Board, if any, or in their absence by a chairman chosen at
the meeting. The Secretary shall act as secretary of the meeting but, in his
absence, the chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section 2.8. Informal Action by Directors. Unless otherwise restricted
by the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of
D-2-6
<PAGE>
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of Directors or such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
-----------
Committees
----------
Section 3.1. Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.
Any such committee, to the extent permitted by law and to the extent
provided by resolution of the Board of Directors, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these bylaws.
ARTICLE IV
----------
Officers
--------
Section 4.1. Executive Officers; Election; Term of Office;
Resignation; Removal; Vacancies. The Board of Directors shall elect a Chairman
of the Board from among its members, a Chief Executive Officer, a Chief
Operating Officer, a Chief Financial Officer and a Secretary, and it may, if it
so determines, choose a Vice Chairman of the Board from among its members. In
addition to presiding at meetings of the stockholders or the Board of Directors
in the absence of the Chairman of the Board, the authority and duties of Vice
Chairman of the Board shall be limited to the specific authority and duties, if
any, assigned to him or her by the Board of Directors from time to time pursuant
to Section 2.6 (c) of these bylaws. The Board of Directors may also choose a
President, one or more Vice Presidents, one or more Assistant Secretaries, a
Treasurer and one or more Assistant Treasurers. Any number of offices may be
held by the same person.
Each such officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders next succeeding his
election, and until his successor is elected and qualified or until his earlier
resignation or removal.
D-2-7
<PAGE>
Any officer may resign at any time upon written notice to the
corporation.
The Board of Directors may remove any officer with or without cause at
any time, but such removal shall be without prejudice to the contractual rights
of such officer, if any, with the corporation.
Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting of the Board of
Directors.
Section 4.2. Powers and Duties of Executive Officers. The officers of
the corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors or
any employment agreements approved by resolution of the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his or her duties.
ARTICLE V
---------
Stock
-----
Section 5.1. Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the corporation by the Chairman
of the Board or Vice Chairman of the Board, if any, or the Chief Executive
Officer, or the Chief Operating Officer, or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
of the corporation certifying the number of shares owned by such stockholder in
the corporation. Any of or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
D-2-7
ARTICLE VI
----------
Miscellaneous
-------------
Section 6.1. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
D-2-8
<PAGE>
Section 6.2. Seal. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 6.4. Interested Directors; Quorum. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 6.5. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time.
Section 6.6. Amendment of Bylaws. These bylaws may be altered or
repealed, and new bylaws made, by the Board of Directors, but, the stockholders
may make additional bylaws and may alter and repeal any bylaws whether adopted
by them or otherwise.
D-2-9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATION FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE BALANCE
SHEET FOR THE PERIOD THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 6,925,823
<SECURITIES> 0
<RECEIVABLES> 536,234
<ALLOWANCES> (75,000)
<INVENTORY> 0
<CURRENT-ASSETS> 7,525,640
<PP&E> 3,609,395
<DEPRECIATION> (693,304)
<TOTAL-ASSETS> 10,897,510
<CURRENT-LIABILITIES> 540,246
<BONDS> 0
0
0
<COMMON> 435
<OTHER-SE> 10,310,785
<TOTAL-LIABILITY-AND-EQUITY> 10,897,510
<SALES> 752,777
<TOTAL-REVENUES> 1,190,422
<CGS> 295,640
<TOTAL-COSTS> 7,318,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,519
<INCOME-PRETAX> (6,127,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,127,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,127,879)
<EPS-BASIC> (1.48)
<EPS-DILUTED> (1.48)
</TABLE>
