UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SBA
(Amendment No. 2)
ELECTRIC CITY CORP.
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(Exact name of registrant as specified in its charter)
Delaware 36-4197337
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1280 Landmeier Road, Elk Grove Village, Illinois 60007
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (847) 437-1666
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
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(Title of class)
<PAGE>
PART I
Items 1. Description of Business.
Electric City History and Recent Developments
Electric City Corp. is a development stage company that was formed to
acquire and commercialize a proprietary device and proprietary software package
that reduces the amount of electricity required to power various lighting
facilities in commercial buildings, factories, and office structures, as well as
street and parking lot lighting. All share amounts presented herein reflect the
2 for 1 share stock dividend on all outstanding shares of common stock effective
July 30, 1999.
Electric City plans to manufacture and sell its EnergySaver State of
the Art Lighting Control Technology (hereinafter referred to as the
"EnergySaver"), an energy management and savings system which utilizes the
technology, in the U.S. under an exclusive license agreement. Electric City's
activities to date have included raising capital, developing prototypes and
installing test systems at test sites in the U.S. and the limited sale of
systems.
On May 24, 1999, Electric City entered into an agreement to purchase
most of the assets, including inventory, of Marino Electric, Inc which agreement
the parties have treated as closed as of May 24, 1999, subject to the payment of
the balance of the purchase price. Marino Electric was a local designer and
manufacturer of custom electrical switchgear and distribution panels owned by
Joseph C. Marino, a director and principal shareholder of Electric City. The
purchase price of $3,392,000 consists of the issuance of 1,600,000 shares of
Electric City common stock and $1,792,000 in cash to be paid from the proceeds
of Electric City's current private placement described below. Electric City
plans to increase overall revenues by marketing and distributing Marino Electric
products in tandem with the EnergySaver.
Pursuant to the License Agreement dated January 1, 1998 between Giorgio
Reverberi, the owner of the Italian patent on a proprietary device and
proprietary software package underlying the EnergySaver, and Joseph C. Marino, a
director and principal shareholder of Electric City (who sublicensed the rights
to Electric City for use in the U.S.), Electric City must pay Reverberi a
royalty of $300 for each product unit made by or for Electric City and sold by
Electric City.
Electric City was initially formed as a Delaware limited liability
company (Electric City, L.L.C.) on December 5, 1997 to acquire the
above-referenced license and commercialize the application of a patented device
that reduces the amount of electricity required to power various lighting
facilities in commercial buildings, factories, office structures and street and
parking lot lighting.
On February 4, 1998, an Operating Agreement was entered into between
Electric City, L.L.C.'s two members each owning 50%, Joseph C. Marino, who
subsequently assigned his interest to Pino, L.L.C. ("Pino") and NCVC L.L.C.,
which is controlled by Victor Conant, Kevin McEneely, and Nikolas Konstant
through dy/dx Consulting, LLC, a Delaware limited liability company. On June 5,
1998, Electric City, L.L.C. merged with and into Electric City Corp. and Joseph
C. Marino sublicensed his rights under the Reverberi license agreement Electric
City for use in the U.S.
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In June 1998, Electric City issued 1,200,272 shares of its common stock
representing approximately six (6) percent of Electric City's issued and
outstanding common stock, to the approximately 330 shareholders of Pice Products
Corporation, an inactive unaffiliated company with minimal assets, pursuant to
merger agreement under which Pice was merged with and into Electric City. The
purpose of the merger was to substantially increase the number of shareholders
of Electric City to facilitate the establishment of a public trading market for
Electric City common stock. Trading in Electric City common stock commenced on
August 14, 1998 through the OTC Bulletin Board under the trading symbol "ECCC".
During July 1998, Electric City acquired its present corporate
headquarters, manufacturing and warehouse located at 1280 Landmeier Road, Elk
Grove Village, Illinois for the purchase price of $1,140,000 of which $800,000
was borrowed by way of a mortgage) and $340,000 was paid by the issuance of
340,000 shares of its common stock. The mortgage debt bears interest at the rate
of 8.25% per annum and is payable in monthly installments of principal and
interest of $6,876 until August 2003, with a final balloon payment of $710,000
due in August 2003.
On May 24, 1999, Electric City entered into an asset purchase agreement
with Marino Electric, Inc. a corporation wholly owned by Joseph Marino, a
director and principal shareholder of Electric City. The agreement provides for
the acquisition by Electric City of certain of the assets of Marino Electric
except the accounts receivable, including work in progress, inventory, equipment
and all goodwill trade names and trademarks free and clear of any claims, liens
or encumbrances in exchange for $1,792,000 in cash and 1,600,000 shares of
Electric City common stock (at an assigned value of $1.00 per share) for a total
purchase price of $3,392,000. Since that date, Electric City has delivered, as
partial payment of the purchase price, 1,600,000 shares of its restricted common
stock, however, the cash portion of the purchase price is to be paid at the
closing of the minimum of Electric City's current private placement described
herein. Electric City received an appraisal of a controlling interest in Marino
Electric's common stock conducted by The Griffing Group, Inc., a party not
affiliated with the transaction. This appraisal valued the Marino Electric
business as a going concern at approximately $3.2 million. However, the final
purchase price includes adjustments to the appraisal amount to reflect the
synergistic value of Marino Electric to Electric City and the expected strategic
benefits to be derived from the combination over and above Marino Electric's
stand-alone value. The parties are presently treating the transaction as having
been closed effective May 24, 1999, subject to the payment of the balance of the
purchase price, and therefore, Electric City has accrued a current liability on
its books for $1,792,000. The agreement also provides cross-indemnification
against losses suffered as a result of breaches of the representations and
warranties of the parties contained in the agreement.
Through June 30, 1999, Electric City had sold approximately 50
EnergySaver systems to commercial clients within the United States including
Frito Lay, AAR Corporation, Tru Vue, a subsidiary of APOGEE ENTR and Chicago
area automobile dealerships. These sales resulted in gross revenues of
approximately $300,000. In addition, demonstration EnergySaver units have been
installed for test periods in some City of Chicago buildings, including at
O'Hare International Airport and several public libraries. Other test sites
include Burger King restaurants and a Walgreen's distribution center in
Wisconsin, a test conducted by Alliant Utilities.
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Electric City's activities to date have included raising capital,
establishing a sales distribution network, selling the EnergySaver product and
preparing to assemble the EnergySaver product at Electric City's principal
facilities located at 1280 Landmeier Road, Elk Grove Village, Illinois.
Business of Marino Electric
Marino Electric is a local designer and manufacturer of custom
electrical switching gear and distribution panels which serve to distribute
electricity from a building's principal power source to the various electric
switches within a building. Marino Electric's products can be found in many
buildings in the Chicago area, including the United Center, Navy Pier and
McCormick Place.
Marino Electric's principal customers are electrical contractors for
commercial building projects. Most Marino Electric contracts involve the custom
manufacturing of electrical switching gear and distribution panels for such
projects. In addition, Marino Electric fabricates cases (electrical boxes) and
assembles circuit breakers, bus bars and switches. Marino Electric's principal
parts suppliers are Siemens and Cutler Hammer.
Since Electric City's EnergySaver is attached to a building's electric
distribution panel, Electric City plans to increase overall revenues for the
combined entity by marketing and distributing Marino Electric products in tandem
with the EnergySaver, which can be incorporated directly into the distribution
panel for new construction projects. The acquisition is also expected to
generally result in national exposure for Marino Electric's business.
Product - The EnergySaver
The EnergySaver is a computer controlled voltage regulation system that
consists of control panels containing electrical parts in a free standing
enclosure which is connected between the power line and the building's
electrical lighting circuits. The EnergySaver controls the electric load by
regulating linear voltage according to user specified inputs. The EnergySaver
has an on-board computer with intelligent software that provides constant
control and self-diagnosis and that can be easily accessed directly or remotely
via modem or two-way radio. The EnergySaver is a scalable product that can be
placed in series depending on a client's specific load requirements and custom
fixtures are also available. The EnergySaver is Year 2000 compliant with a life
expectancy of ten years.
The Company believes the benefits derived from the EnergySaver are
substantial. These benefits include reducing the amount of energy required to
power lighting systems by up to 50%, while significantly increasing the
operating life of lighting bulbs and ballasts which supplies power to bulbs
within the fixture. The EnergySaver interfaces with new and/or existing lighting
panels, ballasts, and lamps without modifications. The EnergySaver provides
output voltage stability, eliminating spikes and surges while providing
protection from lightening strikes, electrical shocks and power interruptions.
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Planned future enhancements to the EnergySaver include size reduction
for smaller buildings under 5,000 square feet (e.g., single family homes) and
continual product re-design to improve efficiency and manufacturability.
The European counterpart to the EnergySaver which uses the same
proprietary licensed technology has approximately 5,000 European installations
currently in use. This product has been sold in Europe for over 15 years where
it has principally been used by governmental agencies for outdoor street
lighting.
The Market Opportunity
The deregulation of the electric industry represents a unique
opportunity for Electric City and the EnergySaver. According to Forbes Magazine,
the electric power industry is $215 billion in the U.S. alone. The industry is
in the process of a rapid deregulation, and companies, governments and
individuals may soon be able to buy power from any supplier. New power
generation and transmission companies will emerge. Large power suppliers like
Enron, Duke Energy and Unicom, are actively seeking power saving technologies
that will give them a competitive advantage in securing customers. Power
customers are now seeking new ways to reduce their energy consumption costs,
which in the past were fixed.
Increased environmental sensitivity due to the issue of climate change
may result in consumer desire to lower energy use even in the presence of
falling energy costs, encouraging the use of the EnergySaver. In October 1998,
Coop America, an environmental consumer group, reported that one in four adults
in the U.S. is starting to incorporate environmental and social values into
purchasing and investing decisions. "Green" purchases may be on the rise. An
October 1998 report by the World Watch Institute stated that not only is the
earth's temperature rising, but that it may be rising at increasing rates. As it
becomes widely recognized that the climate change is worsening, there may be
increased efforts on the part of governments, industry and individuals worldwide
to decrease greenhouse gas emissions that will have a positive effect on the
energy conservation industry.
As a result of increased environmental sensitivity, Congress passed the
Energy Policy Act of 1992 which requires all states to adopt the American
Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE
Standard 90.1-1989), or better for their state energy codes. ASHRAE 90.1-1989
sets prescriptive unit lighting power allowances (ULPA) of 0.4 watts per square
foot for warehouses 250,000 square feet and over and 3.30 watts per square foot
for retail facilities less than 2,000 square feet. Using a mid-range ULPA of
1.65 (corresponding to office buildings of 25,000 to 50,000 square feet) to
estimate total connected lighting load for all commercial buildings equates to a
total market size of approximately 93,225,000 kilowatts. This would justify a
total possible market of about 3 million 100-amp EnergySaver units. The Company
believes this estimate is probably conservative as older building may have
several times the connected lighting loads now specified by ASHRAE 90.1-1989.
The EnergySaver will help companies that are not in compliance achieve
compliance by reducing energy consumption to acceptable levels.
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The target market for Electric City's EnergySaver is any freestanding
building, commercial or industrial, over 5,000 square feet and any large-scale
outdoor lighting system (e.g. street and parking lot lighting) located in the
U.S. The Company believes the potential U.S. market for EnergySaver sales is
over $26 billion. According to the Commercial Buildings Energy Consumption and
Expenditures 1995, the most recent U.S. Department of Energy, Energy Information
Administration survey of energy use in commercial buildings, in 1995 there were
4.6 (+/-0.4) million commercial buildings in the U.S., and these buildings
comprised approximately 56.5 billion square feet, (i.e., 58.8 (+/-3.9) billion
square feet of total floor space). Just in this market alone the potential for
EnergySaver sales in $13 billion.
Sales and Distribution
Electric City is in the process of establishing a comprehensive
national sales and distribution network, along with strategic alliances with
utility companies and energy management organizations.
Electric City is in the process of contracting with established
regional distributors ("Regional Distributors") to carry and market the
EnergySaver. Electric City has established relationships and works with
distributors in 19 states and is currently negotiating contracts in New York
City and Southern California. Electric City anticipates that by the end of 1999
it will have established distribution networks covering most of the U.S.
Regional Distributors sign ten (10) year agreements for product distribution.
The agreements have first year guaranteed sales, guaranteed through letters of
credit. Years two through ten have sales quotas that increase throughout the
term. Regional Distributors secure dealers to assist in their marketing and
sales efforts. Both Regional Distributors and other dealers make their profit
via product markup.
In addition, Electric City distributors plan to distribute the
EnergySaver in tandem with the electric distribution panels manufactured by
Marino Electric.
Electric City plans to establish a direct sales force to target large
national or multinational companies. These sales people will focus their efforts
on the energy engineering staffs of these companies, which can analyze and
recommend the purchase of a device such as the EnergySaver for their multiple
sites.
Finally, Joseph Marino is working to establish alliances and
partnerships with utility companies to potentially buy and sell power and to
include the EnergySaver in their energy efficient programs, energy management
organizations, and governmental agencies, such as the United States Department
of Energy.
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Marketing
Electric City has retained Burson-Marsteller, a high end, full service
public relations firm to assist in the marketing efforts for the EnergySaver.
They have developed a media campaign to introduce the Company to Chicago media,
including print and television outlets. The retainer is for a period of six (6)
months, commencing in March of 1999. It is the intention of the Company to
continue this relationship.
Licenses and Trademarks
Pursuant to the License Agreement dated January 1, 1998 between Giorgio
Reverberi, the owner of the foreign patent for the technology underlying the
EnergySaver, and Joseph C. Marino, Chairman and CEO of Electric City (who has
sublicensed the U.S. rights to Electric City), Electric City is to pay Reverberi
a royalty of $300 for each product unit made by or for Electric City and sold by
Electric City. The term of the Reverberi license agreement, which is
transferable by Mr. Marino so long as he retains an interest in the transferee,
is until December 31, 2007, with automatic renewal available until December 31,
2017, unless written termination is provided by either party of the License
Agreement no less than 90 days prior to the automatic renewal date. The license
applicable to Electric City also provides an exclusive license to manufacture,
have made, import, use and sell in the United States any product or method
covered by one or more claims of the Reverberi's patents. The license granted to
Electric City may be transferred or assigned to a corporation or other legal
entity so long as Electric City retains any ownership interest in such legal
entity.
In April 1999 Electric City filed applications with the U.S. Patent and
Trademark Office to federally register its marks "EnergySaver State of the Art
Lighting Control Technology" "EnergyMiser" and its corporate name. As of the
date of this registration statement, the U.S. Patent and Trademark Office had
not determined whether the marks and name could be federally registered and the
Company cannot guarantee that registration certificates will be issued. Electric
City currently relies solely on common law trademark protection. Under common
law, Electric City generally has priority over subsequent users of confusingly
similar marks in the same geographical areas, but does not have priority over a
prior user of a similar mark. If prior use is established, Electric City may not
be able to use its mark in the geographical area of the prior use. While
Electric City's marks are important to Electric City, unavailability of its
marks in any particular geographical area may not necessarily have a material
adverse effect on Electric City. However, such unavailability may preclude
utilization of competitive advantages that come with nationwide or regional
marketing and advertising.
Patents
Electric City's business, apart from that of Marino Electric, is
substantially dependent on the licensed proprietary electric load reduction
technology underlying the EnergySaver. This technology has been patented by
Giorgio Reverberi under Italian law but not in the U.S. While a U.S. patent
application was filed by Mr. Reverberi in November 1997 and is pending, the
Company cannot guarantee that protection under U.S. patent laws will be granted
or that, if granted, Electric City will be able to enforce such protection in
the event of infringement. In light of technological advances that may be made
in products of this type, Electric City regards the value of the protection
provided by the patent to be of uncertain duration.
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In addition, Electric City is continually striving to make synergistic
enhancements to the EnergySaver technology. Electric City intends to seek patent
protection for such technological enhancements to the extent that they are
separately patentable. However, the proprietary information may become known to
competitors or others may independently develop substantially equivalent or
better products that do not infringe on Electric City's property information
rights.
Competition
Although Electric City is not aware of any direct competitors currently
offering products comparable to the EnergySaver, competitors are expected to
develop or license their own technologies and to begin to offer products that
will compete with EnergySaver. Many of these competitors will have greater
financial, technical, marketing, customer service and other resources available
than Electric City. Electric City anticipates that the principal competitive
factors in this emerging industry will be affordable and flexible technology.
Electric City intends to aggressively market its products and quickly achieve a
significant market share which will help it withstand the entry of future
competitors. (See "Marketing.") However, there can be no assurance that Electric
City will succeed in this endeavor or will be able to achieve and maintain
profitability in the highly-competitive environment for energy management
products and services which is likely to develop.
Marino Electric competes primarily with national suppliers of
electrical switchboards such as Siemens and Cutler Hammer, and several local
electrical manufacturers in Illinois. Competition in Marino Electric's industry
revolves primarily around the price of the product and the time it takes to
complete the project. Marino Electric believes that it can generally complete
custom projects more quickly than the other national competitors.
Manufacturing
The Reverberi license agreement provides that the licensee may
manufacture its own EnergySaver units. Electric City has begun manufacturing the
units at its principal facility in Elk Grove Village, Illinois, with most of the
component parts supplied by multiple U.S. manufacturers. Electric City continues
to engage in contracting with certain suppliers to arrange additional reliable
sources of supply of parts. However, at the present time Electric City is
entirely reliant on Electronica Reverberi S.A., which is controlled by Mr.
Reverberi, to supply the computer processor component of the EnergySaver. The
inability of the Company to obtain components parts from Reverberi at this time
would have a material adverse effect upon the Company, its revenue and its
profitability. The Company has designed and is developing a new software system
that is anticipated to be manufactured locally to overcome this risk. Although
Electric City is currently in discussion with a North American source of supply
for the computer processor component, the Company cannot guarantee that such
efforts will be successful.
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Due to the capabilities and expertise of the personnel obtained from
Marino Electric, Electric City plans eventually to enter into arrangements
whereby mass production of the EnergySaver would be performed by contract
manufacturers and Electric City's facility in Chicago would be used primarily
for custom orders and technological improvements to the EnergySaver.
Company Financing
For information concerning Company financing, see Item 2. Plan of
Operation.
Research and Development
The Company, through the day to day use of EnergySaver and its
components, and their use at various testing sites around the country develops
modifications and improvements to the product. Total research and development
costs charged to operations were $1,923,000.
Employees
As of June 30, 1999 Electric City had 37 employees, including 17 former
employees of Marino Electric. 35 of these employees are employed full-time.
Electrical manufacturing employees from Marino Electric are covered by
collective bargaining agreements. Electric City considers its relations with its
employees to be satisfactory.
Item 2. Plan of Operation
Electric City is a development stage company that was formed to acquire
and commercialize a proprietary device and proprietary software package that
reduces the amount of electricity required to power various lighting facilities.
Electric City's activities, to date, have included raising capital, developing
prototypes, installing test systems at test sites in the U.S. and the limited
sale of its EnergySaver system.
On May 24, 1999, Electric City entered into an agreement to purchase
most of the assets of Marino Electric, which is a designer and manufacturer of
custom electrical switchgear and panels.
From December 5, 1997 through April 30, 1999, Electric City has
borrowed a total of $1 million from related parties to fund its initial
operating expenses. As of July 30, 1999, $500,000 of this amount has been
converted into 500,000 shares of common stock and $200,000 remains outstanding
and payable on demand. In addition, a total of $98,968 in operating expenses has
been paid on behalf of Electric City by principal shareholders. (See "Certain
Relationships and Related Transactions.") This amount has been treated as
additional paid in capital in the Electric City financial statements as of April
30, 1999.
In addition, Electric City has raised a total of $1,365,179 in cash and
received services with a recorded value of $2,715,899 through private placements
of its common stock. Further, Electric City has purchased land and a building
for its principal offices with a recorded value of $1,140,000 through the
issuance of $800,000 in debt and the issuance of common stock. The mortgage debt
bears interest at 8.25% and is payable in monthly principal and interest
installments of $6,876 until August 2003, with a final balloon payment of
$710,000 due in August 2003.
From May 1, 1998 through April 30, 1999, Electric City has used cash of
$1,724,048 in operating activities, primarily attributable to selling, general
and administrative expenses, and used cash of $945,320 in investing activities
to purchase property and equipment.
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The agreement for the purchase of Marino Electric assets provided for
the issuance of 1,600,000 shares of common stock and the payment of $1,792,000
in cash. The tangible assets acquired consist primarily of equipment and
inventory.
In addition to the cash needed to complete the purchase of Marino
Electric assets and implement the planned expansion of Marino Electric from a
local to a national company, Electric City currently estimates that additional
cash may be needed for possible niche acquisitions within the next 12 months of
companies which supply components for the EnergySaver or sell products which are
complementary to the marketing and distribution of the EnergySaver. Electric
City also expects to hire key management personnel such as a chief financial
officer and a chief operating officer within the next twelve months. Only a very
small portion of the cash requirements for these items is expected to be
satisfied through operating revenues.
To satisfy its cash requirements, in July 1999 Electric City obtained a
one-year line of credit for $500,000 from LaSalle Bank N.A. Amounts drawn on
this line of credit bear interest at the prime rate plus 1% and are
collateralized by substantially all of the assets of Electric City. Electric
City has borrowed approximately $200,000 against this line of credit. In
addition, Electric City is currently seeking to raise up to an additional
$9,900,000 through a private placement of up to 2,200,000 shares of its common
stock. The net proceeds of this offering are to be used for the purchase of the
assets of Marino Electric, to purchase inventory, to repay indebtedness to
principal shareholders and for general working capital purposes.
Although Electric City cannot determine at this time how much cash will
be raised in the next 12 months from financing activities, management believes
it will be able to raise the additional cash to complete the acquisition of
Marino Electric's assets and continue its operations for the next 12 months.
Electric City anticipates additional private placements or public offerings of
debt or equity securities. Failure of Electric City to raise needed cash would
likely have a material adverse effect on Electric City's ability to rapidly
establish a significant market share in the emerging electricity load reduction
industry which could be critical to the ability of Electric City to compete in
the long-term.
Year 2000 Readiness Disclosure
Computer programs or other embedded technology that have been written
using two digits (rather than four) to define the applicable year and that have
time-sensitive logic may recognize a date using "00" as the Year 1900 rather
than the Year 2000, which could result in widespread miscalculations or system
failures. Both information technology systems and non-information technology
systems using embedded technology may be affected by the Year 2000. Electric
City's EnergySaver is Year 2000 compliant and Electric City believes that its
other equipment will not be affected by the Year 2000. Electric City does not
utilize any proprietary computer software, but uses a commercially available
accounting software program licensed from Intuit. Electric City has been advised
that the software it uses is Year 2000 compliant.
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Electric City has not completed its assessment of Year 2000 issues, in
particular the process of verification of whether the critical technology
systems of distributors, vendors, suppliers and significant customers with which
Electric City has material relationships are Year 2000 compliant. Under a
worst-case scenario, if Electric City and such third parties are unable to
address potential Year 2000 problems in a timely manner, it could result in
material financial risk to Electric City, including distributor, supplier and
customer delays resulting in delay of revenue and substantial unanticipated
costs. Therefore, Electric City plans to devote all resources necessary to
resolve anticipated Year 2000 problems which it can control in a timely manner.
Electric City does not expect that costs of remediating Year 2000 problems will
be material. Electric City does not currently have a Year 2000 contingency plan.
Electric City is currently not able to determine whether the Year 2000 will have
a material effect on Electric City's financial condition, results of operations
or cash flows.
Item 3. Description of Property.
Electric City's principal executive offices, as well as manufacturing
and warehouse space are contained in a single story building of approximately
16,000 square feet located at 1280 Landmeier Road, Elk Grove Village, IL 60007.
Electric City purchased this property in July 1998 in exchange for $800,000 in
the form of a first mortgage and the issuance of 340,000 shares of Electric City
common stock. The property remains encumbered by first mortgage indebtedness in
the amount of $786,887.17 at June 30, 1999. The location is approximately 60%
manufacturing and 40% office.
Electric City's management believes this facility is satisfactory for
all of its needs for the foreseeable future and that the property is adequately
covered by insurance.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The table below sets forth the beneficial ownership as of July 30, 1999
of shares of Electric City's outstanding common stock, $0.0001 par value per
share, (i) by all persons known to Electric City to be the beneficial owner of
more than 5% of the common stock and (ii) by each member of Electric City's
board of directors, Electric City's Named Executive Officer (as defined in Item
6 below) and by all Directors and the Named Executive Officer as a group.
As of July 30, 1999, there were 26,240,250 shares of common stock
issued and outstanding. On July 8, 1999, the Electric City board of directors
declared a 2 shares-for-1 share stock split of all of the issued and outstanding
shares of common stock as of July 29, 1999.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership % of Class*
- ------------------- -------------------- -----------
<S> <C> <C>
Pino, LLC (1) 11,075,002 42.2%
1280 Landmeier Road
Elk Grove, IL 60006
NCVC L.L.C. (2) 9,124,998 34.8%
7300 N. Lehigh
Niles, IL 60714
</TABLE>
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<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership % of Class*
- ------------------- -------------------- -----------
<S> <C> <C>
Joseph C. Marino (3)(4) 11,433,135 (5) 43.6%
1280 Landmeier Road
Elk Grove, IL 60006
Michael S. Stelter (3) 155,000 (6) 0.6%
1280 Landmeier Road
Elk Grove, IL 60006
Kevin P. McEneely (3) 9,124,998 (7)(8) 34.8%
7300 N. Lehigh
Niles, IL 60714
Victor L. Conant (3) 9,124,998 (7)(9) 34.8%
7300 N. Lehigh
Niles, IL 60714
Nikolas Konstant 9,124,998 (7) 34.8%
7300 N. Lehigh
Niles, IL 60714
All Directors and Named Executive Officer as a group 20,723,133 79.0%
(4 persons)
- -----------------------------
<FN>
* Rule 13d-3(d)(1)(i) under the Securities Exchange Act of 1934, regarding the
determination of beneficial owners of securities, includes as beneficial owners
of securities, among others, any person who directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or shares
voting power and/or investment power with respect to such securities; and, any
person who has the right to acquire beneficial ownership of such security within
sixty days through a means, including, but not limited to, the exercise of any
option, warrant, right or conversion of a security. Any securities not
outstanding that are subject to such options, warrants, rights or conversion
privileges shall be deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person, but
shall not be deemed to be outstanding for the purpose of computing the
percentage of the class by any other person.
(1) Pino, LLC is an entity in which Joseph Marino holds a 70% membership
interest and Michael Stelter holds a 10% membership interest.
(2) NCVC L.L.C. is an entity with which Kevin P. McEneely and Victor L.
Conant, directors of Electric City, and Nikolas Konstant, an affiliate
of Electric City, are affiliated and who may be deemed beneficial
owners of the Electric City common stock held by NCVC L.L.C.
(3) Member of the Board of Directors.
12
<PAGE>
(4) Named Executive Officer.
(5) Consists of all 11,075,002 shares held of record by Pino, LLC, 328,133
shares held directly by Mr. Marino and 40,000 shares held by Mr.
Marino's son.
(6) Consists of 155,000 shares held of record by Mr. Stelter. Since Mr.
Stelter owns only a 10% membership interest in Pino, LLC and thus is
not able to control Pino, no shares held of record by Pino have been
attributed to Mr. Stelter. All shares held of record by Pino have been
attributed to Mr. Marino, who holds a controlling 70% membership
interest in Pino.
(7) Consists of 9,124,998 shares held of record by NCVC L.L.C. which is
controlled by Messrs. Conant, McEneely and Konstant. Such shares are
deemed to be beneficially owned by each of these individuals.
(8) Mr. McEneely disclaims beneficial ownership of an aggregate of 448,846
shares held by Patrick McEneely and Ryan McEneely, his adult children.
(9) Mr. Conant disclaims beneficial ownership of an aggregate of 470,748
shares held in trust for Carson Conant and Chappell Conant, his adult
children.
</FN>
</TABLE>
As of July 30, 1999, Pino, LLC and NCVC L.L.C. each held options to
acquire 2,000,000 shares of Electric City common stock at an exercise price of
$1.10 per share. These options become exercisable on January 2, 2000 and expire
in June 2008. Effective January 4, 1999, Electric City granted to Joseph Marino
an option to acquire up to 900,000 shares at an exercise price of $1.75 per
share. This option becomes exercisable in pro rata installments at the end of
each of the first four years after the date of grant and expires in December 31,
2008.
In January 1999, certain employees were granted options to purchase
304,000 shares of common stock at an exercise price ranging from $1.75 to $3.50.
150,000 options vested upon the signing of the option agreements and 154,000
will vest in fiscal 2000. In addition, as of July 30, 1999 there were
outstanding warrants to purchase 200,000 shares of Electric City common stock at
an exercise price of $2.00 per share. Further, in April 1999 Electric City
entered into a contract with John Prinz & Associates LLC whereby Electric City
may issue up to 340,000 shares of common stock to Prinz upon the completion of
certain services for Electric City. Through July 30, 1999, 80,000 shares had
been issued to Prinz See "Recent Sales of Unregistered Securities."
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officers of Electric City are as follows:
Name Age Positions Held With Company
- --------------------- --- ----------------------------------------
Joseph C. Marino 44 Chief Executive Officer and Chairman of
the Board of Directors and a Director
Kevin P. McEneely 51 Senior Executive Vice President,
Chief Operating Officer,
Secretary and a Director
Michael S. Stelter 42 Vice President of Sales and a Director
Victor L. Conant 52 Director
- ------------------------------
13
<PAGE>
All directors of Electric City are elected annually unless no annual
shareholders' meeting is held, in which event the Directors serve until their
successors have been elected and qualified. There is no limit on the number of
one-year terms which a Director may serve. Officers of Electric City serve at
the discretion of the Board of Directors.
There are no family relationships among directors or executive officers
of Electric City.
Additional information concerning each director and executive officer
of Electric City follows:
Joseph C. Marino is a co-founder of Electric City and has served as
Chief Executive Officer of Electric City since its organization as a limited
liability company in December 1997 and as Chairman of the Board of Directors of
Electric City since its incorporation in June 1998. Mr. Marino also serves as
President of Marino Electric, a position he has held since his founding of
Marino Electric in 1986. Marino Electric is an electrical manufacturing company
which is wholly owned by Mr. Marino.
Kevin P. McEneely is a co-founder of Electric City and has served as
Senior Executive Vice President and Chief Operating Officer of Electric City
since its organization in December 1997, and as a director of Electric City
since its incorporation in June 1998. Mr. McEneely is also an Executive Vice
President of Nightingale-Conant Corporation, a position which he has held since
1985. Nightingale-Conant Corporation is a publisher and marketer of audio and
video self-improvement materials.
Michael S. Stelter is a co-founder of Electric City and has served as
Vice President of Sales since its organization in December 1997 and as a
director of Electric City since its incorporation in June 1998. Mr. Stelter also
serves as Vice President of Marino Electric, a position which he has held since
1987.
Victor L. Conant is a co-founder of Electric City and has served as a
director of Electric City since its incorporation in June 1998. Mr. Conant is
also President and Chief Executive Officer of Nightingale-Conant Corporation, a
position which he has held since 1986.
Promoter and Control Person
Nikolas Konstant is a co-founder of Electric City. Mr. Konstant is also
the Managing Member of DYDX LLC, a private investment company. DYDX is a special
limited partner of the Catterton Simon LLP, a venture capital fund ("CSP III").
14
<PAGE>
Item 6. Executive Compensation.
Summary Compensation Table
The following table summarizes the total compensation awarded or paid
by Electric City to Electric City's Chief Executive Officer for the fiscal year
ended April 30, 1999, Electric City's first completed fiscal year. No other
executive officer of Electric City had a total annual salary and bonus in excess
of $100,000 for fiscal 1999. Accordingly, Electric City's Chief Executive
Officer is the only Named Executive Officer of Electric City under SEC rules.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------- ---------------------------------------------------------
Awards Payouts
------ -------
Name and Principal Fiscal Restricted
Salary ($) Bonus ($) Other Annual Stock LTIP All Other
Position Year ---------- --------- Compensation ($) Award(s) ($) Options (#) Payouts ($) Compensation($)
-------- ---- --------------- ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph C. Marino, 1999 $60,000(1) $0 $0 $0 2,700,000(2) $0 $0
Chief Executive
Officer
- ---------------------------------
<FN>
(1) In connection with Electric City's initial formation as a limited
liability company, Mr. Marino agreed to an initial salary of $60,000
per year until Electric City obtained sales levels in excess of
$1,000,000, at which time his annual salary was to be increased to
$150,000. Effective January 1, 1999, Electric City and Mr. Marino
entered into a 3-year employment agreement which provides for an annual
salary of $225,000.
(2) Effective July 31, 1998, Electric City granted to Pino LLC a 10-year
option to acquire up to 2,000,000 shares of common stock at an exercise
price of $1.10 per share. This option becomes exercisable on January 2,
2000. Mr. Marino owns a 70% membership interest in Pino, LLC. Effective
January 4, 1999, Electric City granted to Joseph Marino an option to
acquire up to 900,000 shares at an exercise price of $1.75 per share.
This option becomes exercisable in pro rata installments at the end of
each of the first four years after the date of grant and expires in
December, 2008.
</FN>
</TABLE>
Compensation of Other Executive Officers and Directors
There are no standard or other compensation arrangements for directors
of Electric City for their services as such, including service on committees or
special assignments, except for the standard reimbursement of expenses for
attendance at board of directors meetings.
Option Exercises and Values
Option/SAR Grants in Last Fiscal Year
-------------------------------------
(Individual Grants)
<TABLE>
<CAPTION>
Percent of total
Number of Securities options/SARS granted
Underlying Options/SARS to employees in Exercise or base
Name granted (#) fiscal year price ($/Sh) Expiration Date
---- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Joseph C. Marino 1,400,000 35% (1) $1.10/Sh 06/25/2008
Joseph C. Marino 900,000 18% (2) $1.75/Sh 12/31/2008
15
<PAGE>
<FN>
(1) Mr. Marino owns a 70% membership interest in Pino, LLC, to which an
option to acquire up to 2,000,000 shares of common stock was issued in
1998. Michael Stelter owns a 10% membership interest in Pino, LLC.
(2) Effective January 4, 1999, Electric City granted to Joseph C. Marino an
option to acquire up to 900,000 shares at an exercise price of $1.75
per share. This option becomes exercisable in prorata installments at
the end of each of the first four years after the date of grant and
expires in December, 2008.
</FN>
</TABLE>
Aggregate Option/SAR Exercise in Last Fiscal Year
And FY-End Option/SAR Values
<TABLE>
<CAPTION>
Value of unexercised
Number of unexercised in-the-money options/SARS
Shares acquired on Value options/SARS at FY-end(#) at FY-end ($)
Name exercise (#) realized ($) exercisable/unexercisable exercisable/unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C>
Joseph C. Marino - - 0/1,400,000 0/$ 2,660,000 (1)
Joseph C. Marino - - 0/900,000 0/$ 1,125,000 (2)
<FN>
(1) Based on the difference between the $1.10 per share exercise price and the
closing bid quotation for Electric City common stock on the OTC Bulletin
Board for April 30, 1999 of $3.00 per share (post split).
(2) Based on the difference between the $1.75 per share exercise price and the
closing bid quotation for Electric City common stock on the OTC Bulletin
Board for April 30, 1999 of $3.00 per share (post split).
</FN>
</TABLE>
Long-Term Incentive Plans
The Company has no long-term incentive plans.
Employment Contracts
Effective January 1, 1999, Electric City and Mr. Marino entered into a
3-year employment agreement which provides for an annual salary of $225,000.
16
<PAGE>
Item 7. Certain Relationships and Related Transactions.
On February 4, 1998, in connection with the organization of Electric
City, Joseph C. Marino and NCVC, L.L.C. entered into an operating agreement,
which was amended on May 26, 1998, which commenced the operation of Electric
City as a limited liability company. Under the operating agreement, NCVC agreed
to loan Electric City $500,000 to meet operating cash needs of Electric City and
to secure a letter of credit with a financial institution for $500,000. In
exchange Joseph C. Marino sublicensed his rights under the Reverberi license
agreement to Electric City. No value was accorded for the sublicense or the
securing of the letter of credit. Of the total of $500,000 transferred to
Electric City, $374,000 was transferred through May 31, 1998, with the remaining
$126,000 loaned to Electric City in July 1998. The letter of credit was retired
by the payment by NCVC of $250,000 to Mr. Marino. Upon completion of this
transaction, each of Mr. Marino and NCVC will have a further obligation to loan
Electric City up to $250,000 on an as-needed basis. As of April 30, 1999,
outstanding debt under this arrangement totaled $500,000. As of July 30, 1999,
outstanding debt under this arrangement totaled $200,000. These loans bear
interest of 9% and are payable on demand. Accrued interest on this debt was
approximately $16,000 at July 30, 1999.
Under the operating agreement, NCVC agreed to loan up to $500,000 to
Electric City to meet its cash needs prior to a private placement offering in
June 1998. The loans, which represented convertible debt, bore no interest, and
were converted to 500,000 shares of Electric City common stock upon completion
of the private placement.
During the period from December 5, 1997 (date of inception) through
April 30, 1999, Electric City paid approximately $165,000 to Marino Electric for
goods purchased and services rendered. Marino Electric is wholly owned by Mr.
Marino. Further, since January 1, 1999 Electric City has allowed Marino Electric
to use portions of Electric City's building without charge.
Effective May 24, 1999, Electric City entered into an agreement to
acquire most of the assets of Marino Electric for a purchase price of $3,392,000
consisting of $1,792,000 in cash and 1,600,000 shares of Electric City common
stock.
Mr. Marino has transferred to Global Energy Ventures, an entity owned
on a 50%-50% basis by Pino, LLC and NCVC L.L.C., his rights under the Reverberi
license agreement to sell EnergySaver in Canada, Mexico, and portions of South
America. Mr. Marino controls Pino, LLC and NCVC L.L.C. is an entity with which
Kevin P. McEneely, Victor L. Conant and Nikolas Konstant are affiliated. Global
Energy Ventures has not commenced operations.
Item 8. Description of Securities.
Electric City Corp. is authorized under its certificate of
incorporation to issue 60,000,000 shares of $.0001 par value common stock and
5,000,000 shares of preferred stock, par value $.01 per share. All of the common
shares are entitled to one vote on any matter brought before the shareholders
including the election of directors. The preferred stock may be issued in series
and the board of directors is specifically vested with the authority to
establish and designate series of preferred and fix rights, preferences,
privileges and restrictions of any series of the preferred stock, including
without limitation, those relating to any dividend rights and terms, conversion
rights, voting rights, redemption rights, liquidation preferences and sinking
fund terms.
17
<PAGE>
Electric City common stock has been subject to the "penny stock" rules
under the Securities Exchange Act of 1934, which cover any equity security that
has a market price less than $5.00 per share, subject to certain exceptions. Any
broker engaging in a transaction in a penny stock is required to provide any
customer with a risk disclosure document, disclosure of market quotations, if
any, disclosure of the compensation of the broker-dealer and its salesperson in
the transaction, and monthly account statements showing the market values of
penny stocks held in the customer's accounts. The bid and offer quotation and
compensation information must be provided prior to effecting the transaction and
must be contained on the customer's confirmation. Certain brokers are less
willing to engage in transactions involving penny stocks as a result of the
additional disclosure requirements described above. If the per share market
price of Electric City common stock falls below $5.00, the penny stock rules may
make it more difficult for holders of Electric City common stock to dispose of
their shares.
PART II
Item 1. Market for Common Equity and Related Stockholder Matters.
Market Information
Electric City common stock has been quoted on the OTC Bulletin Board
under the symbol "ECCC" since August 14, 1998. The following table sets forth
the range of high and low closing per share bid quotations for Electric City
common stock for each fiscal quarter since August 14, 1998. Such prices are
reported by the OTC Bulletin Board inter-dealer quotation system and reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. These amounts are from trading days prior to the
2-for-1 share stock dividend of all outstanding shares of common stock effective
July 30, 1999.
Fiscal Quarter High Low
-------------- ---- ---
Fiscal Year 1999
Quarter Ended 10/31/98(1) $3.438 $.875
Quarter Ended 1/31/99 $2.938 $1.125
Quarter Ended 4/30/99
$3.905 $1.625
Fiscal Year 2000 $14.84 $2.25
Quarter Ended 7/31/99
(1) Since August 14, 1998.
18
<PAGE>
The closing quotation for Electric City common stock on the OTC
Bulletin Board on July 30, 1999 was $8.56 per share. Electric City intends to
apply for the listing of its common stock on the Nasdaq SmallCap Market when as
it meets the requirements for such listing. However, Electric City cannot
provide assurance that its application will be approved. The requirements that
Electric City must meet include the registration of its common stock with the
SEC under the Securities Exchange Act of 1934, a per share market price of
$4.00, $4,000,000 in net tangible assets, 3 registered and active market makers
and 300 round lot (100 shares or more) shareholders.
Electric City has never paid a cash dividend with respect to its common
stock and does not anticipate paying cash dividends on its common stock in the
foreseeable future.
As of June 30, 1999 there were approximately 450 holders of record of
Electric City common stock not including those shares beneficially held in
brokerage accounts.
Item 2. Legal Proceedings.
Neither Electric City nor any of its properties are the subject of any
pending legal proceeding, nor is Electric City aware of any contemplated legal
proceeding involving Electric City or its property.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
Since its inception on December 5, 1997, Electric City has sold
securities in the transactions described below without registering the
securities under the Securities Act of 1933. Except as otherwise indicated, no
underwriter or sales or placement agent was involved in the transactions.
(1) In February 1998, initial membership interests in Electric City
L.L.C. were issued to Joseph Marino and NCVC L.L.C. in exchange for the
sublicense of Mr. Marino's rights under his license agreement with Giorgio
Reverberi to the technology underlying the EnergySaver and an agreement by NCVC
L.L.C. to make capital contributions of up to $500,000 and to cause the issuance
of a $500,000 irrevocable standby letter of credit in favor of Mr. Reverberi.
Such limited liability company membership interests were issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. Mr. Marino subsequently transferred his membership interests to Pino,
LLC. These interests were converted into an aggregate of 20,000,000 shares of
common stock upon the conversion of Electric City to a corporation by the merger
of Electric City L.L.C. into Electric City Corp.
19
<PAGE>
(2) In June 1998, Electric City issued an aggregate of 1,200,272 shares
of common stock valued at $0.00 to the approximately 330 shareholders of Pice
Products Corporation, an inactive company with minimal assets, pursuant to a
merger agreement under which Pice Products was merged with and into Electric
City. Such shares were issued in reliance upon the exemption from registration
provided by Rule 504 of Regulation D promulgated under the Securities Act of
1933.
(3) In June 1998, Electric City concluded a private placement under
which it issued an aggregate of 940,000 shares of common stock to 47 persons in
exchange for an aggregate of $440,000 in cash and the conversion of Electric
City's indebtedness to NCVC L.L.C. in the amount of $500,000. Such shares were
issued in reliance upon the exemption from registration provided by Rule 504 of
Regulation D promulgated under the Securities Act of 1933.
(4) In July 1998, Electric City granted to Pino, LLC and NCVC L.L.C.
10-year options to acquire up to an aggregate of 4,000,000 shares of common
stock at an exercise price of $1.10 per share. These options become exercisable
on January 2, 2000. The options were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
(5) In September 1998, Electric City issued an aggregate of 340,000
shares of common stock to Giovanni and Maria Gullo, Anthony and Rebecca
Petropoulos, and James and Rosanne Spanola pursuant to a Real Estate Sales
Contract dated July 3, 1998, under which Electric City acquired real estate for
its new headquarters. The total purchase price for the property was $1,140,000
of which $800,000 was paid through issuing a mortgage at the closing and the
balance of $340,000 was paid pursuant to the issuance of 340,000 shares of
common stock. Such shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
(6) On January 18, 1999, Electric City entered into a six-month
consulting agreement with 1252996 Ontario Limited (d/b/a The Stockpage) under
which Electric City issued in April 1999 an aggregate of 200,000 shares of
common stock and warrants to purchase 200,000 shares of common stock at an
exercise price of $2.00 per share, in exchange for investor relations services
through the Internet. Under the agreement, Electric City is to commence
registration of the 200,000 shares of issued common stock within six months from
the date of the agreement, if it is legally able to do so. Electric City has not
commenced such registration. The shares of common stock and the warrants were
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act of 1933.
(7) In February and March 1999, Electric City issued 911,978 shares of
common stock in exchange for $938,202. Such shares were issued in reliance upon
the exemption from registration provided by Regulation D and Section 4(2)
promulgated under the Securities Act of 1933.
20
<PAGE>
(8) In April 1999, Electric City issued an aggregate of 996,000 shares
of common stock to TJ Riley and Associates (Tom Riley), Giorgio Reverberi,
Giuseppe Tagliati, The Stockpage and Richard Levy in exchange for consulting
services rendered. Such shares were issued in reliance upon the exception from
registration provided by Rule 4(2) of the Securities Act of 1933.
(9) In April 1999, Electric City entered into a consulting agreement
for an initial six-month period with John Prinz & Associates LLC. Under the
agreement, Prinz was to provide financial and promotional consulting services
for Electric City. The agreement provides that in exchange for such services
Prinz was to receive:
o 50,000 shares of Electric City common stock if
Electric City agrees to work with a market maker for
Electric City common stock introduced by Prinz, and
o up to an additional 120,000 shares of Electric City
common stock and certain other fees upon the
completion of certain other services by Prinz on
behalf of Electric City.
The agreement also provides that all shares of Electric City common
stock issued under the agreement will have piggyback registration rights with
respect to any registration statement filed by Electric City with the SEC.
In May, 1999, Electric City issued 80,000 shares of common stock to
Prinz under this agreement. The shares of Electric City common stock issued
under the agreement were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933. Prinz Capital is
required to perform additional services to receive the additional shares, which
may not be required by the Company.
(10) In May 1999, Electric City issued 1,600,000 shares of common stock
to Joseph Marino in connection with the acquisition of certain assets of Marino
Electric for the purchase price of $3,392,000 consisting of $1,792,000 in cash
and 1,600,000 shares of the Electric City common stock. Such shares were issued
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.
(11) The Company is presently attempting to sell 2.2 million shares of
its common stock on a best efforts basis pursuant to a confidential private
placement memorandum. Such shares will be issued in reliance upon the exemption
from registration provided by Rule 506 0f Regulation D of the Securities Act of
1933.
The facts relied upon to make the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 (the "Act") available for the sale
of securities discussed in paragraphs 6, 7, 8, 9 and 10 were the limited number
of purchasers, the sophistication or accreditation of the purchasers, their
access to material information, the information furnished to them by Electric
City, the absence of any general solicitation or advertising, and restrictions
on transfer of the securities issued to them as indicated by a legend on the
certificates representing such securities.
21
<PAGE>
Item 5. Indemnification of Directors and Officers.
Electric City's certificate of incorporation and bylaws provide that
Electric City may indemnify officers and directors of Electric City or as
permitted by Delaware law. Electric City has not as of the date of this
registration statement purchased directors and officers liability insurance,
however it may do so in the future.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Disclosure Regarding Forward-Looking Statements
This Registration Statement includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements, other than statements of historical facts, included in this
Registration Statement that address activities, events or developments that
Electric City Corp. (the "Company" or "Electric City") expects, believes or
anticipates will or may occur in the future, future capital costs, the size of
various markets, market share, repayment of debt, business strategies, expansion
and growth of the Company's operations, Year 2000 issues and other such matters
are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks and uncertainties,
general economic and business conditions, the business opportunities (or lack
thereof) that may be presented to and pursued by the Company, changes in laws or
regulations and other factors, many of which are beyond the control of the
Company. You are cautioned that any such statements are not guarantees of future
performance and that actual results or developments may differ materially from
those projected in the forward-looking statements.
22
<PAGE>
Item 15. Financial Statements and Exhibits
(a) Index to Financial Statements
Electric City Corp.
- -------------------
F-1 Report of Independent Certified Public Accountants
F-2 - F-3 Balance Sheet as of April 30, 1999
F-4 Statement of Operations for the year ended April 30, 1999
F-5 Statement of Stockholders' Equity for the year ended April
30, 1999
F-6 Statement of Cash Flows for the year ended April 30, 1999
F-8 - F-19 Notes to Financial Statements
Marino Electric Inc.
- --------------------
F-20 Report of Independent Certified Public Accountants
F-21 - F-22 Balance Sheet as of December 31, 1998 and as of April 30,
1999 (Unaudited)
F-23 Statement of Income and Retained Earnings for the year ended
December 31, 1998 and the four months ended April 30, 1998
and 1999 (Unaudited)
F-24 Statement of Cash Flows for the year ended December 31, 1998
and the four months ended April 30, 1998 and 1999
(Unaudited)
F-25 - F-27 Notes to Financial Statements
Pro Forma Information
- ---------------------
F-28 Pro Forma Financial Statements
F-29 Unaudited Pro Forma Balance Sheet as of April 30, 1999
F-30 Unaudited Pro Forma Statement of Operations for the year
ended April 30, 1999
F-31 Notes to Unaudited Pro Forma Financial Statements
PART III
Exhibit Index
Exhibit
Number
- ------
2.1 Agreement and Plan of Merger dated June 5, 1998 between the Company and
Pice Products Corporation
3.1 Certificate of Incorporation
3.2 Bylaws
10.1 Sales, Distribution and Patent License Agreement dated January 1, 1998
between Giorgio Reverberi and Joseph C. Marino
10.2 Sublicense Agreement dated June 24, 1998 between the Company and Joseph
C. Marino
23
<PAGE>
10.3 Employment Agreement dated as of January 1, 1999 between the Company
and Joseph C. Marino
10.4 Real Estate Sales Contract dated July 3, 1998 between the Company and
the Giovanni Gullo and Mario Gullo Family Limited Partnership
10.5 Asset Purchase Agreement dated May 24, 1999 between the Company and
Marino Electric, Inc.
10.6 Distribution Agreement dated September 7, 1999 between the Company and
Electric City of Illinois LLC
27.1 Financial Data Schedule as of April 30, 1999
99.2 Marino Electric Financial Statements
- ------------------------
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, this 13th day of September, 1999.
ELECTRIC CITY CORP.
Date: September 13, 1999 By:/s/Joseph C, Marino
----------------------------
Joseph C. Marino
Chief Executive Officer
24
<PAGE>
TABLE OF CONTENTS
PART I 2
Items 1. Description of Business 2
Electric City History and Recent Developments 2
Business of Marino Electric 4
Product -The EnergySaver 4
The Market Opportunity 5
Sales and Distribution 6
Marketing 7
Licenses and Trademarks 7
Patents 7
Competition 8
Manufacturing 8
Company Financing 9
Employees 9
Item 2. Plan of Operation 9
Year 2000 Readiness Disclosure 10
Item 3. Description of Property 11
Item 4. Security Ownership of Certain Beneficial Owners and Management. 11
Item 5. Directors, Executive Officers, Promoters and Control Persons 13
Promoter and Control Person 14
Item 6. Executive Compensation 15
Summary Compensation Table 15
Compensation of Other Executive Officers and Directors 15
Option Exercises and Values 15
Long-Term Incentive Plans 16
Employment Contracts 16
25
<PAGE>
Item 7. Certain Relationships and Related Transactions 17
Item 8. Description of Securities 17
PART II 18
Item 1. Market for Common Equity and Related Stockholder Matters. 18
Market Information 18
Item 2. Legal Proceedings 19
Item 3. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure 19
Item 4. Recent Sales of Unregistered Securities 19
Item 5. Indemnification of Directors and Officers 21
Disclosure Regarding Forward-Looking Statements 22
Item 15. Financial Statements and Exhibits 23
Financial Statements 23
Index to Financial Statements 23
PART III 23
Exhibit Index 23
SIGNATURES 24
26
<PAGE>
Independent Auditors' Report
Electric City Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of Electric City Corporation (a
development stage company) as of April 30, 1999 and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Electric City Corporation (a
development stage company) at April 30, 1999, and the results of its operations
and cash flows for the year then ended, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Chicago, Illinois
June 16, 1999
F-1
<PAGE>
Electric City Corporation
(A Development Stage Company)
Balance Sheet
April 30, 1999
- -------------------------------------------------------------------------------
Assets
Current Assets
Cash and equivalents $ 484,162
Accounts receivable 118,272
Inventories (Note 3) 459,882
Prepaid expenses (Note 11(d)) 213,332
- -------------------------------------------------------------------------------
Total Current Assets 1,275,648
- -------------------------------------------------------------------------------
Net Property and Equipment (Notes 4, 8 and 11(e)) 1,254,967
- -------------------------------------------------------------------------------
$ 2,530,615
===============================================================================
See accompanying notes to financial statements
F-2
<PAGE>
Electric City Corporation
(A Development Stage Company)
Balance Sheet
April 30, 1999
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to stockholders (Note 5) $ 500,000
Current portion of long-term debt (Note 8) 18,112
Accounts payable 184,160
Accrued expenses (Note 7) 98,172
- ------------------------------------------------------------------------------
Total Current Liabilities 800,444
- ------------------------------------------------------------------------------
Long-Term Debt, less current portion (Note 8) 770,239
- ------------------------------------------------------------------------------
Commitments (Note 10)
Stockholders' Equity (Notes 6, 11 and 13)
Preferred stock, $.01 par value;
5,000,000 shares authorized -
Common stock, $.0001 par value;
30,000,000 shares authorized,
12,194,125 issued and outstanding 1,219
Additional paid-in capital 4,898,465
Deficit accumulated during the development stage (3,939,752)
- ------------------------------------------------------------------------------
Total Stockholders' Equity 959,932
- ------------------------------------------------------------------------------
$ 2,530,615
==============================================================================
See accompanying notes to financial statements
F-3
<PAGE>
Electric City Corporation
(A Development Stage Company)
Statement of Operations
Year ended April 30, 1999
- -------------------------------------------------------------------------------
Revenue $ 208,473
- -------------------------------------------------------------------------------
Expenses
Cost of sales 135,000
Selling, general and administrative 4,083,028
- -------------------------------------------------------------------------------
Total 4,218,028
- -------------------------------------------------------------------------------
Operating Loss (4,009,555)
- -------------------------------------------------------------------------------
Other Income (Expense)
Interest income 9,054
Interest expense (59,613)
- -------------------------------------------------------------------------------
Total other expense (50,559)
- -------------------------------------------------------------------------------
Net Loss $ (4,060,114)
===============================================================================
Basic and Diluted Loss Per Common Share $ (0.36)
===============================================================================
Weighted Average Common Shares Outstanding 11,178,937
===============================================================================
See accompanying notes to financial statements
F-4
<PAGE>
Electric City Corporation
(A Development Stage Company)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Year ended April 30, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Deficit Total
Accumulated Members'
Additional During the Deficit and
Member Common Paid-in Development Stockholders'
Shares Capital Stock Capital Stage Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expenses paid on behalf
of the L.L.C -- $ 18,679 $ -- $ -- $ -- $ 18,679
Issuance of common stock
for merger into Company 10,000,000 (18,679) 1,000 17,679 -- --
Acquisition of Pice Products
Corporation (Note 11) 600,136 -- 60 (60) -- --
Conversion of convertible debt (Note 11) 250,000 -- 25 499,975 -- 500,000
Issuance of shares for cash (net of
offering costs of $13,023) (Note 11) 675,989 -- 68 1,365,111 -- 1,365,179
Issuance of shares for purchase of
land and building (Note 11) 170,000 -- 17 339,983 -- 340,000
Issuance of shares and warrants
in exchange for services received
(Note 11) 498,000 -- 49 2,715,850 -- 2,715,899
Net loss for the year ended April 30, 1999 -- -- -- -- (4,060,114) (4,060,114)
Net loss of LLC prior to becoming a corporation -- -- -- (120,362) 120,362 --
Expenses paid on behalf of the Company -- -- -- 80,289 -- 80,289
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1999 12,194,125 $ -- $ 1,219 $ 4,898,465 $(3,939,752) $ 959,932
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
Electric City Corporation
(A Development Stage Company)
Statement of Cash Flows
Year ended April 30, 1999
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ (4,060,114)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 30,353
Issuance of shares and warrants in
exchange for services rendered 2,502,567
Expenses paid on behalf of company 98,968
Changes in assets and liabilities
Accounts receivable (118,272)
Inventories (459,882)
Accounts payable 184,160
Accrued liabilities 98,172
- ------------------------------------------------------------------------------
Net cash used in operating activities (1,724,048)
- ------------------------------------------------------------------------------
Cash Flows Used in Investing Activities
Purchase of property and equipment (945,320)
- ------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities
Proceeds from long-term debt 800,000
Payments on long-term debt (11,649)
Proceeds from stock issuance 1,365,179
Proceeds from loan from stockholders 1,000,000
- ------------------------------------------------------------------------------
Net cash provided by financing activities 3,153,530
- ------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 484,162
Cash and Cash Equivalents, at beginning of year -
- ------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of year $ 484,162
==============================================================================
See accompanying notes to financial statements
F-6
<PAGE>
Electric City Corporation
(A Development Stage Company)
Statement of Cash Flows
Year ended April 30, 1999
- -------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Stock issued in exchange for conversion
of loan from stockholders $ 500,000
Stock issued as partial payment
for land and building 340,000
Stock and warrants issued in exchange
for services received 2,715,899
Cash paid for interest 44,000
See accompanying notes to financial statements
F-7
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
1. Organization and Electric City (the "Company") was formed
Nature of Business as a limited liability company (Electric
City, L.L.C.) on December 5, 1997 to acquire
and commercialize application of a patented
technology that reduces the amount of
electricity required to power various
lighting facilities such as commercial
buildings, factories and residential
structures. On February 4, 1998, an Operating
Agreement ("Operating Agreement") was entered
into between Electric City, L.L.C.'s two
members, Joseph C. Marino, who subsequently
assigned his interest to Pino, L.L.C.
("Pino") and NCVC, L.L.C. ("NCVC"), pursuant
to which Electric City, L.L.C. was to
actively market this technology in the United
States. Prior to May 1, 1998, the LLC was
inactive. The Operating Agreement was
subsequently amended on May 26, 1998. On June
5, 1998, Electric City, L.L.C. merged with
Electric City Corporation, a Delaware
corporation. As a result, Electric City
Corporation will distribute, manufacture and
sell an energy management saving system in
the United States under an exclusive license
agreement (Note 8).
The Company's activities to date have
included raising capital, developing
prototypes, installing test systems at test
sites in the United States and the limited
sales of systems.
2. Summary of Significant
Accounting Policies
Cash and Cash The Company considers highly liquid
Equivalents investments with a maturity of three months
or less when purchased to be cash
equivalents.
Inventories Inventories are stated at the lower of FIFO
cost or market.
Property and Property and equipment are stated at cost.
Equipment For financial reporting purposes depreciation
is computed over the estimated useful lives
of the assets by the straight-line method
over the following lives.
Buildings 39 years
Computer equipment 3 years
Furniture 5 years
Shop equipment 7 years
F-8
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
Revenue Recognition Revenue is recognized upon transfer of
ownership. Service revenue is recognized at
the time the related services are provided.
Research and Research and development costs are charged to
Development Costs operations when incurred and are included in
selling, general and administrative expenses.
Total research and development costs charged
to operations were $1,923,000.
Marketing and Marketing and promotional costs incurred by
Promotional Costs the Company are expensed as incurred.
Organizational Costs The Company incurred organizational costs
upon incorporation of both Electric City,
L.L.C. and Electric City Corp. These costs
consisted of legal and filing costs for the
entities and were expensed as incurred, in
accordance with (AICPA) Statement of Position
98-5, "Reporting on the Costs of Start-Up
Activities."
Income Taxes Income taxes are accounted for under the
asset and liability method. Deferred income
taxes are recognized for the tax consequences
in future years of differences between the
tax basis of assets and liabilities and their
financial reporting amounts at each year end
based on enacted tax laws and statutory tax
rates applicable to the periods in which the
differences are expected to affect taxable
earnings. Valuation allowances are
established when necessary to reduce deferred
tax assets to the amount more likely than not
to be realized.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
F-9
<PAGE>
Net Loss Per Share The Company computes loss per share under
Statement of Financial Accounting Standard
No. 128 "Earnings Per Share". The statement
requires presentation of two amounts, basic
and diluted loss per share. Basic loss per
share is computed by dividing loss available
to common stockholders by the weighted
average common shares outstanding. Dilutive
earnings per share would include all common
stock equivalents. The Company has not
included the outstanding options or warrants
as common stock equivalents because the
effect would be antidilutive.
The members' capital was converted into
10,000,000 shares of common stock at the
merger date. The shares have been treated as
if they have been outstanding since inception
for purposes of computing net loss per share.
Recent Accounting In April 1998, the Accounting Standards
Pronouncements Executive Committee issued Statement of
Position ("SOP") 98-5 "Reporting on the Costs
of Start-up Activities." The SOP requires
that all costs of start-up activities should
be expensed as incurred. The SOP is effective
for years beginning after December 15, 1998.
The Company early adopted this SOP.
In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and
Hedging Activities." This standard
establishes accounting and reporting
standards for derivative instruments and for
hedging contracts. This standard is effective
for all fiscal quarters of all fiscal years
beginning after June 15, 2000. When the
Company adopts this statement, it is not
expected to have a material impact on the
Company's financial statements or their
presentation.
3. Inventories Inventories consist of the following:
April 30, 1999
----------------------------------------------
Raw materials $ 117,850
Work in process 75,978
Finished goods 266,054
----------------------------------------------
$ 459,882
==============================================
F-10
<PAGE>
4. Property and Property and equipment at April 30, 1999 are
Equipment summarized as follows:
----------------------------------------------
Land $ 205,000
Building 935,000
Furniture 54,588
Computer equipment 21,608
Autos 69,124
----------------------------------------------
1,285,320
Less accumulated depreciation 30,353
----------------------------------------------
$ 1,254,967
==============================================
5. Operating Agreement On February 4, 1998, Joseph C. Marino
("Controlling Member") and NCVC ("Other
Member") entered into an Operating Agreement
subsequently amended on May 26, 1998,
commencing operations of the development
stage company (Electric City, L.L.C.). Under
the terms and subject to the conditions set
forth in the Operating Agreement, the Other
Member agreed to loan the Company $500,000 to
meet operating cash needs of the Company and
to secure a letter of credit with a financial
institution for $500,000. The Controlling
Member, in exchange, assigned its rights
under a Sales, Distribution and Patent
License Agreement ("License Agreement") (Note
8) to the Company. No value was assigned for
the assignment of the License Agreement or
the securing of the letter of credit. The
letter of credit was retired by the Other
Member's payment of $250,000 to the
Controlling Member, who will obtain and
surrender the letter of credit to the Other
Member and the financial institution. Upon
completion of this transaction, each member
had a further obligation to loan the Company
up to $250,000 each on an as-needed basis. As
of April 30, 1999, loans under this
arrangement totaled $500,000. These loans
bear interest at 9% and are payable on
demand. Accrued interest on this debt is
approximately $16,000 at April 30, 1999.
F-11
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
Additionally, pursuant to the Operating
Agreement, the Other Member was obligated to
bring the Company to the status of a publicly
traded company on the Over-The-Counter
Bulletin Board ("OTC").
The Operating Agreement also requires the
Other Member to indemnify the Controlling
Member in every manner necessary as it
relates to the public registration.
6. Merger Agreement On June 5, 1998, upon the merger of Electric
City, L.L.C. into Electric City Corporation,
the Controlling Member and Other Member
became the controlling stockholder and
significant minority stockholder,
respectively, and their respective
obligations under the Operating Agreement
transferred and continue to be obligations.
7. Accrued Expenses Accrued expenses consist of the following:
---------------------------------------------
Compensation $ 7,042
Interest 15,914
Real estate taxes 11,950
Professional fees 47,730
Other 15,536
---------------------------------------------
$ 98,172
=============================================
F-12
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
8. Long-Term Debt Long-term debt consists of the following at
April 30, 1999.
----------------------------------------------
Mortgage note to CIB Bank,
8.25%, payable in monthly
principal and interest
installments of $6,876
until August 2003. A final
payment of $710,000
is due in August 2003.
Collateralized by the
building and land. $ 788,351
Less current portion 18,112
----------------------------------------------
$ 770,239
==============================================
The aggregate amounts of long-term debt
maturing in each of the next five years are
as follows:
----------------------------------------------
2000 $ 18,112
2001 19,664
2002 21,350
2003 23,178
2004 706,047
----------------------------------------------
$ 788,351
==============================================
9. Income Taxes The composition of income tax expense
(benefit) is as follows:
----------------------------------------------
Current
Federal $ (1,284,000)
State (226,000)
Adjustment to
valuation allowance 1,510,000
----------------------------------------------
Total income tax
expense (benefit) $ -
==============================================
F-13
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
Deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
<S> <C>
Total deferred tax assets, relating principally
to net operating loss carryforwards $ 1,510,000
Deferred tax liabilities -
-----------------------------------------------------------------------------
1,510,000
Less valuation allowance (1,510,000)
-----------------------------------------------------------------------------
Total net deferred tax asset $ -
=============================================================================
</TABLE>
The Company has recorded a valuation
allowance equaling the deferred tax asset due
to the uncertainty of its realization in the
future. At April 30, 1999, the Company has a
U.S. federal net operating loss carryforward
available to offset future taxable income of
approximately $3,860,000 which expires in
fiscal 2019.
The reconciliation of income tax expense
(benefit) to the amount computed by applying
the federal statutory rate is as follows:
----------------------------------------------
Income tax (benefit)
at federal statutory rate $ (1,364,000)
State taxes (193,000)
Tax benefit of loss prior
to conversion from L.L.C.
to "C" corporation 47,000
Increase in valuation allowance 1,510,000
----------------------------------------------
Income tax expense (benefit) $ -
==============================================
F-14
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
10. License and Pursuant to the License Agreement dated
Employment Agreements January 1, 1998 between Giorgio Reverberi
("Reverberi"), the owner of the patent, and
Joseph Marino, Chairman and CEO of Electric
City L.L.C. (who assigned the rights to
Company), the Company agrees to pay Reverberi
a royalty of $300 for each product unit made
by or for the Company and sold by the
Company. The term of the License Agreement is
until December 31, 2007, with automatic
renewal available until December 31, 2017,
unless written termination is provided by
either party of the License Agreement no less
than 90 days prior to the automatic renewal
date. The Company has accrued $7,800 at April
30, 1999.
In January 1999, the Company entered into an
employment agreement with its Chairman and
CEO for a period of four years. The agreement
requires an annual salary of $225,000
beginning in June 1999.
11. Equity Transaction
a) On June 5, 1998, the Company acquired
Pice Products Corporation ("Pice"), a
nonoperating company. In this
transaction, 600,136 common shares of
the Company were issued to the Pice
stockholders in return for all of the
outstanding shares of Pice. The purpose
of this merger was to enable the Company
to position itself for status as a
public corporation.
b) As part of the original Operating
Agreement (Note 4), the Other Member
agreed to loan amounts to the Company up
to $500,000 to meet cash needs prior to
the private placement offering in June
1998. These loans did not bear interest.
In June 1998, based on the estimated
fair market value price of $2 per share,
the outstanding balance of $500,000 was
converted into 250,000 shares of the
Company's common stock.
F-15
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
c) On June 11, 1998, the Company issued
470,000 shares of common stock in
connection with a private offering in
accordance with Regulation D, Section
504 of the Securities Exchange
Commission's 1933 Act (250,000 upon
conversion of loans described above). As
a result of this offering, the Company
generated $440,000 of cash less offering
costs of $13,023 through the sale of
220,000 shares of common stock at the
estimated fair market value price of $2
per share.
In addition, the Company sold 455,989
shares of common stock for a total of
$938,202 in February and March 1999.
These shares were sold at approximately
$2 per share. During this time period,
the fair market value of the stock
(current trading price on the "OTC")
ranged from $5.13 per share to $6.38 per
share.
d) In August 1998, the Company purchased a
building for $800,000 cash which was
satisfied by a first mortgage and
170,000 shares of the Company's common
stock, valued at $2 per share based on
the estimated fair market value of the
common stock.
e) In April 1999, the Company issued
498,000 shares and 100,000 warrants of
common stock in exchange for consulting
services rendered. As the fair market
value of these services was not readily
determinable, these services were valued
based on the fair market value for the
stock issued (current price of the
common stock on the "OTC") which ranged
from $4.18 to $5.61. Approximately
$2,503,000 has been charged to
operations. $213,332 has been classified
as a prepaid expense as this amount
represents payment for services to be
provided in the future.
f) At April 30, 1999, the Company had
outstanding warrants to purchase 100,000
shares of the Company's common stock at
an exercise price of $4 per share. These
warrants expire in February 2002.
F-16
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
12. Stock Options The Company's Chairman and CEO were granted
options as part of an employment agreement to
acquire 450,000 shares of common stock at
$3.50 each. These options vest ratably over
the four-year term of the employment
agreements and expire in December 2008.
In June 1998, both NCVC and Pino were granted
options to purchase 1,000,000 shares of
common stock each at an exercise price of
$2.20 per share. These options will vest in
January 2000 if the Company's closing stock
price exceeds $10 per share on any 20
consecutive trading days. Subsequent to year
end, the Company's closing stock price
exceeded $10 per share for 20 consecutive
trading days. These options expire in June
2008.
In January 1999, certain employees were
granted options to purchase 152,000 shares of
common stock at an exercise price ranging
from $3.50 to $7.00. 75,000 options vested
upon the signing of the agreements and 77,000
will vest in fiscal 2000. These options
expire in periods from December 2008 through
March 2009.
The following table summarizes the options
granted, exercised and outstanding under the
plans:
<TABLE>
<CAPTION>
Weighted
Exercise Price Average
Shares Per Share Exercise Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at May 1, 1998
Granted 2,602,000 $2.20 - $7.00 $2.50
Exercised - - -
------------------------------------------------------------------------------------
Outstanding at April 30, 1999 2,602,000 $2.20 - $7.00 $2.50
------------------------------------------------------------------------------------
Options exercisable at
April 30, 1999 75,000 $3.50 $3.50
====================================================================================
</TABLE>
The Company applies APB No. 25, "Accounting
for Stock Issued to Employees" and related
interpretations in accounting for options.
Under APB Opinion 25, because the exercise
price of the options equals the market price
of the underlying stock on the measurement
date, no compensation expense is recognized.
F-17
<PAGE>
Electric City Corporation
(A Development Stage Company)
Notes to Financial Statements
The weighted-average, grant-date fair value
of stock options granted to employees during
the year, and the weighted-average
significant assumptions used to determine
those fair values, using a modified
Black-Sholes option pricing model, and the
proforma effect on earnings of the fair value
accounting for stock options under Statement
of Financial Accounting Standards No. 123 are
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
<S> <C>
Weighted average fair value per options granted $1.27
Significant assumptions (weighted average)
Risk-free interest rate at grant date 5.21%
Expected stock price volatility 55%
Expected dividend payout -
Expected option life (years) 4.10
Net loss
As reported (4,060,000)
Proforma (7,200,000)
Net loss per share
As reported (.36)
Proforma (.64)
</TABLE>
The following table summarizes information
about stock options outstanding at April 30,
1999
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------
Number Weighted
Outstanding Average Number Weighted
at RemainingWeighted Average Exercisable Average
Exercise April 30, Contractual Exercise at April Exercise
Price 1999 Life Price 30, 1999 Price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2.20 2,000,000 9.16 years 2.20 - N/A
$3.50 600,000 9.75 years 3.50 75,000 3.50
$7.00 2,000 9.92 years 7.00 - N/A
---------------------------------------------------------------------------------
2,602,000 9.30 years 2.50 75,000 3.50
=================================================================================
</TABLE>
F-18
<PAGE>
13. Related Parties During the year ended April 30, 1999, the
Company paid approximately $165,000 to Marino
Electric, Inc. for goods purchased and
services rendered. Marino Electric, Inc. is
owned by an officer and stockholder of the
Company.
14. Financial Instruments The carrying amounts reported in the balance
sheet for cash, accounts receivable, accounts
payable and accrued expenses approximates
fair value because of the short-term nature
of these amounts. The Company's long-term
debt approximates fair value based on
instruments with similar terms.
15. Commitments In April 1999, the Company entered into a
a consulting agreement beginning in May for
an initial six-month period. Under the
agreement, the Company is to receive
financial and promotional consulting
services. The agreement provides for payment
of specified shares of the Company's common
stock if the Company agrees to work with the
market maker introduced to them and
additional shares upon the completion of
certain other services.
The above shares, as well as other shares to
be paid for services, will be valued at the
fair market value of the stock as the
services are performed.
16. Subsequent Event (a) In January 1999, the Company agreed,
(Unaudited) subject to an appraisal to acquire
certain assets of Marino Electric, Inc.,
from Joseph Marino, a related party, for
$1,792,000 in cash and 800,000 shares
($1,600,000) of the Company's common
stock. The closing took place effective
May 24, 1999. As Mr. Marino owns less
than 50% of the common stock of the
Company, the transaction will be
accounted for by purchase accounting.
The purchase price of $3,392,000
exceeded the fair value of the assets
acquired by approximately $2,909,000,
which will be amortized on a
straight-line basis over 10 years.
The summarized unaudited pro forma
results of operations set forth for the
year ended April 30, 1999 assume the
acquisition occurred as of the beginning
of the year.
(Unaudited)
----------------------------------------
Net sales $ 3,179,000
Net loss (4,027,000)
----------------------------------------
Pro forma net loss
per share $ (.34)
========================================
(b) Subsequent to year end, the Company
effected a 2-for-1 stock split. The
share and per share amounts have been
adjusted to reflect this split. Pro
forma basic and diluted loss per common
share would be (.18) after the split.
F-19
<PAGE>
Report of Certified Public Accountants
Marino Electric, Inc.
We have audited the accompanying balance sheet of Marino Electric, Inc. as of
December 31, 1998 and the related statements of operations and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Marino Electric, Inc. at
December 31, 1998, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Chicago, Illinois
August 30, 1999
F-20
<PAGE>
Marino Electric, Inc.
Balance Sheet
<TABLE>
<CAPTION>
December 31, April 30,
1998 1999
- ------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 246,359 $ 444,198
Accounts receivable (net of allowance
for doubtful accounts of
$182,000) (Note 6) 556,251 559,808
Inventories (Note 2) 227,580 291,130
- ------------------------------------------------------------------------------------------
Total Current Assets 1,030,190 1,295,136
- ------------------------------------------------------------------------------------------
Property and Equipment (Note 2)
Shop equipment 160,942 160,942
Transportation and other equipment 154,987 156,517
- ------------------------------------------------------------------------------------------
315,929 317,459
Accumulated depreciation (71,985) (85,599)
- ------------------------------------------------------------------------------------------
Net Property and Equipment 243,944 231,860
- ------------------------------------------------------------------------------------------
$ 1,274,134 $ 1,526,996
==========================================================================================
</TABLE>
F-21
<PAGE>
Marino Electric, Inc.
Balance Sheet
<TABLE>
<CAPTION>
December 31, April 30,
1998 1999
- ------------------------------------------------------------------------------------------
(Unaudited)
Liabilities and Stockholder's Equity
Current Liabilities
<S> <C> <C>
Loan payable to stockholder (Note 3) $ 228,114 $ 228,114
Bank note payable (Note 4) 39,893 34,170
Accounts payable 51,113 139,883
Accrued expenses 178,132 281,688
Deferred tax liability (Note 5) 194,500 149,500
- ------------------------------------------------------------------------------------------
Total Current Liabilities 691,752 833,355
- ------------------------------------------------------------------------------------------
Commitments
Stockholder's Equity
Common stock, $1.00 par value;
10,000 shares authorized, 1,000
issued and outstanding 1,000 1,000
Additional paid-in capital 61,500 61,500
Retained earnings 519,882 631,141
- ------------------------------------------------------------------------------------------
Total Stockholder's Equity 582,382 693,641
- ------------------------------------------------------------------------------------------
$ 1,274,134 $ 1,526,996
==========================================================================================
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
Marino Electric, Inc.
Statement of Operations and Retained Earnings
<TABLE>
<CAPTION>
Four months ended
- -----------------------------------------------------------------------------------------------------------------------
Year ended
December 31, April 30, April 30,
1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue (Note 6) $ 3,017,087 $ 823,796 $ 705,391
- -----------------------------------------------------------------------------------------------------------------------
Expenses
Cost of sales 1,689,905 366,549 540,961
Selling, general and administrative 1,234,826 289,195 322,267
- -----------------------------------------------------------------------------------------------------------------------
Total 2,924,731 655,744 863,228
- -----------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 92,356 168,052 (157,837)
- -----------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 11,539 1,569 2,926
Interest expense (16,711) (3,362) (8,112)
- -----------------------------------------------------------------------------------------------------------------------
Total other expense (5,172) (1,793) (5,186)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) 87,184 166,259 (163,023)
Taxes (Benefit) on Income (Note 5) 22,000 55,000 (46,850)
- -----------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 65,184 111,259 (116,173)
Retained Earnings, at beginning of period 454,698 519,882 454,698
- -----------------------------------------------------------------------------------------------------------------------
Retained Earnings, at end of period $ 519,882 $ 631,141 $ 338,525
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
Marino Electric, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
Four months ended
- --------------------------------------------------------------------------------------------------------------------------
Year ended
December 31, April 30, April 30,
1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities
<S> <C> <C> <C>
Net income (loss) $ 65,184 $ 111,259 $ (116,173)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation 40,841 13,614 10,380
Decrease in deferred tax liability (95,000) (45,000) (48,850)
Change in allowance for doubtful accounts 154,000 - -
Changes in assets and liabilities
Accounts receivable 73,902 (3,557) 163,742
Inventories (147,580) (63,550) -
Accounts payable (66,096) 88,770 12,486
Accrued liabilities 144,785 103,556 12,383
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 170,036 205,092 33,968
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flows Used in Investing Activities
Purchase of property and equipment (48,487) (1,530) -
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flows Used in Financing Activities
Repayment of bank debt (22,653) (5,723) (4,000)
Payment on stockholder loan (100,000) - -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (122,653) (5,723) (4,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,104) 197,839 29,968
Cash and Cash Equivalents, at beginning of period 247,463 246,359 247,463
- ----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period $ 246,359 $ 444,198 $ 277,431
============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
Marino Electric, Inc.
Notes to Financial Statements (Information as of
April 30, 1999 and for the four months ended
April 30, 1999 and 1998 is unaudited)
1. Nature of Business Marino Electric, Inc. ("Marino") is a
designer and manufacturer of custom
electrical switching gear and distribution
panels which serve to distribute electricity
from a building's principal power source to
the various electric switches within a
building. Marino's principal customers are
located in the metropolitan Chicagoland area.
2. Summary of Significant
Accounting Policies
Cash and Cash Equivalents The Company considers highly liquid
investments with a maturity of three months
or less when purchased to be cash
equivalents.
Inventories Inventories, principally raw material
components, are stated at the lower of
average cost or market.
Property and Equipment Property and equipment are stated at cost.
For financial reporting purposes,
depreciation is computed over the estimated
useful lives of the assets by the
straight-line method over the following
lives:
Shop equipment 10 years
Transportation equipment 5 years
Other 10 years
Revenue Recognition Revenue is recognized upon transfer of
ownership. Service revenue is recognized at
the time the related services are provided.
Income Taxes The Company follows the asset and liability
method which requires the recognition of
deferred tax assets and liabilities for the
expected future tax consequences of temporary
differences between the tax basis and
financial reporting basis of assets and
liabilities.
F-25
<PAGE>
Marino Electric, Inc.
Notes to Financial Statements (Information as of
April 30, 1999 and for the four months ended
April 30, 1999 and 1998 is unaudited)
Concentration of Financial instruments that potentially
Credit Risk subject the Company to significant
concentration of credit risk consist
principally of cash instruments and accounts
receivable. The Company maintains cash and
cash equivalents with various financial
institutions. The Company provides credit in
the normal course of business. The Company
performs ongoing credit evaluations of its
customers and maintains allowances for
potential credit losses.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
Interim Financial The financial information as of April 30,
Statements 1999 and with respect to the four months
ended April 30, 1999 and 1998 is unaudited.
In the opinion of management, the financial
statements contain all adjustments consisting
of normal recurring accruals necessary for
the fair presentation of the results for such
periods. The information is not necessarily
indicative of the results of operations to be
expected for the fiscal year end.
3. Loans Payable to The balance represents amounts due the sole
Stockholder stockholder of the Company. The amounts are
noninterest bearing and payable on demand.
4. Bank Note Payable The Company has an equipment loan, payable in
monthly installments of $3,028 including
interest through August 1999, with a balloon
payment of approximately $20,000 in September
1999. Interest is computed at the Bank's
prime rate plus 1% (8.75% at December 31,
1998).
F-26
<PAGE>
Marino Electric, Inc.
Notes to Financial Statements (Information as of
April 30, 1999 and for the four months ended
April 30, 1999 and 1998 is unaudited)
5. Income Taxes Income taxes (benefit) in the statement of
income are comprised of the following:
<TABLE>
<CAPTION>
Four months ended
---------------------------------------------------------------------------------
Year ended
December 31, April 30, April 30,
1998 1999 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 117,000 $ 100,000 $ 2,000
Deferred (95,000) (45,000) (48,650)
---------------------------------------------------------------------------------
Total taxes (benefit)
on income $ 22,000 $ 55,000 $ (46,650)
---------------------------------------------------------------------------------
</TABLE>
The deferred tax liability recorded on the
balance sheet is comprised of the following:
<TABLE>
<CAPTION>
Four months
Year ended ended
December 31, April 30,
1998 1999
---------------------------------------------------------------------------------
<S> <C> <C>
Differences in cash/accrual
method of accounting $ 194,500 $ 149,500
---------------------------------------------------------------------------------
Total $ 194,500 $ 149,500
---------------------------------------------------------------------------------
</TABLE>
6. Significant Customer One customer accounted for 11.0% of sales in
the year ended December 31, 1998. Receivables
from this customer represented 19.0% of total
receivables at December 31, 1998.
7. Related Party During the year ended December 31, 1998, the
Transactions Company sold approximately $219,500 of goods
sold to Electric City Corp. The sole
stockholder of the Company is a significant
stockholder of Electric City Corp.
8. Sale of Assets In January 1999, the Company agreed, subject
to an appraisal, to sell certain assets to
Electric City Corp., a related entity, for
$1,792,000 in cash and 800,000 shares of
stock. The closing took place effective May
24, 1999.
F-27
<PAGE>
Electric City Corp.
Proforma Financial Statements
The following unaudited proforma balance sheet as of April 30, 1999 and
statement of operations for the year ended April 30, 1999 of Electric City Corp.
(the "Company") gives effect to the acquisition of certain assets of Marino
Electric, Inc. which was made as of May 24, 1999. The acquisition was accounted
for using the purchase method of accounting. Accordingly, the results of
operations of the acquired assets will be included in Electric City Corp.'s
results only from the acquisition date. The unaudited proforma balance sheet has
been prepared as if the acquisition occurred on April 30, 1999 and the unaudited
proforma statement of operations has been prepared as if the acquisition
occurred on May 1, 1998 and are based on historical financial statements of
Electric City Corp. and Marino Electric, Inc. from May 1, 1998 through April 30,
1999.
The purchase method of accounting has been used in preparation of the unaudited
proforma financial statements. Under this method of accounting, the aggregate
purchase price is allocated to assets acquired based on their estimated fair
values. For purposes of the unaudited proforma financial statements, the
purchase price has been allocated based primarily on the information furnished
by management. The final allocation of the purchase price of the assets acquired
will be determined in a reasonable time after consummation of the transaction
and will be based on a complete evaluation of the assets acquired. Accordingly,
the information presented herein may differ from the final purchase price
allocation; however, such allocation is not expected to differ materially from
the preliminary amounts.
In the opinion of the Company's management, all adjustments have been made that
are necessary to present fairly the proforma data.
The unaudited proforma financial statements should be read in conjunction with
the respective financial statements and related notes included elsewhere in this
registration statement. The unaudited pro forma financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the results of operations or financial position that would have been achieved
had the transaction reflected therein been consummated as of the date indicated,
or of the results of operations or financial position for any future periods or
dates.
F-28
<PAGE>
Electric City Corp.
Unaudited Proforma Balance Sheet
April 30, 1999
<TABLE>
<CAPTION>
Company Acquisition of
Historical Certain Assets
April 30, of Marino Company
1999 Electric, Inc. Proforma
- ---------------------------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C> <C>
Cash and equivalents $ 484,162 $ - $ 484,162
Accounts receivable, net 118,272 - 118,272
Inventories 459,882 292,000(1) 751,882
Prepaid expenses 213,332 - 213,332
- ---------------------------------------------------------------------------------------------------------------
Total Current Assets 1,275,648 292,000 1,567,648
- ---------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 1,254,967 191,000(1) 1,445,967
Intangible Asset - 2,909,000(1) 2,909,000
- ---------------------------------------------------------------------------------------------------------------
Total Assets $ 2,530,615 $ 3,392,000 $ 5,922,615
===============================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Due to seller $ - $ 1,792,000(1) $ 1,792,000
Notes payable to stockholders 500,000 - 500,000
Current portion of debt 18,112 - 18,112
Accounts payable 184,160 - 184,160
Accrued expenses 98,172 - 98,172
- ---------------------------------------------------------------------------------------------------------------
Total Current Liabilities 800,444 1,792,000 2,592,444
- ---------------------------------------------------------------------------------------------------------------
Long-Term Debt 770,239 - 770,239
- ---------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock 1,219 80(1) 1,299
Additional pain-in capital 4,898,465 1,599,920(1) 6,498,385
Deficit (3,939,752) - (3,939,752)
- ---------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 959,932 1,600,000 2,559,932
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,530,615 $ 3,392,000 $ 5,922,615
===============================================================================================================
</TABLE>
See accompanying note to unaudited proforma financial statements.
F-29
<PAGE>
Electric City Corp.
Unaudited Proforma Statement of Operations
Year Ended April 30, 1999
<TABLE>
<CAPTION>
Company
Historical Proforma
April 30, Marino Increase
1999 Electric, Inc. (Decrease) Proforma
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 208,473 $ 3,135,492 $ (165,000)(1) $ 3,178,965
- -------------------------------------------------------------------------------------------------------------------------
Expenses
Cost of selling 135,000 1,515,493 (73,000)(1) 1,577,493
Selling, general and
administrative 4,083,028 1,201,754 - 5,284,782
Amortization of goodwill - - 290,900(1) 290,900
Interest expense, net 50,559 1,779 - 52,338
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 4,268,587 2,719,026 217,900 7,205,513
Taxes on income - 123,850 (123,850)(1) -
- -------------------------------------------------------------------------------------------------------------------------
Net (Loss) Income $ (4,060,114) $ 292,616 $ (259,050) $ (4,026,548)
=========================================================================================================================
Weighted Average Common
Shares Outstanding 11,178,937 - 800,000(1) 11,978,937
=========================================================================================================================
Basic and Diluted Loss Per
Common Share Outstanding $ (0.36) - - $ (0.34)
========================================================================================================================
</TABLE>
See accompanying note to unaudited proforma financial statements.
F-30
<PAGE>
Electric City Corp.
Note to Unaudited Proforma Financial Statements
Note 1 - Marino Electric, Inc.
Effective May 24, 1999, the Company acquired certain assets of Marino Electric,
Inc. ("Marino") (inventories and shop and transportation equipment). Marino's
principal business is the design and manufacture of custom electric switching
gear and distribution panels which serve to distribute electricity from a
building's principal power source to various switches within the building.
Marino's customers are primarily located in the metropolitan Chicagoland area.
The acquisition was consummated for $1,792,000 in cash and 800,000 shares of
Electric City Corp.'s common stock with a fair value of $1,600,000.
The transaction was recorded under the purchase method of accounting. The total
cost of the acquisition was approximately $3,392,000, which exceeded the fair
value of the assets acquired by approximately $2,909,000. Cost in excess will be
amortized over a 10-year period.
Proforma adjustments related to the acquisition included the following:
o Elimination of $165,000 of sales from Marino to Electric City Corp.
o Amortization of the cost in excess of fair value of net assets acquired of
$290,900 based on a life of 10 years.
o Elimination of tax expense on Marino.
o The cash portion ($1,792,000) of the purchase price has been reflected as
due to seller at April 30, 1999.
F-31
EXHIBIT 2.1
EHIBIT 2.1
THIS AGREEMENT AND PLAN OF MERCER (hereinafter called the "Merger
Agreement") is made effective as of June 5, 1998, by and between Electric City
Corp., a Delaware corporation ("Electric"), and Pice Products Corp., a Delaware
corporation ("Pice"). Electric and Pice are sometimes referred to as the
"Constituent Corporations", with reference to the following facts:
A. The authorized capital stock of Electric consists of thirty million
(30,000,000) shares of $.0001 par value common stock and five million
(5,000,000) shares of preferred stock. The authorized capital stock of Pice
consists of twenty million (20,000,000) shares of common stock, $.001 par value.
B. There are currently 10,000,000 shares of stock of Electric
outstanding.
C. Pice has no subsidiaries, and has a total of 8,180,900 shares of
$.001 par value common stock issued and outstanding, and there are no options or
other rights to acquire any newly issued shares available to any person.
D. The directors of the Constituent Corporations deem it advisable and
to the advantage of such corporations that Pice merge into Electric upon the
terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of merger
encompassed by this Merger Agreement and do hereby agree that Pice shall merge
with and into Electric on the following terms, conditions, and other provisions:
1. TERMS AND CONDITIONS
1.1 Merger. Pice shall be merged with and into Electric (the "Merger"),
and Electric shall be the surviving corporation (the "Surviving Corporation")
effective upon the date when this Merger Agreement or a Certificate of Merger is
filed with the Secretary of State of Delaware (the "Effective Date").
1.2 Succession. On the Effective Date, Electric shall continue its
corporate existence under the laws of the State of Delaware, and the separate
existence and corporate organization of Pice, except insofar as it may be
continued by operation of law, shall be terminated and cease.
1.3 Transfer of Assets and Liabilities. On the Effective Date, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and all
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, of each of the
Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
1
<PAGE>
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their stockholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgments as if the Merger bad not taken place
except as they may be modified with the consent of such creditors and all debts,
liabilities and duties of or upon each of the Constituent Corporations shall
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by it.
1.4 Manner of Accomplishing Merger. The Merger shall be accomplished by
way of the exchange of 100% (8,180,900 shares) of the issued and outstanding
shares of Pice for common stock of Electric, at the ratio of one share of
Electric for each 13.635 shares of Pice outstanding on the Effective Date of the
Merger (1 for 13.635). The transfer agent will automatically be instructed to
issue new certificates of Electric, based on the above ratio, to each of the
shareholders of Pice, at the address listed in the register of Pice
shareholders. No fractional shares will be issued, but each fractional share
will be rounded up to the next share and a certificate for Electric will be
issued to each record bolder of Pice accordingly. The exchange will be
accomplished pursuant to an exemption from registration provided by Regulation
D. Section 504 in each state where said exemption or a registration of the
issuance can be accomplished. In each state where an exemption from registration
is not available pursuant to Rule 504 of Regulation D or some other available
exemption from registration which can be reasonably complied with, Electric
shall issue cash in lieu of the exchanged securities of Pice at $.01 per share
exchanged.
1.5 Rights of Appraisal. This Merger shall be subject to the rights of
appraisal granted to the shareholders of Pice in accordance with the General
Corporation Law of the State of Delaware. Should more than ten percent (10%) of
the shareholders of Pice, regardless of the number of shares owned, seek to
enforce their rights of appraisal, Electric at its sole option may terminate
this Agreement and all parties relieved of any obligation pursuant to this
Agreement. The Board of Directors of Electric and the shareholders of Electric
have already approved the Merger.
1.6 Obligations of Pice Not to Issue its Securities. As of the date of
this Merger Agreement and until the date of closing, Pice shall not issue any
additional shares of its common stock to any person or entity whatsoever,
including as a result of having previously issued any warrants to acquire common
stock, any options to acquire its securities as a result of any employee stock
option plan or otherwise, or pursuant to any employee benefit plan. Pice further
represents that the capitalization, as set forth in paragraph C of the preamble
to this Agreement, is true and accurate in all respects
2
<PAGE>
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Electric in effect on the Effective Date shall continue to be
the Certificate of Incorporation of the Surviving Corporation. The Bylaws of
Electric shall be the Bylaws of the Surviving Corporation, as they may be
amended from time to time.
2.2 Directors. The directors of Electric immediately preceding the
Effective Date shall become the directors of the Surviving Corporation on and
after the Effective Date to serve until the expiration of their terms and until
their successors are elected and qualified.
2.3 Officers. The officers of Electric immediately preceding the
Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS
3.1 Further Assurances. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Pice such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other action as
shall be appropriate or necessary in order to vest or perfect in of to conform
of record or otherwise, in the Surviving Corporation the title to and possession
of all the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Pice and otherwise to carry out the purposes of this
Merger Agreement, and the officers and directors of the Surviving Corporation
are fully authorized in the name and on behalf of Pice or otherwise to take any
and all such action and to execute and deliver any and all such deeds and other
instruments.
3.2 Amendment. At any time before or after approval by the stockholders
of Pice, this Merger Agreement may be amended in any manner (except that, after
the approval of the Merger Agreement by the stockholders of Pice, the principal
terms may not be amended without the further approval of the stockholders of
Pice) as may be determined in the judgment of the respective Board of Directors
of Electric and Pice to be necessary, desirable, or expedient in order to
clarify the intention or the parties hereto or to effect or facilitate the
purpose and intent or this Merger Agreement.
3.3 Conditions to Merger. The obligation of the Constituent
Corporations to effect the transactions contemplated hereby is subject to
satisfaction of the following conditions (any or all of which may be waived by
either of the Constituent Corporations in its sole discretion to the extent
permitted by law):
3
<PAGE>
(a) the Merger shall have been approved by the stockholders of
Pice in accordance with applicable provisions of the General Corporation Law of
the State of Delaware; and
(b) any and all consents, permits, authorizations, approvals,
and orders deemed in the sole discretion of Pice to be material to consummation
of the Merger shall have been obtained; and
(c) the securities issued by Electric shall be issued pursuant
to an exemption from registration pursuant to the Securities Act of 193 3 (as
amended), Regulation D, Section 504, and the shareholders who reside in certain
states which comport with said Regulation D, Section 504, or other tandem
exemptions from registration, may receive unrestricted securities in exchange
for the securities of Pice and
(d) an audit of the books and records of Pice, conducted in
accordance with generally accepted accounting practices, shall have been
delivered to and approved by Electric; and
(e) any other requirements under applicable Delaware law shall
have been satisfied in connection with the Merger.
3.4 Abandonment or Deferral. At any time before the Effective Date,
this Merger Agreement may be terminated and the Merger may be abandoned by the
Board of Directors of either Pice or Electric or both, notwithstanding the
approval of the Merger by the stockholders of Pice or Electric, or the
consummation of the Merger may be deferred for a reasonable period of time if,
in the opinion of the Boards of Directors of Pice and Electric, such action
would be in the best interest of such corporations. In the event of termination
of this Merger Agreement, this Merger Agreement shall become void and of no
effect and there shall be no liability on the part of either Constituent
Corporation or its Board of Directors or stockholders with respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
3.5 Counterparts. In order. to facilitate the filing and recording of
this Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
IN WITNESS WHERE OF, this Merger Agreement, having first been duly
approved by the Board of Directors of Pice and Electric, is hereby executed on
behalf of cash said corporation and attested by their respective officers
thereunto duly authorized.
PICE PRODUCTS CORP.,
a Delaware corporation
By: /s/John B. Longman
--------------------------------------
ATTEST: John B. Longman, Sole Director
______________________________________
______________________________________
Secretary
ELECTRIC CITY CORP.,
a Delaware corporation
By: /s/Joseph C, Marino
--------------------------------------
ATTEST: Joseph C, Marino, Chairman and
Chief Executive Officer
______________________________________
______________________________________
Secretary
5
<PAGE>
CONSENT
OF
DIRECTORS OF
ELECTRIC CITY CORP.
The undersigned, being all of the directors of Electric City Corp. (the
"Company"), hereby consent to the adoption of the following resolutions as the
actions of the Company:
RESOLVED, that the terms and conditions or the Agreement. and
Plan of Merger between the Company and Pice Products Corp.
dated effective as of _________________, 1998, a copy of which
is attached to this Consent, is hereby approved and deemed to
be in the best interests of the Company, and;
FURTHER RESOLVED, that the officers of the Company are hereby
directed to take all action deemed necessary to carry out the
Agreement and Plan of Merger upon receipt of all the requisite
approvals, including but not limited to the appointment of a
transfer agent, preparation of all necessary state and federal
filings to register the shares and/or to obtain exemptions
from registration for such shares and the issuance of the
shares as required by the Agreement and Plan of Merger.
Dated: Effective as of ______________________, 1998.
ELECTRIC CITY CORP.,
a Delaware Corporation
______________________________________
Joseph C. Marino, Director
______________________________________
Director
______________________________________
Director
6
<PAGE>
UNANIMOUS CONSENT
OF
SHAREHOLDERS OF
ELECTRIC CITY CORP.
The undersigned, being all of the shareholders of Electric City Corp.
(the "Company"), hereby consent to the adoption of the following:
1. The Agreement and Plan of Merger between the Company
and Pice Products Corp. dated effective as of June
___, 1998, a copy of which is attached to this
Consent, is hereby approved, confirmed and ratified
in all respects.
Dated: Effective as of June ____, 1998.
ELECTRIC CITY CORP.,
a Delaware Corporation
PINO MANUFACTURING L.L.C.
By: ____________________________
Its: ____________________________
NLCVC L.L.C.
By: ____________________________
Its: ____________________________
7
<PAGE>
NOTICE TO SHAREHOLDERS
OF
PICE PRODUCTS CORPORATION
Delaware General Corporation Law ss.228(d) requires notice to be given
to all non-consenting shareholders of action taken by less then unanimous
consent under ss.228(a). On _________________________, 1998, under Delaware
General Corporation Law ss.228 - Consent of Shareholders in Lieu of a Meeting,
90% of the shareholders of Pice Products Corp. entitled to vote, consented to
the adoption of the Agreement and Plan of Merger between Pice Products Corp. and
Electric City Corp., dated effective as of _________________________, 1998.
Pursuant to ss.262 of the Delaware General Corporation Law, all
non-consenting shareholders are entitled to appraisal of his or her shares in
accordance with the procedures outlined in ss.262, a copy of which is attached.
Sincerely,
Joseph C. Marino
Chairman of Electric City Corp.
8
<PAGE>
CERTIFICATE (ARTICLES) OF MERGER OF
PICE PRODUCTS CORP.
WITH AND INTO
ELECTRIC CITY CORP.
Pice Products Corp. and Electric City Corp. certify that:
1. The name and state of' incorporation of each of the constituent
corporations are:
(a) Pice Products Corp., a Delaware corporation (Acquired
corporation)
(b) Electric City Corp., a Delaware corporation (Acquiring
corporation)
2. An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of' subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The Board of Directors of both constituent corporations unanimously
approved the Agreement and Plan of Merger. The Unanimous Consent of the
shareholders of Electric City Corp. was given on June ___, 1998. The transaction
was approved by Consent of Shareholders of Pice Products Corp., under Delaware
General Corporation Law ss.228, dated June ___, 1998 by shareholders holding
7,362,810 shares, which is 90% of the 8,180,900 shares entitled to vote. Only a
majority of shares were required; therefore, the Agreement and Plan of Merger
was approved by the required vote. Notice of Action Taken was mailed to all Pice
Products Corp.
shareholders pursuant to ss.262(d)(2) of the Delaware General Corporation Law.
4. The name of the surviving corporation is Electric City Corp., a
Delaware corporation.
5. The Certificate of Incorporation dated _____________, 1998, of
Electric City Corp. shall be the Certificate of Incorporation of the surviving
corporation.
6. The complete executed Agreement and Plan of Merger on file at the
principal place of business of Electric City Corp. located at 225 North
Arlington Heights Road, Elk Grove, Illinois 60007.
7. A copy of the Agreement and Plan of Merger will be furnished by
Electric City Corp. on request and without cost, to any shareholder of the
constituent corporations.
8. Electric City Corp. hereby irrevocably appoints the Delaware
Secretary of State as its agent to accept service of process in any suit or
proceeding. A copy of such process shall be mailed by the Secretary of State to
Electric City Corp, located at 225 North Arlington Heights Road, Elk Grove,
Illinois 60007.
9
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IN WITNESS WHEREOF, the corporations have hereunto set their hands and
seals.
Dated this ___ day of June, 1998.
PICE PRODUCTS CORP.
a Delaware corporation
By: _____________________________
John B. Longman, Sole Director
ACKNOWLEDGED:
By: ______________________ [SEAL]
_____________, Secretary
ELECTRIC CITY CORP.
a Delaware Corporation
By: _____________________________
Joseph C. Marino, Chairman and
Chief Executive Officer
ACKNOWLEDGED:
By: ______________________ [SEAL]
_____________, Secretary
10
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ELECTRIC CITY CORP.
1. Corporate Name. The name of the corporation (hereinafter, the
"Corporation") is Electric City Corp.
2. Registered Office and Agent. The address, including street, number,
city and county, of the registered office of the Corporation is the State of
Delaware is 1013 Centre Road, Wilmington, 13305 in the County of New Castle. The
name of the registered agent of the Corporation in the State of Delaware at such
address is Corporation Service Company.
3. Purposes. The nature of the business of the Corporation and the
objects or purposes to be transacted, promoted, conducted or carried on by it
are as follows: To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
4. Authorized Capital Stock. The total number of shares of stock which
the Corporation shall have authority to issue is 35,000,000, consisting of
30,000,000 shares of Common Stock, with a par value of $0.0001 per share, and
5,000,000 shares of Preferred Stock, with a par value of $0.01 per share
(hereinafter, the "Capital Stock").
(a) Preferred Stock. The Preferred Stock may be issued
from time to time in one or more series. The
authority is expressly vested in the Board of
Directors to establish and designate the series and
to fix the rights, preferences, privileges and
restrictions of any series of the Preferred Stock,
including, without limitation, those relating to any
dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation
preferences and sinking fund terms.
(b) Voting Rights. Except as may otherwise be provided by
applicable law, each share of Common Stock shall be
entitled to vote as one class for election of
directors and on all other matters which may be
submitted to a vote of stockholders of the
Corporation.
(c) Dividends. Dividends may be declared from time to
time on the Common Stock at the discretion of the
board of directors of the Corporation and in
accordance with the provisions of the General
Corporation Law of the State of Delaware.
(d) Additional Issuances. At any time and from time to
time while shares of
1
<PAGE>
Common Stock are outstanding, the Corporation may
create one or more series or one or more classes of
capital stock senior to or on a parity with the
shares of Common Stock in payment of dividends or
upon liquidation, dissolution or winding up.
5. Incorporator. The name and mailing address of the incorporator of
the Corporation is Carol L. Helfrich, One IBM Plaza, Suite 3700, Chicago,
Illinois, 60611.
6. Additional Provisions. For the management of the business and for
the conduct of the affairs of the Corporation, and in further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders, the following additional provisions are set forth and made a
part of this Certificate of Incorporation:
(a) The number of directors which shall constitute the
whole board of directors of the Corporation shall be
fixed by, or in the manner provided in, the by laws
of the Corporation, but such number may from time to
time be increased or decreased in such manner as may
be prescribed by the by laws. The election of
directors need not be by ballot.
(b) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the
board of directors of the Corporation is expressly
authorized and empowered:
1. to make, alter, amend and repeal the by laws
of the Corporation, except as otherwise
provided or permitted under the General
Corporation Law of the State of Delaware and
except that any by law which , in accordance
with the provisions of the by laws, may be
altered, amended or repealed only by the
stockholders may not be altered, amended or
repealed by the directors;
2. subject to the applicable provisions of the
by laws then in effect, to determine, from
time to time, whether and to what extent and
at what times and places and under what
conditions and regulations the accounts and
books of the Corporation, or any of them,
shall be open to the inspection of the
stockholders; and no stockholder shall have
any right, except as conferred by the laws
of the State of Delaware, to inspect any
account or book or document of the
Corporation unless and until authorized so
to do by resolution of the board of
directors or the stockholders of the
Corporation;
3. without the assent or vote of the
stockholders of the Corporation, to
authorize and issue obligations of the
Corporation, secured or unsecured, to
include therein such provisions as to redeem
ability, convertibility or otherwise, as the
board of directors, in its sole
2
<PAGE>
discretion, may determine, and to authorize
the mortgaging or pledging, as security
therefor, of any property of the
Corporation, real or personal, including
after-acquired property;
4. to determine whether any, and if any, what
part, of the surplus of the Corporation or,
in the event there shall be no such surplus,
of the net profits of the Corporation for
the tem current fiscal year or the then
immediately preceding fiscal year shall be
declared in dividends and paid to the
stockholders, and to direct and determine
the use and disposition of any such surplus
or such net profits;
5. to fix from time to time the amount of
profits of the Corporation to be reserved as
working capital or for any other lawful
purpose; and
6. to establish bonus, profit-sharing or other
types of incentive or compensation plans for
employees (including officers and directors)
of the Corporation and to fix the amount of
profits to be distributed or shared and to
determine the persons to participate in any
such plans and the amounts of their
respective participation.
In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon it, the board of directors may exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the State
of Delaware and the Certificate of Incorporation and the by laws of the
Corporation.
(c) Any director or any officer elected or appointed by
the stockholders or by the board of directors may be
removed at any time in such manner as shall be
provided in the by laws of the Corporation.
(d) Subject to any limitations in the by laws of the
Corporation, the members of the board of directors
shall be entitled to reasonable fees, salaries or
other compensation for their services and to
reimbursement for their expenses as such members.
Nothing contained herein shall preclude any director
from serving the Corporation or any subsidiary or
affiliated corporation, in any other capacity and
receiving proper compensation therefor.
(e) If the by laws of the Corporation so provide, the
stockholders and board of directors of the
Corporation shall have power to hold their meetings,
to have an office or offices and to keep the books of
the Corporation, subject to the provisions of the
laws of the State of Delaware at such place or places
as may from time to time be designated by the board
of directors.
3
<PAGE>
(f) Whenever a compromise or arrangement is
proposed between the Corporation and its
creditors or any class of them and/or
between the Corporation and its stockholders
or any class of them, any court of equitable
jurisdiction within the State of Delaware
may, on the application in a summary way of
the Corporation or of any creditor or
stockholder thereof or on the application of
any receiver or receivers appointed for the
Corporation under the provisions of Section
291 of Title S of the Delaware Code or on
the applications of trustees in dissolution
or of any receiver or receivers appointed
for the Corporation under the provisions of
Section 279 of Title s of the Delaware Code,
order a meeting of the creditors or class of
creditors, and/or of the stockholders or
class of stockholders of the Corporation, as
the case may be, to be summoned in such a
manner as the said court directs. If a
majority in number representing
three-fourths in value of the creditors or
class of creditors, and/or of the
stockholders or class of stockholders of the
Corporation, as the case may be, agree to
any compromise or arrangement and to any
reorganization of the Corporation, as
consequence of such compromise or
arrangement, the said compromise or
arrangement and the said reorganization
shall, if sanctioned by the court to which
the said application has been made, be
binding on all the creditors or class of
creditors, and/or on all the stockholders or
class of stockholders, of the Corporation,
as the case may be, and also on the
Corporation.
7. Indemnification and Insurance. The board of directors of the
Corporation may, by resolution adopted from time to time, indemnity such persons
as permitted by the General Corporation Law of the State of Delaware as amended
from time to time. The board of directors of the Corporation may, by resolution
adopted from time to time, purchase and maintain insurance on behalf of such
persons as permitted by the General Corporation Law of the State of Delaware as
amended from time to time.
8. Liability of Directors. No directors of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i)for any
breach of the director's duty of loyalty to the Corporation or its stockholders
(ii) for acts or omissions not in good faith or which involves international
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, as the same exists or hereafter may be
amended, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or modification of this paragraph by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect the Corporation existing at the time of such repeal or
modification. Nothing herein shall limit or otherwise affect the obligation or
right of the Corporation to indemnify its directors pursuant to the provisions
of this Certificate of Incorporation, the by laws of the Corporation or as may
be permitted by the General Corporation Law of the State of Delaware.
4
<PAGE>
9. Amendment. Any of the provisions of this Certificate of
Incorporation may from time to time be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws.
And all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
Section 9.
The undersigned, being the incorporator above named, for the purposes
of forming a corporation under the laws of the State of Delaware, does make,
file and record this certificate and does hereby certify that the facts stated
herein are true; and the undersigned has hereunto accordingly set his hand.
Dated: May 6, 1998
/S/ CAROL L. HELFRICH
-----------------------------
Carol L. Helfrich
EXHIBIT 3.2
BY-LAWS
OF
ELECTRIC CITY CORP.
ARTICLE I
OFFICES
Section 1. Registered Office and Agent. The name of the corporation's
registered agent and the office of its registered office in the State of
Delaware are as follows:
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805
Section 2. Principal Office. The address of the principal office of the
corporation is as follows:
7300 Lehigh Avenue
Niles, Illinois 60714
Section 3. Other Offices. The corporation may also have an office or
officers at such other place or places, within or without the State of Delaware,
as the board at directors may from time to time designate or the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of the stockholders
shall be held at such time and place and on such date in each year, within or
without the State of Delaware, as may be determined by the board of directors
and as shall be designated in the notice of the meeting.
Section 2. Purposes of Annual Meeting. The annual meeting of the
stockholders shall be held for the purpose of electing directors and for the
transaction of such other business as may properly be brought before the
meeting, notice of which shall be given in the notice of the meeting.
<PAGE>
Section 3. Failure to Elect Directors at annual Meeting. If the
election of directors shall not be held on the day designated for any annual
meeting, or at any adjournment thereof the board of directors shall cause the
election to be held at a special meeting of the stockholders as soon thereafter
as convenient. At such meeting, the stockholders may elect directors and
transact other business with the same force and effect as at an annual meeting.
Section 4. Special Meetings. Special meetings of the stockholders shall
be held at such time and place and on such date in each year, within or without
the State of Delaware, as may be determined by the person or persons calling the
meeting and as shall be designated in the notice of the meeting. Special
meetings of the stockholders may be called by the board of directors, the
Chairman of the Board of Directors (sometimes hereafter in these by-laws, the
"Chairman") or the President and shall be called by the Chairman, the President
or the Secretary at the request in writing of stockholders owning at least
one-fifth of the issued and outstanding shares of capital stock of the
corporation entitled to vote. Calls for such meetings shall specify the purposes
thereof and no business other than that specified in the call shall be
considered at any special meeting.
Section 5. Notice of Meetings and Adjourned Meetings. Unless waived as
provided below, and except as provided in Section 230 of the General Corporation
Law of the State of Delaware, not less than tort nor more than sixty days before
any stockholders' meeting, the Chairman, the President, the Secretary or an
Assistant Secretary shall give each stockholder entitled to vote at the meeting
written notice of the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called. Such notice shall be mailed to each
stockholder at his address as it appears on the corporation's records. When a
meeting is adjourned to another time or place, notice need not be given if the
time and place of the adjourned meeting are announced at the meeting at which
the adjournment is taken. If the adjournment is for a period of more than thirty
days, or if, after the adjournment, a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote. Except as otherwise expressly provided by statute, no
publication of any notice of a stockholders' meeting shall be required. Any
stockholder; either before or after any meeting, may waive any notice required
to be given by law or pursuant to these by-laws.
Section 6. Quorum. Except as otherwise provided by law or the
Certificate of Incorporation, the presence, in person or by proxy, of the
holders of record of a majority of the shares of the capital stock of the
corporation then issued and outstanding and entitled to vote at the meeting
shall constitute a quorum for the transaction of business to be considered at
such meeting; provided, however, that no action required by law or by the
Certificate of Incorporation or these by-laws to be authorized as taken by the
holders of a designated proportion of a particular class or series of shares may
be authorized or taken by a lesser proportion and provided, further, that if a
separate class vote is required with respect to any matter, the holders of a
majority of the outstanding shares of such class, present in person or by proxy,
shall constitute a quorum of such class, and, except as otherwise provided by
law or the Certificate of Incorporation, the affirmative vote of a majority of
shares of such class
<PAGE>
so present shall be the act of such class. In the absence of a quorum at any
meeting or any adjournment thereof, a majority of those present, in person or by
proxy and entitled to vote, may adjourn the meeting from time to time. At any
adjourned meeting at which a quorum is present, any business which might have
been transacted at the meeting as originally called, may be transacted.
Section 7. Organization. Meetings of the stockholders shall be presided
over by the Chairman, or if he is not present, by the President, or, if neither
the Chairman nor the President is present, by a chairman to be chosen by a
majority of the stockholders entitled to vote who are present in person or by
proxy at the meeting. The Secretary of the corporation, or in the Secretary's
absence, an Assistant Secretary, shall act as secretary of every meeting of the
stockholders but, if neither the Secretary nor an Assistant Secretary is
present, the meeting shall choose any person present thereat to act as secretary
of the meeting.
Section 8. Voting. Except as otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Sections 4 and 5
of Article VI of these by-laws, at every meeting of the stockholders, each
stockholder of the corporation entitled to vote at the meeting shall have one
vote, in person or by proxy, for each share of stock having voting rights held
by the stockholder. Any stockholder entitled to vote may do so either in person
or by proxy appointed by an instrument in writing, subscribed by such
stockholder or by the stockholder's attorney thereunto authorized and delivered
to the secretary of the meeting; provided, however, that no proxy shall be voted
on after three years from its date unless the proxy provides for a longer
period. Except as otherwise required by law, the Certificate of Incorporation or
these by-laws, all matters coming before any meeting of the stockholders shall
be decided by the vote of a majority in interest of the stockholders present, in
person or by proxy, at the meeting and entitled to vote, a quorum being present.
Unless otherwise provided in the Certificate of Incorporation, voting at all
elections for directors need not be by ballot and shall not be cumulative.
Section 9. Voting of Shares by Certain Holders.
(a) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as
the by-laws of the other corporation may prescribe, or, in the absence
of an appropriate provision, as the board of directors of the other
corporation may determine.
(b) Shares standing in the name of a deceased person may be
voted by the decedent's administrator or executor. Shares standing in
the name of a guardian, conservator or trustee may be voted by such
fiduciary, but no guardian, conservator or trustee shall he entitled,
as such fiduciary, to vote shares held by such fiduciary without a
transfer of such shares into the fiduciary's name.
(c) Shares standing in the name of a receiver may be voted by
the receiver. Shares held by or under the control of a receiver may be
voted by the receiver
<PAGE>
without transfer thereof into the receiver's name if the authority so
to do is contained in an appropriate order of the court by which the
receiver was appointed.
(d) A stockholder whose shares are pledged shall be entitled
to vote the pledged shares unless, in the transfer by the pledgor on
the corporation's books, the pledgor has expressly empowered the
pledgee to vote thereon, in which case only the pledgee may vote
thereon.
(e) Shares of its own capital stock belonging to the
corporation or to another corporation, if a majority of the shares
entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the corporation, shall neither be
entitled to vote nor counted for quorum purposes; provided, however,
that nothing herein shall be construed as limiting the right of the
corporation to vote stock, including but not limited to its own capital
stock held by it in a fiduciary capacity.
(f) If shares are registered in the names of two or more
persons, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written
notice to the contrary and is furnished with a copy of the instrument
or order appointing such persons or creating the relationship so
providing, their acts with respect to voting shall have the following
effect:
(1) if one votes, the voters act binds all;
(2) if more than one vote, the act of the majority so voting
binds all;
(3) if the vote is evenly split, each faction may vote on the
stock proportionately unless otherwise ordered by a court
pursuant to the laws of the State of Delaware.
If an instrument showing that tenancy is held in unequal shares is
filed with the Secretary, a majority or even-split shall be determined
by interest.
Section 10. List of Stockholders. A complete list of the stockholders
entitled to vote at each meeting of the stockholders, arranged in alphabetical
order and the number of shares registered in the name of each stockholder, shall
be prepared by the Secretary or other officer of the corporation having charge
of the stock ledger, at least ten days before the meeting. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city, town or village 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,
and the list shall be produced and kept at the time and place of the meeting
during the whole time thereof for inspection by any stockholder who may be
present.
Section 11. Inspectors. At any meeting of the stockholders, the
chairman of the meeting
<PAGE>
may, or upon the request of any one or more stockholders or proxies holding or
representing not less than ten percent of the outstanding shares shall, appoint
one or more persons as inspectors for such meeting. Such inspectors shall
ascertain and report the number of shares represented at the meeting, based upon
their determination of the validity and effect of proxies; count all votes and
report the results; and do all such other acts as are proper to conduct the
election and voting with impartiality and fairness. Each report of an inspector
shall be in writing and signed by the inspector or by a majority of them if
there be more than one inspector acting at such meeting. If there is more than
one inspector, the report of a majority shall be the report of the inspectors.
The report of the inspector or inspectors on the number of shares represented at
the meeting and the results of the voting shall be prima facie evidence thereof.
Section 12. Informal Action by Stockholders. Except as otherwise
provided by the Certificate of Incorporation, any action required to be taken at
a meeting of the stockholders, or any other action which may be taken at a
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a written consent, setting forth the action so
taker; 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 were present and voted.
Prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
Section 1. Power Number arid Term of Directors. Except as otherwise
provided by law or the Certificate of Incorporation, the property, affairs and
business of the corporation shall be managed by its board of directors, which
shall be comprised of five persons. Subject to Section 3 of Article II above,
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve for one year and until the director's
successor is elected and qualified or until the director's earlier resignation
or removal. The directors shall have power, from time to time and at any time
when the stockholders as such are not assembled in a meeting. to increase or
decrease their own number by an amendment to these by-laws. If the number of
directors is increased, the additional directors may be elected by a majority of
the directors in office at the time of the increase, or if not so elected prior
to the next meeting of the stockholders, the additional directors shall be
elected by the stockholders. Directors need not be stockholders of the
corporation.
Section 2. Quorum. A majority of the members of the board of directors
in office shall constitute a quorum for the transaction of business; provided,
however, a majority of directors then in office shall constitute a quorum for
filling a vacancy on the board. If at any meeting of the board of directors a
quorum shall not be present, a majority of the directors present may, without
further notice, adjourn the meeting from time to time until a quorum shall have
been obtained.
<PAGE>
Section 3. Vacancies. In case one or more vacancies shall occur in the
board of directors by reason of death, resignation or otherwise, except insofar
as otherwise provided in the case of a vacancy or vacancies occurring by reason
of removal by the stockholders, the remaining directors, although less than a
quorum, may by a vote of the majority of the directors then in office elect a
successor or successors for the unexpired term or terms.
Section 4. Meetings. Meetings of the board of directors, annual,
regular and special, shall be held at such place within or without the State of
Delaware as may from time to time be fixed by resolution of the board of
directors or as may be specified in the notice of meeting. Regular meetings of
the board of directors shall be held at such times as may from time to time be
fixed by resolution of the board of directors, and no notice (other than the
resolution) need be given as to any regular meeting. Special meetings may be
held at any time upon the call of the Chairman, the President, any Vice
President or the Secretary, or any two directors, by oral, telegraphic or
written notice duly served on or sent or mailed to each director not less than 2
days before the meeting. An annual meeting of the board of directors shall be
held without notice immediately after, and at the same place as, the annual
meeting of the stockholders. Meetings may be held at any time without notice if
all the directors are present or if; at any time before or after the meeting,
those not present waive notice of the meeting in writing.
Section 5. Attendance by Communications Equipment. Unless otherwise
restricted by the Certificate of Incorporation, members of the board of
directors or of any committee designated by the board may participate in a
meeting of the board or any such committee by means of conference telephone or
similar communications equipment whereby all persons participating in the
meeting can hear each other. Participation in any meeting by such means shall
constitute presence in person at such meeting.
Section 6. Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to the action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward his
written dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. The right to dissent shall not
apply to a director who voted in favor of the action.
Section 7. Committees. The board of directors may, in its discretion,
by the affirmative vote of a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board 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 any member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether he or they constitute a quorum, may
<PAGE>
unanimously appoint another member of the board of directors to act at the
meeting in the place of the absent or disqualified member. Except as otherwise
provided by law or these by-laws, any committee, 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. No committee shall have or exercise the powers and
authority of the board of directors with respect to fining vacancies among the
directors or in any committee of the directors, amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, amending the
by-laws, or; unless the resolution of the board of directors expressly so
provides, declaring a dividend or authorizing the issuance of stock. A majority
of the members of a committee may determine its action and fix the time and
place of its meetings, unless the board of directors shall otherwise provide.
The board of directors shall have the power at any time to fill vacancies in, to
change the membership of; or to discharge any committee.
Section 8. Dividends and Reserves. Subject to the laws of the State of
Delaware and the Certificate of incorporation, the board of directors shall have
full power to determine whether any, and if any, what part of any, funds legally
available for the payment of dividends shall be declared in dividends and paid
to the stockholders. The division of the whole or any part of funds legally
available shall rest wholly within the lawful discretion of the board of
directors, and it shall not be required at any time, against such discretion, to
divide or pay any part of such funds among or to the stockholders as dividends
or otherwise. The board of directors may set apart out of funds legally
available for the payment of dividends a reserve or reserves for any proper
purpose, and may from time to time, in its absolute judgment and discretion,
increase, abolish, diminish and vary any reserve or reserves so set apart.
Section 9. Removal of Directors. At any duly called and held special
meeting of the stockholders, any director or directors may, by the affirmative
vote of the holders of an the shares of stock outstanding and entitled to vote
in an election of directors, be removed from office, either with or without
cause; provided, however, that, if the stockholders of the corporation are
entitled under the provisions of the Certificate of Incorporation to exercise
cumulative voting rights in the election of directors, then no removal shall be
effective if the holders of that proportion of the shares of stock outstanding
arid entitled to vote for an election of directors as could elect to the full
board as then provided by these by-laws the director or directors sought to be
removed shall vote against removal. The successor or successors to any director
or directors so removed may be elected by the stockholders at the meeting at
which removal was effectuated. The remaining directors may, to the extent
vacancies are not fined by election by the stockholders, fill any vacancy or
vacancies created by the removal.
Section 10. Informal Action. Any action required or permitted to be
taken at any meeting of the board of directors or any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members of
the board or of the committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the board or the committee.
<PAGE>
ARTICLE IV
WAIVER OF NOTICE
Whenever, by law, the Certificate of Incorporation or these by-laws,
notice is required to be given, a written waiver thereof, signed by the person
entitled to notice, whether before or after the date of the meeting, shall be
deemed equivalent to notice. Attendance of a person at a meeting of the
stocicholden, the board of directors or any committee designated by the board of
directors shall constitute a waiver of notice of the meeting, except when the
person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because flic
meeting is not lawfully called or convened. Neither the business to be
transacted at nor the purpose of; any regular or special meeting or the
stockholders, directors or any committee designated thereby need be specified in
any written waiver of notice unless so required by law, the Certificate of
Incorporation or these by-laws.
ARTICLE V
OFFICERS
Section 1. Number. At its annual meeting the board of directors shall
elect a President and a Secretaty and, from time to time, may elect a Chairman
of the Board of Directors, a Treasurer, one or more Vice Presidents and such
Assistant Secretaries, Assistant Treasurers and other officers, agents and
employees as it may deem proper. Unless the Certificate of Incorporation
otherwise provides, any number of offices may be held by the same person.
Section 2. Term and Removal. The term of office of each officer shall
be one year and until the officers successor is elected, but any officer may be
removed from office, either with or without cause, at any time by the
affirmative vote of a majority of the members of the board of directors then in
office. A vacancy in any office arising from any cause may be filled for the
unexpired portion of the term by the board of directors.
Section 3. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if a Chairman of the Board of Directors has been elected and
is serving, shall be the chief executive officer of the corporation and shall in
general supervise and control all of the business and affairs of the
corporation. The Chairman shall preside at all meetings of the stockholders and
of the board of directors. The Chairman shall have the authority to sign
certificates for shares of the corporation, any deeds, mortgages, bonds,
contracts or other instruments which require the Chairman's signature, except in
cases where the signing and execution thereof shall be expressly delegated by
the board of directors or by these by-laws to some other officer or
<PAGE>
agent of the corporation or shall be required by law to be otherwise signed or
executed. In general, the Chairman shall perform all duties incident to the
office of Chairman of the Board of Directors and chief executive officer of the
corporation and such other duties as may be prescribed by the board of directors
from time to time.
Section 4. The President. The President shall be the chief operating
officer of the corporation and shall, subject to the direction and control of
the board of directors, in general supervise and control all of the operations
of the corporation. In the absence of the Chairman, the President shall preside
at all meetings of the stockholders and of the board of directors. In the
absence of the Chairman or in the event of the Chairman's inability or refusal
to act, the President shall perform the duties of the Chairman and, when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Chairman. The President may sign certificates for shares of the corporation,
any deeds, mortgages, bonds, contracts or other instruments which require the
President's signature, except in cases where the execution thereof shall be
expressly delegated by the board of directors or by these by-laws to some other
officer or agent of the corporation or shall be required by law to be otherwise
executed. In general, the President shall perform all duties incident to the
office of President and chief administrative officer of the corporation and such
other duties as may be prescribed from time to time by the board of directors or
the Chairman.
Section 5. Vice Presidents. In the absence of the President or in the
event of the President's inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President, including, without
limitation, the duties of the Chairman if and as assumed by the President as a
result of the absence of the Chairman or the Chairman's inability or refusal to
act, and the Vice President, when so acting, shall have all of the powers and be
subject to all the restrictions upon the President. Each Vice President shall
perform such other duties as from time to time may be assigned to the Vice
President by the Chairman, the President or the board of directors. The
authority of Vice Presidents to sign in the name of the Corporation certificates
for shares of the Corporation and deeds, mongages, bonds, contracts or other
instruments shall be coordinate with like authority of the President.
Section 6. Treasurer. If required by the board of directors, the
Treasurer shall give a bond for the faithful discharge of the Treasurer's duties
in such sum and with such surety or sureties as the board of directors shall
determine. The Treasurer shall have charge and custody of and be responsible for
all funds and securities of the corporation, receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of these by-laws. The Treasurer shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to the Treasurer by the Chairman, the President or the
board of directors.
<PAGE>
Section 7. Secretary. The Secretary shall: (a) keep records of
corporate action, including the rninutcs of meetigs of the stockholders and the
board of directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these by-laws or
as required by law; (c) be custodian of the corporate records and of the seal of
the corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the Secretary by such stockholder; (e)
sign, with the Chairman, the President or a Vice President, certificates far
shares of the corporation, the issuance of which shall have been authorized by
resolution of the board of directors; (f) have general charge of the stock
transfer books of the corponzion; and (g) in general, perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to the Secretary by the Chairman, the President or the board of
directors.
Section 8. Assistant Treasurers and Assistant Secretaries. The
Assistant Treasurers shall, if required by the board of directors, give bonds
for the faithful discharge of their duties in such aims and with such sureties
as the board of directors shall determine. The Assistant Secretaries as
thereunto authorized by the board of directors may sign, with the Chairman, the
President or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by a resolution of the board of
directors. The Assistant Treasurers and Assistant Secretaries in general shall
perform such duties as shall be assigned to them by the Treasurer or the
Secretary, respectively, or by the President, the Chairman or the board of
directors.
ARTICLE VI
STOCK CERTIFICATES
Section 1. Form of Stock Certificates. The interest of each stockholder
of the corporation shall be evidenced by certificates for shares of stock,
certifying the number of fully-paid shares represented thereby and in such form,
not inconsistent with the Certificate of Incorporation, as the board of
directors may from time to time prescribe.
Section 2. Execution and Issuance of Certificates of Stock. Stock
certificates shall be signed by the Chairnan or a Vice-Chairman of the Board of
Directors or the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary and be sealed
with the seal of the corporation. Such seal may be a facsimile, engraved or
printed. If any stock certificate is signed by a transfer agent or a registrar,
other than the corporation or its employees, the signatures of the Chairman, the
President, a Vice President, the Secretary or an Assistant Secretary upon such
certificate may be facsimiles, engraved or printed. In case any such officer who
has signed, or whose facsimile signature has been placed upon, a stock
certificate shall have ceased to be such before such certificate is issued, it
may be issued by the corporation with the same effect as if such officer had not
ceased to be such at the time of its issuance.
Section 3. Transfer of Certificates of Stock. Except as otherwise
provided by the
<PAGE>
Certificate of Incorporation or these by-laws, any certificate for shares of the
Corporation shall be transferable in person or by attorney upon the surrender
thereof to the corporation or any transfer agent therefor properly endorsed for
transfer and accompanied by such assurances as the corporation or such transfer
agent may require as to the genuineness and effectiveness of each necessary
document.
Section 4. Fixing the Date for Determination of Stockholders of Record.
To determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof; or entitled to receive payment of any
dividend or any other distribution or allotment of any rights, or entitled to
exercise any rights, in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the board of directors may fix in
advance a record date, which shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. To determine the stockholders entitled to consent to corporate action in
writing without a meeting, the board of directors may fix in advance a record
date, which shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. No
record date shall precede the date upon which the resolution fixing such date is
adopted by the board of directors. A determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting unless the board of directors fixes a new record date for the
adjourned meeting.
Section 5. Failure to Fix Record Date. If no record date is fixed in
accordance with Section 4 of this Article VI:
(a) The record date for determining stockholders entitled to
notice or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or
if the notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by 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 by
delivery to the place where the proceedings of the corporation are
recorded and the custodian of such proceedings. When prior action by
the board of directors is required by law, the record dare shall be at
the close of business on the day on which the board of directors adopts
the resolution taking such prior action.
(c) 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.
Section 6. Lost, Stolen or Destroyed Stock Certificates. No stock
certificate representing shares of the corporation shall be issued in place of
any certificate alleged to have been lost,
<PAGE>
stolen or destroyed except upon delivery to the corporation of such evidence as
the board of directors may in its discretion require. The board of directors may
also require a bond to be delivered to the corporation upon such terms and
secured by such surety as the board shall deem fit.
Section 7. Transfer Agent and Registrar. The board of directors may
appoint one or more transfer agents or one or more transfer clerks and one or
more registrars and may require all stock certificates to bear the signature or
signatures of any of therm
Section 8. Examination of Books by Stockholders. The board shall have
power to determine, from time to time, whether and to what extent and at what
times and places and under what conditions and regulations the accounts and
books and documents of the corporation, or any of them, shall be open to the
inspection of the stockholders; and no stockholder shall have any right to
inspect any account or book or document of the corporation except as otherwise,
and only to the extent, provided by law.
ARTICLE VII
INTEREST OF DIRECTORS OR OFFICERS
IN CERTAIN TRANSACTIONS
Section 1. Action or Criteria Required. No contract or transaction
between the corporation and one or more of its directors or officers, and no
contract or transaction between the corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directon or officers or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is prrtsent at or participates in the meeting of the board of
directors or committee thereof which authorizes the contract or transaction, or
solely because the vote of an interested director is counted for such purposes,
if:
(1) the material facts as to the directors 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 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 the directors 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 to the time it is
<PAGE>
authorized, approved or ratified, by the board of
directors, a committee thereof, or the stockholders.
Section 2. Effect of Quorum. Common or interested directors may be
counted in determining the presence of a quorum at any meeting of the board of
directors or of a committee thereof.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. Power to Indemnify. The corporation shall have the power to
indemnify any person who is or was a director, officer, employee or agent of the
corporation, or who 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, to the fullest extent permitted by law.
Section 2. Liability Insurance. 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 who 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 the person and incurred by the person in any such
capacity, or arising out of the person's status as such, whether or the
corporation would have the power to indemnify the person against such liability.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be as determined by the board
of directors of the corporation. In the absence of such determination, the
fiscal year of the corporation shall be the calendar year.
ARTICLE X
CORPORATE SEAL
The boord of directors may pmvide a suitable seal, including duplicates
thereof, containing the name of the Corporation.
<PAGE>
ARTICLE XI
AMENDMENTS
These by-laws shall be subject to alteration, amendment or repeal, and
new by-laws, not inconsistent with any provision of law or the Certificate of
Incorporation, may be made, either by the affirmative vote of a majority or the
whole board of directors at any meeting thereof or, if the power to make, amend,
or repeal the by-laws shall not have been granted to the board of directors in
the Certificate of Incorporation, by the affirmative vote of the holders of a
majority in interest of the stockholders or the corporation present in person or
by proxy at any annual on special meeting and entifled to vote thereat, a quorum
being present. Notice of the proposal to make, alter, amend or repeal the
by-laws of the corporation shall be included in the notice of such meeting of
the board of directors or of the stockholders, as the case may be.
ARTICLE XII
VOTING TRUST AGREEMENT
The corporation and certain of its stockholders have entered into the
Voting Trust Agreement which provides, among other things, restrictions with
respect to the voting rights of the shares of stock deposited into the voting
trust governed thereby. If any provision of these by-laws shall conflict with or
contravene any provision of the Voting Trust Agreement, or any such other
sirnilar agreement as is then in effect among the corporation and its
stockholders, the Voting Trust Agreement shall control.
EXHIBIT 10.1
SALES, DISTRIBUTION AND
PATENT LICENSE AGREEMENT
Effective January 1, 1998, Giorgio Reverberi ('REVERBERI") an Italian
entrepreneur having a place of business at Via Pavoni 5 42035 Castelnova ne'
Monti (RE) Italy and Joseph C. Marino and/or his assignee ('JOSEPH C.MARINO"), a
distributor having a place of business at 225 Arlington Heights Road, Elk Grove
Village, Illinois, U.S.A., agree as follows:
Article 1
BACKGROUND OF THE AGREEMENT
1.01 REVERBERI represents that it owns the REVERBERI PATENTS as
herein defined and that is prepared to grant to JOSEPH
C.MARINO a license under the REVERBERI PATENTS.
1.02 REVERBERI wishes to appoint JOSEPH C.MARINO as its exclusive
distributor in the TERRITORY for REVERBERI PRODUCTS as herein
defined.
1.03 JOSEPH C.MARINO wishes to acquire a license to practice the
REVERBERI PATENTS, and to be appointed REVERBERI's exclusive
distributor for REVERBERI PRODUCTS as herein defined in the
TERRITORY.
Article 2
DEFINITION
2.01 POWER CONTROL PRODUCT means any power or lighting controller
for energy saving disclosed in the REVERBERI PATENTS and any
improvements thereon.
2.02 REVERBERI PATENTS means any U.S. Patents which may issue on or
claim priority from U.S. Application No 08/ filed November 10,
1997, which claimed priority from Italian Patent Application
No. N197A-001185, filed May 21, 1997, and any corresponding
foreign letters patent and including but not limited to
patents of implementation, improvement or addition, utility
model and appearance design patents and inventors
certificates, as well as any continuation,
continuation-in-part, divisional, reexamination, reissue,
renewal and extension, patent applications and letters patent
that may issue from such applications.
1
<PAGE>
2.03 RELATED PATENT means any U.S. or foreign patent of any type
having one or more claims relating to a POWER CONTROL PRODUCT.
2.04 TERRITORY means North America, including the United States of
America, its territories and possessions, Canada, and Mexico;
Central America; South America; and the Caribbean excluding:
CUBA, ARGENTINA, CHILE PARAGUAY URUGUAY. REVERBERI expressly
reserves the right to grant patent to thirty party resident
out of the mentionee above TERRITORY.
2.05 ROYALTY-BEARING PRODUCT means any product covered by one more
claims of the REVERBERI PATENTS, and manufactured or assembled
by or for JOSEPH C. MARINO.
2.06 JOSEPH C.MARINO means Joseph C. Marino and/or assignees and
any subsidiary there of presently owned or acquired during the
term of this Agreement.
2.07 REVERBERI PRODUCT means any POWER CONTROL PRODUCT manufactured
or sold by REVERBERI.
Article 3
LICENSE GRANT
3.01 REVERBERI grants to JOSEPH C.MARINO an exclusive license to
make, have made, import, use and sell in the LICENSED
TERRITORIES any product or method covered by one or more
claims of the REVERBERI PATENTS.
3.02 The term of the license garanteed in section 3.01 shall be for
the full life of the REVERBERI PATENTS.
3.03 JOSEPH C. MARINO allow, till this moment, REVERBERI, or his
deputies to effect supervising inspection in his own
commercial organization, with the autority to also audit
REVERBERI's accounts and books, in order to assure the the
observance of the obligations assumed by means of this
agreement.
JOSEPH C. MARINO authorizes this inspection both by his offices and by
other third party.
JOSEPH C. MARINO is obligated to mark each sold, assembled and anyhow
commercial product, by an electrochemistry engraving or similar or
anyhow now removable and indelible, having the following inscription:
PAT.PEND. REVERBERI PATENT MI 97/A 001185; MANUFACTURED ON TRADING
LICENCE" and each product will report progressive number by means of
the same formality.
2
<PAGE>
3.04 The license to JOSEPH C. MARINO may be transferred or assigned
to a corporation or others legal entity so long as JOSEPH C.
MARINO retains a controlling interest in said legal entity.
Article 4
ROYALTIES
4.01 JOSEPH C. MARINO will pay to Reverberi a Royalty of 300$
Dollars for each Royalty-Bearing Product made by or for JOSEPH
C. MARINO and wich is sold by JOSEPH C. MARINO in the
TERRITORY.
4.02 No later than the last day of January, May or September of
each year that this Agreement is in effect JOSEPH C. MARINO
will provide REVERBERI with write statement of all amounts due
under paragraph 4.01 for the periods ending the lasts days of
the preceding December, April and August and submit payment to
REVERBERI within the following thirty days.
Article 5
APPOINTMENT AS DISTRIBUTOR
5.01 REVERBERI hereby appoints JOSEPH C.MARINO its sole and
exclusive distributor and reseller within the TERRITORY of
REVERBERI PRODUCTS.
5.02 REVERBERI will supply REVERBERI PRODUCTS to JOSEPH C.MARINO
for distribution in the TERRITORY, for which JOSEPH C.MARINO
shall pay REVERBERI the then-prevailing most favorable
wholesale price wich REVERBERI charges its best customers for
such products.
Article 6
PRESENTATIONS, WARRANTIES
6.01 REVERBERI represent and warrants that it is the owner of each
of the REVERBERI PATENTS and that it has not made and will not
make any commitment or restriction incosistent with the
Agreement or will material affect the rights granted by the
exclusive license granted herein.
6.02 REVERBERI represents and warrants tha it does not presently
own, control or have rights under any RELATED PATENT or
pending application for a RELATED PATENT other than the
REVERBERI PATENTS.
3
<PAGE>
6.03 REVERBERI represents and warrants that it will not assert any
RELATED PATENT against any third partty that purchases or
otherwise lawfully receives or uses any POWER CONTROL PRODUCT
or ROYALTY BEARING PRODUCT, provided that such POWER CONTROL
PRODUCT or ROYALTY BEARING PRODUCT is obtained from JOSEPH
C.MARINO.
Article 7
ENFORCEMENT AND MAINTENANCE OF PATENT RIGHTS
7.01 REVERBERI and JOSEPH C.MARINO agree to provide written notice
to each other within 20 days of becoming aware of a need to
defend the validity or enforceability of any REVERBERI PATENTS
or within 20 days of becoming aware of any potential
infringement of any REVERBERI PATENTS.
7.02 REVERBERI shall have the first right to defend any of the
REVERBERI PATENTS or to sue for infringement thereon. If
REVERBERI chooses not to defend or sue on any REVERBERI
PATENTS withing 30 days of a written rrequest by JOSEPH
C.MARINO to do so JOSEPH C. MARINO shall have the power to
defend or bring suit on said REVERBERI PATENTS, and if
required by law, REVERBERI will join as party plaintiff in
such action. If JOSEPH C.MARINO chooses to defend or sue for
infringement of a REVERBERI PATENTS JOSEPH C.MARINO will
retain any damages or expenses covered as a result of the
suit.
7.03 REVERBERI agrees that it will provide written notice to JOSEPH
C.MARINO within 10 days after becoming aware of any of the
following: the failure to timely pay a maintenance fee or
annuity; and the expiration, lapse, unintentional abandorument
or other termination of any REVERBERI PATENTS.
7.04 REVERBERI agrees that it will pay all maintenance fees and
other payments required to maintain such REVERBERI PATENT in
force for the full term of each patent permitted by law.
7.05 REVERBERI agrees that JOSEPH C.MARINO can pay any maintenance
fee, annuity or other payment required to maintain any
REVERBERI PATENT in force in the event that REVERBERI refuses,
or otherwise fails to pay the fee and that fees and related
expenses paid by JOSEPH C. MARINO under this paragraph can be
deducted from royalties due REVERBERI under Paragraph 4.01.
7.06 REVERBERI shall freely utilize the patent and its invention in
his own activity: on this matter we state that any
responsability regarding the product, the manufacturing
procedure the commercialization of the producct exclusively
pertain to JOSEPH C. MARINO.
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<PAGE>
JOSEPH C.MARINO will provide to assume the most appropriate
guarantees and he engages himself to give any useful and
necessary guarantee to make the product work. Any
responsability is expressly excluded from REVERBERI.
Article 8
TERMINATION
8.01 The licenses garanted herein shall terminate on the last day
of the term of the last- expiring REVERBERI PATENT. The term
relating to the appointment of JOSEPH C. MARINO as exclusive
distributor shall remain in full force and effect for ten 10
years from the date of this Agreement, with an automatic
renewal term of another ten 10 years unless either party gives
written notice to the other of its intention not to renew no
less than ninety (90) days prior to the expiration of the
original term.
8.02 JOSEPH C. MARINO may terminate this Agreement upon sixty (60)
days written notice to REVERBERI.
8.03 If JOSEPH C.MARINO terminates in part, the written notice
shall clearly state the patent or no longer considered to be
subject to the Agreement.
8.04 Either party may terminate this Agreement for breach by the
other party of any material provision of this Agreement if
such breach remains uncured for sixty (60) days after written
notice to the breaching party.
Article 9
NOTICES UNDER THE AGREEMENT
9.01 All written comunication to JOSEPH C.MARINO shall be addressed
to: JOSEPH C.MARINO, 225 North Arlington Heights Road, Elk
Grove Village, Illinois 60007, USA.
9.02 All written communication to REVERBERI should be addressed to:
ELETTRONICA REVERBERI, Via Artigianale Croce 13/13a 42035
Castelnove ne Monti (RE) Italy.
Article 10
CONSTRUCTION
10.01 This Agreement shall be construed in accordance with the
substantive laws of italian State
5
<PAGE>
Each debate that should rise or anyhow that should come from this
Agreement, it'd be transferred to the Italian Jurisdictional Autority,
sole competent court of REGGIO EMILIA.
10.02 This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof, and supersedes all
prior agreement and understandings of the parties written or
oral.
10.03 This Agreement may be modified only in writhin signed by both
parties.
10.04 Nothing provided herein shall be deemed to create any
relationship between the parties of agency_partnership or
joint venture.
10.05 In the event that any provision of this Agreement is held
invalid or unenforceable for any reason, this Agreement shall
be construed as if that provision had never been a part
hereof.
10.06 This Agreement is written both in Italian than in English and
unanimously will Italian shall be the official language and
it'll prevail in case of any contrast.
Article 11
PLANS AND DOCUMENTS
11.01 REVERBERI engages himself to give to JOSEF C.MARINO all
reproducing designs plans and technical characteristic,
necessary to manufacture the patent products, and he engages
himself to keep the secret over them, even after the end of
this Agreement.
11.02 REVERBERI engages himself to trasmit and to place at JOSEPH
C.MARINO's disposal, all changes and improvings, realized on
licenced products, without any increase of royalties.
11.03 REVERBERI engages himself to supply JOSEPH C. MARINO, in good
faith and without any reserve, all his technical service and
advice necessary and usuful to realize the patent in an
industrial way.
11.04 REVERBERI, engages himself, for a period, strictly necessary
to instruct at his charge, JOSEPH C.MARINO's staff, by his
firm, as it concerns the manufacturing of the licenced
product, excluded formation and training costs.
11.05 JOSEPH C. MARINO can't modify or improve the licenced product,
without REVERBERI's previous consent.
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<PAGE>
11.06 JOSEPH C. MARINO can't manufacture and sell concurrent
products, during and till to five years after the expiry of
this Agreement.
11.07 JOSEPH C.MARINO engages himself to buy to REVERBERI (EXCEPT
OTHER AGREEMENT NEGOTIABLE FROM THE PARTS) the following
components: control modules, EDR,SDL,MI/O,GOC, MCL. SGM, SGL,
MMO, AUTOTRASFORMER ,RELAY card and all necessary and not
replaceable by an identical material locally dealt and
produced.
This Agreement is written on December 24rd, 1997
In witness the parties;
REVERBERI GIORGIO JOSEPH C. MARINO
/s/ Reverberi Giorgio /s/ Joseph C. Marino
7
EXHIBIT 10.2
SUBLICENSE AGREEMENT
This Sublicense Agreement is entered into this ___ day of August, 1998
by and among Joseph Marino ("Sublicensor") and Electric City Corp., a Delaware
corporation ("Sublicensee").
WITNESSETH:
WHEREAS, on the 1st day of January 1998, the Sublicensor was granted an
exclusive license from Reverberi Electronica Castelnouovo Monti (RE)
("Reverberi") for the full term of the Reverberi patents in the territories,
including all North, Central and South America ("Reverberi License"); and
WHEREAS, pursuant to said License Agreement Sublicensor is permitted to
assign to any corporation in which he retains a legal interest all or a portion
of said License; and
WHEREAS, it has been determined to be in the mutual best interests of
the parties that Sublicensor assign all of his right, title and interest to said
License with respect to the territory of the United States of America.
NOW THEREFORE, the parties hereto agree as follows:
1. Assignment of Partial License Rights. Sublicensor hereby assigns all
of his right, title and interest to the Reverberi License with respect to the
territory of the United States of America subject to all of Reverberi's
interest, including royalties as contained in the original license grant
pursuant to the Reverberi License a copy of which is attached hereto and made a
part hereof by reference as Exhibit A.
2. Term of the License. The License granted hereby shall be an
exclusive and perpetual sublicense of all of the Sublicensor's rights to the
United States of America under the Reverberi License subject to termination in
accordance with that license.
3. Royalty Payments. For each product unit manufactured and/or sold by
Sublicensee, Sublicensee shall be required to pay a royalty of $300 U.S.
directly to Reverberi on a quarterly basis from the date of transfer of
ownership thereof pursuant to the Reverberi License.
4. Limitations on Sublicense. The rights granted Sublicensee under this
Agreement shall not be directly or indirectly assignable or transferable in any
manner whatsoever nor shall Sublicensee have the right to grant any sublicenses.
Any unauthorized assignment, transfer or sublicense by Sublicensee shall be null
and void. This limitation shall not in any way restrict the Sublicensee from
engaging distributors to assist in the distribution of the Energy units to which
shall not be deemed a sublicense.
5. Quality Standards. The Sublicensor and Reverberi shall have ongoing
rights to exercise quality control over Sublicensee's use and manufacture of the
Power Control Products, as defined in the Reverberi License. Sublicensee shall,
<PAGE>
upon reasonable request by the Sublicensor and/or Reverberi, submit samples of
manufactured Power Control Products systems. In the event that Reverberi or
Sublicensor finds that any such samples do not perform in accordance with
Reverberi specifications, Sublicensee shall, upon written notice thereof,
immediately take steps which are necessary to correct the failures as defined in
the notice. Failure to do so shall be deemed a material breach of this
Agreement.
6. Protection of the Patents. Should Sublicensee become aware of any
infringement of the Reverberi Patents or other use of the Power Control Products
or should Sublicensee be notified of a claimed infringement on the part of the
Sublicensee, Sublicensor or of Reverberi of any other Patent or Mark,
Sublicensee shall immediately notify Sublicensor and/or Reverberi of said
information and cooperate with the Sublicensor and/or Reverberi with respect to
their efforts to protect the Patents and claims or defend any action for
infringement. Sublicensee agrees to expend reasonable time, money and efforts in
this respect in the assistance of such protection and acknowledges that such
time and expense is in the mutual best interests of the parties to this
Sublicense Agreement, and further Sublicensee indemnifies Sublicensor for its
use of the Reverberi Patents in any capacity.
7. Representations and Warranties.
A. Sublicensor represents to Sublicensee that:
(i) he has the right to enter into this Sublicense
Agreement relative to the Reverberi License which is
current, not in default and not subject to any
restrictions or limitations thereof;
(ii) he has full power and authority to execute and
deliver this Agreement and to perform his obligations
hereunder; and
(iii) this Agreement constitutes his valid and
legally binding obligation, enforceable against him
in accordance with its terms subject to bankruptcy,
insolvency, reorganization, moratorium and similar
laws of general applicability relating to or
affecting creditors' rights and general equity
principles.
B. Sublicensee represents to Sublicensor that:
(i) it is a Delaware corporation duly organized,
validly existing and is in good standing under the
laws of Delaware;
(ii) it has full corporate power and authority to
execute and deliver this Agreement and, to perform
its obligations hereunder;
(iii) the execution and delivery by it of this
Agreement, and the performance by it of its
obligations hereunder have been duly authorized by
all requisite corporate action on the part of it and
the Agreement constitutes its valid and legally
<PAGE>
binding obligation enforceable against it in
accordance with its terms subject to bankruptcy,
insolvency, reorganization, moratorium and similar
laws of general applicability relating to or
affecting creditors' rights and general equity
principles.
8. General. As a result of engaging in this Sublicense Agreement,
Sublicensee shall become generally responsible to perform all of the duties and
functions to which the Sublicensor was otherwise bound pursuant to the Reverberi
License with respect to transactions within the United States of America.
Sublicensee agrees to indemnify and hold harmless Sublicensor from any liability
which Sublicensor would otherwise have been responsible for to Reverberi had
Sublicensor not entered into this Sublicense Agreement. Any breach on behalf of
Sublicensee of this Sublicense Agreement or the underlying Reverberi License
Agreement as it pertains to business in the United States of America shall from
the basis for termination of this Sublicense Agreement subject to a 30 day
notice of termination during which period of time Sublicensee shall have the
right to cure said breach. During any period of time that Sublicensee shall be
deemed to be in breach of either this Sublicense Agreement or the Reverberi
License, the Sublicensor may cure the breach at his expense so as not to result
in the termination of the Reverberi License. Any amounts expended by the
Sublicensor on behalf of Sublicensee to remedy any breaches or defaults shall
immediately be due and owing the Sublicensor with interest at the rate of 18%
per annum.
This Agreement shall be governed by the laws of the State of Illinois.
The headings herein are for reference only and shall not define or limit the
provisions hereof. This Agreement may not be altered, modified, amended or
changed in whole or in part except by a written instrument executed by the
parties hereto. This Agreement shall be binding upon the parties and their
permitted successors and assigns. Any action brought to enforce the terms of
this Agreement shall be brought in the Federal or State courts in Cook County,
Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SUBLICENSOR:
By: ____________________________
Joseph C. Marino
SUBLICENSEE:
Electric City Corp.
By: ____________________________
Joseph C. Marino, President
ATTEST:
By: ____________________________
Secretary
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of the
1st day of January, 1999, is made by and among Joseph Marino ("Marino" or
"Employee") and Electric City Corp., a Delaware corporation (the "Company").
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Marino do hereby
agree as follows:
Section 1. Employment and Duties. On the terms and subject to
the conditions set forth in this Agreement, and subject to the approval of the
board of directors of the Company, the Company agrees to employ Marino as its
President and Chief Executive Officer to render such services as would be
customary for a president and chief executive officer including hiring senior
management and to render such other services and discharge such other
responsibilities as the board of directors of the Company may, from time to
time, stipulate and which shall not be inconsistent with the position of
President and Chief Executive Officer.
Section 2. Performance. Marino accepts the employment
described in Section 1 of this Agreement and agrees to concentrate all of his
time and efforts to the performance of the services described therein, including
the performance of such other services and responsibilities as the board of
directors of the Company, may from time to time stipulate and which shall not be
inconsistent with the position of President and Chief Executive Officer.
Without limiting the generality of the foregoing Marino
ordinarily shall devote not less than five days per week (except for vacations
and regular business holidays observed by the Company) on a full time basis,
during normal business hours Monday through Friday. Marino further agrees that
when the performance of his duties reasonably requires, he shall be present on
the Company's premises (if necessary) or engaged in service to or on behalf of
the Company at such times except during vacations, regular business holidays or
weekends.
Section 3. Term. The term of employment under this Agreement
(the "Employment Period") shall commence as of the date hereof and shall remain
in effect for a period of four (4) years thereafter endings, on the 31st day of
December, 2003, unless earlier terminated pursuant to the termination provisions
set forth herein. Notwithstanding anything to the contrary herein, the parties
acknowledge and agree that Marino's employment may be terminated only for Due
Cause as more fully set forth herein.
Section 4. Compensation.
4.1. Salary. For all the services to be rendered by Marino
hereunder, the Company agrees to pay, during the Employment Period, a salary at
the annual rate of Two Hundred Twenty-Five Thousand ($225,000) payable in equal
monthly installments at the end of each month during the term of this Agreement,
beginning on the 1st day of June, 1999, or at such other intervals, not less
frequently than once per month, as may be consistent with the Company's normal
compensation schedule. Thereafter, Marino's salary will be subject to annual
review by the board of directors.
1
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4.2. [Intentionally Deleted].
4.3. Stock Options. The Company hereby agrees to grant to
Marino 450,000 stock options of the Company at an exercise price of
$3.50 per share, subject to and in accordance with the following:
(a) On the one year anniversary of the date of this Agreement,
provided neither party has terminated this Agreement, Marino shall
become immediately vested in options to purchase 112,500 of the issued
and outstanding shares of common stock of the Company for three dollars
and fifty cents ($3.50) per share.
(b) On the two year anniversary of the date of this Agreement,
provided neither party has terminated this Agreement, Marino shall
become immediately vested in options to purchase 112,500 of the issued
and outstanding shares of common stock of the Company for three dollars
and fifty cents ($3.50) per same.
(c) On the three year anniversary of the date of this
Agreement, provided neither party has terminated this Agreement, Marino
shall become immediately vested in options to purchase 112,500 of the
issued and outstanding shares of common stock of the Company for three
dollars and fifty cents ($3.50) per share.
(d) On the four year anniversary of the date of this
Agreement, provided neither party has terminated this Agreement, Marino
shall become immediately vested in options to purchase 112,500 of the
issued and outstanding shares of common stock of the Company for three
dollars and fifty cents ($3.50) per share.
(e) Registration Rights. Marino shall have piggy-back
registration rights for all shares of stock obtained through the
exercise of any options described in Sections 4.3(a) (b) (c) and (d)
above for any registration the Company files with the Securities and
Exchange Commission registering shares of the Company's common stock
that are similar to the shares to be issued hereunder. The Company will
use its best efforts to file an S-8 registration when Company becomes a
fully reporting company.
(f) Sale of Assets: Change in Control. Upon the sale of more
than forty percent (40%) of the net assets or shares of stock of the
Company to a person or entity not affiliated with the Company or its
parent company or subsidiaries, all of the options described in
Sections 4.3(a) (b) (c) and (d) above shall be automatically granted to
Marino and shall immediately vest and be exercisable by Marino subject
to the terms of this Agreement.
(g) Termination Options. The term of the Options hereunder
shall be until December 31, 2008.
2
<PAGE>
4.4. Insurance. During the Employment Period, the Company
shall apply for and procure in Marino's name and for Marino's benefit, if Marino
is eligible, (a) short-term and permanent disability insurance providing for
disability benefits substantially equivalent to the benefit of other salaried
employees of the Company, (b) medical and dental insurance for Marino and
Marino's family substantially equivalent to the benefits of other salaried
employees of the Company and (c) officer and director liability insurance, in
such amount as may be determined by the board of directors of the Company or as
may be required by law, and Marino shall submit to any medical or other
examination and execute and deliver any application or other instrument in
writing, reasonably necessary to effectuate such insurance.
4.5. Automobile. The Company agrees to provide Marino with the
use of a new automobile satisfactory to Marino for the term of this Agreement.
4.6. Cellular Phone. The Company agrees to reimburse Marino
for all business-related cellular phone calls, subject to the provisions of
Section 5.2.
4.7. Other Benefits. Except as otherwise specifically provided
herein, during the Employment Period, Marino shall be eligible for all vacation
and non-wage benefits the Company provides generally for its other salaried
employees.
Section 5. Business Expenses.
5.1. Reimbursement. The Company shall reimburse Marino for the
reasonable, ordinary, and necessary expenses incurred by him in connection with
the performance of his duties hereunder, including but not limited to, ordinary
and necessary travel expense and entertainment expenses.
5.2. Accounting. Marino shall provide the Company with an
accounting of his expenses, which accounting shall clearly reflect which
expenses are reimbursable by the Company, Marino will provide the Company with
such other supporting documentation and other substantiation of reimbursable
expenses as will conform to Internal Revenue Service or other requirements.
Section 6. Covenants of Marino.
6.1. Confidentiality. During the Employment Period and
following the termination thereof for any reason, Marino shall not disclose or
make any use of, for his own benefit or for the benefit of a business or entity
other than the Company or any corporation partnership, limited liability company
or other entity, more than 50% of the equity securities or partnership or
membership interests of which are owned directly or indirectly by the Company,
("Subsidiaries") (except Globel Energy Ventures and Reverberi Corporation) any
secret or confidential information, customer lists, and lists of prospective
customers, or any other information of or pertaining to the Company, its
Subsidiaries or their businesses, products, financial affairs, customers or
prospective customers, or services not generally known within the trade of the
Company or its Subsidiaries and which was acquired by him during his affiliation
with the Company or its Subsidiaries.
3
<PAGE>
6.2. Inventions and Secrecy. Except as otherwise provided in
this Section 6.2, Marino: (a) shall hold in a fiduciary capacity for the benefit
of the Company and its Subsidiaries, all secret or confidential information,
knowledge, or data of the Company, its Subsidiaries or their businesses or
production operations obtained by Marino during his employment by the Company,
which shall not be generally known to the public or recognized as standard
practice (whether or not developed by Marino) and shall not, during his
employment by the Company and after the termination of such employment for any
reason, communicate or divulge, any such information, knowledge or data to any
person, firm, or corporation other than the Company or its Subsidiaries, or
persons, firms or corporations designated by the Company; (b) shall promptly
disclose to the Company all inventions ideas, devices, and processes made or
conceived by him alone or jointly with others, from the time of entering the
Company's employ until such employment is terminated and within the one (1) year
period immediately following such termination, relevant or pertinent in any way,
whether directly or indirectly, to the businesses or production operations of
the Company or its Subsidiaries or resulting from or suggested by any work which
he may have done for or at the request of the Company or its Subsidiaries, (c)
shall, at all times during his employment with the Company, assist the Company
and its Subsidiaries in every proper way (entirely at the expense of the
Company) to obtain and develop for the benefit of the Company patents on such
inventions, ideas, devices, and processes, whether or not patented; and (d)
shall do all such acts and execute, acknowledge and deliver all such instruments
as may be necessary or desirable in the opinion of the Company to vest in the
Company, the entire interest in such inventions, ideas, devices, and processes
referred to above. The covenants contained in this section 6.2 are not
applicable to Marino's involvement with Globel Energy Ventures or Reverberi
Corporation.
6.3. Competition Following Termination. Within the two (2)
year period immediately following termination of Marino's employment with the
Company for any reason, Marino shall not, without the prior written consent of
the Company, which consent may be withheld at the sole discretion of the
Company: (a) engage directly or indirectly, whether as an officer, director,
stockholder (of 10% or more of such entity), partner, majority owner, managerial
employee, creditor, or otherwise with the operation, management, or conduct of
any business which competes directly or indirectly with the businesses of the
Company or its Subsidiaries being conducted at the time of such termination
within the United States; (b) solicit, contact, interfere with, or divert any
customer served by the Company or its Subsidiaries, or any prospective customer
identified by or on behalf of the Company or its Subsidiaries, during Marino's
employment with the Company; or (c) solicit any person then or previously
employed by the Company or its Subsidiaries to join Marino, whether as a
partner, agent, employee, or otherwise, in any enterprise engaged in a business
similar to the businesses of the Company or its Subsidiaries being conducted at
the time of such termination. The covenants contained in this section 6.3 are
not applicable to Marino's involvement with Globel Energy Ventures or Reverberi
Corporation.
4
<PAGE>
6.4. Acknowledgement. Marino acknowledges that the
restrictions set forth in this Section 6 are reasonable in scope and essential
to the preservation of the businesses and proprietary properties of the Company
and its Subsidiaries and that the enforcement thereof will not in any manner
preclude Marino, in the event of Marino's termination of employment with the
Company, from becoming gainfully employed in such manner and to such extent as
to provide a standard of living for himself, the members of his family, and
those dependent upon him of at least the sort and fashion to which he and they
have become accustomed and may expect.
6.5. Severability. The covenants of Marino contained in this
Section 6 shall each be construed as an agreement independent of any other
provision in this Agreement and the existence of any claim or cause of action of
Marino against the Company or its Subsidiaries, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company or its Subsidiaries of such covenants. The parties hereto expressly
agree and contract that it is not the intention of any party to violate any
public policy, statutory or common law, and that if any sentence, paragraph,
clause, or combination of the same of this Agreement is in violation of the law
of any state where applicable, such sentence, paragraph, clause or combination
of the same shall be void in the jurisdictions where it is unlawful, and the
remainder of such paragraph and this Agreement shall remain binding on the
parties to make the covenants of this Agreement binding only to the extent that
it may be lawfully done under existing applicable laws. In the event that any
part of any covenant of this Agreement is determined by a court of law to be
overly broad thereby making the covenant unenforceable, the parties hereto
agree, and it is their desire, that such court shall substitute a judicially
enforceable limitation in its place, and that as so modified the covenant shall
be binding upon the parties as if originally set forth herein.
Section 7. Termination.
7.1 Termination for Due Cause. The Employment Period may be
terminated only for the following reasons and upon the terms and conditions set
forth below ("Due Cause"). Company, by a vote of 3/4 of the board of directors
("Termination Vote") may terminate the Employment Period, effective upon written
notice of such termination to Marino, in the event of: (a) Marino's death or
permanent total disability of Marino (b) breach by Marino of his covenants under
this Agreement; (c) commission by Marino of theft or embezzlement of property of
the Company or other acts of dishonesty; (d) commission by Marino of a crime
resulting in injury to the businesses, properties or reputations of the Company
or its Subsidiaries or commission of other significant activities harmful to the
businesses, properties or reputations of the Company or its Subsidiaries; (e)
commission of an act by Marino in the performance of his duties hereunder
reasonably determined by a majority of the board of directors of the Company to
amount to gross, willful, or wanton negligence; (f) willful refusal to perform
or substantial neglect of the duties assigned to Marino pursuant to Section 1
hereof; (g) any significant violation of any statutory or common law duty of
loyalty to the Company or its Subsidiaries; (i) other legally sufficient cause.
In the event Marino is on the board of directors he shall not participate in a
Termination Vote. The 3/4 vote necessary shall be calculated as if Marino was
not a member of the board of directors. Notwithstanding the above, termination
pursuant to the terms of this Agreement shall not affect Marino's status as a
member of Company's Board of Directors.
5
<PAGE>
7.2. Surrender of Properties. Upon termination of Marino's
employment with the Company, regardless of the cause therefor, Marino shall
promptly surrender to the Company or its Subsidiaries all property provided him
by the Company or its Subsidiaries, as applicable, for use in relation to his
employment and in addition, Marino shall surrender to the Company or its
Subsidiaries, as applicable, any and all sales materials, lists of customers and
prospective customers, price lists, files, patent applications, records, models,
or other materials and information of or pertaining to the Company or its
Subsidiaries or their customers or prospective customers or the products,
businesses, and operations of the Company or its Subsidiaries.
7.3. Survival of Covenants. The covenants of Marino set forth
in Section 6 of this Agreement shall survive the termination of the Employment
Period or termination of this Agreement for Due Cause.
Section 8. General Provisions.
8.1. Notice. Any notice required or permitted hereunder shall
be made in writing (a) either by actual delivery of the notice into the hands of
the party thereunder entitled, or (b) by the mailing of the notice in the United
States mail, certified or registered mail, return receipt requested, all postage
prepaid and addressed to the party to whom the notice is to be given at the
party's respective address set forth below, or such other address as the parties
may from time to time designate by written notice as herein provided.
If to the Company:
Electric City Corp.
1280 Landmeir Road
Elk Grove Village, Illinois 60007
With a copy (which shall not constitute notice) to:
Kwiatt & Ruben, Ltd.
211 Waukegan Road
Suite 300
Northfield, Illinois 60093
Attn.: Philip E. Ruben
If to President/CEO:
Joseph Marino
1410 Russell Court
Arlington Heights, Illinois 60005
6
<PAGE>
The notice shall be deemed to be received in case (a) on the date of its actual
receipt by the party entitled thereto and in case (b) on the date of its
mailing.
8.2. Amendment and Waiver. No amendment or modification of
this Agreement shall be valid or binding upon: a) the Company unless made in
writing and signed by an officer of the Company, duly authorized by the board of
directors of the Company or; b) Marino unless made in writing and signed by him.
The waiver by the Company or Marino of the breach of any Provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such party.
8.3. Governing Law. The validity and effect of this Agreement
and the rights and obligations of the parties hereto shall be construed and
determined in accordance with the internal law, and not the conflicts law, of
the State of Illinois.
8.4. Entire Agreement. This Agreement contains all of the
terms agreed upon by the parties with respect to the subject matter hereof and
supersedes all prior agreements, arrangements and communications between the
parties dealing with such subject matter, whether oral or written.
8.5. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the transferees, successors and assigns of the
Company, including any company or corporation with which the Company may merge
or consolidate.
8.6. Remedies for Breach. Marino specifically acknowledges
that his services under this Agreement are unique and extraordinary and that
irreparable injury will result to the Company and its businesses and properties
in the event of a breach of the terms and conditions of this Agreement to be
performed by him (including, but not limited to, leaving the employment provided
for hereunder). Marino, therefore, agrees that in the event of his breach of any
of the terms and conditions of this Agreement to be performed by him (including,
but not limited to leaving the employment provided for hereunder), the Company
shall be entitled, if it so elects, to institute and prosecute proceedings in
any court of competent jurisdiction, either at law or in equity, to enjoin him
from performing services for any other person, firm or corporation in violation
of any of the terms of this Agreement, and to obtain damages for any breach of
this Agreement. In the event of the breach by the Company of any of the terms
and conditions of this Agreement to be performed by it, Marino shall have all
remedies available to him under the laws of the State of Illinois. The remedies
provided herein shall be cumulative and in addition to any and all other
remedies which either party may have at law or in equity.
8.7. Costs of Enforcement. In the event of any suit or
proceeding seeking to enforce the terms, covenants, or conditions of this
Agreement, the prevailing party shall, in addition to all other remedies and
relief that may be available under this Agreement or applicable law, recover his
or its reasonable attorneys' fees and costs as shall be determined and awarded
by the court.
7
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8.8. Headings. Numbers and titles to paragraphs hereof are for
information purposes only and, where inconsistent with the text, are to be
disregarded.
8.9. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
when taken together, shall be and constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date first set forth above.
ELECTRIC CITY CORP.
By:/s/Joseph Marino
-------------------
Its: President
-------------------
JOSEPH MARINO
/s/Joseph Marino
-------------------
8
EXHIBIT 10.4
REAL ESTATE SALES CONTRACT
1. ELECTRIC CITY CORP., a DELAWARE CORPORATION (Purchaser) agrees to purchase at
a price of $1,140,000 on the terms set forth herein, the following described
real estate in Cook County, Illinois.
Commonly known as 1280 Landmeier Road, and with approximate lot dimensions of
__________________ together with the following property presently located
thereon:
Single story masonry steel and glass building
2. GIOVANNI GULLO & MARIA GULLO FAMILY LMT PARTNERSHIP (Seller) agrees to sell
the real estate and the property described above, if any, at the price and terms
set forth herein, and to convey or cause to be conveyed to Purchaser or nominee
title thereto by a recordable trustee deed, with release of homestead rights, if
any, and a proper bill of sale, subject only to: (a) covenants, conditions and
restrictions of record; (b) private, public and utility easements and roads and
highways, if any; (c) party *** rights and agreements, if any; (d) existing
leases and tenancies (as listed in schedule A attached); (e) special taxes or
assessments for improvements not yet completed; (f) installments not due at the
date hereof of any special tax or improvements heretofore completed; (g)
mortgage or trust deed specified below, if any; (h) general taxes for the year
1998 and subsequent years including taxes which may accrue by reason of new or
additional improvements during the year(s) 1998 and to
3. Purchaser has paid $ N/A as earnest money to be applied on the purchase
price, and agrees to pay of satisfy the balance of the purchase price, plus or
minus *** , at the time of closing as follows:
(a) The payment of $800,000 See Rider.
4. Seller, at his own expense, agrees to furnish Purchaser a current plat of
survey of the above real estate made, and so certified by the surveyor as having
been made, in compliance with the Illinois Land Survey Standard.
5. The time of the closing shall be ___**______________________ or on the date,
if any, to which such time is extended by reason of paragraphs 2 or 10 of the
Conditions and Stipulations hereafter becoming operative (whichever date is
later). Unless subsequently mutually agreed otherwise at the office of the title
company or of the mortgage lender, if any, provided *** is shown to be good or
is accepted by Purchaser within thirty (30) days from the acceptance date of
this contract.
** Within 30 Days From The Acceptance Of This Contract
<PAGE>
6. Seller agrees to pay a broker's commission to __________ N/A____________ in
the amount set forth in the broker's contract or as follows
_________N/A______________ .
7. The earnest money will be held by __________ N/A____________ for the mutual
benefit of the parties.
8. Seller warrants that Seller, its beneficiaries or agents of Seller or of its
beneficiaries have received no notices form any city, village or other
governmental authority of zoning, building, fire or health code violations in
respect to the real estate that have not been heretofore corrected.
9. A duplicate original of this contract, duly executed by the Sell er and his
spouse, if any, shall be delivered to the Purchaser within 2 days from the date
hereof, otherwise at the Purchaser's option, that consent shall become null and
void and the earnest money shall be refunded to the Purchaser.
This consent is subject to the Conditions and Stipulations set forth on
the back page hereof, which Conditions and Stipulations are made a part of this
contract.
ACCEPTANCE
Dated
----------------------------------
Purchaser ELECTRIC CITY CORP. (Address)
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Purchaser By: (Address)
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Joseph Marino
Seller (Address)
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GIOVANNI, GULLO & MARIA GULLO FAMILY LMT. PARTNERSHIP
Seller By: /s/ Giovanni Gullo (Address)
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Giovanni Gullo
<PAGE>
RIDER A
THIS RIDER IS ATTACHED TO AND MADE A PART OF A CERTAIN REAL ESTATE CONTRACT FOR
THE PURCHASE OF REAL ESTATE COMMONLY KNOWN AS 1280 LANDMEIER RD., ELK GROVE
VILLAGE, ILLINOIS MADE BY ELECTRIC CITY CORP., IT'S NOMINEES OR ASSIGNS
(HEREINAFTER REFERRED TO AS "PURCHASER"); AND GIOVANNI GULLO & MARIA GULLO
FAMILY LMT. PARTNERSHIP (HEREINAFTER REFERRED TO AS THE "SELLER"). IN THE EVENT
OF ANY CONFLICT BETWEEN THE TERMS AND PROVISIONS OF THIS RIDER AND THOSE
CONTAINED IN THE REAL ESTATE SALE CONTRACT TO WHICH IT IS ATTACHED, THE TERMS
AND PROVISIONS OF THIS RIDER SHALL PREVAIL.
1. The purchase price as reflected in paragraph 1 of the Real
Estate Sales Contract shall be paid as follows:
1. $800,000 dollars in cash at closing.
2. The balance of purchase price in the amount
of $340,000 dollars shall be delivered to
Seller at closing in value form of 170,000
shares of common stock in Electric City
Corp., a Delaware corporation. At closing,
168,000 shares of such stock shall be issued
to Giovanni and Maria Gullo, 1,000 shares to
James and Rosanne Spanola and 1,000 shares
to Anthony and Rebecca Petropoulos.
2. Gullo International Development Corporation or its nominee
shall have the right and authority to purchase and sell
Electric City Corp's Energy Management System Saver and
accessories and provide installation and maintenance, subject
to certain restricted Corporate accounts and geological
territories which will be provided by Purchaser.
3. Purchaser agrees that for a period of twelve (12) months from
the date of closing, that it shall not place a first mortgage
on the real estate in excess of $800,000.00.
4. Purchaser shall give Seller notice of the date of Electric
City Corp. common stock first day of trading on the OTC
exchange. ("Initial Trading Date")
5. Seller and Purchaser agree that should the shares of Electric
City Corp. trade under $2.00 per share for Ten (10)
consecutive trading days, within a 3 month period from the
Initial Trading Date or should the shares of Electric City
Corp., not trade on any stock exchange within Six (6) months
from the acceptance of this contract, Seller shall have the
right to repurchase the improvements from Electric City Corp.
for $800,000 or sell the 170,000 shares of common stock to
Electric City Corp. for $340,000.
<PAGE>
6. Should Seller repurchase the property pursuant to paragraph #5
in this Rider, Electric City Corp. will enter into a Ten (10)
year lease for $10,000 month rental on a Triple net basis.
7. Seller and purchaser will cooperate with each other to
ascertain a 6B Tax Classification for the Real Estate Taxes
from the Village of Elk Grove and the Cook County Assessor's
office.
8. Seller and purchaser agree to cooperate with each other
regarding a 1031 Starker Exchange.
9. Occupancy by Electric City Corp. will be immediate or upon
issuance of a 6B Classification from the Village of Elk Grove
Village.
10. In the event the eith4er party hereto initiates a lawsuit
against the other party by reason of the alleged breach of
this Agreement by the other party, then all costs and
expenses, including, without limitation reasonable attorneys'
and/or accountants' fees, incurred by the prevailing party in
connection with such litigation and the dispute forming the
basis thereof shall be paid or reimbursed by the
non-prevailing party.
IN WITNESS WHEREOF, the parties have caused this Contract to be signed
by their duly authorized representative on the date first above written.
PURCHASER: /s/ Joseph C. Marino DATE: 7/3/98
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Electric City Corp.
SELLER: /s/ Giovanni Gullo DATE: 7-3-98
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EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as
of the 24th day of May, 1999 by and between Marino Electric, Inc., an Illinois
corporation ("Seller" or "Company"), Electric City Corp., a Delaware
corporation, ("Buyer") and Mr. Joseph Marino ("Marino").
RECITALS
WHEREAS, the Seller is a manufacturer, supplier and installer of
electrical panels and other electrical equipment and related materials (the
"Business").
WHEREAS, the Seller is desirous of selling and buyer is desirous
purchasing all of the assets of the Seller.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Purchase and Sale of Assets.
1.1 Sale of Assets to Buyer. At the Closing referred to in
Section 4, the Seller shall sell and assign to the Buyer, and the Buyer shall
purchase and acquire from the Seller, all of the equipment, materials, work in
progress, finished goods, telephone numbers, customer lists, goodwill, and all
of Seller's right, title and interest in any and all of the other assets used in
connection with the Business, including but not limited to, all tradenames,
trademarks, (the "Purchased Assets"), free and clear of any claims, liens or
encumbrances, except for those that are non-substantial in character and that do
not otherwise materially interfere with the present or proposed use of the
Purchased Assets, as the Purchased Assets exist as of the Closing.
2. Purchase Price for Purchased Assets.
2.1 Cash. At the Closing Buyer shall pay to Seller ONE MILLION
FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($1,500,000.00) in lawful currency of
the United States of America. (collectively with the ECC Shares and Inventory,
as hereinafter defined, the "Purchase Price")
2.2 Stock. At the Closing Buyer shall also distribute EIGHT
HUNDRED THOUSAND SHARES (800,000) of the common stock of Buyer (the "ECC
Shares") to Marino. The name of the certificate shall be "Joseph Marino".
3. Purchase Price for Inventory.
3.1 Purchase of Inventory. In addition to the Purchased
Assets, the Seller shall sell and assign to the Buyer, and the Buyer shall
purchase and acquire from the Seller, the inventory ("Inventory") of Seller up
to and including May 24, 1999.
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3.2 Price for Inventory. At the Closing, and in addition to
the amounts paid for the Purchased Assets, Buyer shall pay to Seller TWO HUNDRED
NINETY-TWO THOUSAND AND 00/100 DOLLARS ($292,000.00) in lawful currency of the
United States of America for the Inventory.
4. Closing.
4.1 Closing. The closing of this Agreement shall take place at
the offices of Kwiatt & Ruben, Ltd., 211 Waukegan Road, Northfield, Illinois
60093, on the ___ day of ______, 1999 or at such other time/location as the
parties hereto shall agree upon (the "Closing"). At the Closing, Seller shall
pay to Buyer the Purchase Price and Seller shall deliver to Buyer the Purchased
Assets, free and clear of all liens, options, encumbrances and security
interests, and the Inventory as set forth elsewhere in this Agreement.
4.2 Conveyance. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Seller shall sell, assign and deliver
(or cause the sale, assignment and delivery of) the Purchased Assets and
Inventory to Buyer, and Buyer shall purchase and take delivery of the Purchased
Assets and Inventory. Seller shall execute and deliver (or cause to be executed
and delivered) such documents of conveyance and take such other action as may be
necessary or reasonably desirable to transfer all interests therein to Buyer and
put Buyer in actual possession and operating control of the Purchased Assets and
Inventory. Seller agrees that such sale, assignment and delivery shall be
effected by such , bills of sale, endorsements, assignments and such other
instruments of transfer and conveyance as Buyer shall reasonably request and as
shall be sufficient to convey all the right, title and interest of Seller in and
to the Purchased Assets and Inventory.
5. Seller's and Company's Representations and Warranties.
5.1 Seller's Representations. Seller represents and warrants
to Buyer that each of the following statements are true and correct upon
execution of this Agreement and at all times through Closing and thereafter:
(a) Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has all requisite corporate and other
power and all necessary permits, certificates, licenses, approvals and other
authorizations required to carry on its business in the manner in which such
business is presently carried on. The Company is qualified to do business and is
in good standing in every state or jurisdiction in which either the ownership or
use of its properties, or the nature of the activities conducted by it, requires
such qualification or the lack thereof would have a material adverse effect on
the Company.
(b) Valid and Binding Agreement. The Company has full power
and authority to execute, deliver and perform this Agreement and all other
documents and instruments to be executed by the Company pursuant to this
Agreement without the consent of any other person or entity. This Agreement
constitutes a valid and binding agreement of the Company, enforceable against it
in accordance with its terms. Neither the execution and delivery of this
Agreement or the purchase and sale of the Purchased Assets and Inventory (i)
violates or will violate any statute or law or any rule, regulation, or order of
any court or governmental authority applicable to Company, or (ii) violates or
will violate, or conflicts with or will conflict with, or constitutes a default
under or will constitute a default under, any contract, commitment, agreement
understanding or restriction of any kind to which the Company is a party or may
be bound.
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<PAGE>
(c) Stock Options. None of the shares of the capital stock of
the Company is subject to any stock option, stock warrant, stock right or
agreement. The Company has not issued any securities convertible into stock or
made offers on commitments or incurred any obligation to issue shares of stock
or securities convertible into stock at any future time. Furthermore, the
Company is not a party to any agreement which offers or grants to any person or
entity the right to purchase or acquire any shares of the capital stock of the
Company.
(d) Absence of Undisclosed Liabilities. The Company has no
material liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise, including without limitation tax liabilities or the
guarantee of third party obligations, which are not reflected or accounted for
in the Financial Statements other than current liabilities incurred in the
ordinary course of business since the respective dates thereof. The Company does
not owe any money to any subsidiary other then as reflected in the latest
Financial Statement provided to Buyer under this Agreement.
(e) No Material Adverse Change. Since the date of the most
recent Financial Statements, there has not been (i) any material adverse change
in the financial condition or in the operations, businesses, prospects,
properties or assets of the Company considered as a whole from that shown in
such Financial Statements, and no event has occurred or circumstances exists
that may result in such a material adverse change; (ii) payment or increase by
the Company of any bonuses, salaries, or other compensation to any stockholder,
director, officer or, except in the ordinary course of business, employee or
entry into any employment, severance or similar contract with any director,
officer or employee; (iii) material change in the methods of accounting used by
the Company; (iv) sale (other than the sale of inventory in the ordinary course
of business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge or imposition of any lien or other Encumbrance on
any material asset or property of the Company; or (v) agreement, whether oral or
written, by the Company to do any of the foregoing.
(f) Tax Returns and Payments; Tax Status. The Company has duly
filed all federal, state and local tax returns required to be filed and has duly
paid in full all taxes and other governmental charges upon the Company or its
properties, assets, income and sales and has delivered copies of the Company's
last three (3) years tax returns to Buyer. The charges, accruals, and reserves
with respect to taxes on the books of the Company are adequate. All taxes that
the Company is or was required by law, ordinance or rule to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the proper governmental authority.
3
<PAGE>
(g) Legal Proceedings. There are no actions, suits,
proceedings or claims pending or, to the knowledge of the Company, threatened,
with respect to or in any manner affecting the Company or the Purchased Assets.
(h) Financial Statements. (i) The Sellers have previously
delivered to Buyer the Financial Statements. (ii) The Financial Statements
present fairly the financial condition and the results of operation, changes in
stockholders' equity, and cash flow of the Company as at the respective dates
set forth therein.
(i) Employees. The Company does not now maintain or make
contributions to, and has not in the past maintained or made contributions to,
any employee pension plan or employee benefit plan, as such terms are defined
under the Employee Retirement Income Security Act of 1974, as amended.
(j) Insurance. The Company carries insurance, which. is
adequate in character and amount, with reputable insurers, covering all of its,
assets, properties and, business, and it has provided all required performance
or other surety bonds.
(k) Environmental. (i) The Company has not transported,
stored, treated or disposed, nor has it arranged for or, to the knowledge of the
Company, allowed any third Person to transport, store, treat or dispose waste to
or at: (i) any location other than a site lawfully permitted to receive such
waste for such purposes, or (ii) any location designated for remedial action
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") or any similar federal or state statute; nor has it
performed, arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any laws or regulations or in any
manner which may result in liability for contamination of the environment. The
Company has not disposed, nor has it allowed or arranged for any third parties
to dispose of waste upon property owned or leased by it, except as permitted by
law.
(l) Brokers or Finders. The Company nor its respective agents
have incurred any obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
5.2 Buyer's Representations and Warranties. Buyer represents
and warrants to Seller that each of the following statements are true and
correct upon execution of this Agreement and at all times through Closing and
thereafter:
(a) Organization and Good Standing. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has all requisite corporate and other power and
all necessary permits, certificates, licenses, approvals and other
authorizations required to carry on its business in the manner in which such
business is presently carried on. The Buyer is qualified to do business and is
in good standing in every state or jurisdiction in which either the ownership or
use of its properties, or the nature of the activities conducted by it, requires
such qualification or the lack thereof would have a material adverse effect on
the Buyer.
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<PAGE>
(b) Authority. Buyer has full corporate power and authority to
execute, deliver and perform this Agreement and all other documents and
instruments to be executed by Buyer pursuant to this Agreement without the
consent of any other person or entity. This Agreement and the transactions
contemplated by it, have been validly approved and authorized by the Board of
Directors of Buyer, and its officer or officers executing this Agreement have
been duly authorized for that purpose.
(c) Valid and Binding Agreement. This Agreement constitutes a
valid and binding agreement of Buyer, enforceable against it in accordance with
its terms. Neither the execution and delivery of this Agreement nor the purchase
of the Purchased Assets and Inventory (i) violates or will violate any statute
or law or any rule, regulation or order of any court or governmental authority
applicable to Buyer, or (ii) violates or will violate, or conflicts with or will
conflict with, or constitutes a default under or will constitute a default
under, any contract, commitment or agreement to which Buyer is a party or by
which Buyer is bound.
(d) No Broker. Buyer has entered into no agreement to which a
party thereto is entitled to any brokerage or commission fee as a result of the
transactions contemplated hereby.
6. Conditions Precedent to Closing.
6.1 Conditions Precedent. All obligations of the parties under
this Agreement are subject to the fulfillment prior to or at the Closing of each
of the following conditions:
(a) Representations and Warranties True at Closing. Buyer's
and Seller's representations and warranties contained in this Agreement shall be
true at the time of Closing as though such representations and warranties were
made at such time.
(b) Performance. Each party shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with by such party prior to or at the Closing.
(c) Purchase Price. Buyer shall have delivered to Marino the
ECC Shares and the $1,792,000 in lawful currency of the United States of
America.
(d) Appraisal. Seller and/or the Company shall have received
an appraisal regarding the Company which substantially supports the Purchase
Price being paid hereunder.
(e) Board Approval. Buyer's Board of Directors shall have
approved the transactions contemplated hereby. Failure of Buyer's Board to
approve this Agreement shall render this Agreement null and void.
(f) Other Documents. Buyer shall have received such other
documents as Buyer may reasonably request for the purpose of (i) evidencing the
accuracy of any of Seller's representations and warranties, (ii) evidencing the
performance by Seller of, or the compliance by Seller with, any covenant or
obligation required to be performed or complied with by Seller, (iii) evidencing
the satisfaction of any condition referred to in this Section 7(c), or (iv)
otherwise facilitating the consummation or performance of any of the
transactions contemplated herein.
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7. Indemnification.
7.1 Indemnification of Buyer. Subject to the limitations
contained in this Section 7, Seller agrees to indemnify, defend and hold
harmless Buyer and each of its affiliates and their respective directors,
officers, employees, successors and assigns from and against any and all losses,
liabilities (including punitive or exemplary damages and fines or penalties and
any interest thereon), expenses (including reasonable fees and disbursements of
counsel and expenses of investigation and defense), claims, liens or other
obligations of any nature whatsoever (hereinafter individually, a "Loss" and
collectively, "Losses") which, directly or indirectly, arise out of, result from
or relate to (a) any inaccuracy in or any breach of any representation and
warranty which survived the Closing pursuant to Section 5.1 hereof, or any
breach of any covenant or agreement of Seller contained in this Agreement.
7.2 Indemnification of Seller. Subject to the limitations
contained in this Section 7, Buyer agrees to indemnify, defend and hold harmless
Seller, its affiliates and their respective directors, officers, employees,
successors and assigns from and against any and all Losses including reasonable
attorney's fees and costs which, directly or indirectly, arise out of, result
from or relate to (a) any inaccuracy in or any breach of any representation and
warranty, or any breach of any covenant or agreement, of Buyer contained in this
Agreement or in any document or other papers delivered by Buyer pursuant to this
Agreement.
7.3 Method of Asserting Claims. The party making a claim under
this Section 7 is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under this Section 7 is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Section 7
shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which
an Indemnifying Party would be liable to an Indemnified Party hereunder
is asserted against or sought to be collected from such Indemnified
Party by a third party, said Indemnified Party shall with reasonable
promptness notify in writing the Indemnifying Party of such claim or
demand, specifying the basis for such claim or demand, and the amount
or the estimated amount thereof to the extent then determinable (which
estimate shall not be conclusive of the final amount of such claim and
demand; the "Claim Notice"); provided, however, that any failure to
give such Claim Notice will not be deemed a waiver of any rights of the
Indemnified Party except to the extent the rights of the Indemnifying
Party are actually prejudiced by such failure. The Indemnifying Party,
upon request of the Indemnified Party, shall retain counsel (who shall
be reasonably acceptable to the Indemnified Party) to represent the
Indemnified Party and shall pay the reasonable fees and disbursements
of such counsel with regard thereto; provided, however, that any
Indemnified Party is hereby authorized prior to the date on which it
receives written notice from the Indemnifying Party designating such
counsel, to retain counsel, whose fees and expenses shall be at the
expense of the Indemnifying Party, to file any motion, answer or other
pleading and take such other action which it reasonably shall deem
6
<PAGE>
necessary to protect its interests or those of the Indemnifying Party
until the date on which the Indemnified Party receives such notice from
the Indemnifying Party. After the Indemnifying Party shall retain such
counsel, the Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (x) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention of
such counsel or (y) the representation of both parties by the same
counsel (in the opinion of such counsel) would be inappropriate due to
actual or potential differing interests between them, in which case
such fees shall be paid by the Indemnifying Party. The Indemnifying
Party shall not, in connection with any proceedings or related
proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one such firm for the Indemnified Party (except
to the extent the Indemnified Party retained counsel to protect its (or
the Indemnifying Party's) rights prior to the selection of counsel by
the Indemnifying Party). If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate with the Indemnifying Party and
its counsel in contesting any claim or demand which the Indemnifying
Party defends. A claim or demand may not be settled by the Indemnifying
Party without the prior written consent of the Indemnified Party (which
consent will not be unreasonably withheld) unless, as part of such
settlement, the Indemnified Party shall receive a full and
unconditional release reasonably satisfactory to the Indemnified Party.
(b) In the event any Indemnified Party shall have a
claim against any Indemnifying Party hereunder which does not involve a
claim or demand being asserted against or sought to be collected from
it by a third party, the Indemnified Party shall send a Claim Notice
with respect to such claim to the Indemnifying Party.
(c) After delivery of a Claim Notice, so long as any
right to indemnification exists pursuant to this Section 7 the affected
parties each agree to retain all Books and Records related to such
Claim Notice. In each instance, the Indemnified Party shall have the
right to be kept fully informed by the Indemnifying Party and its legal
counsel with respect to any legal proceedings. Any information or
documents made available to any party hereunder and designated as
confidential by the party providing such information or documents and
which is not otherwise generally available to the public and not
already within the knowledge of the party to whom the information is
provided (unless otherwise covered by the confidentiality provisions of
any other agreement among the parties hereto, or any of them), and
except as may be required by applicable Law, shall not be disclosed to
any third Person (except for the representatives of the party being
provided with the information, in which event the party being provided
with the information shall request its representatives not to disclose
any such information which it otherwise required hereunder to be kept
confidential).
8. Assignment.
8.1 Assignment and Amendments. This Agreement shall not be
assignable by any of the parties hereto, except that Buyer may, without the
prior written consent of Seller, assign this Agreement and any or all of its
rights and/or its obligations hereunder (i) to any one or more of its affiliated
companies prior to Closing or (ii) to one or more of its lenders as collateral
for a loan at any time. No assignment will relieve the assigning party of any of
its obligations hereunder. This Agreement cannot be altered or otherwise amended
except pursuant to an instrument in writing signed by all parties.
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<PAGE>
9. Miscellaneous.
9.1 Survival. All representations, warranties, covenants and
agreements made by either party or pursuant hereto, except as otherwise
expressly stated, shall survive Closing.
9.2 Releases. Upon execution of this Agreement, Buyer shall
cause Marino to be released from any and all personal guarantees of the
obligations of Marino Electric Company or in connection with the Business of the
Company.
9.3 Cooperation in Litigation. In the event and for so long as
any party is contesting, pursuing or defending against any charge, complaint,
action, suit, proceeding, hearing, investigation, claim or demand or pursuing
any claim in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing involving the Business (the
"Litigating Party"), the other party (the "Cooperating Party") shall use its
commercially reasonable efforts to cooperate fully with the Litigating Party and
its counsel in the contest, pursuit or defense, make available its personnel,
and provide such testimony, information and access to its books and records as
shall be necessary or reasonably desirable in connection with the contest,
pursuit or defense. The Litigating Party shall pay or reimburse the Cooperating
Party for reasonable travel and meal charges of the employees and other
reasonable out-of-pocket expenses of the Cooperating Party incurred in
connection therewith (unless the Litigating Party is entitled to indemnification
therefor, or is required to bear additional expenses, under Section 7).
9.4 Benefit. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of Seller and Buyer.
9.5 Third Party Rights. The provisions of this Agreement are
intended for the sole benefit of the parties and shall not inure to the benefit
of any other person or entity (other than permitted assigns of the parties or as
reflected in section 9.4 above.)
9.6 Governing Law. This Agreement is being delivered and is
intended to be performed in the State of Illinois and shall be construed and
enforced in accordance with the laws thereof.
9.7 Counterparts and Headings. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one and the same instrument. All headings in
this Agreement are inserted for convenience of reference only and shall not
affect its meaning or interpretation.
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9.8 Severability. Should any term, provision or section hereof
be held to be invalid, such invalidity shall not affect any other provisions or
sections hereof or thereof which can be given effect without such invalid
provision or section, all of which shall remain in full force and effect.
9.9 Further Assurances. The parties shall execute such further
documents, and perform such further acts, as may be necessary to consummate the
transactions herein.
9.10 Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
9.11. Entire Agreement. This Agreement represents the entire
agreement and understanding of the parties hereto and all prior and concurrent
agreements, understandings, representations and warranties in regard to the
subject matter hereof are and have been merged herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
SELLER:
/s/Joseph Marino
- ------------------------
Marino Electric Inc., by
Joseph Marino its President
JOSEPH MARINO:
/s/Joseph Marino
- -----------------------
Joseph Marino, individually
BUYER:
/s/Kevin McEneely
- ------------------------
ELECTRIC CITY CORP. by,
Kevin McEneely, its Secretary
9
EXHIBIT 10.6
DISTRIBUTOR AGREEMENT
THIS DISTRIBUTOR AGREEMENT (the "Agreement") is made by and between
Electric City Corp., a Delaware corporation ("Company") and Electric City of
Illinois LLC ("Distributor") this 7th day of September, 1999.
RECITALS
A. The Company's Business. The Company is presently engaged in the
business of selling an energy efficiency device, which is referred to as an
"Energy Saver" which may be improved or otherwise changed from its present
composition (the "Products"). The Company may engage in the business of selling
other products or other devices other than the Products, which will be
considered Products if Distributor exercises its options pursuant to Section 7
hereof.
B. Representations. As an inducement to the Company to enter into this
Agreement, the Distributor has represented that it has or will have the
facilities, personnel, and financial capability to promote the sale and use of
Products. As an inducement to Distributor to enter into this Agreement the
Company has represented that it has the facilities, personnel and financial
capability to have the Products produced and supplied as needed pursuant to the
terms hereof.
C. The Distributor's Objectives. The Distributor desires to become a
distributor for the Company and to develop demand for and sell and distribute
Products solely for the use within the State of Illinois, including but not
limited to public and private entities, institutions, corporations, public
schools, park districts, corrections facilities, airports, government housing
authorities and other government agencies and facilities (the "Market").
D. The Company's Appointment. The Company appoints the Distributor as
an exclusive distributor of Products in the Market, subject to the terms and
conditions of this Agreement.
1. ESTABLISHMENT OF DISTRIBUTORSHIP
1.1 Grant and Acceptance. Company hereby appoints
Distributor as Company's exclusive distributor within
the Market and grants to Distributor the exclusive
right to sell and distribute Products within the
Market, and Distributor hereby accepts such
appointment and such grant, in accordance with the
terms and conditions of this Agreement. Distributor
acknowledges that customers of other distributors of
the Products may have sites, locations or operations
in the Market, which will use the Products.
Distributor will sell any and all Products required
by such customers in the Market to those customers.
Distributor also acknowledges that if its customers
have sites, locations or operations outside the
Market, in the market of another exclusive
distributor of the Products, those customers will be
required to purchase products from the applicable
exclusive distributor in that market; otherwise,
Distributor shall be free to sell to its customers in
any market which does not have another exclusive
distributor.
<PAGE>
1.2 License. The Company hereby grants the Distributor
the right to do business and use the name "Electric
City of Illinois" or a similar variation thereof
(collectively the "Names") for use under this
Agreement. Distributor may file with the appropriate
state and local authorities assumed name certificates
as required. Copies of all documents relating to the
use of the Names shall be forwarded to the Company.
Upon termination of this Agreement Distributor shall
have no further right to the Names and said License
to use the Names shall terminate. Distributor shall
have no right to sublicense the Names or to do
business under any other names without the Company's
prior approval in writing. The parties acknowledge
that the terms herein consist of there terms for
Illinois. At the request of either party, a new
agreement reflecting the terms and conditions of this
Agreement, may be executed for each state or entity
representing each state.
1.3 Term. The term of this Agreement shall be ten (10)
years (the "Term") which shall commence on the date
upon which the Company delivers to Distributor the
last Sample, as defined hereinafter. If Distributor
complies with all of the terms of this Agreement, the
Agreement shall be renewable on an annual basis for
one (1) year terms for up to another ten (10) years
on the same terms and conditions as set forth herein.
All renewals of this Agreement shall be on the same
terms and conditions as are set forth herein.
1.4 Company's Obligation. Company shall sell and deliver
as provided in Section 2.3 of this Agreement to
Distributor on the price terms set forth in this
Agreement or as amended from time to time such
quantity of Products as Distributor from time to time
orders from Company. Company shall promote and
advertise the Products generally, at its own expense,
and shall furnish Distributor copies at all
advertisement and promotional materials.
1.5 The Distributor's Obligation. The Distributor, at its
own expense, shall promote the distribution, sales,
and use of Products in the Market.
1.6 Distributor's Terms and Minimum Expectations. In
order to maintain the exclusive rights to sell,
lease, distribute and service Products in the Market,
the Distributor must use all commercially reasonably
efforts to purchase for sale to subdistributors the
following minimum quantities of the Products from the
Company:
On the commencement of the Term Distributor will issue to the Company
an irrevocable letter of credit ("LC") in the amount of Five Hundred Thousand
Dollars ($500,000), the form of which is attached hereto as Exhibit A and
incorporated herein by reference. The LC shall have a two (2) month term, and
shall be renewed for five (5) consecutive bimonthly periods. A minimum of a
$250,000.00 purchase order must be received by Company by the first of each
month for a total (12) month period. The Company may draw funds from the LC to
pay for Distributor's purchases, which are not paid according to the terms in
Section 2.7. Prices for the EnergySaver units are
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provided by the Company as Exhibit C. The Company will be entitled to draw
against the LC pursuant to the terms of the LC.
(A) 375 units in the first Product Year (1999)
(B) 750 units in the next succeeding Product Year; (2000)
(C) 937 units in the next succeeding Product Year; (2001)
(D) 1,171 units in the next succeeding Product Year; (2002)
(E) 1,463 units in the next succeeding Product Year; (2003)
(F) 1,828 units in the next succeeding Product Year; (2004)
(G) 2,285 units in the next succeeding Product Year; (2005)
(H) 2,856 unit each in the lat three years of
the initial Term of this Agreement and any
renewals thereof.
For purposes of this Agreement, a Product Year shall be the twelve (12)
month period following the commencement of the initial Term of this Agreement
and each twelve (12) months thereafter. Distributor's expected sales shall
include the purchase of the Samples as defined hereinafter.
Sales in excess of the expected sales which are actually made in a
Product Year may be applied to meet the expectations for the next Product Year.
Any such carry-over from one year to the next Product Year may not be considered
in determining whether there is a carry-over from that next Product Year. Thus,
by way of example and not limitation, if there was an expectation of 50 in year
one and 200 for year two and 60 units are sold in year one and 195 units are
sold in year two, the expectation for year two will have been met, but there
will be no carry-over to year three. If the Distributor shall fail to purchase
the minimum number of units in any year, the Distributor's exclusive rights to
sell and distribute the Product in the Market, may at Company's sole option, be
reevaluated.
Company agrees that Distributor shall not be liable or subject to
reevaluation for failure to meet expectations due to any occurrence beyond
Distributor's reasonable control, including, but not limited to, Acts of God,
fires, floods, wars, sabotage, accidents in shipping, labor disturbances,
weather conditions, governmental regulation, lack of Company performance, delay
by Company, failure of Company to honor warranties or otherwise materially
support the Products.
The aggregate units to be sold on an annual basis described above are
for the Illinois distributorship on an aggregate basis.
1.7 Relationship of Parties. The relationship between the Company
and the Distributor
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is that of vendor and vendee. This Agreement does not create
the relationship of principal and agent between the Company
and the Distributor for any purpose whatsoever. This Agreement
shall not be construed as constituting the Distributor and the
Company as partners, joint venturers, or as creating any other
form of legal association or arrangement which would impose
liability upon one party for the act or omission of the other
party. Neither party is granted any express or implied right
of authority by the other party to assume or to create any
obligation or responsibility on behalf of or in the name of
the other party, or to bind the other party in any manner or
thing whatsoever.
2. PURCHASE OF PRODUCTS
2.1 Orders. The Distributor shall order Products from the Company
on a purchase order form mutually acceptable to the Company
and Distributor and which is consistent with Exhibit B hereto,
and which incorporates the terms and provisions of this
Distributor Agreement. The Distributor shall not order or
purchase Products from any source other than the Company. All
orders shall be subject to acceptance and confirmation by the
Company. Distributor may cancel an order that is properly
cancelled by Distributor's customer, unless the Company has
commenced production which is in any way customized for that
customer. The Distributor shall annually provide the Company
with a non-binding forecast of orders for Products for the
succeeding 12-month period.
2.2 Shipment. The Company and the Distributor shall jointly
determine shipment dates. The Company shall use commercially
reasonable efforts to ship promptly all orders for Products
received from the Distributor. In addition to any other remedy
which this Agreement provides to Distributor against Company,
if Company fails to deliver or delays in delivering Products
as were ordered by Distributor within 45 days after their
required delivery date, and if as a result of such failure or
delay Distributor loses its customer's orders for those
Products, the number of units which Distributor ordered but
were not timely delivered to Distributor or to Distributor's
customer will be credited against Distributor's minimum
expectation as specified on Section 1.6 of this Agreement. The
Company may refuse to accept a purchase order on the grounds
that it cannot meet the delivery schedule therein, and if as a
result of such failure or delay Distributor loses its
customer's orders for those Products, the number of units
which Distributor ordered but were not timely delivered to
Distributor or to Distributor's customer will be credited
against Distributor's minimum. Distributor shall make
reasonable efforts to notify the Company of the proposed
delivery schedule before accepting a customer order and shall
give the Company written notice of any customer purchase
orders which imposes liability for late shipment and neither
the Distributor nor the Company shall have a liability for
consequential or liquidated damages pertaining to late
delivery unless Company specifically acknowledges and agrees
in writing to the same. The Distributor agrees that the
Company shall not be liable for its failure to perform due to
any occurrence beyond the Company's reasonable control,
including, but not limited to, acts of God, fires,
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floods, wars, sabotage, accidents in shipping beyond the
Company's control, labor strikes other than strikes against
the Company itself, weather conditions or foreign or domestic
government regulation or authority which directly affects
Company's ability to deliver Product.
2.3 Delivery. Other than "drop ship" deliveries, all deliveries
made pursuant to this Agreement shall be FOB the Company's
facilities located within the continental United States by a
carrier authorized by the Distributor.
2.4. Prices.
(A) Prices For Basic Units. The prices for Products in
the first Product Year are supplied by Company as
Exhibit C.
(B) Inflation Price Adjustment. The prices set forth in
Section 2.4(a) shall be subject to adjustment
annually on the first day of each Product Year
beginning in the calendar year 2000 and on the first
day of each succeeding Product Year for the remainder
of the Term and all renewals of this Agreement in
proportion to the increase or decrease in the
Consumer Price Index (CPI) as compared to the CPI as
it existed on the first day of the Term of this
Agreement. The Company also reserves the right to
increase or decrease the price per unit based on
Company wide changes in unit prices to all
distributors of the Company, provided however, that
any price changes, other than those based on the CPI,
shall be uniformly applied to all distributors of the
Products and shall reasonably applied to all
distributors of the Products and shall reasonably
reflect Company's costs of manufacturing the Products
and/or market demand for the Products, provided
further than any increase in price based upon market
demand shall not be so great as to deprive
Distributor of its normal and customary profit
margin. The Company agrees to exercise this right in
good faith, and consider all circumstances of the
Distributor and the Company. The CPI referred to
herein in issued by the Bureau of Labor Statistics of
the U.S. Department of Labor. Should the Bureau of
Labor Statistics discontinue publication of the CPI,
the parties shall accept comparable statistics on the
purchasing power of the consumer dollar as published
at the time of said discontinuation by responsible
periodical or recognized authority to be chosen by
the parties.
2.5. Resale Prices. The Distributor may resell Products at such
price, as the Distributor, in its sole discretion, shall
determine. While the Company has the right to suggest a range
of manufacturer's suggested retail prices for the Products,
the distributor is not obligated to set retail prices within
the Company's suggested range of retail prices.
2.6 Product Returns.
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(A) Non-defective Products. Unless the Company has first
authorized or permitted the return of any
non-defective Products and except as otherwise
permitted or required herein, the Company shall not
be obligated to accept the return from the
Distributor of any non-defective Products, nor to
make any exchanges therefor, nor to credit the
Distributor therefor. If Company does not give Annual
Notice pursuant to Section 3.1 hereof, Distributor
may, within 90 days of modification, improvement or
alteration, return the Products to the Company. The
Company shall not have any obligation with respect to
Products after 365 days following delivery to
Distributor, except as provided herein.
(B) Defective Products. In the event of any damages or
other defect in a Product which is discovered by
Distributor within 365 days of satisfactory
installation of a Product at Distributor's or a
subdistributor's customer, the Distributor shall
promptly report the same to the Company and
reasonably demonstrate the defect to the Company. If
the Distributor reasonably demonstrates that the
Company is responsible for such damage or defect, the
Company shall promptly deliver and install at the
Company's expense, additional or substitute Products
to the subdistributor's customer without additional
cost or charge to the Distributor or the customer for
material, labor, shipping, insurance or any other
charge.
2.7 Payment Terms. Distributor shall pay Company within thirty
(30) days of Distributor's or, as the case may be, the
end-user's receipt of Products.
2.8 Company Cooperation. The Company shall cooperate with the
Distributor in obtaining all necessary permits and approvals
to permit the use of the Products. The Company shall bear
responsibility for any permits needed to manufacture the
Products and Distributor shall bear responsibility for any
permits needed to distribute the Products.
3. PRODUCTS AND WARRANTY
3.1 Product Improvements by the Company. At the Company's sole
discretion, and at any time, the Company may give the
Distributor at least 90 days advance notice ("Annual Notice")
of any modification, improvement or alteration of Products
("New Products") and development of new models of Products
(collectively with "New Products", "Improved Products").
Except for the Improved Products for which the Distributor
receives the Annual Notice, the Company shall sell Improved
Products to Distributor only with the consent of the
Distributor. Any Improved Products shall be subject to the
provisions of this Agreement. Old Products will remain
available unless
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Improved Products perform at the same or better levels and are
offered at reasonably similar prices or at prices increases,
which reasonably reflect improvements in performance.
3.2 Product Improvements by the Distributor. The Distributor shall
disclose to the Company any modifications to Products
requested by end-users or other proposals for Product
improvement from end-users or the Distributor, but shall have
no right to make modifications without Distributor's consent.
3.3 Warranty. Company shall at all times make reasonable efforts
to maintain quality control and to deliver Products to
Distributor which, when received by Distributor, or, as the
case may be, the end-user, are properly and adequately
packaged and contained, fully assembled (except for
miscellaneous components which may be shipped separately to
prevent damage in transit), fully functional and otherwise in
conformance with the warranties set forth herein. Company
warrants that the Products will be designed, manufactured,
constructed, assembled and packaged in a workmanlike manner
and that such Products shall be fully functional and fit for
their intended purposes. Company further warrants that the
Products sold hereunder shall be free from defects in design,
materials and workmanship for a period of twenty-four (24)
months after delivery to Distributor's end-user. The Company
shall not be liable for defective Products, except as provided
in this Agreement. The Distributor at all times shall comply
with all requirements of the Magnuson-Moss Warranty-Federal
Trade Commission Improvement Act and similar federal and state
laws and regulations.
3.4 Warranty Work. If, within the twenty-four (24) month warranty
period set forth above, Company received from Distributor or
any of Distributor's end-user's a notice which may be oral
notice confirmed in writing) that any of the Products sold
hereunder do not meet the Warranties specified above, Company
shall thereupon correct each such defect by providing the
necessary repairs, and/or replacement parts, or if necessary,
Products. Company shall promptly respond to any timely notice
of defect. Unless otherwise expressly agreed to in writing by
Distributor or Distributor's and-user, Company shall bear the
reasonable expense of all labor, materials and shipping
expended or used in connection with the correction of any
defects in the Products occasioned by the non-conformance of
the Product with Company's warranty as set forth herein.
Company shall be entitled to dispute whether a Product is
defective. In the event that Company is unable or unwilling to
promptly perform any warranty work without reasonable cause
and following full and fair opportunity to do so, or in the
event of the necessity for emergency repairs of a defective
Product for which there is no reasonable possibility of
performance by Company, Distributor may perform such warranty
work or hire a third party to perform such warranty work and
the reasonable cost thereof shall be paid by Company.
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3.5 Service of Products in Territory. Within thirty (30) days
after the execution of this Agreement, the Company and the
Distributor shall mutually agree upon a reasonable schedule of
charges for after market parts and services provided by the
Company or the Distributor so that such charges do not
adversely affect the marketability of the Products.
3.6. Non-Disclosure of Confidential Information. None of the
parties hereto nor their associated or affiliated or
affiliated companies shall during the term of this Agreement
or thereafter disclose any confidential information obtained
or acquired by them in connection with the Products and the
business of the other, including, without limitation, trade
secrets, business techniques, technical information, customer
and potential customer lists, marketing data and information,
prices, improvements to the Products in various stages of
development, processes, or other confidential information
relating to the Products or the business of the Distributor,
except that either party shall be permitted to disclose (x)
all or portions of such confidential information on a strictly
need-to-know basis to the extent required by an order of a
court of competent jurisdiction or by the order or demand of a
regulatory body having jurisdiction over one or both parties
and (y) any of such confidential information that is the sole
property of the party making the disclosure and does not
include any information owned by the other party. The
Distributor shall not disclose this agreement except upon
consent of Company. Confidential information shall not include
information which:
(A) Is or becomes generally available to the party who
desires to disclose such information (or its
associated or affiliated companies) (a "Disclosing
Party") other than as a result of a breach of this
Agreement or some other unlawful means;
(B) Becomes available to the Disclosing Party on a
non-confidential basis from a third party who is
under no confidentiality or nondisclosure obligation
with respect to such information; or
(C) Was known to the Disclosing Party on a
non-confidential basis prior to the disclosure
thereof to such disclosing Party by a party to this
Agreement.
4. DURATION AND TERMINATION
4.1 Duration. Unless earlier terminated otherwise provided
therein, this Agreement, subject to the commencement date
established in Section 1.3, shall be effective immediately.
Distributor shall submit written reports to the Company each
quarter during the first year of the Term, commencing ninety
(90) days after execution of this Agreement, describing its
efforts, the potential customers it has approached and the
status of its efforts.
4.2 Termination for Cause. Either party may terminate this
Agreement upon 30 days
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prior written notice to the other upon the occurrence of any
of the following events: (A) the Distributor's failure to make
full and prompt payment to the Company of all sums due and
owing to it; (b) either party's default in the performance of
any of the material, terms, conditions, obligations,
undertakings, covenants or liabilities set forth herein and
such default is not cured within a commercially reasonable
time after the defaulting party has been notified of the
default by the other party and (c) as otherwise expressly
provided herein. In the event either party (a) becomes
adjudicated insolvent, (b) discontinues its business, (c) has
voluntary of involuntary bankruptcy proceedings instituted
against it, or (d) makes an assignment for the benefit of
creditors, the other party shall be entitled to terminate this
Agreement effective immediately upon written notice.
4.3 Accrued Obligations. In the event that either Distributor or
Company fails to comply with the terms of this Agreement, both
Distributor and Company acknowledge and agree that in addition
to any claim for damages either party may have arising from
the default of the other, they shall have the right to seek
equitable relief by way of a temporary restraining order,
preliminary injunction, permanent injunction and such other
equitable relief as may be appropriate. In the event a party
seeks the equitable relief of a temporary restraining order,
preliminary injunction, permanent injunction, mandatory
injunction or specific performance both parties acknowledge
that they shall not be required to demonstrate the absence of
an adequate remedy at law, and neither party shall be required
to post bond as a precondition to obtaining a temporary
restraining order or preliminary injunction. The termination
of this Agreement shall not relieve either party hereto from
obligations which have occurred pursuant to the provisions of
this Agreement prior to its termination, nor shall it release
either party hereto from any obligations which have been
incurred as a result of operations conducted under this
Agreement.
4.4 Repurchase of Products. Upon the expiration or termination of
this Agreement, pursuant to Section 4.1 or 4.2 hereof, the
Company may, at its option to be exercised within 30 days of
the date of the termination of this Agreement, and in its sole
discretion, repurchase any Products in the possession of the
Distributor at the net invoice price paid by the Distributor
to the Company less any applicable special allowances,
discounts, shipping or allowances for cooperative advertising.
If Company terminates the Agreement without cause and for
reasons other than Distributor's failure to meet its minimum
expectations; it shall repurchase from Distributor any
unopened Product, and shall bear all shipping, handling and
related costs notwithstanding any other remedies to which
Distributor may be entitled. On demand and tender of the
repurchase price, the Distributor shall be obligated to
deliver such Products to the Company. The Company reserves the
right to reject any Products that are not factory sealed and
in new and unused condition. Repurchased Products shall be
shipped at the Company's expense, and the Company may offset
any indebtedness of the Distributor to the Company against the
repurchase price of such Products. Following expiration or
termination of this Agreement, the Distributor may continue to
sell any Products in the Market which are in its inventory
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and which the Company has not repurchased.
5. REPRESENTATIONS AND WARRANTIES AND OTHER MATTERS
5.1 Representations and Warranties of Company.
(A) The Company represents that, to the best of its
knowledge, Products are in compliance with all laws,
and that the Products will not be hazardous or
dangerous when used for their intended purpose.
Products do not cause harmful emissions or other
environmental hazards and Products do not violate or
infringe any patents, copyrights, trademarks or other
rights of nay third party(ies). Company further
represents and warrants that its Products will
perform as advertised and promoted by the Company,
and will be approved or certified by Underwriters
Laboratory.
(B) The Company will make available to Distributor
comprehensive technical support for the first Product
Year. Distributor will have direct access to (a) the
Company's engineering consultants and (b) the patent
holder's technicians. Company's representatives will
make themselves available three days per month in the
first Product Year to consult with and train
Distributor. All costs and expenses associated with
the services provided to Distributor hereunder,
including travel, lodging, engineering consultants'
fees and employee time will be paid by Distributor.
(C) Company will timely furnish all of Distributor's
requirements for Products within the Market, provided
it is given adequate notice of Distributor's
requirements and a full and fair opportunity to
fulfill the same.
5.2 Representations and Warranties of Distributor.
(A) Distributor shall be entirely responsible for
learning, understanding and training about the
Products, the costs of advertising and promoting the
Products in the Market through the Term of this
Agreement. Distributor shall not issue, print or
disseminate any information about the Products in the
first Product Year without the express written
consent of the Company.
(B) Distributor will not engage the services of any
engineering or consulting firm without the express
written consent of the Company.
5.3 Indemnification. Company and Distributor agree to indemnify,
defend and hold each other harmless from any and all suits,
claims, obligations, liabilities, damages, losses and the like
(including attorneys' fees and costs) relating to or arising
out of: (A) any breach of any material representations,
warranties, covenants, obligations, agreements or duties in
connection with this Agreement; (b) any negligence or fault;
(c) any violation by either of them of the patent, copyright,
trademark or other
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intellectual property rights of third parties. In addition,
Company agrees to indemnify, defend and hold harmless
Distributor from and against all suits, claims, obligations,
liabilities, damages, losses and the like (including
attorneys' fees and costs) arising out of or related to
Company's manufacture or design of the Products, provided that
Distributor is not at fault in connection with the same, and
Distributor agrees to indemnify, defend and hold harmless
Company from and against all suits, claims, obligations,
liabilities, damages, losses and the like (including a
attorneys' fees and costs) arising out of or related to
Distributor's sales, marketing practices or unauthorized
Product alteration (provided that Company is not at fault in
connection with same).
5.4 Product Liability Insurance. Company will carry a reasonable
amount of product liability insurance through a reasonably
acceptable products liability insurance company and will name
the Distributor as an additional insured under that policy.
Company will make reasonable efforts to procure a policy,
which is non-cancelable, except upon thirty (30) days, advance
notice to the Distributor.
5.5 No License. The Distributor acknowledges and agrees the except
as provided by Section 1.2 of this Agreement, this Agreement
will not be construed as granting by implication, estopped or
otherwise any license or other right of use with respect to
any present or future patent, copyright, trademark, trade name
or other proprietary right owned by or licensed to the Company
or any of its affiliates.
5.6 No Action to Invalidate. During the Term of this Agreement and
for three years thereafter, the Distributor (on behalf of
itself and each of its affiliates) agrees not to commence, or
provide any information to or otherwise assist any person or
entity in connection with, any suit, action or proceeding
contesting the ownership, validity or enforceability of any
patent, copyright, trademark, trade name or other propriety
right owned by or licensed to the Company, whether currently
existing or hereinafter invented, developed or acquired unless
required to by court order. The Distributor agrees to inform
the Company promptly and cooperate with the Company in the
event the Distributor obtains knowledge of any such suit,
action or proceeding which has been initiated or is
contemplated by any other person or entity.
5.7 Nonsolicitation.
(A) During the Term of this Agreement and for a period of
twelve (12) months thereafter, the Distributor (on
behalf of itself, each of its affiliates and each of
their respective representatives) agrees that it will
not directly or indirectly solicit or hire any
executive, managerial or technical employee of the
Company or any of its affiliates.
(B) Distributor further agrees that it will not interfere
with or otherwise disrupt the business relations
between the Company or nay of its affiliates and any
of their current or prospective customers, suppliers
or distributors, during the
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Term of the Agreement and for a period of eighteen
(18) months thereafter, nor will Distributor solicit
any customer or potential customer of Company to
purchase a competitive product during that period.
5.8. Nonpublic Information. The Distributor acknowledges that is it
aware that the securities laws prohibit any person who has
material, non-public information concerning the Company or the
matters which are the subject of this Agreement from
purchasing or selling securities of the Company (or options,
warrants and rights relating thereto) and from communicating
such information to any other person under circumstances in
which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.
6. INTERPRETATION AND ENFORCEMENT
6.1 Assignment. No assignment of this Agreement or any right
accruing hereunder shall be made by the Distributor in whole
or in part, without the prior written consent of the Company,
which consent shall not be unreasonably withheld. As a
condition to obtaining such consent, the Assignee of
Distributor's interest hereunder shall first agree in writing
in form and substance satisfactory to the Company, that is
shall assume and be liable for the performance of all
obligations imposes by this Agreement on Distributor, whether
such obligations have then accrued are owing, or are yet to be
performed, and shall demonstrate that is has the economic, and
with approval of the assignment, the legal capability to
perform all of the obligations of Distributor hereunder.
Company may assign its interest in this agreement to any
person or entity which has authority to fulfill Company's
obligations hereunder and which has the economic ability to
perform its obligations hereunder. Upon the assignment of a
party's interest and rights in this Agreement the assigning
party shall be relieved of all further obligations imposed by
this Agreement.
6.2 Nonwaiver of Rights. Failure of either party to enforce any of
the provisions of this Agreement or any rights with respect
thereto or failure to exercise any election provided for
herein shall in no way be a waiver of such provisions, rights
or elections or in any way affect the validity of this
Agreement. The failure of either party to exercise any of said
provisions, rights or elections shall not preclude or
prejudice such party from later enforcing or exercising the
same or any other provisions, rights or elections which is may
have under this Agreement.
6.3 Invalid Provisions. If any terms, provision, covenant, or
condition of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions shall remain in full force and
effect and shall in no way be affected, impaired or
invalidated.
6.4 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, or sent by facsimile
transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so
delivered personally,
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<PAGE>
telegraphed, telexed or sent by facsimile transmission or, if
mailed, two (2) business days after the date of deposit in the
United States mail, by certified mail return receipt
requested, as follows:
If to the Distributor to:
Electric City of Illinois L.L.C.
8628 Oketo Avenue
Bridgeview, IL 60455
Facsimile No. (708) 598-4671
Attn: Jim Stumpe
With a copy to:
Thomas V. McCauley
200 W. Adams, Suite 2500
Chicago, IL 60606
Facsimile No. (312) 346-9316
If to Company to:
Electric City Corp.
1280 Lanmeier Rd.
Elk Grove Village, IL 60007
Attn: Joseph Marino, President
With a copy to:
Kwaitt & Ruben, Ltd.
211 Waukegan Road
Suite 300
Northfield, Illinois 60093
Attn: Philip E. Ruben, Esq.
6.5 Entire Agreement. This Agreement, together with all exhibits attached
hereto which are hereby incorporated by reference, supersedes any and
all other agreements, either oral or written, between the parties
hereto with respect to the subject matter hereof and contains of the
covenants and agreements between the parties with respect to said
matter. This Agreement may not be altered, amended or modified, except
by written instrument signed by the parties hereto.
6.6 Sample Products. Company will, during the Term of this Agreement (and
any renewal term), provide Distributor, at Distributor's cost pursuant
to the terms of this Agreement, with five (5) sample units (the
"Sample" or "Samples") for use by Distributor in promoting sales.
Distributor shall use the Samples for purposes of permitting potential
customers to use the Products in the field. The Samples purchased by
Distributor hereunder shall count toward the minimum expectations under
this Agreement.
6.7 Time of the Essence. Time is of the essence of this Agreement.
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6.8 Force Majeure. Neither party to this Agreement shall be liable to the
other party, nor shall be subject to injunctive relief by the other
party if that party's performance of its duties or obligations under
this Agreement is the consequence of Force Majeure as defined in
Section 2.2 hereunder.
6.9 Governing Law. This Agreement is to be construed according to the laws
of the State of Illinois.
7. NEW PRODUCTS
7.1 Right of Option. Should Company introduce other products or
devices as contemplated by recital paragraph "A", Distributor
shall have the option of becoming Company's exclusive
distributor of such other Products or devices within the
Market.
7.2 Exercise of Option. Distributor shall exercise its option to
become exclusive Distributor of other Products or devices by
serving written notification on Company of its election to
become exclusive distributor within thirty (30) days upon
which Company informed Distributor in writing of Company's
intention to introduce other Products or devices. If
Distributor does not exercise its option as herein provided,
Company may distribute the other Products or devices within
the Market itself or through other distributors.
7.3 Other Agreements. The terms pursuant to which such other
Products or devices shall be sold by Company to Distributor
shall be determined by a separate agreement, but such
agreement shall be essentially on the same terms and
conditions as herein provided, understanding that such terms
as price, quotas, and length of the term of the agreement
shall be reasonably adjusted to reflect the nature of the
other Product or device which is the subject of the agreement.
In witness whereof the parties have executed this Agreement as
of the date first abovementioned.
Electric City Corp. Electric City of Illinois L.L.C.
By: /s/Joseph Marino By: Jim Stump
------------------- -------------------------------
President
Page -14-
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
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<NAME> ELECTRIC CITY CORP.
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