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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
ADVANCED SYSTEMS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
NEVADA
(Jurisdiction of incorporation
or organization)
13-3953047
(I.R.S. Employer
Identification No.)
25300 TELEGRAPH ROAD, SUITE 455, SOUTHFIELD, MI 48034
(Address of principal executive offices)
(248) 263-0000
(Registrant's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH EACH CLASS
TO BE SO REGISTERED IS TO BE REGISTERED
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<S> <C>
N/A N/A
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
COMMON STOCK, $.001 PAR VALUE
-----------------------------
<S> <C>
Title of Class
</TABLE>
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The discussion throughout this registration statement contains certain
forward-looking statements which involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, the uncertainty as to the
Company's future profitability; the uncertainty as to the demand for information
technology services and solutions; industry trends towards outsourcing
information technology services; increasing competition in the information
technology services market; the ability to hire, train and retain sufficient
qualified personnel; the ability to obtain financing on acceptable terms to
finance the Company's growth strategy; the ability to develop and implement
operational and financial systems to manage the Company's growth; and other
factors referenced in this registration statement.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Advanced Systems International, Inc. ("AdSys"), a Nevada corporation, is
the holding company for one operating subsidiary, Automatic Time Systems Corp.
("ATS"). References in this registration statement to "the Company" mean both
AdSys and ATS.
ATS is a developer and supplier of time and attendance and data integration
software applications. ATS' product offering includes the application software,
hardware, implementation services and ongoing support necessary for deployment
of enterprise-wide data management. ATS markets its products through direct
sales and in conjunction with strategic partners.
AdSys and ATS are headquartered in Southfield, Michigan, a suburb of
Detroit.
BACKGROUND
ATS was formed in 1995 to acquire substantially all the assets and certain
liabilities of Automated Time Systems Corp. This acquisition was completed in
early 1996.
AdSys was formed in October 1996, originally named Bennington Corporation.
From October 1996 to May 1997, Bennington had no assets, shareholders or
operations. In May 1997, Bennington issued 2,000,000 shares for aggregate
consideration of $20,000.
In June 1997, Bennington consummated an equity placement of 980,000 shares
for aggregate consideration of $980,000. On July 8, 1997, Bennington, then a
publicly-held (but not traded) shell company, acquired ATS via a "reverse
takeover" merger. In that transaction, the ATS shareholders received 4,906,667
(62%) of Bennington's then outstanding common shares, with the prior Bennington
shareholders retaining the balance of 2,980,000 shares (38%). Bennington then
changed its name to Advanced Systems International, Inc.
PRINCIPAL PRODUCTS
ATS has developed and markets two software products. The first product,
ATServer(R), is an application to track employee time and attendance data at
labor intensive companies. The second product, ATLink(TM), is an integration (or
bridging) application that allows various data collection devices (such as bar
code scanners) to send information on a vast array of transactions from the
warehouse or manufacturing floor to a central location. With these products,
employee and inventory data are provided in "real time", and are made available
to managers and supervisors throughout the organization. As a result, critical
business decisions for supply or labor allocations can be made based on current
and accurate data.
In order to provide a complete solution, ATS bundles implementation
services, on-going support for its products, and third-party hardware together
with its software products. Key markets include automotive, automotive supply,
packaged goods, pharmaceuticals, food processing and other manufacturing
industries.
For a typical implementation, ATS representatives work with customers to
develop a strategy that provides a tailored time and attendance and/or data
collection solution. Once that strategy is defined, a
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functional specification is developed, and the ATS professional services team
configures and modifies the existing software to meet requirements.
When the implementation is complete, ATS provides a full range of support
on an on-going, automatic renewal basis that the client can select to fit their
needs. Typical installations can take from 2 to 6 months depending on the
complexity of the management reporting requested, the number of sites and users,
and the timeline of the customer.
ATS's customers tend to be large industrial companies, and the initial
contracts tend to be for significant contract sizes. In 1997, one customer
accounted for 84% of ATS's revenues, and in 1998, 5 customers accounted for 72%
of total revenues. However, recurring revenues for a particular contract with a
customer after the initial sale and installation tend to be significantly lower
than in the initial phase, coming primarily from fees for support and
maintenance services.
ATSERVER(R)
ATServer(R) is a client/server time and attendance solution. The software
is linked to the traditional "punch-in time clock" or any other electronic
log-in device that employees use upon entering and exiting plants. ATServer(R)
instructs various hardware and peripherals by sending employee "coming and
going" information to the payroll department, supervisors and managers. The
result is that actual information can be compared to scheduled data, identifying
exceptions and alerting management. Therefore, the supervisor has the
flexibility to manage resources based on this "real time" comparison of
information.
ATServer(R) is best suited in labor intensive companies, where large groups
of employees on shift enter and leave their plant within short time frames.
Users are alerted to employees that are late, absent or are on leave. As
ATServer(R)automatically updates payroll information (including sick leave,
vacation time, etc.), it helps ensure that salary errors do not occur.
ATServer(R) meets critical user demands that software packages be reliable
and able to interface with other software solutions. It effectively reduces the
time and costs associated with supervisors performing normal employee allocation
tasks. ATS anticipates continued growth of the time and attendance industry
because of:
- companies investing to solve Y2K compliance problems,
- rapidly increasing demand for software solutions that provide accurate,
"real time" data, and
- increasing focus on compliance with labor and other regulations.
Typical functional areas linked by packaged software include warehouse
management, payroll, materials movement and human resources. These areas are
often referred to collectively as ERP (Enterprise Resource Planning).
In late 1998, ATS entered into a software marketing and license agreement
with Electronic Data Systems Corporation (commonly known as "EDS"). Under that
agreement, EDS may obtain and resell ATS's products, and may engage or
subcontract ATS to provide installation, consulting, development, support and
other services. It is still too early in this relationship to tell how much
sales or revenue volume will result from this alliance.
ATS worked with Perot Systems Inc. to develop ATS's ATServer(R) product to
fulfill a large contract with DaimlerChrysler Corporation. After the initial
installation of ATServer(R) at one DaimlerChrysler plant, DaimlerChrysler has
obtained a broad software license from ATS and now is rolling out installations
in several other plants using its own computer personnel.
ATSERVER(R) COMPETITIVE ADVANTAGES
ATServer(R) is designed in a Windows(TM) format (rather than DOS) and
utilizes some of the most popular software applications. Windows applications
are known to most users and can be linked to a variety of other
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programs. As a result, new users of the system are often familiar with its
"look", which helps expedite the learning process.
ATServer(R) is also non-proprietary and can link to various popular
hardware and software offerings. This is a distinct advantage, as many
competitors have developed their applications to run on specific hardware or
software, limiting their offering to those parameters.
ATSERVER(R) COMPETITION
The time and attendance industry can be categorized as mature. Two
companies dominate the sector: Kronos Incorporated and Simplex Time Recorder Co.
Kronos has released a client/server time and attendance application. As of this
date, Simplex has not released an open client/server time and attendance
solution.
Because the ATServer(R) was developed with Perot Systems for
DaimlerChrysler, ATS has gained a strong foundation, with several functioning
client/server sites in the Automotive and Automotive Supplier sectors. Some
current customers include Johnson Controls, Dana Corporation, Volvo Trucking and
New Venture Gear.
While ATS's main sales to date have been in the automotive industry, ATS
has recently begun to enter new vertical markets. New verticals include
manufacturing (Sauder Furniture), food processing (Sara Lee Foods) and paper
(Blandin Paper). Success in entering these new sectors indicates that
ATServer(R) can successfully operate in different sectors. As a result, the
Company expects to be able to continue to increase its market share of the time
and attendance industry.
ATLINK(TM)
ATLink(TM) carries information from data capture points in the enterprise
to other applications that require this data. Management is able to streamline
procurement and maintain inventory more efficiently with the help of ATLink(TM).
Software that facilitates communication of time sensitive information between
different software packages or between data collection devices and different
programs is commonly referred to as "Middleware."
ATLink(TM) has been certified by two levels of SAP R/3, the leading ERP
company (in terms of published revenue data). SAP R/3 produces a package
application that ties together the major business units of a company into
modules. These modules are Human Resources, Materials Management, Supply and
Finance. The two levels of certification are MM-MOB and PP-PDC. The criteria for
MM-MOB certification are to meet the data collection requirements within the
materials management module of SAP R/3. PP-PDC certification represents meeting
the requirements of the SAP human resources information module. ATS designed,
produced and achieved certification in less than 12 months. Meeting the
certification standards established by the major ERP companies is an important
step towards credibility and market acceptance of ATLink(TM).
ATLINK(TM) COMPETITION
ATLink(TM) falls under the distributed transaction processing ("DTP")
segment of Middleware. The segment is fragmented and mainly comprised of small
private and public companies. Three large competing companies are i2
Technologies, Teklogix and Epic Data.
ATLINK(TM) COMPETITIVE ADVANTAGES
ATS believes that companies (like ATS) that provide industry standard
non-proprietary solutions (i.e., products that can be used with most popular
hardware and software) will achieve high rates of growth in the DTP industry.
The primary benefits of non-proprietary packages are lower cost and a shorter
implementation time frame, whereas proprietary packages have a higher cost
because each implementation requires a new interface to be written between the
applications.
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ATS works closely with hardware manufacturers such as Intermec, Hand Held
Products, and Control Module to incorporate built-in interfaces to their
products. The development team focused on ease of integration, ease of use, and
low ownership costs as design criteria.
RESEARCH AND DEVELOPMENT
In 1996, 1997 and 1998, ATS invested $673,802, $1,772,537 and $610,782,
respectively, in research and development costs for the ATS products. In 1997,
the Company's primary development focus was to tailor its ATServer product for
the automotive manufacturing industry. In 1998, the Company continued to refine
and expand the ATServer offering for additional vertical markets, and amassed a
development effort to bring it's middleware offering, ATLink, to the market.
INTELLECTUAL PROPERTY RIGHTS
The name "ATServer(R)" is a registered tradename and mark. Registration
lasts for 10 years from the registration date in January 1998. The name
"ATLink(TM)" is not yet registered, although ATS claims common law tradename and
mark rights.
Y2K COMPLIANCE
Management believes that all of the ATS products, as well as its internal
systems, are fully "Y2K" compliant. ATS does not believe that Y2K issues will
adversely affect it. Rather, ATS believes that Y2K issues affecting customers
likely will enhance ATS' sales prospects. ATS has tested its hardware and
software systems which were provided by vendors, and believes they are all Y2K
compliant. ATS has received information and assurances from its material
third-party vendors and suppliers regarding their Y2K readiness. ATS intends to
continuously evaluate its vendor and supplier relationships and to develop
whatever contingency plans may be required to mitigate any negative effects on
ATS from the Y2K problems of its suppliers and vendors that may develop.
EMPLOYEES
The Company employs 56 full time employees. None of the employees is
represented by a union.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information in this section should be read together with the
consolidated financial statements and notes thereto that are included elsewhere
in this registration statement. These interim financial statements include all
adjustments deemed necessary by management in order to make them not misleading.
The Company has incurred losses since its inception during which time it
developed its two software applications and developed a level of experience and
resources which management believes should enable ATS to grow. AdSys achieved
revenue growth and profitability in the first quarter ended March 31, 1999.
AdSys anticipates continued positive earnings in 1999 resulting from
installations at Fortune 1000 Companies in industries such as automotive supply,
food processing, entertainment and furniture manufacturing, as well as paper
processing and other manufacturing sectors.
The Company has entered into a software marketing agreement with EDS
(Electronic Data Systems). The focus of the agreement is to reach Automotive,
Automotive Supplier, Entertainment and other Clients EDS has under management.
The Company believes that the agreement provides not only credibility for ATS
and ATServer(R), but revenue growth potential as the relationship matures.
The non-proprietary Distributed Transaction Processing Sector of the
Middleware industry is in its early stages and is experiencing high-growth.
Management anticipates successful entrance in this market, enhancing long-term
growth potential by providing two separate but compatible software products,
ATServer(R) and ATLink(TM).
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RESULTS OF OPERATIONS
Q1 1999 COMPARED TO Q1 1998
AdSys had net earnings of $306,341 in the first quarter of 1999 compared to
a net loss of $342,500 for the same period in 1998. This is largely explained by
a significant increase in sales ($1,762,260 in Q1 1999 compared to $314,001 for
the same period in 1998). This growth in sales reflects ATS's continued
expansion of its ATServer(R) customer list as well as further penetration at
existing client sites. Revenue for both periods relates entirely to ATServer(R)
software, hardware, and related implementation and maintenance.
Research and Development expenses increased from $59,192 in 1998 to
$102,481 in 1998, a net increase of $43,289. This increase results mainly from
an overall expansion of the Company's development team working on enhancing both
the ATServer and ATLink products.
General and Administrative expenses increased to $806,952 in Q1 1999 from
$386,778 for the same period in 1998, an increase of $420,174. The increase was
due primarily to a greater number of employees, additional travel costs
resulting from increased business activity, and the moving of corporate
headquarters to a new facility to accommodate ATS's expansion.
Sales and Marketing expenses increased from $152,597 in Q1 1998 to $412,526
for the same period in 1998, an increase of $259,929. This was primarily due to
a greater number of sales personnel, larger commissions due to higher revenues
and more clients, and more intense marketing efforts both in house and through
ATS's third party consultants.
Operating expenses increased dramatically in the first quarter of 1999
compared to the same period in 1998. This is due primarily to growth in
employees and sales and represented by increases in compensation and related
benefits ($759,334 in Q1 1999 vs. $333,431 in Q1 1998), as well as increased
travel related costs ($103,966 in Q1 1999 vs. $29,578 in Q1 1998) and increased
legal and accounting assistance ($75,105 in Q1 1999 vs. $22,366 in Q1 1998) in
preparation for the requirements of being a reporting public company. As a
result of the Company's expansion and occupation of new office space, premises
related costs were $73,845 in Q1 1999 vs. $17,800 for the same period in 1998.
1998 COMPARED TO 1997
The Company generated revenue of $2,379,987 in 1998 compared to $2,012,317
in 1997, as it moved from the development phase to the marketing phase in its
business cycle.
Research and Development expenses decreased from $1,772,537 in 1997 to
$314,587 in 1998, a net decrease of $1,457,950. In 1997, the Company's primary
development focus was to tailor its ATServer product for the automotive
manufacturing industry. In 1998, the Company continued to refine and expand the
ATServer offering for additional vertical markets, and amassed a development
effort to bring it's middleware offering, ATLink, to the market. In 1998, the
Company increased its focus on the development of its products through
commercial implementations and in-house developers rather than through third
parties. Reaching technological feasibility with ATLink(TM) allowed for
capitalization of $296,195 of costs, also contributing to the decrease in
development costs.
General and Administrative expenses increased to $2,294,668 in 1998 from
$1,227,894 in 1997, an increase of $1,066,774. The increase was due primarily to
a greater number of employees, additional travel costs resulting from increased
business activity, and the moving of Corporate Headquarters to a new facility to
accommodate the Company's expansion. Also, in 1998 the Company obtained
Directors & Officers Insurance, saw an increase in depreciation costs on the
Company's assets, and incurred employee moving expenses related to attracting
and retaining key personnel.
Sales and Marketing expenses increased from $485,020 in 1997 to $945,736 in
1998, an increase of $460,716. This was primarily due to a greater number of
sales personnel, larger commissions due to higher revenues and more clients, and
more intense marketing efforts both in house and through the Company's third
party consultants.
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LIQUIDITY AND CAPITAL RESOURCES
The Company converted $674,900 of principal and accrued interest on
outstanding debentures into common stock in 1998.
During 1998 and early 1999, AdSys received an aggregate of approximately
$2.4 million from investors through equity sales made pursuant to exemptions
from registration. AdSys continues to offer shares on a private-placement basis.
AdSys believes that operations will generate sufficient cash flow to fund
its anticipated short-term liquidity needs. AdSys currently has a liquidity
credit arrangement with a commercial bank to finance its accounts receivable, to
address liquidity needs pending customer payments. Although the Company believes
that operations will yield sufficient liquidity to meet liquidity requirements,
no assurance can be given that additional sources will not be required. To take
advantage of high growth in the Middleware Industry, the Company plans to raise
additional capital in the second half of 1999 in the debt or equity markets
based on an acceptable strike price and certain business conditions.
Circumstances in which the Company would consider raising additional capital
include a desire for a stronger capital base, investment in product development,
acquisitions of companies with synergistic value, resource procurement based on
a definable implementation schedule or backlog, and/or office space expansion.
The extent to which such additional financing is available will affect the level
to which AdSys pursues these discretionary growth actions.
ITEM 3. DESCRIPTION OF PROPERTY
ATS currently leases a 8,472 square foot office facility in Southfield,
Michigan pursuant to a lease that expires on October 31, 2003. Rent for the
facility is approximately $164,000 per year.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of AdSys' Common Stock as of July 15, 1999, by (i) each person who, to
AdSys' knowledge, beneficially owned more than 5% of the Common Stock; (ii) each
AdSys director; (iii) each of the Named Executive Officers described in Item 6
below; and (iv) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
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<S> <C> <C>
Gerald A. Pesut............................................. 828,920(2) 6.7
25300 Telegraph Rd., Ste. 455
Southfield, MI 48034
Alexander D. Henry.......................................... 706,820(3) 5.8
533 Davenport Rd.
Toronto, ON Canada M5R 3R5
Mark O'Donoghue............................................. 62,948(4) *
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
John V. Williams............................................ 37,948(5) *
424 Clayton St.
Denver, CO 80206
Greg Farbolin............................................... 24,098(6) *
1905 Canadair Court
Daytona Beach, FL 32124
Carlos E. Bravo............................................. 18,056(7) *
1713 Skyhawk Ct.
Daytona Beach, FL 32124
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
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<S> <C> <C>
Temple Securities Ltd....................................... 2,396,715(8) 19.6
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
914151 Ontario Limited...................................... 750,000(9) 6.4
Box 131, RR #2
Navan, ON Canada K4B 1H9
Roxborough Holdings Limited................................. 996,666(10) 8.2
First Canadian Place Ste 6250
Toronto, ON Canada M5X 1C7
All Officers and Directors as a Group (7 persons)........... 1,678,790 13.7
</TABLE>
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* Represents less than 1% of the outstanding shares of Common Stock.
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
rules and regulations promulgated under the Exchange Act, and accordingly,
may include securities owned by and for among others the spouse and/or
minor children of an individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which such person
has the right to acquire within 60 days after the date of this filing
pursuant to the exercise of options, or otherwise. Beneficial ownership may
be disclaimed as to certain of the securities. This table has been prepared
based on 11,761,591 shares of Common Stock outstanding as of July 15, 1999,
plus as to each person shares issuable under rights to acquire shares
included in that person's holdings.
(2) Consists of 250,000 shares owned of record by Pesut & Associates, a company
wholly-owned by Mr. Pesut and 578,920 shares which Mr. Pesut has the right
to acquire pursuant to options. Does not include 54,081 shares under other
options which are not yet vested.
(3) Consists of 150,000 shares and 175,000 Units (resulting in the right to
acquire up to 350,000 shares)owned by Hampton Equity Holdings Inc., and
113,150 shares and 14,750 warrants to acquire shares owned by REVBEN
Management Corporation, affiliates of Mr. Henry, and 78,920 shares which
Mr. Henry has the right to acquire pursuant to options. Does not include
54,081 shares under options issued to Mr. Henry which are not yet vested.
(4) Consists of 25,000 shares owned of record by Temple Securities Ltd., a
company affiliated with Mr. O'Donoghue, and 37,948 shares which Mr.
O'Donoghue has the right to acquire pursuant to options. Does not include
95,052 shares under options issued to Mr. O'Donoghue which are not yet
vested.
(5) Consists of 37,948 shares which Mr. Williams has the right to acquire
pursuant to options. Does not include 95,052 shares under options issued to
Mr. Williams which are not yet vested.
(6) Consists of 24,058 shares which Mr. Farbolin has the right to acquire
pursuant to options. Does not include 108,942 shares under options issued
to Mr. Farbolin which are not yet vested.
(7) Consists of 8,056 shares which Mr. Bravo has the right to acquire pursuant
to options. Does not include 94,444 shares under an option issued to Mr.
Bravo which are not yet vested.
(8) Consists of 1,937,740 shares owned, and 458,975 shares which may be
acquired pursuant to warrants. Includes 25,000 shares also shown for Mr.
O'Donoghue above. Includes 1,387,740 held of record by Temple for various
client accounts (no account holds beneficial interests in excess of 5% of
AdSys' Common Stock). The principals of Temple are Hugh D. McLean, N.
Gregory McNally, Mark O'Donoghue and Christian Papachristou.
(9) Consists of 600,000 shares owned, and 150,000 which may be acquired
pursuant to an option. The principal of 914151 is James Petrie.
(10) Consists of 596,666 shares owned, and 400,000 which may be acquired
pursuant to warrants. The principal of Roxborough is David A. Williams.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth certain information regarding each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION TERM AS DIRECTOR
---- --- -------- ----------------
<S> <C> <C> <C>
Gerald A. Pesut............... 59 President, CEO July 1997
John Williams................. 55 Director August 1998
Greg Farbolin................. 39 Director December 1999
Alexander Henry............... 52 Director July 1997
Mark O'Donoghue............... 34 Director August 1998
Carlos E. Bravo............... 40 Director July 1999
Howard Tarnoff................ 50 VP Sales & Marketing
Robert C. DeMerell............ 31 CFO, Secretary, Treasurer and Controller
</TABLE>
GERALD PESUT, PRESIDENT & CEO
Prior to joining Advanced Systems International in 1996, Mr. Pesut was
President & CEO of Distributed Systems Division Inc., a subsidiary of Storage
Technology Corporation (1993-1996), where he managed the $240 million integrator
of midrange and network systems, comprised of 500 employees.
Mr. Pesut was President of a $55 million assembly integration and
warehousing division of Storage Technology from 1991 - 1993. After five years of
continuous losses prior to his taking over the position, he guided the division
to eight profitable quarters. Prior to that, he held a number of senior
management positions throughout the technology industry.
This multifaceted background has provided Mr. Pesut with the ability to
understand market developments and advances, while establishing corporate
direction to meet the ever-changing demands of the market.
Mr. Pesut is a graduate of the York University Accelerated MBA program.
JOHN WILLIAMS, DIRECTOR
John Williams has 35 years of experience in sales, sales management and
business management. His career has included both domestic and international
responsibilities, requiring him to live in Europe for a portion of his career.
Companies he has worked for are Memorex (1970-1973), Magnuson Computer Systems
(1980-1982), GriD Systems (1982-1990), and Storage Technology Corporation
(1972-1980, 1990-1997).
His last position before retirement with Storage Technology was as a
Corporate Officer (Senior Executive Vice President) responsible for World-Wide
Field Operations (sales, marketing and service).
At Storage Technology, Mr. Williams' organization originally consisted of
5,000 people located in 15 countries around the world, with additional indirect
distribution into another 12 countries. During his tenure as an executive at
Storage Technology, revenues increased from $700 million to over $2.0 billion,
expanding world coverage directly to 20 countries and indirectly to 21
countries.
Mr. Williams is currently consulting to major international corporations
with his new company, the CSO Forum.
GREG FARBOLIN, DIRECTOR
Mr. Farbolin has served in various management positions since 1973 with The
HoneyBaked Ham Company, a company founded by his family in 1949. Over a 20-year
period, the business grew to $130 million in sales with 150 locations. In 1994,
Mr. Farbolin personally spearheaded the project to overhaul the corporate IT
based infrastructure components for the entire organization. The reporting
components from each store, through data warehouse for all departments, were
installed on a Windows based retail management system. HoneyBaked was one of the
first successful high-profile installs on Windows. The software application was
developed with the assistance of Virtual Systems.
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Mr. Farbolin was a Director for Virtual Systems between 1995 and 1997. Over
that period, Virtual was awarded Microsoft's prestigious Retail Application
Developer (RAD) in 1996 and 1997. As a member of the board at Virtual, Mr.
Farbolin was responsible for developing a distribution model by creating a
resellers network, as well as managing their relationships with major Hardware,
Software and End Users.
Today Mr. Farbolin is actively involved in the IT industry including being
on the Association of Retail Technology Standard (ARTS) board. He interacts in
many areas as a conduit between Microsoft and others, and the vertical markets
that they serve including retail and manufacturing. This interaction is to the
benefit of both end user as well as vendor.
ALEXANDER HENRY, DIRECTOR
Mr. Henry qualified as a Chartered Accountant with Touche Ross & Co. (now,
Deloitte & Touche) in Toronto, Ontario in 1973. From 1973 to 1981, he continued
in public practice. While in public practice, he directed his attention toward
the areas of taxation, real estate and financial planning. During this time, Mr.
Henry lectured and published on these subjects.
In 1981, Mr. Henry left public practice to concentrate, both as a principal
and a promoter, on the syndication of real estate tax sheltered investment
vehicles, commercial real estate and real estate debt/ mortgage investments.
In 1991, Mr. Henry joined LOM & Associates, the "small cap" group at
Loewen, Ondaatje, McCutcheon to organize and manage various tax-assisted and
otherwise unique real estate offerings. In 1993, Mr. Henry joined Hampton Equity
Management Inc. (which he had formed in 1991 with certain other principals of
LOM & Associates) on a full-time basis to organize financings for computer
software developers that were primarily tax-assisted and seed capital financings
for other emerging companies.
Mr. Henry sits on the boards of several companies, including
MusicMusicMusic Inc. (an electronic commerce company delivering music selections
and applications via the internet) and Jax Mold & Machine, Inc. (a high-tech
machine shop company providing molds to the tire and rubber industry). He is
active in fund raising for various charitable and non-profit organizations.
MARK O'DONOGHUE, DIRECTOR
Mr. O'Donoghue is currently (since 1997) the Chief Executive Officer
managing the rapid growth and expansion of Temple Securities Ltd., a full
service investment dealer. From 1993 to 1997, he was a Trust Officer and
Investment Advisor to Temple Trust Company Ltd. Mr. O'Donoghue possesses a
comprehensive multinational background and provides ATS with financial guidance
for business growth issues and international development. Mr. O'Donoghue holds
his Canadian Chartered Accountant designation. While with Ernst & Young, his
team provided client services and related corporate support to a wide range of
industries.
CARLOS E. BRAVO, DIRECTOR
Mr. Bravo joined the ADSys board in July 1999. Mr. Bravo is currently
(since 1998) a Vice President of USinternetworking Inc., with general management
duties. USi is a pioneer in the Internet-based outsourcing of leading
Applications (PeopleSoft, Siebel, Sagent, Broadvision, Electronic Commerce,
Complex Web Hosting) for a flat monthly fee. USi's services allow companies to
quickly deploy enterprise applications without the associated cost and burden of
owning, managing or supporting the applications or underlying infrastructure.
USi built its own global network of enterprise data centers to interconnect with
major Internet backbone providers through contractual PriorityPeering(SM)
relationships that ensure fast and reliable connections.
Before joining USi, Mr. Bravo was a co-owner of IIT Inc. (1997-1998), a
global IT consulting and systems integration boutique (PeopleSoft Global
Implementation Partner) specializing in PeopleSoft implementations to Fortune
500 clients. During his tenure at IIT, the business grew from 6 employees to
over 80 consultants with offices in Coral Gables, Los Angeles, San Francisco,
Chicago and Caracas. In 1998 Mr. Bravo led IIT's negotiations for a merger with
USi.
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<PAGE> 11
Prior to his tenure at IIT (1995-1997), Mr. Bravo was a principal, Vice
President and co-founder of Comdisco Inc.'s Systems Integration Business unit, a
startup 100% funded by Comdisco. In this project, Comdisco began to move to
distributed system services, away from its traditional business of leasing
mainframes.
Since 1989, Mr. Bravo has been a founder, Chairman and CEO of Bravo
International Corporation, a manufacturer of toys and sporting goods which
successfully merged its operations with Toydeca, a global manufacturer of
consumer products based in Venezuela. From 1989 to 1994, Mr. Bravo was also
co-founder and Chief Operating Officer of Amcotech, Inc., a diversified
manufacturer of consumer and industrial products and a pioneer in the design of
automated manufacturing systems. During his tenure at Amcotech, in 1992 Mr.
Bravo also acted as lead strategist in organizing another startup, International
Industrial Systems. From 1983 to 1989, Mr. Bravo held several technology
management posts at General Electric and Snap-on Tools.
Mr. Bravo attended the University of Florida and Northwestern University.
He holds advanced degrees in Aerospace Engineering, Applied Mathematics and
Business.
HOWARD TARNOFF, VP SALES & MARKETING
Mr. Tarnoff has 21 years of experience in the Time and Attendance industry.
He brings to Advanced Systems International experience in general management,
business development, operations and sales and marketing.
Mr. Tarnoff worked at Simplex Time Recorder Co., as a Director of Time/Data
Systems Division, from 1993 until joining Advanced Systems International in
December 1998. While at Simplex, he developed advanced business, operations,
sales and marketing solutions, and infused cutting edge management,
communications and technological systems. Mr. Tarnoff was successful at
spearheading and maintaining a 70% annual growth rate while increasing the sales
force to 113 from 12.
From 1985 to 1993, Mr. Tarnoff held numerous staff and line management
positions at Kronos Incorporated. As Product and Industry Marketing Manager, he
led the marketing development of a labor/job costing product family and
developed new offerings to expand products beyond the scope of Time and
Attendance. In his field management capacity, Mr. Tarnoff ran a highly
successful dealership that was a model for the Kronos direct sales and service
organization.
Mr. Tarnoff is a graduate of the University of Wisconsin.
ROBERT C. DEMERELL, CHIEF FINANCIAL OFFICER, SECRETARY, TREASURER AND CONTROLLER
Mr. DeMerell possesses a diversified background with proven abilities in
both professional and academic environments. He brings to Advanced Systems
International excellent technical and analytical skills, highly effective
communication abilities and is a focused team builder. Moreover, he has played a
critical role in building the financial reporting and accounting systems of two
high growth start-up companies.
From 1995 until the end of 1997, Mr. DeMerell worked as Controller at FAME
Information Services, Inc. He played a pivotal role in the development and
implementation of the financial controls as the company rapidly grew to $25
million in annual sales from $5 million over a two-year period. In addition, Mr.
DeMerell oversaw the implementation of the financial controls as the company
established operations in both the U.K. and in Asia.
Mr. DeMerell worked as an Auditor for Ernst & Young from 1992 to 1994. His
primary role was the auditing of a variety of small businesses including
manufacturing, financial services and health care. In addition, he gained
extensive experience auditing employee pension, 401(k), ESOP, and Health and
Welfare Benefit Plans.
Mr. DeMerell holds an MBA from the University of Notre Dame Graduate School
of Business. He is a Certified Public Accountant (CPA). He completed his BA in
Economics at the University of Michigan with a concentration in Public Finance.
11
<PAGE> 12
SIGNIFICANT EMPLOYEES
PAUL F. ABRAHAM, MANAGER OF ENGINEERING
Mr. Abraham, who joined AdSys in 1998, has over 10 years experience in the
high tech industry. He has made significant contributions during the various
stages of development, sales and implementation process of data transaction and
application software.
Mr. Abraham was a member of the team that laid the foundation for the
current Data Transaction Processing Middleware industry at Epic Data, as a
Senior Systems Analyst between 1991-1997. Mr. Abraham was instrumental in the
design and development of Epic Data's interface to SAP R/3. Utilizing his
experience as a core member of the development team, Mr. Abraham became a
Project Lead at Epic Data. As a Project Lead, he was instrumental in the design
of system requirements for various SAP R/3 customers in addition to basis
administration and configuration during implementations and system support.
In 1997 and 1998, Mr. Abraham was System Engineering Manager and Senior
Systems Consultant at Epic Data. He managed an implementation team that
consisted of 18 system engineers and programmers. During this two-year period,
he was responsible for all aspects of System Implementations for Epic Data.
Mr. Abraham is an Honors graduate of Humber College Computer Science
Program.
SHAWN RECHKEMMER, DIRECTOR SUPPORT SERVICES
Mr. Rechkemmer possesses comprehensive systems engineering and management
experience. His professional background has provided him with the necessary
capacity to perform tasks on all levels as required for providing effective
management of 'hands-on' product support. His expertise includes analysis in
various Client/Server database environments.
Prior to joining ATS in 1997, Mr. Rechkemmer worked at EDS for seven years.
During his final three years he was Project Manager responsible for managing the
Client/Server software development project. Responsibilities at that position
included: creating and implementing an annual business plan with project
initiatives, staffing plans for GM customers, managing a team of 12 technical
support staff, and leading the support and development of applications for
customers.
Mr. Rechkemmer also worked as a Systems Engineer and Database Administrator
at EDS. In this position, he set up new databases for clients in Germany and
Sweden and provided support for the users. He was also a member of the Design
and Prototype team charged with utilizing Object Oriented technology to develop
automobile diagnostics for use in GM dealerships. Mr. Rechkemmer is a graduate
of Taylor University with a B.Sc. in Management Information Systems.
DIRECTORS COMPENSATION
AdSys compensates its directors for their services as directors solely via
stock options. Prior to July 15, 1999, on joining the board, each director
received a one-time grant of an option to acquire 100,000 shares at the market
price on the date of grant. Effective July 15, 1999, each year each director
also receives a grant of an option to acquire 33,000 shares at the market price
on the grant date. These options vest monthly over 3 years starting on the grant
date.
Both Mr. Farbolin and Mr. Bravo have been engaged to consult with the ATS
management team as to general and specific information relating to marketing
ATS's products, gathering and analyzing market and competitive data, and
locating, introducing and referring ATS in respect of sales and partnering
opportunities. Mr. Farbolin receives fees of $5,000 per month. Mr. Bravo
receives an option each quarter to acquire a number of AdSys shares equal to
$12,500 divided by the then market price for the shares. Both consulting
arrangements are terminable at the end of any agreement calendar quarter.
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<PAGE> 13
ITEM 6. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the Company's Chief Executive Officer and all
other executive officers who earned more than $100,000 (salary and bonus) (the
"Named Executive Officers") for all services rendered in all capacities to the
Company during the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
NAME AND ------------ -------------------
PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS(#)
------------------ ---- ------ ---------------
<S> <C> <C> <C>
Gerald A. Pesut.................................... 1998 $199,992 600,000
President and Chief Executive Officer
Richard A. Penington(1)............................ 1998 $126,000 500,000(2)
(Former Chief Financial Officer, Secretary,
Treasurer)
Martin Young, VP................................... 1998 $126,000 -0-
Technical Sales
</TABLE>
- ---------------
(1) Mr. Penington resigned to pursue other opportunities in December 1998.
(2) Does not include other options which lapsed on executive's resignation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR
NAME GRANTED(#) FISCAL YEAR BASE PRICE($/SH) EXPIRATION DATE
---- ------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Gerald A. Pesut.......... 500,000 15.1% $0.50 7/8/2017
50,000 1.5% $0.50 7/8/2007
50,000 1.5% $0.50 8/6/2008
Richard A.
Penington(1)........... 500,000 15.1% $0.50 7/8/2017
Martin Young............. -0- -0- N/A N/A
</TABLE>
- ---------------
(1) Mr. Penington resigned to pursue other opportunities in December 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
SHARES AT FY-END(#) FY-END($)
ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- -------------- ----------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Gerald A. Pesut........... -0- -0- 500,000/100,000(1) $75,000/$44,500(1)
Richard A. Penington(2)... -0- -0- 500,000/0 $80,000/$0
Martin Young.............. -0- -0- -0- N/A
</TABLE>
- ---------------
(1) Vesting of options was amended April 15, 1999.
(2) Mr. Penington resigned to pursue other opportunities in December 1998.
13
<PAGE> 14
EMPLOYMENT AGREEMENTS
ATS entered into an employment agreement with Gerald A. Pesut dated
November 15, 1996 (amended March 13, 1998). Under the agreement, Mr. Pesut was
engaged to serve as Chief Executive Officer for salary at the rate of $200,000
per year. Mr. Pesut is entitled to bonuses based on ATS' achievement of certain
sales targets. Pursuant to the agreement, Mr. Pesut also received options to
acquire up to 500,000 shares of AdSys stock at the price of $1.00 per share
(repriced to $.50 per share in September, 1998). The agreement may be terminated
by the Company at any time for any reason, either with or without cause.
Similarly, Mr. Pesut may terminate his employment at any time. If the Company
terminates the agreement other than for cause or if Mr. Pesut terminates the
agreement for good cause (as defined in the employment agreement), Mr. Pesut is
entitled to severance compensation equal to 12 months salary together with any
bonus accrued up to the date of termination. In computing the bonus under the
severance arrangement, ATS is deemed to have attained 100% of the bonus targets
for the performance period in which the termination occurs. Upon a change in
control of AdSys, Mr. Pesut's options will accelerate and vest 100%. The
employment agreement also contains a covenant not to compete, which would
prohibit Mr. Pesut from engaging in activities in competition with ATS or AdSys
for a two year period commencing on the date of termination of his employment.
ATS entered into an agreement with Howard Tarnoff dated July 22, 1998. Mr.
Tarnoff was engaged as Vice President of Sales, at a salary rate of $145,000 per
year. Mr. Tarnoff is entitled to bonuses of $50,000 each year if revenue goals
are met, with a guaranteed bonus of $50,000 for the first year. Mr. Tarnoff also
received options to acquire up to 200,000 shares of AdSys stock at the market
price on the date of grant (repriced to $0.50 per share in September 1998), and
will receive options for an additional 100,000 shares at the end of 1999 if
revenue goals are met. Mr. Tarnoff's employment is "at will." However, Mr.
Tarnoff is entitled to severance compensation if ATS terminates his employment
(up to 12 months if termination is in the first contract year, 6 months if in
the second year, and 60 days if thereafter). The employment agreement also
contains a covenant not to compete, which would prohibit Mr. Tarnoff from
engaging in competition with ATS for a 2 year period commencing on the date of
termination of his employment.
ATS entered into an employment agreement with Robert DeMerell dated January
8, 1999. Mr. DeMerell was originally engaged as Corporate Controller
(subsequently promoted to CFO, Secretary and Treasurer), at a salary rate of
$80,000 per year. Mr. DeMerell may receive quarterly bonuses of $5,000, based on
goals and targets to be established from time to time. Mr. DeMerell also
received options to acquire up to 150,000 shares of AdSys stock at $.50 per
share. Mr. DeMerell's employment is "at will." However, Mr. DeMerell is entitled
to 30 days severance pay if ATS terminates the employment. The employment
agreement also contains a covenant not to compete, which would prohibit Mr.
DeMerell from engaging in competition with ATS for a 2 year period commencing on
the date of termination of his employment.
STOCK OPTION PLANS
AdSys currently maintains two stock option plans: the 1997 Employee Stock
Option Plan, and the 1997 Director Stock Option Plan.
The Employee Plan was adopted and approved by the Board and the
Shareholders as of July 1, 1997. The Employee Plan was amended April 15, 1999 to
cover a maximum of 4.5 million shares. Under its terms, participants in the plan
include officers and other employees of AdSys or ATS having managerial,
supervisory or similar responsibilities or who are key administrative employees
and managers, and who are not covered by any collective bargaining agreement. In
addition, the Compensation Committee may grant awards under the Employee Plan to
non-employees who, in the judgment of the Compensation Committee, render or have
rendered significant services to AdSys or ATS.
The Employee Plan is currently administered by the Compensation Committee
of the Board, composed of two outside directors. Subject to the provisions of
the Employee Plan, the Compensation Committee has full power and authority to
determine, from among the persons eligible for grants or awards under the
Employee Plan: (i) the individuals to whom grants or awards will be made, (ii) a
combination of grants or awards to participants, and (iii) the specific terms of
each grant or award. The plan authorizes a wide variety of stock based
compensatory awards, including options (both "incentive stock options" under
Section 422 of
14
<PAGE> 15
the Internal Revenue Code or otherwise), stock appreciation rights, restricted
stock awards or other stock based awards (i.e., other awards that are valued in
whole or in part by reference to, or are otherwise based on, AdSys Common
Stock). The plan has no set termination date, although no incentive stock option
may be granted after July 1, 2007. As of July 1, 1999, there were a total of
2,654,000 options outstanding under the Employee Plan to a total of
approximately 50 employees and outside service providers.
The Director Plan was adopted and approved by the Board and the
Shareholders as of July 1, 1997 (amended August 6, 1998, April 15, 1999 and July
15, 1999). Under the Director Plan, options to acquire up to a maximum of
1,000,000 shares may be granted to members of the AdSys Board of Directors. The
plan is administered by the Board of Directors. Under the Director Plan, upon
the date a person first becomes a member of the AdSys Board, the director is
automatically granted a non-qualified stock option to acquire 100,000 shares. On
July 15 of each year, each director receives an option to acquire 33,000 shares.
The purchase price for each share which may be purchased upon exercise of an
option is the fair market value of the AdSys Common Stock on the date of grant.
Options vest in equal monthly amounts over the first three years after the date
of grant. The Director Plan has no outside termination date, and will remain in
effect until all shares authorized have been issued, or unless the Director Plan
is earlier terminated or abandoned by action of the Board of Directors. As of
July 15, 1999, options to acquire a total of 765,000 shares were outstanding, of
which 223,622 had vested or were exercisable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997 and 1998, KIF Capital Corp. rendered corporate financial advisory
consulting services to AdSys pursuant to a consulting agreement. Consulting fees
paid during 1997 and 1998 were $130,000 and $91,000, respectively. Also pursuant
to that agreement, KIF Capital Corp. was granted an option to acquire 100,000
shares of common stock under the employee plan. The exercise price under this
option was $.50 per share. This option was not exercised, and expired in March
1999. In 1997 and 1998, AdSys paid KIF Capital Corp. (a Canadian entity with no
US presence) $26,278 and $40,470, respectively, for its assistance in connection
with certain sales of common stock made outside the United States. KIF Capital
Corp. is owned by Mr. Kenneth MacAlpine, who was a member of the AdSys Board of
Directors until August, 1998.
During 1998, AdSys paid $35,352 in cash and granted warrants to acquire up
to 376,000 shares of common stock in respect of sales of securities outside the
United States, to Temple Securities Ltd., a company affiliated with Mark
O'Donoghue, a member of the AdSys Board of Directors.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
AdSys is authorized to issue 20,000,000 shares of Common Stock, $.001 par
value per share, of which 11,646,590 are issued and outstanding as of March 15,
1999.
Holders of Common Stock have equal rights to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefor.
Holders of Common Stock have one vote for each share held of record and do not
have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of AdSys to share
ratably in the net assets available for distribution, subject to the rights, if
any, of holders of any preferred stock then outstanding. Shares of Common Stock
are not redeemable and have no preemptive or similar rights. All outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
Within the limits and restrictions provided in the Restated Articles of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of preferred stock, $.001
par value per share (the "Preferred Stock"), in one or more series, and to fix,
as to any such series, the dividend rate, redemption prices, preferences on
liquidation or dissolution, sinking fund terms,
15
<PAGE> 16
conversion rights, voting rights, and any other preference or special rights and
qualifications. There are presently no shares of Preferred Stock outstanding.
Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of
AdSys more difficult or time consuming. For example, shares of Preferred Stock
could be issued with certain rights that might have the effect of diluting the
percentage of Common Stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that the
Board of Directors determines is not in the best interest of AdSys and its
stockholders. The existence of Preferred Stock may, therefore be viewed as
having possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices. The Board of Directors has not authorized the issuance of any
series of Preferred Stock.
DIVIDEND POLICY
AdSys has not paid any cash dividends to date, and has no intention to pay
any cash dividends on its Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the Board
of Directors and to certain limitations imposed by the Nevada corporate laws.
The timing, amount and form of dividends, if any, will depend, among other
things, on AdSys' results of operations, financial condition, cash requirements
and other factors deemed relevant by Board of Directors.
MISCELLANEOUS
AdSys common shares are "penny stock" as defined by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq National Market, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The Commission has adopted
rules that regulate broker-dealer practices in connection with transactions in
penny stocks. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
compensation information, must be given to the customer orally or in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
such rules the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that is subject to the penny stock rules and therefore make
it more difficult to sell those shares.
AdSys' articles of incorporation and bylaws do not contain any provision
that would delay, defer or prevent a change in control.
TRANSFER AGENT
The transfer agent for the Common Stock is Interstate Transfer Company, 874
E. 5900 South, Suite 101, Salt Lake City, Utah 84107, 801-281-9746.
16
<PAGE> 17
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
AdSys' Common Stock is listed for quotation by the National quotation
Bureau "pink sheets" under the symbol "ADSN". However, the market for such
shares is extremely limited. No assurance can be given that a significant
trading market for the Common Stock will develop or, if developed, will be
sustained. AdSys has been advised by its market makers that the market makers
will file NASD Form 211 in the near future, so that the common stock will be
quoted over the Nasdaq OTCBB. From January 25, 1998 through July 1, 1999, the
common stock was quoted over the Nasdaq OTCBB, moving to the NQB "pink sheets"
on July 2, 1999.
The following table sets forth the range of the high and low closing bid
prices of the Company's common stock during each of the calendar quarters
identified below. These bid prices were obtained from the Nasdaq OTCBB and do
not necessarily reflect actual transactions, retail markups, mark downs or
commissions. The transactions include inter-dealer transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
1st Quarter................................................. 2 1/2 1 3/4
2nd Quarter................................................. 2 1/4 1 5/8
3rd Quarter................................................. 1 7/8 7/16
4th Quarter................................................. 1 7/16
</TABLE>
<TABLE>
<S> <C> <C>
1999
1st Quarter................................................. 7/16 1 11/16
2nd Quarter................................................. 1 15/16 9/16
</TABLE>
The last bid price of the Company's Common Stock on July 15, 1999 was $0.97
per share. On that date, there were approximately 113 holders of record of
Common Stock.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, although it
is involved from time to time in routine litigation incident to its business.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its organization in late 1995 and early 1996, ATS issued
a net total of 2,720 shares of common stock to its original organizers all of
whom were sophisticated business people actively involved in organizing and
managing ATS, and who had full access to all information regarding ATS (914151
Ontario Ltd (James Petrie), KIF Capital Corp. (Kenneth MacAlpine), 859754
Ontario Limited (John Totten), Martin Young and Greg O'Hara), for contributions
in the aggregate amount of approximately $20,000. ATS also issued warrants to
acquire up to 400 shares (subsequently reduced to 300 shares)at $1,000 per share
(converted in the merger described below to warrants to acquire 300,000 shares
at $1 per share) to 914151 Ontario Ltd. and KIF Capital Corp. No underwriters
were used for these transactions. Exemption from registration is claimed
pursuant to Section 4(2) of the Securities Act, no public offering having been
involved.
At various times from June, 1996 through April, 1997, ATS sold a net total
of 2,186.667 shares (converted in the merger described below to 2,186,667
shares) for aggregate proceeds of approximately $2,000,000 to approximately 40
Canadian residents. No underwriters were engaged, although finders fees of
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<PAGE> 18
approximately $200,000 were paid to certain non-U.S. persons and warrants to
acquire up to 740 shares (converted in the merger described below to warrants to
acquire 740,000 shares) were issued to Hampton Equity Management Inc.,
Roxborough Holdings Ltd. James Hogan and Eric Boyd (non-US persons) as finders
fees for sales activities. Subsequently, in payment for finders services
rendered in connection with the foregoing ATS sales, ADSys issued options to
acquire (a) 35,000 shares at an exercise price of $1 per share to Joe Charland
(September 1997), (b) 75,000 shares at an exercise price of $1 per share to
Logicom SARL (September 1997), and (c) 150,000 shares at an exercise price of
$.50 per share to Madikwe Capital Ltd. (September 1998). Exemption from
registration is claimed pursuant to Regulation S, for offers and sales made
outside the United States to non-U.S. persons.
On May 15, 1997, AdSys (at the time named Bennington Corporation) offered
and sold a total of 2,000,000 shares for aggregate proceeds of $20,000, to fund
its start-up and other costs associated with structuring and closing the RTO
merger described below. No underwriters or sales agents were used for this
transaction. Exemption from registration was claimed pursuant to Rule 504 of
Regulation D.
On June 30, 1997, AdSys (at the time named Bennington Corporation) offered
and sold 980,000 units for aggregate proceeds of $980,000 to approximately 24
persons, in anticipation of the RTO merger described below. Each unit consisted
of one common share plus a warrant to acquire one-half common share at an
exercise price of $2.00 per share. No warrants were exercised, and all have
expired. No underwriters were used for this offering. Exemption from
registration is claimed pursuant to Rule 504 of Regulation D.
On July 8, 1997, AdSys issued an aggregate of 4,906,667 shares to the
former ATS shareholders and warrants to acquire up to 1,040,000 shares to the
former ATS warrantholders in connection with the RTO merger acquisition by AdSys
of ATS. The warrants carry exercise prices varying from $0.50 to $1.88 per
share. None of the warrants have been exercised. No underwriters were used for
this transaction, and no commissions were paid. Exemption from registration was
claimed pursuant to Regulation S, for offers and sales made outside the United
States to non-U.S. persons.
On October 1, 1997, AdSys sold 250,000 shares to an existing shareholder
for $300,000. No underwriters were engaged, and no commissions were paid.
Exemption from registration is claimed under Regulation S (for an offer and sale
made outside the United States to a non-U.S. person).
In March, 1998, AdSys sold 267,000 shares at a sales price of $1.60 per
share to a small number of foreign investors. A total of approximately $17,088
was paid in finders fees to non-US persons. Exemption from registration is
claimed pursuant to Regulation S, for offers and sales made outside the United
States to non-U.S. persons.
At various times from August, 1998 through January, 1999, AdSys sold an
aggregate of 1,424,001 common shares for aggregate proceeds of $959,013.
Exemption from registration is claimed pursuant to Rule 504 of Regulation D. All
investors were "accredited investors." No underwriters were involved in these
offers and sales.
At various times from August, 1998 through March, 1999, AdSys sold an
aggregate of 1,561,920 shares of common stock for aggregate proceeds of
$1,018,075. Exemption from registration is claimed pursuant to Regulation S, for
offers and sales made outside the US to non-US persons. No underwriters were
involved in these offers and sales.
In connection with offers and sales made outside the US to non-US persons
described above, AdSys paid $143,712 in finders fees to various non-US persons.
In April 1999, AdSys approved the issuance of warrants and options to
acquire 1,009,500 shares at an exercise price of $.75 per share to 13 non-US
persons in compensation for their identification and introduction of non-US
persons to ADSys as investors. The warrants and options issuances were exempt
from registration pursuant to Regulation S, for offers and sales made outside
the US to non-US persons. None of the warrants and options have been exercised.
In April 1999, AdSys approved the issuance of 93,725 warrants to acquire
shares at an exercise price of $0.625 per share to certain debenture holders who
converted their debentures to shares of common stock and
18
<PAGE> 19
warrants. The shares so issued were included in the Rule 504 and Regulation S
offerings described in the preceding paragraphs, and exemption from registration
is claimed for the warrant issuance under Regulation S, for offers and sales
made outside the United States to non-U.S. persons.
At various times from July 8, 1997 through July 15, 1999, AdSys has issued
options to acquire common stock and one restricted stock award to its directors,
employees and outside consultants pursuant to the director and employee option
plans. None of the options has been exercised and, accordingly, no shares have
been sold pursuant to the options. The restricted stock award was exercised, and
11,905 shares were sold for $10,000. The grants of options to employees and the
grant and exercise of the restricted stock award were exempt from registration
under Rule 701. Grants to directors, executive officers, the registrant's law
firm and three consultants (Barry Kaplan Associates, Frank Gerardi and TKO
International) were exempt under Section 4(2) of the Securities Act of 1933.
Grants to three outside consultants (KIF Capital Corp., Martin E. Janis and
Atlantis Bancorp, all of whom are non-US persons) were exempt under Section 4(2)
of the Securities Act and Regulation S. The consultants provided corporate
finance, investor relations, market information support and public relations
services. Sales upon exercise (if any options are exercised) will be made under
applicable available exemptions or pursuant to a registration statement.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The AdSys Articles of Incorporation and Bylaws reflect the adoption of the
provisions of Section 78.037 of the Nevada General Corporation Law, which
eliminates or limits the personal liability of a director to the company or its
stockholders for monetary damages for breach of fiduciary duty under certain
circumstances. The company's Articles of Incorporation and Bylaws also provide
that the company shall indemnify any person, who was or is a party to a
proceeding by reason of the fact that he is or was a director or officer of the
company, or is or was serving at the request of the company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be or not opposed to the
best interests of the Company, in accordance with, and to the full extent
permitted by, the Nevada General Corporation Law. In addition, the Bylaws
authorize the company to maintain insurance to cover such liabilities. AdSys
currently has a directors' and officers' insurance policy in effect.
Insofar as indemnification for liabilities under the Securities Act 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 Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in a successful defense of any action, suit or
proceeding) is asserted by a 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 Securities
Act and will be governed by the final adjudication of such issue.
19
<PAGE> 20
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Stockholders' Deficit........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 21
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advanced Systems International, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Systems International, Inc. (a Nevada corporation) and Subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Systems International, Inc. and Subsidiaries as of December 31, 1998 and 1997
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Grant Thornton LLP
Southfield, Michigan
February 25, 1999
F-2
<PAGE> 22
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1999 1998 1997
--------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 339,091 $ 225,491 $ 68,132
Accounts receivable, less allowance for doubtful accounts
of $8,700 at December 31, 1998 and March 31, 1999....... 1,699,438 494,063 387,910
Loan receivable -- stockholder............................ -- -- 72,917
Inventory................................................. 42,560 23,642 14,370
Prepaid expenses.......................................... 332 9,169 1,544
----------- ----------- -----------
Total Current Assets.................................. 2,081,421 752,365 544,873
Property and equipment -- At cost
Computer equipment........................................ 256,178 185,148 66,108
Office equipment.......................................... 69,810 68,126 36,609
Leasehold improvements.................................... 33,111 27,477 --
----------- ----------- -----------
359,099 280,751 102,717
Less accumulated depreciation and amortization........ (103,354) 83,139 29,530
----------- ----------- -----------
256,745 197,612 73,187
Other assets
Deposits.................................................. 32,836 62,292 32,368
Software development costs................................ 355,719 296,195 --
Organization costs, less accumulated amortization of
$24,255 at March 31, 1999, $21,628 and $14,165 at
December 31, 1998 and 1997, respectively................ 13,048 15,675 23,139
----------- ----------- -----------
$ 2,738,769 $ 1,324,139 $ 673,567
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Line of credit............................................ $ -- $ -- $ 550,000
Current maturities of long-term obligations............... 328,013 328,013 378,795
Current maturities of long-term obligations to related
parties................................................. 258,000 88,000 375,000
Customer deposits......................................... 456,193 96,638 92,209
Accounts payable..........................................
Trade................................................... 416,555 356,497 196,941
Related parties......................................... -- -- 10,122
----------- ----------- -----------
416,555 356,497 207,063
Accrued liabilities
Payroll................................................. 313,057 235,615 --
Payroll taxes........................................... 85,267 24,840 3,574
Interest................................................ 3,728 3,851 38,126
Other................................................... 156,485 -- 8,169
----------- ----------- -----------
558,537 264,306 49,869
----------- ----------- -----------
Total current liabilities............................. 2,017,298 1,133,454 1,652,936
Long-term obligations, less current maturities.............. 269,980 319,922 120,067
Long-term obligations to related parties, less current
maturities................................................ 46,322 62,822 96,000
Lease commitment (Note E)................................... -- --
Stockholders' deficit
Preferred stock -- $.001 par value; authorized, 10,000,000
shares; none issued and outstanding..................... -- -- --
Common stock -- $.001 par value; authorized, 20,000,000
shares; 11,157,672 and 8,136,667 shares issued and
outstanding in 1998 and 1997, respectively.............. 11,689 11,158 8,137
Additional paid-in capital................................ 5,647,131 5,356,775 2,866,744
Accumulated deficit....................................... (5,253,651) (5,559,992) (4,070,317)
----------- ----------- -----------
405,169 (192,059) (1,195,436)
----------- ----------- -----------
$ 2,738,769 $ 1,324,139 $ 673,567
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 23
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- --------------------------
1999 1998 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales...................................... $ 1,762,260 $ 314,001 $ 2,379,987 $ 2,012,317
Cost of sales.............................. 118,833 26,612 155,147 304,564
----------- ---------- ----------- -----------
Gross profit.......................... 1,643,427 287,389 2,224,840 1,707,753
Operating expenses
Sales & marketing........................ 412,526 152,597 945,736 485,020
Research and development................. 102,481 59,192 314,587 1,772,537
General and administrative............... 806,956 386,778 2,294,668 1,227,894
----------- ---------- ----------- -----------
1,321,963 598,567 3,554,991 3,485,451
----------- ---------- ----------- -----------
Earnings (Loss) from operations....... 321,464 (311,178) (1,330,151) (1,777,698)
Other expense
Interest................................. 15,123 31,322 122,728 113,770
Loss on settlement....................... 26,250 --
Loss on disposal of assets............... 8,305 3,681
Sundry................................... 2,241 343
----------- ---------- ----------- -----------
159,524 117,794
----------- ---------- ----------- -----------
Net earnings (loss)................... $ 306,341 $ (342,500) $(1,489,675) $(1,895,492)
=========== ========== =========== ===========
Net earnings (loss) per share -- basic..... $ 0.03 $ (0.04) $ (.17) $ (.28)
=========== ========== =========== ===========
Net earnings (loss) per share -- diluted... $ 0.02 $ (0.03) $ (.17) $ (.28)
=========== ========== =========== ===========
Weighted average number of shares
outstanding.............................. 11,489,391 8,136,667 8,870,550 6,739,167
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 24
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1997..................... $ 4,907 $1,569,974 $(2,174,825) $ (599,944)
Issuance of 2,980,000 shares of stock in
connection with reverse acquisition and
recapitalization (Note A).................... 2,980 977,020 -- 1,000,000
Issuance of 250,000 shares of stock............ 250 299,750 -- 300,000
Net loss....................................... -- -- (1,895,492) (1,895,492)
------- ---------- ----------- -----------
Balance at December 31, 1997................... 8,137 2,866,744 (4,070,317) (1,195,436)
Issuance of 2,194,082 shares of stock.......... 2,194 1,888,875 -- 1,891,069
Conversion of debentures and interest to
899,840 shares of stock...................... 900 674,000 -- 674,900
Foreclosure on loan receivable -- stockholder
(72,917 shares).............................. (73) (72,844) -- (72,917)
Net loss....................................... -- -- (1,489,675) (1,489,675)
------- ---------- ----------- -----------
Balance at December 31, 1998................... 11,158 5,356,775 (5,559,992) (192,059)
Issuance of 531,002 shares of stock............ 531 290,356 290,887
Net Earnings................................... -- -- 306,341 306,341
------- ---------- ----------- -----------
Balance at March 31, 1999 (unaudited).......... $11,689 $5,647,132 $(5,253,651) $ 405,169
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 25
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTERS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
----------------------- -------------------------
1999 1998 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)........................... $ 306,341 $(342,500) $(1,489,675) $(1,895,492)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities
Depreciation and amortization............ 22,842 14,463 68,533 30,867
Loss on disposal of property and
equipment.............................. 8,305 3,681
Conversion of interest on debentures to
common stock........................... 60,900 --
Change in assets and liabilities
Increase/(decrease) in accounts
receivable.......................... (1,194,801) 115,759 (106,153) (335,921)
Decrease (increase) in loan
receivable.......................... 72,917 (72,917)
Decrease in purchased contracts........ -- 226,715
Increase in inventories................ (18,918) (234) (9,272) (11,370)
(Increase)/decrease in deposits........ 29,456 (2,912) (29,924) (29,456)
Increase in prepaid expenses........... 8,837 31,622 (7,625) (1,544)
Increase (decrease) in accounts
payable............................. 60,059 (110,885) 149,434 (30,895)
Increase (decrease) in accrued
liabilities......................... 294,230 190,264 214,437 (27,884)
Increase in customer deposits.......... 359,555 113,847 4,429 92,209
----------- --------- ----------- -----------
Net cash provided (used in)
operating activities.............. (132,399) 9,424 (1,063,694) (2,052,007)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.......... (88,924) (15,860) (193,799) (68,189)
Increase in software development costs...... (59,524) (7,805) (296,195) --
Increase in organization costs.............. -- (760)
----------- --------- ----------- -----------
Net cash used in investing
activities........................ (148,448) (23,665) (489,994) (68,949)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of obligations....... 17,600 143,880
Repayment of obligations.................... (42,590) (94,527) (50,852)
Proceeds from issuance of obligations to
related parties.......................... 170,000 100,000 100,000 471,000
Proceeds from issuance of common stock...... 283,536 86,107 1,818,152 1,629,724
Repayments of related party obligations..... (16,500) (23,233) (130,178) (30,000)
----------- --------- ----------- -----------
Net cash provided by financing
activities........................ 394,446 162,874 1,711,047 2,163,752
----------- --------- ----------- -----------
Net increase in cash.......................... 113,600 148,633 157,359 42,796
Cash at beginning of period................... 225,491 68,132 68,132 25,336
----------- --------- ----------- -----------
Cash at end of period......................... $ 339,091 $ 216,765 $ 225,491 $ 68,132
=========== ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest...... $ 9,904 $ 38,706 $ 157,003 $ 97,062
=========== ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES
During 1998, common stock was issued upon
the conversion of $614,000 of long-term
debt and common stock was retired upon
the foreclosure of a loan
receivable-stockholder of $72,917.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 26
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
ORGANIZATION AND BASIS OF PRESENTATION
Advanced Systems International, Inc. (formerly Automatic Time Systems
Corp.) ("the Company") commenced operations on February 1, 1996. The Company
develops and sells high technology time and attendance software applications to
accompany their customers' hardware configurations in the United States.
On July 8, 1997 Advanced Systems International, Inc. acquired all of the
outstanding common stock of Automatic Time Systems Corp. The acquisition has
been accounted for as a recapitalization of Automatic Time Systems Corp. with
Automatic Time Systems Corp. as the acquirer (reverse acquisition). Accordingly,
stockholders' deficit has been restated to reflect the issuance of common stock
in connection with the merger. The historical financial statements prior to July
8, 1997 are those of Automatic Time Systems Corp.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Automatic Time Systems Corp. and ASI
Automatic Systems International Ltd. All significant intercompany balances and
transactions have been eliminated.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The Company uses accelerated
methods for depreciation based on useful lives ranging from 3 to 7 years.
Depreciation expense was $61,069 and $23,402 for the years ended December 31,
1998 and 1997, respectively, and $22,083 and $15,000 for the three months ended
March 31, 1999 and 1998, respectively.
Expenditures for major repairs and improvements that extend the useful life
of property and equipment are capitalized and are depreciated or amortized over
the life of the improvement or the life of the lease whichever is shorter.
Expenditures for maintenance and repairs are charged to expense as incurred.
ORGANIZATION COSTS
The organization costs are amortized on the straight line method over a 60
month period.
SOFTWARE DEVELOPMENT
Software development costs are capitalized once technological feasibility
has been achieved. Costs incurred prior to achieving technological feasibility
are charged to research and development expense as incurred. The Company had
capitalized software of $296,195 relating to the development efforts on the
Company's middleware product, ATLink, as of December 31, 1998. Capitalized
software was $355,719 at March 31, 1999.
INCOME TAXES
The Company accounts for income taxes on the asset and liability method.
Deferred tax assets and liabilities are recorded based upon the differences
between the tax bases of assets and liabilities and their carrying amounts for
financial statement purposes. Current taxes are measured by applying the
provision of enacted tax laws to taxable earnings to determine the amount of
taxes payable.
F-7
<PAGE> 27
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
NET EARNINGS (LOSS) PER SHARE
During 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is effective for financial statements issued after December 15,
1997. The new standard eliminates primary and fully diluted earnings per share
and requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. Basic loss per share
excludes dilution and is computed by dividing loss available to common
shareholders by the weighted-average common shares outstanding for the period.
Diluted loss per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock or resulted in the issuance of common stock that then shared
in the loss of the entity. The Company adopted this pronouncement at December
31, 1997. Common stock equivalents have been excluded from the calculation of
net loss per share due to their antidilutive effect.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of the Company's financial instruments
approximates their carrying value. The fair value of long-term obligations
approximate their carrying values based on current rates for instruments with
similar characteristics.
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
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
STOCK BASED COMPENSATION
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS 123 establishes financial accounting and reporting standards
for stock-based employee compensation plans. It defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans and include the cost in the income statement
as compensation expense. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to account
for compensation cost for stock option plans in accordance with APB Opinion No.
25.
NEW PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components (revenues, expense, gains, and losses) in a full set
of financial statements. This statement also requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This statement is effective
for fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The adoption of SFAS 130 does not have an
effect on the consolidated financial statements.
F-8
<PAGE> 28
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments. This statement is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of adoption, comparative information for earlier years is to be
restated. The adoption of SFAS 131 does not have an effect on the consolidated
financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to 1997 to conform to the 1998
presentation.
NOTE B -- LINE OF CREDIT
On August 20, 1998 the Company converted its line of credit to a note
payable.
F-9
<PAGE> 29
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank with interest at 1.5% above the
bank's prime rate (9.25% at December 31, 1998), and
payable in monthly installments of $10,000 plus
interest through August 31, 1999; monthly installments
of $15,000 plus accrued interest from September 1,
1999 through maturity and a principal payment of
$160,000 due July 1, 1999. the note is due on February
19, 2001 and is collateralized by all of the assets of
the Company........................................... $480,000 $510,000 $ --
Note payable to bank with interest at 2% above the
bank's prime rate (9.75% at December 31, 1998), and
payable in monthly installments of $1,590 plus
interest The note is due on February 19, 2001 and is
collateralized by all of the assets of the Company.... 36,584 41,354 60,440
Note payable to bank with interest at 1.5% above the
bank's prime rate (9.25% at December 31, 1998), and
payable in monthly installments of $2,606 plus
interest. the note is due on February 19, 2001 and is
collateralized by all of the assets of the Company.... 55,953 67,762 99,035
Debenture payable, with interest at 6% (converted to
common stock in 1998)................................. -- 300,000
Debenture payable, with interest at 18% (converted to
common stock in 1998)................................. -- 25,000
Lease payable to bank, payable in monthly installments
of $388, including interest at 11.5%, due October 30,
2001.................................................. 10,055 11,219 14,387
Settlement payable to former employee, payable in
monthly installments of $733, due December 7, 2000.... 15,401 17,600 --
-------- -------- --------
597,993 647,935 498,862
Less current maturities................................. 328,013 328,013 378,795
-------- -------- --------
$269,980 $319,922 $120,067
======== ======== ========
</TABLE>
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C> <C>
1999............................................................. $328,013
2000............................................................. 243,167
2001............................................................. 76,755
--------
$647,935
========
</TABLE>
F-10
<PAGE> 30
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- INCOME TAXES
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, --------------------------
1999 1998 1997
--------- ---- ----
<S> <C> <C> <C>
Net operating losses.................... $ 1,853,000 $ 1,957,000 $ 1,380,000
Capitalized software.................... (121,000) (101,000) --
Valuation allowance..................... (1,732,000) (1,856,000) (1,380,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate for continuing operations was as follows:
<TABLE>
<CAPTION>
QUARTERS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax expense (benefit) at statutory rates
applied to loss before federal income
tax....................................... $(104,000) $(116,000) $(506,000) $(644,000)
Effect of nondeductible items............... -- -- 30,000 2,000
Use of net operating loss carryforward...... 104,000 116,000
Valuation allowance......................... -- 476,000 642,000
--------- --------- --------- ---------
$ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
The net operating loss carryforwards expire through 2018
NOTE E -- LEASE COMMITMENT
The Company leases office space under an operating lease which expires on
October 31, 2003. Approximate future minimum rental payments under this lease
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C> <C>
1999............................................................. $164,063
2000............................................................. 166,435
2001............................................................. 168,807
2002............................................................. 171,179
2003............................................................. 144,298
--------
$814,782
========
</TABLE>
Rent expense was approximately $73,600 and $41,600 for the periods ended
December 31, 1998 and 1997, respectively. Rent expense was approximately $42,900
and $17,800 for the three months ended March 31, 1999 and 1998, respectively.
F-11
<PAGE> 31
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- MAJOR CUSTOMERS
The Company had the following customers representing more than 10% of
sales:
<TABLE>
<CAPTION>
QUARTERS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------ ------------
1999 1998 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A........................................ --% --% --% 84%
Customer B........................................ -- -- 19 --
Customer C........................................ -- 23 16 --
Customer D........................................ -- -- 14 --
Customer E........................................ -- -- 12 --
Customer F........................................ -- 57 11 --
Customer G........................................ 30 -- -- --
Customer H........................................ 19 -- -- --
Customer I........................................ 12 -- -- --
-- -- -- --
61% 80% 72% 84%
== == == ==
</TABLE>
Included in accounts receivable, is $180,000 and $255,000 at December 31,
1998 and 1997, respectively, related to these customers. At March 31, 1999,
875,556 related to these customers.
NOTE G -- RELATED PARTY TRANSACTIONS
During the years ending December 31, 1998 and 1997, approximately $211,000
and $272,000 was paid to related parties for consulting services. Also, during
the year ended December 31, 1998, approximately $92,000 was paid to related
parties for commissions on stock subscriptions and approximately $73,000 for the
three months ended March 31, 1999.
Long-term obligations to related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
AT MARCH 31, --------------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Subordinated non-interest bearing note payable to
stockholder, collateralized by all the assets of the
Company, due December 2000............................ $134,322 $150,822 $196,000
Short term note payable to stockholder, bearing interest
at 24%, payable at April 30, 1999..................... 170,000 -- --
Debentures payable to stockholders, bearing interest at
18% (converted to common stock in 1998)............... -- -- 275,000
-------- -------- --------
304,322 150,822 471,000
Less current maturities................................. 258,000 88,000 375,000
-------- -------- --------
$ 46,322 $ 62,822 $ 96,000
======== ======== ========
</TABLE>
F-12
<PAGE> 32
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
Maturities of related party obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C>
1999............................................................. $ 88,000
2000............................................................. 62,822
--------
$150,822
========
</TABLE>
NOTE H -- COMMON STOCK
During 1998, the Company entered into agreements with certain stockholders
that if additional shares were sold at a price per share which was less than the
price paid by these stockholders, then the Company would issue additional shares
to them to cause the effective price per share paid by them to equal the lowest
effective price per share for sales of stock through February 19, 1999.
At December 31, 1998, the Company anticipates that approximately 72,000
additional shares will be issued under these agreements. At March 31, 1999,
these shares have been issued.
NOTE I -- STOCK OPTION PLANS
The 1997 Employee Stock Option Plan ("Employee Plan") and the 1997 Director
Stock Option Plan ("Director Plan") were approved by stockholders on July 1,
1997.
During 1998, the Employee Plan was amended to provide for 3,500,000 shares
of common stock to be reserved for options that may be issued under the plan.
The plan provides that the option price is not less than the fair market value
at the date of grant. The options granted under the plan become exercisable on
the second anniversary of the date of grant. Options granted under the plan have
a term of ten to twenty years.
During 1998, the Director Plan was amended to provide for 1,000,000 shares
of common stock to be reserved for options that may be issued under the plan.
The plan provides that the option price is not less than the fair market value
at the date of grant. The plan provides that each director, on the date such
person becomes a director, will be granted options to purchase 100,000 shares of
stock. The options granted under the plan become exercisable on the second
anniversary of the date of grant for options granted prior to August 6, 1998 and
the third anniversary for options granted on or after August 6, 1998. Options
granted under the plan have a term of ten years.
The Company also issues stock options to outside consultants for services
provided. During 1998, 410,000 shares with an exercise price ranging from $.50
to $1.00 were issued and an expense of $163,000 was recorded by the Company.
During 1998, the Company revised the option price for all options
outstanding at December 31, 1997 from $1.00 to $.50 per share.
The weighted average remaining life of the stock options is approximately
thirteen years.
F-13
<PAGE> 33
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
The following table summarizes the changes in the number of common shares
under stock options granted pursuant to the preceding plans:
<TABLE>
<CAPTION>
EMPLOYEE PLAN DIRECTOR PLAN
------------------------- ------------------------
AVERAGE AVERAGE
SHARES OPTION SHARES OPTION
UNDER PRICE UNDER PRICE
OPTION PER SHARE OPTION PER SHARE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997................ -- --
Granted during the 1997....................... 1,525,000 $.50 300,000 $.50
Cancelled during 1997......................... (100,000) $.50 --
--------- --------
Outstanding at December 31, 1997.............. 1,425,000 $.50 300,000 $.50
Granted during the year....................... 1,155,055 $.50 400,000 $.50
Cancelled during the year..................... (375,000) $.50 (200,000) $.50
--------- --------
Outstanding at December 31, 1998.............. 2,205,055 $.50 500,000 $.50
Granted during the quarter.................... 1,373,945 $.61 100,000 $.50
Cancelled during the quarter.................. (495,000) $.54 -- --
--------- --------
Outstanding at March 31, 1999 (unaudited)..... 3,084,000 $.54 600,000 $.50
========= ========
</TABLE>
The Company also has issued warrants to purchase common stock. These
warrants expire three years from the date of issuance. The following table
summarizes the changes in the number of common shares under warrants:
<TABLE>
<CAPTION>
WARRANTS
TO PURCHASE AVERAGE
SHARES OF EXERCISE PRICE
COMMON STOCK PER SHARE
------------ --------------
<S> <C> <C>
Outstanding at January 1, 1997.................... 1,285,000 $1.11
Granted during 1997............................... 590,000 $1.98
Cancelled during 1997............................. (302,083) $1.00
---------
Outstanding at December 31, 1997.................. 1,572,917 $1.46
Granted during 1998............................... 15,000 $1.00
Cancelled during 1998............................. (232,917) $1.00
---------
Outstanding at December 31, 1998.................. 1,355,000 $1.53
Granted during the quarter........................ --
Cancelled during the quarter...................... --
Outstanding at March 31, 1999 (unaudited)......... 1,355,000 $1.53
=========
</TABLE>
F-14
<PAGE> 34
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
The Company accounts for the stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." No compensation costs have been
recognized. Had compensation cost for the plan been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS No.
123, the Company's net loss and loss per share would have been as follows:
<TABLE>
<CAPTION>
FOR THE QUARTERS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------
NET EARNINGS (LOSS) 1999 1998 1998 1997
------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As reported........... $306,341 $(342,500) $(1,489,675) $(1,895,492)
Pro forma............. $279,395 $(359,280) $(1,563,334) $(2,386,367)
LOSS PER SHARE --
BASIC
As reported........... $ 0.03 $ (0.04) $ (.17) $ (.28)
Pro forma............. $ 0.02 $ (0.04) $ (.18) $ (.34)
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED
MARCH 31,
1999 1998 1997
--------------- ---- ----
<S> <C> <C> <C>
Dividend yield...................... 0% 0% 0%
Expected volatility................. 36.0% 34.5% 22.0 - 63.6%
Risk-free interest rate............. 5.3 - 6.7% 4.9 - 6.4% 5.8 - 6.5%
Expected lives...................... 10 years 10 years 10 - 20 years
</TABLE>
F-15
<PAGE> 35
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of Advanced
Systems International, Inc.*
3.2 Bylaws of Advanced Systems International, Inc.*
4.1 Specimen Stock Certificate*
10.1 Merger Agreement with Bennington Corporation*
10.2 Director Stock Option Plan
10.3 Employee Stock Option Plan*
10.4 Employment Agreement between registrant and Gerald Pesut
dated as of November 15, 1996.*
10.5 Employment Agreement between registrant and Richard
Penington dated as of March 5, 1997.*
10.6 Employment Agreement between registrant and Howard H.
Tarnoff dated as of July 22, 1998.*
10.7 Employment Agreement between registrant and Robert C.
DeMerell dated as of January 8, 1999.*
10.8 Consulting Agreement between registrant and KIF
International dated as of November 15, 1996.*
10.9 Consulting Agreement between Advanced Systems International,
Inc. and Gregory J. Farbolin dated as of February 4, 1999.
10.10 Stock Option Agreement -- Pesut*
10.11 Stock Option Agreement -- Penington*
10.12 Unit -- Hampton*
10.13 Warrants -- Temple*
10.14 Warrants -- Revben*
10.15 Lease for Southfield headquarters facility*
10.16 Receivables Financing Agreement between registrant and Ionia
County National Bank dated April 23, 1999
10.17 Master Software License Agreement between registrant and
Electronic Data Systems Corporation dated November 13, 1998
10.18 Carlos E. Bravo Consulting Agreement
27.1 Financial Data Schedule
</TABLE>
* Previously filed.
ITEM 2. DESCRIPTION OF EXHIBITS (See Item 1 above)
<PAGE> 36
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
ADVANCED SYSTEMS INTERNATIONAL, INC.
By: /s/ GERALD A. PESUT
------------------------------------
Gerald A. Pesut
President and Chief Executive
Officer
Date: July 15, 1999
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of Advanced
Systems International, Inc.*
3.2 Bylaws of Advanced Systems International, Inc.*
4.1 Specimen Stock Certificate*
10.1 Merger Agreement with Bennington Corporation*
10.2 Director Stock Option Plan
10.3 Employee Stock Option Plan*
10.4 Employment Agreement between registrant and Gerald Pesut
dated as of November 15, 1996.*
10.5 Employment Agreement between registrant and Richard
Penington dated as of March 5, 1997.*
10.6 Employment Agreement between registrant and Howard H.
Tarnoff dated as of July 22, 1998.*
10.7 Employment Agreement between registrant and Robert C.
DeMerell dated as of January 8, 1999.*
10.8 Consulting Agreement between registrant and KIF
International dated as of November 15, 1996.*
10.9 Consulting Agreement between Advanced Systems International,
Inc. and Gregory J. Farbolin dated as of February 4, 1999*
10.10 Stock Option Agreement -- Pesut*
10.11 Stock Option Agreement -- Penington*
10.12 Unit -- Hampton*
10.13 Warrants -- Temple*
10.14 Warrants -- Revben*
10.15 Lease for Southfield headquarters facility*
10.16 Receivables Financing Agreement between registrant and Ionia
County National Bank dated April 23, 1999
10.17 Master Software License Agreement between registrant and
Electronic Data Systems Corporation dated November 13, 1998
10.18 Carlos E. Bravo Consulting Agreement
27.1 Financial Data Schedule
</TABLE>
* Previously filed.
<PAGE> 1
EXHIBIT 10.2
================================================================================
ADVANCED SYSTEMS INTERNATIONAL, INC.
1997 DIRECTOR STOCK OPTION PLAN
(AS AMENDED AUGUST 6, 1998, APRIL 15, 1999 and July 15, 1999)
1. PURPOSE AND ADOPTION OF THE PLAN
1.1. PURPOSE. The purpose of the Advanced Systems International, Inc.
1997 Director Stock Option Plan is to attract and retain the services of
experienced and knowledgeable directors of Advanced Systems International, Inc.
(the "Company") and to provide an additional incentive for such directors to
continue to work for the best interests of the Company and its stockholders.
1.2. ADOPTION AND TERM. The Plan has been approved by the Board and the
Company's stockholders, was effective as of July 1, 1997, and amended on August
6, 1998, April 15, 1999 and July 15, 1999, and will remain in effect until all
shares authorized under the terms of the Plan have been issued, unless earlier
terminated or abandoned by action of the Board.
2. DEFINITIONS
2.1. GENERAL. The following words and phrases shall, when used herein,
have the following respective meanings unless the context clearly indicates
otherwise:
2.1.1. BENEFICIARY means (a) an individual, trust or estate who or
which, by will or by operation of the laws of descent and
distribution, succeeds to the rights and obligations of the
Director under the Plan and Option Agreement upon the Director's
death; or (b) an individual, who by designation of the Director,
succeeds to the rights and obligations of the Director under the
Plan and Option Agreement upon the Director's death.
2.1.2. BOARD means the Board of Directors of the Company.
2.1.3. CHANGE OF CONTROL EVENT means (a) an event or series of
events by which any person or other entity or group (as such term
is used in Section 13(d) and 14(d) of the Exchange Act) of persons
or other entities acting in concert as a partnership or other
group (a "Group of Persons") (other than persons who are, or
Groups of Persons entirely made up of, (i) management personnel of
the Company or (ii) any affiliates of any such management
personnel) shall, as a result of a tender or exchange offer or
-1-
<PAGE> 2
offers, an open market purchase or purchases, a privately
negotiated purchase or purchases or otherwise, become the
beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of 20% or
more of the combined voting power of the then outstanding voting
stock of the Company; (b) the Company consolidates with, or merges
with or into, another person (other than a Subsidiary in a
transaction which is not otherwise a Change of Control Event), or
sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any person, or any
person consolidates with, or merges with or into the Company, in
any such event pursuant to a transaction in which the outstanding
voting stock of the Company is converted into or exchanged for
cash, securities or other property; (c) during any consecutive
two-year period, individuals who at the beginning of such period
constituted the Board (together with any new directors whose
election by such Board or whose nomination for election by the
stockholders of the Company, was approved by a vote of 66-2/3% of
the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the Board then in office; or (d) any
liquidation or dissolution of the Company (other than a
liquidation into a Subsidiary that is not otherwise a Change of
Control Event).
2.1.4. CODE means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section and
any comparable section or sections of any future legislation that
amends, supplements or supersedes that section.
2.1.5. COMPANY means Advanced Systems International, Inc., a
Nevada corporation.
2.1.6. COMPANY COMMON STOCK means the Common Stock of the Company.
2.1.7. DATE OF GRANT means the date an Option is granted under
this Plan.
2.1.8. DIRECTOR means a member of the Board of Directors of the
Company.
2.1.9. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
-2-
<PAGE> 3
2.1.10. EXPIRATION DATE means the date specified in an Option
Agreement as the expiration date of such Award.
2.1.11. FAIR MARKET VALUE means, on any given date, (a) if the
Company Common Stock is, on the given date, listed on a national
securities exchange, Fair Market Value shall be the average of the
highest and lowest selling price for the given date, or the most
recent date upon which sales occurred, (b) if (a) does not apply,
then Fair Market Value shall be the average of the highest and
lowest selling price for the Company Common Stock as reported on
the Nasdaq National Market for the given date, or the most recent
date upon which sales were reported, (c) if neither (a) nor (b)
applies, Fair Market Value shall be the average of the final bid
and asked prices for the Company Common Stock as quoted for the
given date in whatever medium then issues such quotes, or the most
recent date upon which such quotes were published, (d) if none of
(a), (b) or (c) applies, then Fair Market Value shall be
determined by the Board based on such valuation methods and/or
indicia of value as the Board deems advisable at the time of such
determination. The use by the Board of any method or indicia of
value to determine Fair Market Value on any valuation date will
not, of itself, preclude the Board from use of a different method
or indicia on a subsequent valuation date.
2.1.12. NON-QUALIFIED STOCK OPTION means a stock option which is
not an Incentive Stock Option as described in Section 422 of the
Code.
2.1.13. OPTION means a Non-Qualified Stock Option granted at any
time under the Plan.
2.1.14. OPTION AGREEMENT means a written agreement between the
Company and the option holder evidencing the grant of an Option
and setting forth the terms and conditions of the Option.
2.1.15. PLAN means the Advanced Systems International, Inc. 1997
Director Stock Option Plan, as described herein and as it may be
amended from time to time.
2.1.16. PURCHASE PRICE, with respect to options, shall have the
meaning set forth in Section 5.2.
2.1.17. SUBSIDIARY shall have the meaning set forth in Section
424(f) of the Code.
-3-
<PAGE> 4
3. COMPANY COMMON STOCK ISSUABLE PURSUANT TO THE PLAN
3.1. SHARES ISSUABLE. Shares to be issued under the Plan may be
authorized and unissued shares or issued shares which have been reacquired by
the Company. Except as provided in Section 3.3, the Options granted under the
Plan shall be limited so that Options to acquire no more than 1,000,000 shares
in the aggregate may be outstanding at any one time.
3.2. SHARES SUBJECT TO TERMINATED OPTIONS. In the event that any Option
at any time granted under the Plan shall be surrendered to the Company, be
terminated or expire before it shall have been fully exercised, then all shares
formerly subject to such Option as to which such Option shall not have been
exercised shall be available for any Option subsequently granted in accordance
with the Plan.
3.3. ADJUSTMENTS TO REFLECT CAPITAL CHANGES. If capital changes occur,
adjustments shall be made as described below.
3.3.1. RECAPITALIZATION. The number and kind of shares subject to
outstanding Options, the Purchase Price for such shares, and the
number and kind of shares available for Options subsequently
granted under the Plan shall be appropriately adjusted to reflect
any stock dividend, stock split, combination or exchange of
shares, merger, consolidation or other change in capitalization
with a similar substantive effect upon the Plan or the Options
granted under the Plan. The Board shall have the power to
determine the amount of the adjustment to be made in each case.
3.3.2. SALE OR REORGANIZATION. After any reorganization, merger or
consolidation in which the Company is a participant, each Director
shall, at no additional cost, be entitled upon exercise of an
Option to receive (subject to any required action by
stockholders), in lieu of the number of shares of Company Common
Stock receivable or exercisable pursuant to such Option, a number
and class of shares of stock or other securities to which such
Director would have been entitled pursuant to the terms of the
reorganization, merger or consolidation if, at the time of such
reorganization, merger or consolidation, such Director had been
the holder of record of a number of shares of stock equal to the
number of shares receivable or exercisable pursuant to such
Option. Comparable rights shall accrue to each Director in the
event of successive reorganizations, mergers or consolidations of
the character described above.
-4-
<PAGE> 5
4. PARTICIPATION
4.1. ELIGIBLE INDIVIDUALS. All Directors of the Company shall be
eligible to receive Options under the Plan.
4.2. ADMINISTRATION. The Board may delegate any part, or all, of its
authority and powers to administer this Plan, in any respect (including granting
and amending options) to a committee of the board.
5. OPTION AWARDS
5.1. GRANT OF OPTIONS. Upon the date a person first becomes a member
of the Board, the director will be granted a Non-Qualified Stock Option to
acquire 100,000 shares. On July 15 of each year, each director then in office
will be granted a Non-Qualified Stock Option to acquire 33,000 shares. Each
Option shall be evidenced by an Option Agreement.
5.2. PURCHASE PRICE OF OPTIONS. The Purchase Price of each share of
Company Common Stock which may be purchased upon exercise of any Option granted
under the Plan shall be the Fair Market Value on the Date of Grant.
5.3. VESTING OF OPTIONS. Options shall vest in equal monthly increments
on the first day of each of the first 36 months following the grant date.
5.4. DURATION OF OPTIONS. Options granted under the Plan shall
terminate after the first to occur of the following events:
5.4.1. Ten years from the Date of Grant.
5.4.2. Three months after the Optionee ceases to be a Director,
except in the case of either (a) retirement from the Board after
the Optionee reaches the age of 60, or (b) death as described in
5.4.3 below. However, vesting shall cease as of the date the
Optionee ceases to be a Director, and the Optionee's right to
exercise the Option during the post-termination period will be
limited to the number of shares vested as of the date of
termination.
5.4.3. In the event of the death of a Director while a Director,
the right to exercise all unexpired Options shall be accelerated
and shall accrue as of the date of death, and the Director's
Options may be exercised by his Beneficiary at any time within one
year after the date of the Director's death. In the event of the
death of a Director within the ninety day period
-5-
<PAGE> 6
after he or she ceases to be a Director, the Director's
Beneficiary may exercise his or her Options, to the extent
exercisable on the date of death, within one year after the date
of the Director's death.
5.5. EXERCISE PROCEDURES. Each Option granted under the Plan may be
exercised by written notice to the Company which must be received by the
Secretary of the Company on or before the Expiration Date of the Option. The
Purchase Price of shares purchased upon exercise of an Option granted under the
Plan shall be paid in full in cash by the Director on the date of exercise.
5.6. RIGHTS AS A STOCKHOLDER. The Director or any transferee of an
Option pursuant to Section 5.4.3 or Section 5.9 shall have no rights as a
stockholder with respect to any shares of Company Common Stock covered by an
Option until the Director or transferee shall have become the holder of record
of any such shares, and no adjustment shall be made for dividends and cash or
other property or distributions or other rights with respect to any such shares
of Company Common Stock for which the record date is prior to the date on which
the Director or a transferee of the Option shall have become the holder of
record of any such shares covered by the Option.
5.7. PLAN PROVISIONS CONTROL OPTION TERMS. The terms of the Plan shall
govern all Options granted under the Plan. Option agreements may be in such
form, and containing such terms not inconsistent with this Plan, as the Board
may deem advisable. In the event any provision of any Option granted under the
Plan shall conflict with any term in the Plan as constituted on the Date of
Grant of such Option, the term in the Plan as constituted on the Date of Grant
of such Option shall control. Except as provided in Section 3.3, as provided in
Section 6.2, the terms of any Option granted under the Plan may not be changed
after the granting of such Option without the express approval of the Director.
5.8. TAXES. The Company shall be entitled, if the Company deems it
necessary or desirable, to withhold (or secure payment from the Director in lieu
of withholding) the amount of any withholding or other tax required by law to be
withheld or paid by the Company with respect to any shares issuable upon
exercise of an Option, and the Company may defer issuance of the stock upon
exercise unless indemnified to its satisfaction against any liability for such
tax.
5.9. LIMITATIONS ON TRANSFER. A Director's rights and interest under
the Plan may not be assigned or transferred other than by will or the laws of
descent and distribution, or pursuant to the terms of a domestic relations
order, as defined in Section 414(p)(1)(B) of the Code, which satisfies the
requirements of Section 414(p)(1)(A) of the Code (a "Qualified Domestic
Relations Order"). During the lifetime of a Director, only the Director
personally (or the Director's personal representative or attorney-in-fact) or
the alternate payee named in a Qualified Domestic Relations Order may exercise
the Director's rights under the Plan. The Director's Beneficiary may exercise a
-6-
<PAGE> 7
Director's rights to the extent they are exercisable under the Plan following
the death of the Director.
5.9.10. CHANGE OF CONTROL EVENT. Unless otherwise provided in the
Option Agreement, and subject to such other terms and conditions as the Board
may establish in the Option Agreement, upon the occurrence of a Change of
Control Event, irrespective of whether or not an Option is then exercisable, the
holder of any Option granted hereunder (including Options granted prior to
August 6, 1998) shall have the right to exercise in full any unexpired Option to
the extent not theretofore exercised or terminated.
6. GENERAL PROVISIONS
6.1. AMENDMENT AND TERMINATION OF PLAN. The Plan may be amended,
suspended or terminated as set forth below.
6.1.1. AMENDMENT. The Board shall have complete power and
authority to amend the Plan at any time as it deems necessary or
appropriate and no approval by the stockholders of the Company or
by any other person, committee or entity of any kind shall be
required to make any amendment; provided, however, that the Board
shall not, without the requisite affirmative approval of
stockholders of the Company, make any amendment which requires
stockholder approval under any applicable law, including the Code,
unless such compliance, if discretionary, is no longer desired. No
termination or amendment of the Plan may, without the consent of
the Director to whom any Option shall theretofore have been
granted under the Plan, adversely affect the right of such
individual under such Option. For the purposes of this section, an
amendment to the Plan shall be deemed to have the affirmative
approval of the stockholders of the Company if such amendment
shall have been submitted for a vote by the stockholders at a duly
called meeting of such stockholders at which a quorum was present
and the majority of votes cast with respect to such amendment at
such meeting shall have been cast in favor of such amendment, or
if the holders of outstanding stock having not less than a
majority of the outstanding shares consent to such amendment in
writing in the manner provided under the Company's bylaws.
6.1.2. SUSPENSION OR TERMINATION. The Board shall have the right
and the power to suspend the operation of or terminate the Plan at
any time. If the Plan is not earlier terminated, the Plan shall
terminate when all shares authorized under the Plan have been
issued. No Option shall be granted under the Plan while the Plan
is suspended of after the termination of the Plan, but the
suspension or termination of the Plan shall not have any other
effect and any Option outstanding at the time of the suspension or
termination of the Plan may be exercised after suspension
-7-
<PAGE> 8
or termination of the Plan at any time prior to the expiration
date of such Option to the same extent such award would have been
exercisable if the Plan had not been suspended or terminated.
6.2. MODIFICATION OF OPTIONS. The Board may, with the consent of the
involved Director, modify the terms of any options granted under this Plan in
any respect (including, in particular, as to price and vesting).
6.3. NO RIGHT TO CONTINUE AS DIRECTOR. Neither the Plan nor any action
taken hereunder shall be construed as giving any Director any right to be
retained as a Director, or to limit in any way the right of the stockholders of
the Company to remove such person as a Director.
6.4. SECURITIES LAW RESTRICTIONS. The shares of Company Common Stock
issuable pursuant to the terms of any Options granted under the Plan may not be
issued by the Company without registration or qualification of such shares under
the Securities Act of 1933, as amended, or under various state securities laws
or without an exemption from such registration requirements. Unless the shares
to be issued under the Plan have been registered and/or qualified as
appropriate, the Company shall be under no obligation to issue shares of Company
Common Stock upon exercise of an Option unless and until such time as there is
an appropriate exemption available from the registration or qualification
requirements of federal or state law as determined by the Company in its sole
discretion. The Company may require any person who is granted an award hereunder
to agree with the Company to represent and agree in writing that if such shares
are issuable under an exemption from registration requirements, the shares will
be "restricted" securities which may be resold only in compliance with
applicable securities laws, and that such person is acquiring the shares issued
upon exercise of the Option for investment, and not with the view toward
distribution.
6.5. CAPTIONS. The captions (i.e., all section headings) used in the
Plan are for convenience only, do not constitute a part of the Plan, and shall
not be deemed to limit, characterize or affect in any way any provisions of the
Plan, and all provisions of the Plan shall be construed as if no captions have
been used in the Plan.
6.6. SEVERABILITY. Whenever possible, each provision in the Plan and
every Option at any time granted under the Plan shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Option at any time granted under the Plan shall be held to be
prohibited or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Option at any time granted under the Plan shall remain
in full force and effect.
-8-
<PAGE> 9
6.7. CHOICE OF LAW. All determinations made and actions taken pursuant
to the Plan shall be governed by the laws of Nevada and construed in accordance
therewith.
-9-
<PAGE> 1
EXHIBIT 10.16
THE BUSINESS MANAGER(R) AGREEMENT
WITH BUSINESSES AND PROFESSIONALS
TO: Ionia County National Bank From: Advanced Systems International, Inc.
302 W. Main St. 25300 Telegraph Rd.
Ionia, MI 48846 Southfield, MI 48034
This Agreement is between the Bank and the Business and is intended to govern
the sale of Receivables, as defined below, by the Business to the Bank. The
Business will sell, and the Bank may purchase, Receivables arising from the
sales or services to Customers by the Business. The accepted terms are as
follows:
SECTION 1: DEFINITIONS
1.1 "CREDIT APPLICATION AND AGREEMENT" means a Credit Application and
Agreement executed by a Customer and any other agreement or documentation that
governs the terms and disclosures relating to a Receivable.
1.2 "CREDIT MEMO" means a credit memo or similar evidence (whether in
written or electronic form) reflecting a credit, other than a credit arising
from a payment, to a Customer's account with the Business.
1.3 "CUSTOMER" means a debtor obligated on one or more Receivables
which arose from goods the Business sold or services it rendered to the
Customer.
1.4 "FACE AMOUNT", of a Receivable means on any date, the outstanding
balance of such Receivable (after taking into account, without duplication, all
payments, returns, credits, or allowances of any nature at any time issued,
owing, granted or outstanding), plus any taxes imposed in connection with such
Receivable.
1.5 "INVOICE" means an invoice or similar evidence (whether in written
or form) of the terms of a non-cash sale of goods or provision of services
previously made by the Business to a Customer.
1.6 "NET AMOUNT" of a Receivable means the Face Amount of a Receivable
less the Service Charge.
1.7. "OBLIGATIONS" means all of the Business's obligations to the Bank,
whether pursuant to this Agreement, under any note, contract, guaranty,
accommodation or otherwise, however and whenever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or later existing or
due.
1.8 "RECEIVABLES" means all accounts, instruments, contract rights,
chattel paper, documents, and general intangibles arising from the Business's
sale of goods or rendering of services, and any proceeds from those, and all
security and guaranties therefore, whether now existing or later created, that
are accepted by the Bank for purchase under this Agreement in the Bank's sole
and absolute discretion.
1.9 "REPURCHASE OBLIGATION" means the liability of the Business to the
Bank under this Agreement in an amount equal on any date to the Face Amount of
Receivables on that date, plus attorneys' fees (if incurred) and accrued and
unpaid finance charges related to such Receivables.
1.10 "RESERVE" means funds of the Business used to provide for the
funding of the Business's Repurchase Obligation. "Reserve Account" means the
deposit account of the Business containing the Reserve established pursuant to
Section 2.5 of this Agreement.
1.11 "SERVICE CHARGE" means a discount equal to two and zero hundreths
percent (2.0%) of the Face Amount of each Receivable the Business offers to the
Bank that is acquired by the Bank. The Business acknowledges that the Service
Charge is a discount for value and in no event constitutes interest or a similar
charge, and that the transactions described in this Agreement are not
transactions for the use, forbearance or detention of money. The Service
<PAGE> 2
Charge has been agreed upon by the parties and represents a reasonable and
customary fair market value discount.
SECTION 2: SALE; PURCHASE PRICE; BILLING, RESERVE
2.1 ASSIGNMENT AND SALE. The Bank hereby purchases from the Business,
and the Business hereby assigns and sells to the Bank, as absolute owner, the
Business's entire interest in such of its currently outstanding Receivables as
are detailed and attached as Exhibit A to this Agreement, as well as its future
Receivables represented by Invoices the Business delivers to the Bank. The
Business acknowledges that the Receivables listed on Exhibit A are not now, nor
have they ever been declared to be in default. The total outstanding Face Amount
of Receivables purchased by the Bank will never exceed $1,800,000.00, unless
agreed to by the Bank. The Business and the Bank agree that: (a) the Business
will submit to the Bank all Invoices representing receivables arising from all
sales of goods or rendering of services to Customers for the Bank's
determination of acceptability as Receivables; (b) the transactions contemplated
by this Agreement are account purchase transactions; (c) the Receivables are
purchased by the Bank from the Business at a discount; (d) the purchase and sale
of the Receivables vests absolute right, title and ownership of such Receivables
together with all benefits of ownership, including servicing rights and rights
to verify Receivables with Customers, in the Bank; and (e) the Business has no
right to reacquire, redeem, or otherwise obtain title to the Receivables or any
proceeds thereof. The Business further sells and assigns to the Bank all of the
Business's rights as an unpaid vendor, lienor, or lienholder, all of its related
rights of stoppage in transit, replevin and reclamation, and rights against
third parties (all of which will constitute part of the Receivables), and agrees
to cooperate with the Bank in its co-exercise of these rights. The Business and
the Bank agree to execute and deliver such further instruments, documents and
endorsements as may be necessary to accomplish the sales and purchases described
herein and to carry out the purposes of this Agreement.
2.2 PURCHASE PRICE. The purchase price of the Receivables will be equal
to the Net Amount. On or before the next banking day after delivery of
acceptable Invoices to the Bank, the Bank will pay the purchase price for any
Receivable to the Business by crediting the Net Amount, less the Reserve, to the
Business's primary account with the Bank and by crediting the Reserve to the
Business's Reserve Account. The Business and the Bank have agreed upon the
purchase price of the Receivables as reasonably reflecting their fair market
value.
2.3 DOCUMENTATION. The Business will provide the Bank with appropriate
Credit Applications and Agreements, Invoices, Credit Memos, and payment
information (if applicable) ales and services creating Receivables of Customers,
and such other documents proof delivery of goods or rendering of services as the
Bank may reasonably require. As to the Receivables described on Exhibit A, the
payment of the purchase price by the Bank will be conclusive evidence of
assignment and sale, and, if the Bank so requires, any Invoices the Business may
later send (if any) will clearly indicate that the related Receivables have been
assigned, sold, and are payable to the Bank only.
2.4 BILLING. The Bank will send a monthly statement to all Customers
itemizing their account activity during the preceding billing period, unless
otherwise agreed to by the parties. All Customers will be instructed by the
Business to make payments to a post office box controlled by the Bank. All
payments received from or for the account of a Customer will be applied to the
obligations of that Customer. Payment will be deemed made when received by the
Bank. All variations, modifications or extensions of indebtedness on Receivables
sold to the Bank under this Agreement will be made only by the Bank. Nothing in
this Agreement authorizes the Business to collect Receivables sold to the Bank.
In the event the Business receives payments on any Receivables, it will receive
those payments in trust for the Bank and will remit them to the Bank no later
than the next banking day. The Business will pay to the Bank any finance charges
incurred by a Customer pursuant to the applicable Credit Application and
agreement or terms of sale because of delay on the Business's part in delivering
payments or Credit Memos to the Bank.
2.5 RESERVE. The Bank will retain a portion of the sums payable from
the Bank to the Business as a Reserve, the amount of which the Bank may adjust
from time to time in its reasonable discretion, to provide for satisfaction of
the Business's Repurchase Obligation. The initial amount of the Reserve will be
equal to 10.0% of the Face Amount of all Receivables initially purchased by the
Bank. Thereafter, and subject to the Bank's right to adjust the Reserve as
described above, the Bank will retain as Reserve and deposit into the Reserve
Account 10.0% of the Face Amount of all Receivables purchased by the Bank
subsequent to its initial purchase of the Receivables. The Reserve will be held
in a separate interest-bearing account for the benefit of the Business.
<PAGE> 3
SECTION 3: REPURCHASE OF RECEIVABLES, SECURITY INTEREST
3.1 REQUIRED REPURCHASE. With respect to any Receivables initially
purchased by the Bank, the Bank may require the Business to repurchase all or
any portion of such Receivables from any particular Customer if any minimum
payment due on one or more of such Receivables remains unpaid following 90 days
after its due date. With respect to any Receivables purchased after the Bank's
initial purchase, the Bank may require the Business to repurchase all or any
portion of such Receivables from any particular Customer if any minimum payment
due on one or more of such Receivables remains unpaid following 90 days after
its due date. For purposes of this Agreement, the aging status of Receivables
purchased from the Business, as shown on the aging report of Receivables
produced or generated by the Bank, will be deemed conclusive (absent manifest
error) in determining which Receivables the Bank may require the Business to
repurchase. Regardless of when purchased, the Bank may require the Business to
repurchase all or any portion of such Receivables from any particular Customer
if such Customer is bankrupt or insolvent, or if any dispute arises with a
Customer regarding such Receivables (including, but not limited to, any alleged
deduction, defense, offset or counterclaim). The Bank may require the Business
to repurchase any or all outstanding Receivables (a) upon a Default, as defined
in Section 8, or (b) upon the termination of this Agreement. Any decision by the
Bank to require repurchase of less than the maximum amount permitted by this
Agreement will not be deemed a waiver of the Bank's rights to require such
repurchase to the maximum extent permitted in this Agreement.
3.2 EFFECTING REPURCHASE. Should the Bank require repurchase of one or
more Receivables, the Business will be liable to the Bank for payment of the
Repurchase Obligation with respect to such Receivables. Upon a Default or
termination under this Agreement, the Repurchase Obligation will also include
the amount of all indemnities and other obligations of the Business arising
under this Agreement. Without notice to or demand on the Business, the Bank may
debit the amount of such Repurchase Obligation (and any amount necessary to
bring the Reserve to the level required by the Bank in its sole and reasonable
discretion) against the Business's Reserve Account, or any other deposit account
of the Business with the Bank. In the event such accounts contain insufficient
funds for the Bank's debit, or the Bank elects not to make such debit, the
Business agrees to pay any such deficiency or shortfall on demand. The Bank will
have no undertaking with respect to the billing or collection of Receivables so
repurchased.
3.3 SECURITY INTEREST. The Business hereby grants the Bank a security
interest in all of its present and future accounts, instruments, contract
rights, chattel paper, documents and general intangibles (in each case as
defined in the Uniform Commercial Code as in effect under the State law that
governs this Agreement) and any proceeds from those, and all returned,
repossessed, and reclaimed goods, and related books and records, to secure all
of the Business's Obligations, and agrees to execute appropriate UCC-1 financing
and other related statements. In addition, the Business grants the Bank a
security interest in the Reserve and in the Reserve Account to secure all of the
Business's Obligations. The Business agrees to execute such additional documents
and take such further action as Bank deems necessary or desirable in order to
perfect the security interests granted here and otherwise to effectuate the
purposes of the Agreement. In the event that the Bank requires additional
security for the Business's obligations under this Agreement, and the Business
or other party executes additional security agreements, pledge agreements,
guaranties and documents of similar significance (collectively, the "Additional
Security Documents,"), terms used therein such as, but not limited to, "loans,"
"indebtedness," and "obligations," will be deemed to include the Repurchase
Obligation as defined in this Agreement. Despite the provisions of the
Additional Security Documents, the Repurchase Obligation secured by those
documents will not constitute a loan. THIS BUSINESS MANAGER AGREEMENT IS SECURED
BY A SECURITY AGREEMENT DATED 4-23-99.
SECTION 4: REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 REPRESENTATIONS AND WARRANTIES. The Business represents and
warrants that: (a) it is fully authorized to enter into and perform under this
Agreement, and that this Agreement constitutes its legal, valid and binding
obligation; (b) the Business is solvent and in good standing in the State of its
organization; (c) it is not the present intent of the Business to seek
protection under any bankruptcy laws; (d) its Receivables are currently and were
at the time of their creation, bona fide and existing obligations of Customers
of the Business arising out of its sales or services, free and clear of all
security interests, liens, and claims whatsoever of third parties; (e) the
documentation under which the Receivables are payable authorize the payee to
charge and collect interest at the rate provided in such documentation; (f) all
Receivables and all
<PAGE> 4
documents and practices related to them comply with all applicable federal and
state laws; (g) the Receivables will be paid by Customers prior to the date of
required repurchase or will be repurchased by the Business pursuant to Sections
3.1 and 3.2; (h) the collateral in which a security interest is granted in
Section 3.3 or in any Additional Security Documents is not subject to any other
security interest, lien or encumbrance whatsoever (except in favor of the Bank),
and the Business will not permit such collateral to become so encumbered without
the Bank's prior written consent; (i) the Business's inventory is not subject to
any security interest, lien or encumbrance whatsoever and the Business will not
permit its inventory to become so encumbered without the Bank's prior written
consent; and (j) all computer software and systems used by Business will be Year
2000 compliant on or before September 30, 1999.
4.2 COVENANTS. The Business covenants that (i) it will allow the Bank
to review and inspect during reasonable business hours, and the Business will
supply all financial information, financial records, and documentation on the
Business, any guarantors, or any Customer, that the Bank may request; (ii) with
respect to each Receivable as it arises: (a) the Business will have made
delivery of the goods and/or will have rendered the services represented by the
Invoice, and the goods and/or services will have been accepted; (b) the Business
will have preserved and will continue to preserve any liens and any rights to
liens available by virtue of the sales and/or services; (c) the Customer will
not be the Business's affiliate; (d) the Bank's copy of the Invoice will be
genuine and will comply with this Agreement; (e) the Business will have no
knowledge of any dispute or potential dispute that may impair the validity of
the transaction or the Customer's obligation to pay the related Receivable in
accordance with its terms; (f) the Business will have the right to render the
services and/or to sell the goods creating the Receivable, and will do so in
compliance with all applicable laws; (g) the Business will have paid or provided
for the payment of all taxes arising from the transaction creating the
Receivable; (h) the Receivable will not be subject to any deduction, offset,
defense, or counterclaim; and (i) the Business will notify Bank immediately of
any upgrades and/or changes to its accounting software; (iii) the transactions
described in Section 2.1 are account purchase transactions, and the Business
will reflect such transactions in its accounting books and records as absolute
sales of Receivables to the Bank; the Business will reimburse and indemnify the
Bank for all loss, damage and expenses, including reasonable attorneys' fees,
incurred in defending such transactions as absolute sales of Receivables, or as
a result of the recharacterization of such transactions; and (iv) in the event
of the commencement of any proceeding under any bankruptcy or insolvency laws by
or against the Business, the Business will not oppose or object to any motion by
the Bank seeking relief from the automatic stay provisions of such laws with
respect to the Reserve or the Reserve Account, or to any motion by the Bank with
respect to the Receivables.
SECTION 5: FORMS AND PROCEDURES; RESPONSIBILITY FOR USE
5.1 FORMS AND PROCEDURES. The Business will use only forms, agreements,
and advertising materials supplied to or approved by the Bank in connection with
the Receivables, and will follow all procedures that are satisfactory to the
Bank in connection with the use of such forms, agreements, and advertising
materials. The Bank does not desire to manage or operate the Business but to
insure that the Business is properly representing the billing terms to its
Customers.
5.2 RESPONSIBILITY FOR USE. The Business is solely responsible for the
adequacy, completeness, delivery and accuracy of the raw data relating to the
Receivables, its preparation in the form required by the Bank, and its
transmission to the Bank. The Business provides to the Bank all information used
to create the form of credit application and agreement and other documentation.
The Business understands that these documents should be reviewed by the
Business's counsel, as the Bank makes no representation or warranty as to their
enforceability in the Business's state or their compliance with applicable
federal and state laws. The Bank and the Business agree that the Bank is the
owner of all Receivables purchased by the Bank, and that all activities of the
Bank in connection with the purchase of Receivables, receipt of payments for the
Receivables, generation of information, and processing of data, is for the
account of the Bank's own affairs, and that the information generated in
connection with those activities is the property of the Bank. The Bank is not
performing as a collection agency under this Agreement.
SECTION 6: POWER OF ATTORNEY
The Business appoints the Bank as its attorney-in-fact to receive,
open, and dispose of all mail addressed to the Business relating to Receivables;
to endorse the Business's name upon any notes, acceptances, checks, drafts,
money orders, and other evidences of payment of Receivables that may come into
the Bank's possession, and to deposit or otherwise handle the same; and to do
all other acts and things necessary to carry out the terms of this Agreement.
This power, being coupled with an interest, is irrevocable while any Receivable
owned by the Bank remains unpaid.
<PAGE> 5
SECTION 7: APPLICABLE LAW
This Agreement will be governed by, construed and enforced according to
the laws of the State of Michigan.
SECTION 8: DEFAULT
8.1 EVENTS OF DEFAULT. The following events will constitute a default
(a "Default") under the terms of this Agreement: (a) the Business fails to pay
the Repurchase Obligation or any other payment obligation of the Business under
this Agreement on demand, or the Business fails to pay any indebtedness of the
Business owed to the Bank according to its terms; (b) the Business breaches the
representations set forth in Section 4. 1 (d) or fails to turn over payments on
Receivables to the Bank, as set out in Section 2.4; (c) except for the
obligations described in Sections 8. 1 (a), and 8. 1 (b) hereof, the Business
fails to perform any obligation, covenant or liability in connection with this
Agreement within ten (10) days after the date that written notice is given to
the Business; (d) any warranty, representation or statement whenever made by the
Business in connection with this Agreement proves to be false in any material
respect when made, or the Business fails to disclose to the Bank that any such
warranty, representation or statement has become false in any material respect;
(e) dissolution or termination of the Business if the Business is a corporation,
partnership, or other entity, or if the Business is an individual, the death of
such individual; (f) transfer of more than 50% of ownership of the business,
whether it is a corporation, partnership or other entity, without prior written
consent by the Bank; (g) the Business's insolvency; (h) the assignment for the
general benefit of the Business's creditors, the appointment of a receiver or
trustee for its assets, the commencement of any proceeding under any bankruptcy
or insolvency laws by or against the Business, or any proceeding for the
dissolution or liquidation, settlement of claims against or winding up of its
affairs; (i) the termination or withdrawal of any guaranty for the Business's
Obligations; (j) the Business, fails to pay when due any tax imposed on it, or
any tax lien is filed against the Business or any of its assets; (k) any
judgment against the Business remains unpaid, or has not been stayed on appeal,
discharged, bonded or dismissed, for a period of 30 days; (1) the Business
discontinues its business as a going concern; or (m) the Bank in good faith
believes the prospect of the Business's payment or performance of its
Obligations have been impaired.
8.2 EFFECT OF DEFAULT. Upon the occurrence of any Default, in addition
to any rights the Bank has under this Agreement or applicable law, the Bank may
immediately terminate this Agreement, at which time all Obligations the Business
owes to the Bank will immediately become due and payable without notice, and the
Bank's obligations to the Business will cease. After the occurrence of a
Default, the Bank will have the right to withhold any further payments to the
Business, and none of the Bank's rights or collateral will be adversely affected
by such action.
SECTION 9: NON-LIABILITY OF BANK; RELEASE; INDEMNITY; WAIVER
Except for a breach by the Bank of this Agreement, the Business
releases, discharges, and acquits the Bank, its officers, directors, employees,
participants, agents, successors and assigns from any and all claims, demands,
losses, and liability of any nature which the Business ever had, now or later
can, will or may have in connection with, or arising out of, the transactions
described in this Agreement and the documentation thereof. The Bank will not be
liable for any indirect, special or consequential damages, such as loss of
anticipated revenues or other economic loss in connection with, or arising out
of, any default in performance or other matter arising under this Agreement. Nor
will the Bank be liable for any errors of judgment or mistake of fact when
acting as the Business's attorney-in-fact, pursuant to Section 6, or liable for
delay in the performance of the Bank's duties caused by strike, lawsuit, riot,
civil disturbance, fire, shortage of supplies or materials, or any other cause
reasonably beyond the Bank's control. The Business indemnifies and holds the
Bank, its officers, directors, employees, participants, agents, successors and
assigns harmless from (and will pay all reasonable attorneys' fees with respect
to) any loss or claim involving breach of warranty or representation by the
Business, any claim or liability sustained by virtue of acting in reliance upon
data or information furnished by the Business to the Bank, and any loss or claim
by any Customer relating to goods and/or services (or the manner or type of
their sale or provision) giving rise to Receivables purchased by Bank hereunder.
<PAGE> 6
SECTION 10: EFFECTIVE DATE; TERMINATION; BINDING EFFECT
This Agreement will be effective when accepted by the Bank, and will
continue in full force and effect until the earlier of: (a) one year after the
effective date of this Agreement, or (b) sixty (60) days after written notice of
termination has been given by one party to the other (in each case subject to
immediate termination upon a Default); and the term of this Agreement will
automatically be extended for periods of one year each following its otherwise
scheduled termination, subject to Section 8.2 above, and to the parties' rights
to terminate this Agreement under clause (b) of this Section 10. Upon
termination of this Agreement, the Business will pay all of its Obligations to
the Bank, and in any event, the Business will remain liable to the Bank for any
deficiency remaining after liquidation of any collateral. The Bank may withhold
any payment to the Business unless supplied with an indemnity satisfactory to
the Bank. This Agreement will bind the Business and the Business's heirs,
executors, successors and assigns and will inure to the benefit of the Bank and
the Bank's successors and assigns. The Business agrees that the Bank may assign
this Agreement or delegate its duties under this Agreement, but that the
Business may not do so without the Bank's prior written approval.
SECTION 11: ATTORNEY'S FEES; PAST-DUE OBLIGATIONS; WAIVER; SEVERABILITY;
HEADINGS; ENTIRE AND CONTROLLING AGREEMENT; NOTICES; COUNTERPARTS; SAVINGS
PROVISIONS
The Business will pay all reasonable expenses incurred by the Bank in
connection with the execution of this Agreement, including expenses incurred in
connection with the filing of financing statements, continuation statements and
record searches. All past-due obligations of the Business arising under this
Agreement will bear interest at the maximum nonusurious rate permitted under
applicable state or federal law. The Business hereby waives grace, demand (other
than demand pursuant to Section 3.2 hereof), presentment for payment, notice of
dishonor or default, notice of intent to accelerate, notice of acceleration,
protest and notice of protest, and bringing of suit against the Business. Upon
liquidation of any collateral, settlement or prosecution of a dispute with any
Customer, or enforcement of any obligation of the Business under this Agreement,
the Business will pay to the Bank, and the Bank may charge to the Business's
account, all costs and expenses incurred, including reasonable attorneys' fees,
and such costs, expenses and fees will constitute part of the Business's
Obligations. No delay or failure on the Bank's part in exercising any right,
privilege, or option will operate as a waiver of such, or of any other right,
privilege, or option, and no waiver, amendment or modification of any provision
of this Agreement will be valid unless in writing signed by the Bank, and then
only to the extent stated. Should any provision of this Agreement be prohibited
by or invalid under applicable law, the validity of the remaining provisions
will not be affected. The section headings are for convenience only, and will
not define or limit the scope, extent, meaning or intent of this Agreement. This
Agreement embodies the Business's entire agreement as to its affiliation with
the Bank's Business Manager program, although the Business anticipates that the
Bank will subsequently outline certain depository and other bank procedures. In
the event of any inconsistency between this Agreement and any other agreement
signed by the Business and the Bank in connection with this Agreement, including
but not limited to, any Additional Security Documents, the terms and provisions
of this Agreement will control, and the terms and provisions of any such other
document will be ineffective to the extent of any such inconsistency. Any
notice, request or demand to be given will be deemed given when deposited with a
delivery service addressed to, or sent by registered or certified mail to, the
address of the recipient listed at the beginning of this Agreement or to
subsequent addresses which have been properly noticed to the other party. This
Agreement may be executed in multiple counterparts, which when taken together,
will constitute one and the same Agreement. The parties acknowledge that the
transactions contemplated by this Agreement are account purchase transactions;
however, if they should ever be recharacterized by any court, nothing contained
in this Agreement or in any Additional Security Documents will be construed, or
will operate in any event, so as to require Business to pay interest at a rate
greater than the highest lawful rate of interest permitted by the laws then in
force and governing this Agreement. In no event, whether by reason of
acceleration of the maturity of the Obligations due or otherwise, will Service
Charges contracted for, charged, received, paid or agreed to be paid to Bank,
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, Service Charges would otherwise be payable to Bank in
excess of the maximum lawful amount, the Service Charges will be reduced to the
maximum amount permitted under applicable law, and if from any circumstance Bank
will have received anything of value deemed interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excess will be applied to
the reduction of the principal amount of Obligations and not to the payment of
Service Charges. If such excess interest exceeds the unpaid balance of the
principal amount of Obligations, such excess will be refunded to Business. All
Service Charges paid or agreed to be paid to Bank, to the extent permitted by
applicable law, will be amortized, prorated, allocated
<PAGE> 7
and spread throughout the full term of the Agreement until payment in full of
all principal Obligations owing by Business, so that the Service Charges for
such full term will not exceed the maximum amount permitted by applicable law.
SECTION 12: ACKNOWLEDGMENT
THE UNDERSIGNED ACKNOWLEDGES THAT THIS AGREEMENT CONTAINS A RELEASE OF
CLAIMS AND WAIVERS OF CERTAIN RIGHTS, AND THAT THIS AGREEMENT HAS BEEN FULLY
UNDERSTOOD PRIOR TO EXECUTION. BUSINESS FURTHER REPRESENTS AND WARRANTS THAT IT
HAS HAD THE OPPORTUNITY TO CONSULT WITH ITS OWN LEGAL COUNSEL REGARDING THIS
AGREEMENT AND ITS FULL LEGAL EFFECT, AND THAT IT IS NOT RELYING UPON ANY ORAL
REPRESENTATIONS ON THE PART OF THE BANK, ITS EMPLOYEES OR AGENTS IN ENTERING
INTO THIS AGREEMENT.
SECTION 13: ADDITIONAL PROVISIONS
Borrower to provide quarterly management prepared financial statements and
annual reviewed financial statements and tax returns. Borrower will also be
required to provide accounts receivable and accounts payable agings by the 15th
of each calendar month.
BUSINESS: Advanced Systems International, Inc.
By: /s/ Gerald Pesut
-----------------------------
Gerald Pesut
Title: President & C.E.O.
By: /s/ Robert DeMerill
-----------------------------
Robert DeMerill
Title: Controller
ACCEPTANCE:
This Agreement is accepted this 23rd day of April, 1999.
BANK: Ionia County National Bank
By: /s/ Douglas Cook
-----------------------------
Douglas Cook
Title: Sr. Vice President
(C) COPYRIGHT 1998 BY PRIVATE BUSINESS, INC. ALL RIGHTS RESERVED. BUSINESS
MANAGER(R) IS A REGISTERED TRADEMARK OF PRIVATE BUSINESS, INC. 0998.PBI
<PAGE> 1
EXHIBIT 10.17
MASTER SOFTWARE LICENSE AGREEMENT
BETWEEN
ELECTRONIC DATA SYSTEMS CORPORATION
AND
ADVANCED SYSTEMS INTERNATIONAL
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TABLE OF CONTENTS
FOR
MASTER SOFTWARE LICENSE AGREEMENT
<TABLE>
<CAPTION>
ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS
<S> <C> <C>
1.1 Agreement and Term........................................................1
1.2 Certain Definitions.......................................................1
ARTICLE II. PURCHASE ORDERS
2.1 Preparation of Purchase Orders............................................2
2.2 Issuance and Acceptance of Purchase Orders................................2
2.3 Purchase Order Alterations................................................2
2.4 Evaluation Purchase Orders................................................3
2.5 Cancellation of Purchase Orders...........................................3
ARTICLE III. PROVISION OF LICENSED SOFTWARE AND SERVICES
3.1 General...................................................................3
3.2 Transportation of Licensed Software.......................................3
3.3 Risk of Loss..............................................................3
3.4 Installation of Licensed Software.........................................3
3.5 Right to Cancel for Delays................................................4
3.6 Time and Materials Services...............................................4
3.7 Resale of Products by EDS.................................................5
3.8 Services in General ......................................................5
3.9 Further Acts..............................................................7
3.10 Time of Performance.......................................................7
3.11 EDS Business Practices....................................................7
ARTICLE IV. PROVISION OF LICENSED SOFTWARE
4.1 Acceptance of Licensed Software...........................................7
4.2 Grant of License..........................................................7
4.3 Transfer of Licensed Software.............................................8
4.4 Ownership of Licensed Software and Modifications..........................9
4.5 Proprietary Markings......................................................9
4.6 Duplication of Documentation..............................................9
4.7 Non-Disclosure............................................................9
4.8 Licensed Software Support Services........................................9
4.9 Licensed Software Support Services Options ...............................10
4.1 Provision of Source Code..................................................11
4.11 Acquisition of Third Party Software.......................................12
4.12 Software from an Authorized Third Party...................................12
ARTICLE V. WARRANTIES, INDEMNITIES, AND LIABILITIES
5.1 Warranty..................................................................12
5.2 Proprietary Rights Indemnification........................................13
5.3 Cross Indemnification.....................................................13
5.4 Limitation of Liability...................................................13
5.5 Insurance.................................................................14
5.6 Survival of Article V.....................................................14
ARTICLE VI. PAYMENTS TO SUPPLIER
6.1 Charges, Prices, and Fees for Licensed Software and Services..............14
6.2 Modifications to Charges..................................................15
6.3 Auto Payment..............................................................15
6.4 Payment Through Invoicing.................................................16
6.5 Taxes.....................................................................16
ARTICLE VII. TERMINATION
7.1 Termination for Cause.....................................................17
7.2 Termination for Insolvency or Bankruptcy..................................17
7.3 Termination for Non-Payment...............................................17
7.4 Termination of Software License...........................................17
7.5 Rights Upon Termination...................................................17
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<TABLE>
<CAPTION>
ARTICLE VIII. MISCELLANEOUS
<S> <C> <C>
8.1 Binding Nature, Assignment, and Subcontracting............................18
8.2 Counterparts..............................................................18
8.3 Headings..................................................................18
8.4 Authorized Agency.........................................................18
8.5 Relationship of Parties...................................................19
8.6 Confidentiality...........................................................19
8.7 Media Releases............................................................19
8.8 Dispute Resolution........................................................20
8.9 Electronic Communications.................................................20
8.10 Proposals and Special Projects............................................20
8.11 Governmental Customers....................................................20
8.12 International Business....................................................20
8.13 Compliance with Laws......................................................20
8.14 Labor.....................................................................21
8.15 Export....................................................................21
8.16 Notices...................................................................21
8.17 Force Majeure.............................................................21
8.18 Severability..............................................................22
8.19 Waiver....................................................................22
8.20 Remedies..................................................................22
8.21 Survival of Terms.........................................................22
8.22 Nonexclusive Market and Purchase Rights...................................22
8.23 No Hire...................................................................22
8.24 GOVERNING LAW.............................................................24
8.25 Entire Agreement..........................................................24
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ii
<PAGE> 4
LIST OF EXHIBITS
EXHIBIT A
EDS BUSINESS PRACTICES
EXHIBIT B
CHARGES, PRICES, AND FEES
EXHIBIT C
THIRD PARTY SYSTEM ACCESS AGREEMENT
iii
<PAGE> 5
MASTER SOFTWARE LICENSE AGREEMENT
THIS MASTER SOFTWARE LICENSE AGREEMENT (the "Agreement"), dated
November 13, 1998 (the "Effective Date"), is between ADVANCED SYSTEMS
INTERNATIONAL, a Nevada corporation ("ASI"), and ELECTRONIC DATA SYSTEMS
CORPORATION, a Delaware corporation ("EDS").
W I T N E S S E T H:
WHEREAS, EDS desires to have the right to license computer software
programs and to obtain services from ASI from time to time; and
WHEREAS, ASI is willing to provide computer software programs and
services to EDS in accordance with the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, inconsideration of the premises, and other good and
valuable consideration received and to be received, ASI and EDS agree as
follows:
ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS
1.1 Agreement and Term. The parties agree that the terms and conditions of
this Agreement apply to the provision of computer software programs and
services to EDS by ASI. The term of this Agreement commences on the
Effective Date and the Agreement shall continue to be in effect until
terminated by either party as set forth in this Agreement.
1.2 Certain Definitions. The following definitions apply to this Agreement:
(a) "Applicable Specifications" means the functional, performance,
operational, compatibility, and other specifications or
characteristics of a Product described in applicable Documentation
and such other specifications or characteristics of a Product
agreed upon in writing by the parties.
(b) "Documentation" means user guides, operating manuals, education
materials, product descriptions and specifications, technical
manuals, supporting materials, and other information relating to
the Products or used in conjunction with the Services, whether
distributed in print, magnetic, electronic, or video format, in
effect as of the date (i) a Product is shipped to or is accepted
by EDS, as applicable, or (ii) the Service is provided to EDS.
(c) "Employee" means those employees, agents, subcontractors,
consultants, and representatives of ASI provided or to be provided
by ASI to perform Services pursuant to this Agreement.
(d) "Licensed Software" means computer programs in object code
(including micro code) and/or source code, as applicable, provided
or to be provided by ASI pursuant to this Agreement. The
definition of Licensed Software also includes any enhancements,
translations, modifications, updates, releases, or other changes
to Licensed Software which are provided or to be provided as part
of ASI's performance of warranty Service obligations or pre-paid
support Services pursuant to this Agreement.
(e) "Products" means, individually or collectively as appropriate,
Licensed Software, Documentation, and Work Products (as later
defined in this Agreement), provided or to be provided by ASI
pursuant to this Agreement.
(f) "Services" includes, but is not limited to, installation,
education, acceptance testing, support, development, warranty, and
time and
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materials services, provided or to be provided by ASI pursuant to
this Agreement.
(g) "Site" means geographically contiguous buildings, each of which,
in whole or in part, is occupied or accessed by EDS or a customer
of EDS. "Geographically contiguous" means adjacent tracts or
parcels of real property separated, if at all, only by publicly
dedicated rights of way or private easements.
(h) "Warranty Period" means the period specified in Section 5.1(e) of
this Agreement during which ASI is obligated to perform its
warranty obligations.
ARTICLE II. PURCHASE ORDERS
2.1 Preparation of Purchase Orders. ASI agrees that computer software
programs and services which ASI generally makes available to other
customers shall be made available to EDS under the terms and conditions
of this Agreement. EDS may request information about computer software
programs and services in order to prepare purchase orders and ASI shall
promptly provide to EDS, at no charge, sufficiently detailed
information which is reasonably responsive to EDS' request. From time
to time and/or at EDS' request, ASI shall provide written information
to EDS about computer software programs and services, and new releases,
versions or options related thereto, available or to be available from
ASI.
2.2 Issuance and Acceptance of Purchase Orders. References in this Section
to purchase orders also apply to alterations to Purchase Orders (as
later defined in this Section). The following governs the issuance and
acceptance of purchase orders under this Agreement:
(a) EDS may issue to ASI written purchase orders identifying the
Licensed Software and Services EDS desires to obtain from ASI.
Each purchase order may include other terms and conditions
applicable to the Licensed Software and Services ordered; such
other terms shall be consistent with the terms and conditions of
this Agreement, or shall be necessary to place a purchase order,
such as billing and shipping information, required delivery dates,
installation locations, and Charges (as later defined in this
Agreement).
(b) ASI shall promptly accept purchase orders by providing to EDS a
written or an oral acceptance of such purchase order, or by
commencing performance pursuant to such purchase order. ASI shall
accept purchase orders which do not establish new or conflicting
terms and conditions from those set forth in this Agreement. ASI
shall also accept purchase orders incorporating terms and
conditions which have been separately agreed upon in writing by
the parties.
(c) ASI may reject a purchase order which does not meet the conditions
described in subsection (b) above by promptly providing to EDS a
written explanation of the reasons for such rejection. ASI shall
accept an alteration to the originally issued purchase order if
such alteration remedies the items set forth in ASI's written
rejection.
Purchase orders accepted in accordance with this Section are referred
to as "Purchase Orders." EDS shall have no responsibility or liability
for Licensed Software or Services provided without a Purchase Order.
2.3 Purchase Order Alterations. EDS may issue an alteration to a Purchase
Order in order to, without limitation, (i) change a location for
delivery, (ii) modify the quantity or type of Licensed Software and
Services to be delivered or performed, (iii) implement any change or
modification as required by or permitted in this Agreement, (iv)
correct typographical or
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clerical errors, or (v) order Licensed Software or Services which are
of superior quality, or are enhancements to or are new releases or new
options of the Licensed Software or Services set forth in the Purchase
Order.
2.4 Evaluation Purchase Orders. EDS may issue a purchase order to ASI for
Licensed Software evaluation by EDS at no charge for an evaluation
period agreed upon by the parties. ASI shall provide the Licensed
Software listed in the evaluation Purchase Order to EDS and shall pay
all related transportation and insurance costs. Such Licensed Software
shall be protected by EDS in accordance with the non-disclosure
requirements specified in this Agreement which are applicable to
Licensed Software. At the conclusion of the evaluation period, EDS
shall have the option to acquire such Licensed Software pursuant to
this Agreement or to return such Licensed Software to ASI at ASI's
expense without obligation to ASI. Licensed Software which ASI and EDS
agree to be the subject of beta testing by EDS shall be subject to a
separate agreement between the parties containing applicable beta test
terms and conditions.
2.5 Cancellation of Purchase Orders. Except as otherwise agreed upon by the
parties, EDS may cancel all or a portion of a Purchase Order relating
to Licensed Software, without charge or penalty at any time prior to
the very date of the affected Licensed Software. Purchase Orders,
portions thereof, for Services may be canceled as specified in the
applicable sections of this Agreement.
ARTICLE III. PROVISION OF LICENSED SOFTWARE AND SERVICES
3.1 General. EDS is entitled to obtain Licensed Software and Services for
the benefit of and use by affiliates of EDS. Such affiliates and their
respective employees are entitled to use the Licensed Software and
Services in accordance with this Agreement and have and are entitled to
all rights, benefits, and protections granted to EDS pursuant to this
Agreement with respect to such Licensed Software and Services. However,
an affiliate of EDS shall only be entitled to obtain Licensed Software
and Services directly from ASI pursuant to this Agreement if EDS so
provides written notice to ASI. EDS is responsible for compliance by
its affiliates with the terms and conditions set forth in this
Agreement. EDS and its affiliates have the right to transfer or
remarket the Licensed Software and Services to third parties.
3.2 Transportation of Licensed Software. ASI shall deliver Licensed
Software to EDS on the delivery date set forth in the applicable
Purchase Order or as otherwise agreed upon by the parties. Charges for
transportation of Licensed Software shall be paid by ASI. The method
and mode of all transportation shall be those selected by ASI.
3.3 Risk of Loss. All risk of loss of, or damage to, Licensed Software
shall be borne by ASI until receipt of delivery of such Licensed
Software by EDS. ASI agrees to be responsible for the Licensed Software
until receipt of delivery of such Licensed Software by EDS. If loss to
or damage of Licensed Software occurs prior to receipt of delivery by
EDS, ASI shall immediately provide a replacement item or, if Licensed
Software is not immediately replaceable, ASI shall give EDS highest
priority for the provision of replacement Licensed Software.
3.4 Installation of Licensed Software. If installation is set forth in the
governing Purchase Order or is included in the Charge for Licensed
Software, ASI shall install Licensed Software in good working order at
the designated location on or before the installation date set forth
in the applicable Purchase Order or as otherwise agreed upon by the
parties. Installation Services shall include performance of ASI's usual
and customary diagnostic tests to determine the operational status of
the Licensed Software. ASI shall inform EDS of any education Services
which are included with
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installation, and such education may be performed at a time mutually
agreed upon by ASI and EDS.
3.5 Right to Cancel for Delays. In the event of a delay in delivery of all
or any portion of Licensed Software listed on a Purchase Order or
Licensed Software listed on a series of Purchase Orders which relate to
a specific project or request for proposal (the Licensed Software
listed on such series of Purchase Orders referred to as "Related
Licensed Software"), or in the event of a delay in the performance of
Services which is not excused in this Agreement, EDS may cancel without
charge all or any portion of the Licensed Software, Related Licensed
Software or Services for which delivery or performance has been so
delayed. If, in EDS' reasonable opinion, the delivered Licensed
Software or Related Licensed Software are not operable without the
remaining undelivered Licensed Software or Related Licensed Software,
EDS may, at ASI's expense, return any delivered Licensed Software or
Related Licensed Software to ASI. EDS shall not be liable for any
expenses incurred by ASI for canceled, undelivered, or returned
Licensed Software or Related Licensed Software. EDS shall receive a
refund of all amounts paid to ASI with respect to the canceled and/or
returned Licensed Software and Related Licensed Software. EDS shall
receive a pro-rata refund of all amounts paid to ASI with respect to
canceled Services.
3.6 Time and Materials Services. If available from ASI, EDS may obtain on a
time and materials basis from ASI consulting, development and other
Services (excluding support Services which are provided pursuant to
other sections of this Agreement) agreed upon by the parties in
accordance with the terms and conditions set forth below.
(a) EDS may specify on a purchase order the names, required number and
skill levels of Employees to perform Services.
(b) If, during the first ten (10) working days following commencement
of performance of Services (the "Start Period"), EDS notifies ASI
that (i) an Employee's level of performance is unacceptable to
EDS, (ii) an Employee has failed to perform as required, or (iii)
an Employee, in EDS' reasonable opinion, lacks the skill,
knowledge or training to perform at the required level (the
"Deficiency"), then ASI shall have ten (10) working days from
receipt of such notice to correct the Deficiency so identified by
EDS (the "Correction Period").
(c) EDS may request the replacement of such Employee if, in EDS'
opinion, ASI fails to correct the Deficiency within the Correction
Period. Upon such request by EDS for replacement, ASI shall have
five (5) working days following the receipt of such a request to
provide a substitute Employee, if one is available to ASI, of
sufficient skill, knowledge, and training to perform the
applicable Services.
(d) EDS shall not pay for Services performed by an Employee replaced
under subsection (c) above and shall receive a refund for any
amounts previously paid for such Services provided that EDS'
notice to ASI identifying the Deficiency was given within the
Start Period.
(e) If EDS requests the replacement of an Employee at any time after
the Start Period, EDS shall pay for Services performed by such
Employee up to the date of EDS' request that such Employee be
replaced (the "Replacement Date"). If, pursuant to subsection (c)
above, ASI is unable to provide a replacement Employee, then EDS
shall receive a refund for any amounts previously paid for
Services performed by such Employee after the Replacement Date.
(f) ASI shall not replace, without EDS' consent, an Employee then
currently performing Services until the governing Purchase Order
expires or is terminated; however, ASI may replace, without EDS'
consent, an Employee for reasons relating to the Employee's
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termination with ASI, promotion, illness, death, or causes beyond
ASI's control.
(g) EDS shall reimburse ASI for reasonable expenses incurred by
Employees in the performance of Services (if requested by ASI in
advance and approved by EDS) which are related to travel, lodging,
and meals; such expenses shall be reimbursed in accordance with
EDS' guidelines for its own employees.
(h) ASI shall establish and shall retain, for a period of three (3)
years following the performance of time and materials Services,
records which adequately substantiate the applicability and
accuracy of Charges for such Services and related expenses to EDS.
Upon receipt of reasonable advance notice from EDS, ASI shall
produce such records for audit by EDS.
(i) Purchase Orders for Services provided or to be provided under this
Section may be canceled at any time without charge or penalty,
upon written notice to ASI.
3.7 Resale of Products by EDS. During the term of this Agreement, EDS may
market, promote, and resell Products, separately or in conjunction with
other products and services in accordance with the following terms and
conditions:
(a) ASI shall extend the same warranties and indemnifications, with
respect to Products remarketed by EDS hereunder, as ASI extends to
other end user customers.
(b) The term of agreements, warranties and indemnities extended by ASI
to an end user customer shall commence upon delivery of a Product
to such end user customer.
(c) ASI shall make available to such customers all training, technical
support and other services related to the Products that are
currently generally offered or that may be generally offered by
ASI to other end user customers.
(d) Upon request by EDS, ASI shall provide to EDS, at no charge, sales
training, marketing and technical support, and marketing materials
as may be reasonably required by EDS in connection with the resale
of Products.
(e) EDS may refer to itself as ASI's authorized dealer or reseller of
the Products and EDS shall be authorized and is hereby authorized
to use all trademarks and trade names of ASI or trademarks and
trade names of third parties used in connection with advertising
or promoting the Products; provided, however, that EDS shall
comply with written guidelines provided on a timely basis by ASI
to EDS from time to time relating to such use.
3.8 Services in General. In connection with the performance of any Services
pursuant to this Agreement:
(a) Unless a specific number of Employees is set forth in the
governing Purchase Order, ASI warrants it will provide sufficient
Employees to complete the Services ordered within the applicable
time frames established pursuant to this Agreement or as set forth
in such Purchase Order.
(b) ASI warrants that Employees shall have sufficient skill,
knowledge, and training to perform Services and that the Services
shall be performed in a professional and workmanlike manner.
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(c) Employees performing Services in the United States must be United
States citizens or lawfully admitted in the United States for
permanent residence or lawfully admitted in the United States
holding a visa authorizing the performance of Services on behalf
of ASI.
(d) ASI warrants that all Employees utilized by ASI in performing
Services are under a written obligation to ASI requiring Employee:
(i) to maintain the confidentiality of information of ASI's
customers, and (ii) if such Employee is not a full-time employee
whose work is considered a "work for hire" under Section 101 of
the United States Copyright Code, to assign all of Employee's
right, title, and interest to ASI in and to any Work Product which
is developed, prepared, conceived, made, or suggested by such
Employee while providing Services on behalf of ASI. For purposes
of this Agreement Work Product means (in any form including source
code) any and all ideas, processes, methods, programming aids,
formulas, manufacturing techniques, mask works, reports, programs,
manuals, tapes, card decks, listings, software, developed
products, flowcharts and systems and any improvements,
enhancements, or modifications to any of the foregoing, which are
developed, prepared, conceived, made, or suggested by any Employee
or by ASI as part of, in connection with, or in relationship to
the performance of Services (except in connection with ASI's
performance of warranty Service obligations or pre-paid support
Services) pursuant to this Agreement. Work Products also means all
such developments as are originated or conceived during the term
of this Agreement but are completed or reduced to practice
thereafter.
(e) ASI shall require Employees providing Services at an EDS location
to comply with applicable EDS security and safety regulations and
policies which will be provided verbally or written on a site
specific basis.
(f) ASI shall provide for and pay the compensation of Employees and
shall pay all taxes, contributions, and benefits (such as, but not
limited to, workers' compensation benefits) which an employer is
required to pay relating to the employment of employees. EDS shall
not be liable to ASI or to any Employee for ASI's failure to
perform its compensation, benefit, or tax obligations. ASI shall
indemnify, defend and hold EDS harmless from and against all such
taxes, contributions and benefits and will comply with all
associated governmental regulations, including the filing of all
necessary reports and returns.
(g) ASI shall allow EDS or its designated third party to conduct a
background investigation and drug screening ("Investigation") of
any Employee performing Services in the United States, Canada and
Mexico if EDS intends to provide the Employee with unescorted
access to an EDS location. In connection with such Investigation
EDS shall provide to ASI a standard form authorizing the
Investigation and ASI shall promptly request the completion of
such form by the Employee. The failure of an Employee to honor
this request shall not be deemed a breach of section 3.7 (g). Any
and all information obtained in connection with an Investigation
of any Employee or acquired or made known during such
Investigation shall be deemed confidential and shall not be
revealed to persons without a bona fide need to know. If, after
reviewing the results of an Investigation, EDS elects not to
accept an Employee for performance of Services under this
Agreement, ASI agrees to not utilize such Employee in the
performance of Services. EDS shall waive the Investigation for an
Employee if ASI provides EDS with written confirmation that: (i)
ASI has conducted a background and drug screening investigation of
such Employee with satisfactory results, or (ii) the Employee has
been employed with ASI for at least five (5) years in good
standing.
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(h) The parties agree that the ownership of any Work Product created
by or on behalf of ASI in its performance of time and material
Service shall be negotiated in good faith by the parties and
documented in a separate agreement supplemental to this Agreement.
Such separate agreement shall be signed prior to the commencement
of Services. In the event an agreement is not signed and ASI
commences performance of Services, then the parties agree that EDS
shall own any Work Product created by or on behalf of ASI in the
performance of such Services.
3.9 Further Acts. During and subsequent to the term of this Agreement, ASI
shall do, or cause to be done, all such further acts and shall execute,
acknowledge, and deliver, or cause to be executed, acknowledged, and
delivered, any and all further documentation or assignments as EDS may
reasonably require to evidence or perfect EDS' right to use, or
Ownership Rights in, as the case may be, Licensed Software or Work
Products.
3.10 Time of Performance. Time is expressly made of the essence with respect
to each and every term and provision of this Article.
3.11 EDS Business Practices. ASI shall comply with the EDS Business
Practices set forth in Exhibit A.
ARTICLE IV. PROVISION OF LICENSED SOFTWARE
4.1 Acceptance of Licensed Software. EDS shall accept delivered copy(ies)
of Licensed Software on the date (the "Acceptance Date") when all
necessary Documentation has been received and the Licensed Software
performs in accordance with and/or conforms to its Applicable
Specifications. In the event Licensed Software does not so perform, EDS
may (i) continue to test the Licensed Software with the assistance of
ASI, (ii) permit ASI to repair or replace the Licensed Software at no
additional expense to EDS, or (iii) return the Licensed Software and
Documentation to ASI, at ASI's expense and without liability to ASI,
and any amounts paid by EDS for the Licensed Software and Documentation
shall be refunded by ASI to EDS. Acceptance of Licensed Software does
not waive any warranty rights provided in this Agreement for the
Licensed Software.
4.2 Grant of License. For each item of Licensed Software received by EDS,
ASI grants EDS and EDS has a worldwide, nonexclusive, irrevocable,
perpetual license to use, execute, store, and display the object code
version of the Licensed Software, on behalf of EDS and customers of EDS
(a "License") in accordance with the type of License selected and in
accordance with the terms and conditions of this Agreement. A Purchase
Order shall designate the type of License which is selected; if a
Purchase Order fails to designate the type of License desired, then
such License shall be deemed to be a CPU Software License (as later
defined in this Section).
(a) A "CPU Software License" permits EDS to use the Licensed Software
on any single computer (which may include more than one central
processing unit) or item of equipment ("CPU") and to copy the
Licensed Software as necessary for archival, maintenance, disaster
recovery testing, or back-up purposes. If EDS desires to run
parallel operations in the process of conducting a disaster
recovery test or transferring operations from one CPU to another
CPU, EDS may operate the Licensed Software on two (2) CPUs for the
period of time reasonably necessary to complete the disaster
recovery test or transfer.
(b) A "Site Software License" permits EDS to use the Licensed Software
at the Site designated in the Purchase Order and to copy the
Licensed Software as necessary for dissemination at the Site and
for archival, maintenance, disaster recovery testing, or back-up
purposes.
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Notwithstanding the foregoing, the Licensed Software may be used
at other than the designated Site, if (i) the designated Site
cannot be used, (ii) the designated Site is replaced or changed by
EDS, or (iii) EDS provides ASI with prior written notice. If EDS
desires to run parallel operations in the process of conducting a
disaster recovery test or transferring operations from one Site to
another Site, EDS may operate the Licensed Software at two (2)
Sites for the period of time reasonably necessary to complete the
disaster recovery test or transfer.
(c) A "Network Software License" permits EDS to use the Licensed
Software on any single computer, file server, or item of equipment
which may be accessed by multiple, networked devices (collectively
hereinafter referred to as the "Network"). Portions of the
Licensed Software may be downloaded as appropriate for use by the
devices on the Network. If EDS desires to run parallel operations
in the process of conducting a disaster recovery test or
transferring operations from one Network to another Network, EDS
may operate the Licensed Software on two (2) Networks for the
period of time reasonably necessary to complete the disaster
recovery test or transfer.
(d) A "Corporate Software License" permits EDS to use the Licensed
Software at any EDS or EDS customer location and on any items of
equipment and to make and use unlimited copies of the Licensed
Software.
(e) Any License granted under this Agreement permits EDS to (i) use
Licensed Software for its corporate purposes including, but not
limited to, providing services to or processing data of
customers of EDS, providing remote access to the Licensed
Software, and performing disaster recovery, disaster testing, and
backup as EDS deems necessary, and (ii) use, copy and modify
Licensed Software and Documentation for the purpose of creating
and using training materials relating to the Licensed Software,
which training materials may include flow diagrams, system
operation schematics, or screen prints from operation of the
Licensed Software. Access to and use of the Licensed Software by
customers of EDS shall be considered authorized use under this
Section so long as such use is in conjunction with EDS' provision
of services to, or EDS' processing the data of, such customers,
and so long as any such customers are bound by obligations of
confidentiality.
The governing License also includes the right to use the source code
version of Licensed Software (i) in accordance with the terms and
conditions of such License if EDS requests source code in a Purchase
Order, and/or (ii) in accordance with the terms and conditions of the
Section of this Agreement titled "Provision of Source Code."
4.3 Transfer of Licensed Software. During the performance or upon
termination of a contract with an EDS customer or upon any transfer of
equipment incorporating Licensed Software to a third party (such
customers and third parties referred to as "Transferee"), (i) EDS may
sublicense the applicable Licensed Software to such Transferee pursuant
to terms and conditions similar to those contained in this Article
(excluding the right to sublicense), (ii) the applicable License
(excluding the right to sublicense) may be assigned to such Transferee,
or (iii) upon request by EDS, the Licensed Software will be licensed
directly by ASI to such Transferee in accordance with the terms and
conditions of ASI's standard software license agreement or as agreed
upon by ASI and Transferee. Any assignment or sublicensing of Licensed
Software in accordance with this Section shall be at no additional
charge to EDS or Transferee, and EDS shall have no further liability or
responsibility with respect to Licensed Software under (ii) or (iii)
above.
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4.4 Ownership of Licensed Software and Modifications. The Licensed Software
shall be and remain the property of ASI or third parties which have
granted ASI the right to license the Licensed Software and EDS shall
have no rights or interests therein except as set forth in this
Agreement. EDS shall be entitled to modify the Licensed Software and to
develop software derivative of or interfacing with the Licensed
Software. All modifications of and software derivative of the Licensed
Software developed by EDS shall be and remain the property of EDS, and
ASI and its Employees shall have no rights or interests therein. Except
in connection with ASI's Performance of warranty Service obligations
or pre-paid support Services, all modifications of and software
derivative of the Licensed Software developed at EDS' expense by ASI
and its Employees shall be considered Work Product and EDS shall have
rights in such Work Product as established in the Section titled
"Ownership of Intellectual Property Rights" elsewhere in this
Agreement.
4.5 Proprietary Markings. EDS shall not remove or destroy any proprietary
markings or proprietary legends placed upon or contained within the
Licensed Software.
4.6 Duplication of Documentation. EDS may duplicate Licensed Software
Documentation, at no additional charge, for EDS' use or for use by a
customer of EDS in connection with the provision of Licensed Software
so long as all required proprietary markings are retained on all
duplicated copies.
4.7 Non-Disclosure. During the term of a License, EDS will treat the
Licensed Software with the same degree of care and confidentiality
which EDS provides for similar information belonging to EDS which EDS
does not wish disclosed to the public, but not less than reasonable
care. This provision shall not apply to Licensed Software, or any
portion thereof, which is (i) already known by EDS without an
obligation of confidentiality, (ii) publicly known or becomes publicly
known through no unauthorized act of EDS, (iii) rightfully received
from a third party without obligation of confidentiality, (iv)
disclosed without similar restrictions by ASI to a third party, (v)
approved by ASI for disclosure, or (vi) required to be disclosed
pursuant to a requirement of a governmental agency or law so long as
EDS provides ASI with timely prior written notice of such requirement.
It will not be a violation of this Section if (A) EDS provides access
to and the use of the Licensed Software to third parties providing
services to EDS so long as EDS secures execution by such third parties
of a confidentiality agreement as would normally be required by EDS, or
(B) EDS independently develops software which is similar to Licensed
Software, so long as such independent development is substantiated by
written documentation.
4.8 Licensed Software Support Services. The support Services set forth
below for the Licensed Software shall be provided by ASI to EDS during
the Warranty Period at no charge to EDS. Thereafter, such support
Services shall be provided by ASI, upon EDS' request, for either a
fixed or open-ended term, at the applicable Charges set forth in
Exhibit B, upon the terms contained in the next Section. EDS may
discontinue such support Services at any time by providing thirty (30)
days' advance written notice to ASI. If such support Services were
provided by ASI for an open-ended term, EDS shall promptly receive a
refund of pre-paid support Charges which reflects the amount for
discontinued support Services after the effective date of the notice
(a) ASI shall promptly notify EDS of any defects, errors or
malfunctions ("Defects") in the Licensed Software or Documentation
of which ASI becomes aware from any source and shall promptly
provide to EDS modified versions of Licensed Software or
Documentation which incorporate corrections of any Defects
("Corrections"). ASI shall also provide to EDS all operational
and support assistance necessary to cause Licensed Software to
perform in accordance with its Applicable Specifications and
remedial support designed to provide a
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by-pass or temporary fix to a Defect until the Defect can be
permanently corrected. ASI shall use its best efforts to respond
to requests from EDS for Licensed Software support in a manner and
time frame which are reasonably responsive considering the nature
and severity of the Defect which gave rise to such request.
(b) ASI shall provide to EDS all upgrades, modifications,
improvements, enhancements, extensions, and other changes to
Licensed Software developed by ASI ("Improvements") and all
updates to the Licensed Software necessary to cause the Licensed
Software to operate under new versions or releases of the Licensed
Software's current operating system(s) ("Updates") which are
generally made available to other customers of ASI. EDS shall have
the option to implement any Improvement or Update and any failure
by EDS to so implement shall not affect EDS' right to continue to
receive support and maintenance Services.
(c) ASI shall provide toll-free telephone hot-line support between
8:00 a.m. and 5:00 p.m. at the applicable maintenance location. In
addition, ASI shall provide to EDS, at the request of EDS and at
ASI's then current established charges therefor, additional
telephone hot-line support for up to twenty-four (24) hours per
day, seven (7) days per week.
(d) ASI shall provide to EDS any revisions to the existing
Documentation developed for the Licensed Software or necessary to
reflect all Corrections, Improvements, or Updates.
(e) ASI shall make Licensed Software training available to persons
designated by EDS to the extent agreed upon by the parties.
(f) If the applicable Charge for Licensed Software is payable on a
periodic basis, and such Charge includes provision of support
Services, then if an Event of Default as described in the Section
of this Agreement titled "Provision of Source Code" occurs or an
event described in the Section of this Agreement titled
"Termination for Insolvency or Bankruptcy" occurs and if ASI fails
to provide the support Services described above, then EDS' Charge
for the affected Licensed Software shall be immediately reduced to
reflect such failure by subtracting that portion of the Charge
allocable to the provision of support Services.
4.9 Licensed Software Support Services Options. EDS may obtain the support
Services described in the previous Section for Licensed Software on a
central site support basis and/or on an individual site support basis.
In the absence of a designation of central or individual site support
in a Purchase Order, such support shall be deemed to be individual site
support. The Charges for each option shall be as set forth in Exhibit B
or as otherwise agreed upon by the parties. Where "central site
support" is requested, support Services shall be provided by ASI to and
shall be requested by EDS through a single point of contact identified
by EDS on a Purchase Order. To the extent necessitated by geographic
diversity or where required in order to support multiple time zones,
EDS may designate multiple central site support locations. With respect
to central site support, ASI shall provide to EDS one master disk and
one copy of all Documentation relating to each Correction, Improvement,
or Update. EDS shall be entitled to copy the disk and Documentation and
distribute the copies or electronically transmit the copied information
to each location supported by the central site. A designation of
central site support shall not prevent an individual user of Licensed
Software from contacting ASI in the event of an emergency. Where
"individual site support" is requested, support Services shall be
provided by ASI to the applicable licensed CPU, Site, or Network, or,
in the case of a Corporate Software License, to a licensed user.
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4.10 Provision of Source Code. EDS' ability to utilize adequately Licensed
Software will be seriously jeopardized if ASI fails to maintain or
support such Licensed Software unless complete Licensed Software source
code and related Documentation is made available to EDS for EDS' use
in satisfying EDS' maintenance and support requirements. Therefore, ASI
agrees that if an "Event of Default" occurs, then ASI will provide to
EDS one copy of the most current version of the source code for the
affected Licensed Software and associated Documentation in accordance
with the following:
(a) An Event of Default shall be deemed to have occurred if ASI: (i)
ceases to market or make available maintenance or support Services
for the Licensed Software during a period in which EDS is entitled
to receive or to purchase, or is receiving or purchasing, such
maintenance and support and ASI has not promptly cured such
failure despite EDS' demand that ASI make available or perform
such maintenance and support, (ii) becomes insolvent, executes an
assignment for the benefit of creditors, or becomes subject to
bankruptcy or receivership proceedings, (iii) ceases business
operations generally or (iv) has transferred all or substantially
all of its assets or obligations set forth in this Agreement to a
third party which has not assumed all of the obligations of ASI
set forth in this Agreement.
(b) ASI will promptly and continuously update and supplement the
source code as necessary with all revisions, Corrections,
enhancements, and other changes developed for the Licensed
Software and Documentation. Such source code shall be in a form
suitable for reproduction and use by computer and photocopy
equipment, and shall consist of a full source language statement
of the program or programs comprising the Licensed Software and
complete program maintenance Documentation which comprise the
pre-coding detail design specifications, and all other material
necessary to allow a reasonably skilled programmer or analyst
to maintain and enhance the Licensed Software without the
assistance of ASI or reference to any other materials.
(c) The governing License for the Licensed Software includes the right
to use source code received under this Section as necessary to
modify, maintain, and update the Licensed Software.
(d) Upon request by EDS, ASI will deposit in escrow with an escrow
agent acceptable to EDS and pursuant to a mutually acceptable
escrow agreement supplemental to this Agreement, a copy of the
source code which corresponds to the most current version of the
Licensed Software in use by EDS. EDS shall pay all fees of the
escrow agent for services provided. If ASI currently maintains or
enters into an escrow agreement for the Licensed Software source
code for the benefit of other customers of ASI, then ASI shall
provide to EDS a current copy of such escrow agreement within ten
(10) days of EDS' request and if such existing escrow agreement is
acceptable to EDS, ASI shall include EDS as a third party
beneficiary of such escrow agreement at no charge to EDS. In such
case, the existing escrow agreement shall be considered a
supplemental agreement to this Agreement. If such existing escrow
agreement is not acceptable to EDS, and EDS and ASI elect not to
enter into a separate escrow agreement, EDS and ASI shall enter
into an amendment to such existing escrow agreement which provides
mutually acceptable terms and conditions; at a minimum, such terms
and conditions shall allow EDS to conduct an audit of, or shall
require that the escrow agent conduct an audit of, the copy of
source code in escrow to ensure that such copy meets the
requirements established in this Section. ASI's entry into, or
failure to enter into, an agreement with an escrow agent or to
deposit the described materials in escrow shall not relieve ASI of
its obligations to EDS described in this Section.
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(e) If, as a result of an Event of Default, ASI fails to provide
required support Services, then any periodic license fee which EDS
is required to pay under this Agreement for Licensed Software
shall be reduced to reflect such lack of support Services. At such
time as ASI commences offering the support Services described in
this Agreement for Licensed Software, EDS may obtain such support
Services as provided for elsewhere in this Agreement.
4.11 Acquisition of Third Party Software. If EDS has acquired software
products from a third party and rights to such software products are
subsequently acquired by ASI (whether through purchase of the third
party in whole or in part, through purchase of the software products,
through acquisition of the rights to market the software, or through
any other means), then EDS shall have the option of (i) continuing to
use the software products under the original license agreement with
such third party at no additional charge to EDS other than applicable
fees identified in such license agreement, or (ii) using the software
products under the terms and conditions of this Agreement.
4.12 Software from an Authorized Third Party. If EDS acquires ASI's
software products from a value added reseller, dealer, distributor, or
other ASI authorized third party provider or if the Licensed Software
is embedded in software products acquired from a third party, ASI
agrees that, at EDS' option, such software products shall be deemed to
have been acquired under this Agreement.
ARTICLE V. WARRANTIES, INDEMNITIES, AND LIABILITIES
5.1 Warranty. ASI represents and warrants that:
(a) ASI has not and will not enter into agreements or commitments
which are inconsistent with or conflict with the rights granted to
EDS in this Agreement;
(b) The Products are and shall be free and clear of all liens and
encumbrances, and EDS shall be entitled to use the Products
without disturbance;
(c) No portion of the Products contain, at the time of delivery, any
"back door," "time bomb," "Trojan horse," "worm," "drop dead
device," "virus," or other computer software routines or hardware
components designed to (i) permit access or use of either the
Products or EDS' computer systems by ASI or a third party not
authorized by this Agreement, (ii) disable, damage or erase the
Products or data, or (iii) perform any other such actions;
(d) The Products and the design thereof shall not contain
preprogrammed preventative routines or similar devices which
prevent EDS from exercising the rights set forth in Article IV of
this Agreement or from utilizing the Products for the purpose for
which they were designed;
(e) Each Product and its media (i) shall be new and shall be free from
defects in manufacture, materials, and design, (ii) shall be
manufactured in a good and workmanlike manner using a skilled
staff fully qualified to perform their respective duties, and
(iii) shall function properly under ordinary use and operate in
conformance with its Applicable Specifications and Documentation
from the date of receipt until the date one (1) year from the
applicable Acceptance Date of such Product;
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(f) The Products are, and shall continue to be, data, program, and
upward compatible with any other Products available or to be
available from ASI so that data files created for a Product can be
utilized without adaptation with other Products and Products will
operate with other Products and will not result in the need for
alteration, emulation, or other loss of efficiency. ASI shall
provide to EDS at least ninety (90) days prior written notice to
discontinue any Product; and
(g) Neither the performance nor the functionality of the Products will
be affected by any changes to the date format or date calculations
within any part of the Product either before, during or after the
year 2000.
During the Warranty Period, ASI will provide warranty Service to EDS at
no additional cost and will include all Services or replacement
Products or Product media necessary to enable ASI to comply with the
warranties set forth in this Agreement. ASI shall pass through to EDS
any manufacturers' warranties which ASI receives on the Products and,
at EDS' request, ASI shall enforce such warranties on EDS' behalf. ASI
agrees that EDS shall be entitled to pass through to Product end users
any warranties received from ASI for such Products pursuant to this
Agreement.
5.2 Proprietary Rights Indemnification. ASI represents and warrants that
(i) at the time of delivery to EDS, no Product provided under this
Agreement is the subject of any litigation ("Litigation"), and (ii) ASI
has all right, title, ownership interest, and/or marketing rights
necessary to provide the Products to EDS and that each License, the
Products and their sale, license, and use hereunder do not and shall
not directly or indirectly violate or infringe upon any copyright,
patent, trade secret, or other proprietary or intellectual property
right of any third party or contribute to such violation or
infringement ("Infringement"). ASI shall indemnify and hold EDS and
Product end users and their respective successors, officers, directors,
employees, and agents harmless from and against any and all actions,
claims, losses, damages, liabilities, awards, costs, and expenses
(including legal fees) resulting from or arising out of any Litigation,
any breach or claimed breach of the foregoing warranties, or which is
based on a claim of an Infringement and ASI shall defend and settle, at
its expense, suits or proceedings arising therefrom. EDS shall inform
ASI of any such suit or proceeding against EDS and shall have the right
to participate in the defense of any such suit or proceeding at its
expense and through counsel of its choosing. ASI shall notify EDS of
any actions, claims, or suits against ASI based on an alleged
Infringement of any party's intellectual property rights in and to the
Products. In the event an injunction is sought or obtained against use
of the Products or in EDS' opinion is likely to be sought or obtained,
ASI shall promptly, at its option and expense, either (A) procure for
EDS and Product end users the right to continue to use the infringing
Product as set forth in this Agreement, or (B) replace or modify the
infringing Products to make its use non-infringing while being capable
of performing the same function without degradation of performance.
5.3 Cross Indemnification. In the event any act or omission of a party or
its employees, servants, agents, or representatives causes or results
in (i) damage to or destruction of property of the other party or third
parties, and/or (ii) death or injury to persons including, but not
limited to, employees or invitees of either party, then such party
shall indemnify, defend, and hold the other party harmless from and
against any and all claims, actions, damages, demands, liabilities,
costs, and expenses, including reasonable attorneys' fees and expenses,
resulting therefrom. The indemnifying party shall pay or reimburse the
other party promptly for all such damage, destruction, death, or
injury.
5.4 Limitation of Liability. Neither party shall be liable to the other
pursuant to this Agreement for any amounts representing loss of
profits, loss of business or indirect, consequential, exemplary, or
punitive damages
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of the other party. The foregoing shall not limit the indemnification,
defense and hold harmless obligations set forth in this Agreement.
5.5 Insurance. ASI shall, at ASI's sole expense, maintain the following
insurance:
(a) Commercial General Liability Insurance including contractual
coverage: The limits of this insurance for bodily injury and
property damage combined shall be at least:
<TABLE>
<S> <C>
Each Occurrence Limit $1,000,000
General Aggregate Limit $2,000,000
Products-Completed Operations Limit $1,000,000
Personal and Advertising injury Limit $1,000,000
</TABLE>
(b) Business Automobile Liability Insurance: Should the performance of
this Agreement involve the use of automobiles, ASI shall provide
comprehensive automobile insurance covering the ownership,
operation and maintenance of all owned, non-owned and hired motor
vehicles. ASI shall maintain limits of at least $1,000,000 per
occurrence for bodily injury and property damage combined.
(c) Workers' Compensation Insurance: Such insurance shall provide
coverage in amounts not less than the statutory requirements in
the state where the work is performed, even if such coverage is
elective in that state.
(d) Employers Liability Insurance: Such insurance shall provide limits
of not less than $1,000,000 per occurrence.
The insurance specified in (a) and (b) above shall provide that such
insurance is primary coverage with respect to all insureds and
additional insureds.
The above insurance coverages may be obtained through any combination
of primary and excess or umbrella liability insurance. EDS may require
higher limits or other types of insurance coverage(s) as necessary and
appropriate under the applicable purchase order.
ASI shall provide at EDS' request certificates evidencing the
coverages, limits and provisions specified above on or before the
execution of the Agreement and thereafter upon the renewal of any of
the policies. ASI shall require all insurers to provide EDS with a
thirty (30) day advanced written notice of any cancellation, nonrenewal
or material change in any of the policies maintained in accordance with
this Agreement.
5.6 Survival of Article V. The provisions of this Article V shall survive
the term or termination of this Agreement for any reason.
ARTICLE VI. PAYMENTS TO ASI
6.1 Charges, Prices, and Fees for Licensed Software and Services. Charges,
prices, and fees ("Charges") and discounts, if any, for Licensed
Software and Services shall be determined as set forth in Exhibit B, in
a Purchase Order, or as otherwise agreed upon by the parties, unless
modified as set forth in this Agreement. Upon EDS' request, ASI shall:
(i) provide to EDS current copies of ASI's standard published prices,
and (ii) records which substantiate that EDS has received the Charges
and discounts to which EDS is entitled to under this Agreement. In no
event shall Charges exceed ASI's then current established charges,
prices and fees. If promotional discounts or programs are extended to
other customers, dealers, or distributors of ASI, EDS shall be entitled
to participate in such promotional discounts or programs. All purchases
which utilize any such discounts shall be deemed
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for all purposes including, without limitation, for purposes of
calculating accumulated purchases and any discounts hereunder, to have
been purchased or licensed under this Agreement.
6.2 Modifications to Charges. Where a change in an established Charge for
Licensed Software or Services is provided for in this Agreement, ASI
shall give to EDS at least ninety (90) days' prior written notice of
such change.
(a) Any increase in a Charge shall not occur during the first twelve
(12) months of this Agreement, during the term of the applicable
Purchase Order or during the specified period for performance of
Services, whichever period is longer. Thereafter, any increase in
a Charge shall (i) not occur unless a minimum of twelve (12)
months has elapsed since the effective date of the previously
established Charge, and (ii) not exceed five percent (5%) of such
Charge.
(b) All purchase orders issued by EDS prior to the end of the required
notice period will be honored at the then current Charges so long
as the scheduled delivery date of the applicable Licensed Software
or Services is within ninety (90) days after the effective date of
the increase.
(c) If ASI's established Charge, less any applicable discount or
promotion, on the scheduled delivery date is lower than the
established Charge for such Licensed Software or Service stated in
the applicable Purchase Order, then EDS shall be entitled to
obtain such Licensed Software or Service at such lower Charge,
less any applicable discount or promotion.
6.3 Auto Payment. This Section shall apply to Purchase Orders identified as
being subject to automatic payment by EDS.
(a) Single Payment for Recurring Charges. All Charges which are due
and payable on a monthly, annual or other periodic basis for
Licensed Software and Services ("Recurring Charges") shall be paid
by EDS on the same date of the month for each month that such
Charges are due (the "Remit Date"). The initial payment for a
Recurring Charge shall be made on the first Remit Date after the
Applicable Event provided that such Applicable Event occurs at
least five (5) days prior to the first Remit Date. An "Applicable
Event" is the event set forth in a Purchase Order that initiates
payment of Charges (such as the installation, receipt, or
acceptance of the Licensed Software; or the commencement or
completion of Services). If the Applicable Event occurs less than
five (5) days prior to the first Remit Date, the initial payment
for such Recurring Charge shall be made on the following Remit
Date, and EDS shall not be subject to interest or penalties as a
result of such late payment.
(b) Payment for Other Charges. Except for Recurring Charges, or unless
otherwise agreed to by the parties in writing, all payments due
ASI for Licensed Software and Services shall be paid within thirty
(30) days after the date of the Applicable Event.
(c) Invoices Required Under Auto Payment. ASI must send EDS an invoice
to receive payment for any amounts due for any Charges which are
payable and have not been identified on the applicable Purchase
Order which is subject to automatic payment.
(d) Reconciliation. From time to time, at either party's request, the
other party shall assist with the reconciliation of the payments
made by EDS to ASI.
(e) Taxing Jurisdictions. ASI shall provide EDS with the list of
states and taxing jurisdictions, and their respective registration
numbers
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where ASI is qualified and registered to collect sales/use taxes
in all of the taxing jurisdictions within that state. If such
written notification is not received by EDS from ASI, then EDS
shall remit the appropriate tax directly to the taxing authority.
ASI shall promptly notify EDS of any additional jurisdictions to
which ASI may qualify and register to collect sales/use taxes.
6.4 Payment Through Invoicing. This Section applies to Purchase Orders
issued by EDS which are not identified as being subject to automatic
payment or to any invoice received by EDS from ASI as permitted by this
Agreement.
(a) Except as otherwise set forth in this Agreement, any undisputed
sum due to ASI pursuant to this Agreement shall be payable within
thirty (30) days after receipt by EDS of a correct invoice
therefor from ASI. ASI shall invoice EDS on or after the
applicable Acceptance Date for the Licensed Software covered by
such invoice. Periodic payments, if any, due to ASI pursuant to
this Agreement shall be invoiced at the beginning of the period to
which they apply. Payment for any other Services shall be invoiced
as agreed upon by the parties or, in the absence of an agreement,
upon completion of such Services.
(b) A "correct" invoice shall contain (i) ASI's name and invoice date,
(ii) the specific Purchase Order number if applicable, (iii)
description including serial number as applicable, price, and
quantity of the Licensed Software or Services actually delivered
or rendered, (iv) credits (if applicable), (v) name (where
applicable), title, phone number, and complete mailing address of
responsible official to whom payment is to be sent, and (vi) other
substantiating documentation or information as may reasonably be
required by EDS from time to time. A correct invoice must be
submitted to the appropriate invoice address listed on the
applicable Purchase Order.
6.5 Taxes.
(a) Unless EDS provides evidence of exemption, EDS shall pay or
reimburse ASI, where EDS is liable under applicable tax statute,
amounts equal to taxes which are imposed upon EDS' acquisition of
Products or Services including federal excise taxes, or sales or
use taxes; provided, however, EDS shall not be obligated to pay or
reimburse ASI for any taxes attributable to the sale of any
Products or Services which are imposed on or measured by net or
gross income, capital, net worth, franchise, privilege, any other
taxes, or assessments, nor any of the foregoing imposed on or
payable by ASI.
(b) ASI agrees to reasonably cooperate with EDS in the audit or
minimization of any applicable tax and shall make available to
EDS, and any taxing authority, all information, records, or
documents relating to any audits or assessments attributable to or
resulting from the payment process under this Agreement, and the
filing of any tax returns or the contesting of any tax.
EDS shall not be obligated to pay or reimburse ASI for additions
to taxes, penalties, interest, fees, or other expenses or costs,
if any, incurred by EDS as a result of, or attributable to, (i)
ASI's failure to verify taxability of a purchase, (ii) ASI's
failure to correctly calculate or remit taxes in a timely manner,
or (iii) ASI's negligence, misconduct or failure to file properly
any required returns or reports, or other required documents.
(c) Upon written notification by EDS and subsequent verification by
ASI, ASI shall reimburse or credit, as applicable, EDS in a timely
manner, for any and all taxes erroneously paid by EDS.
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ARTICLE III. MISCELLANEOUS
8.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall be
binding on the parties and their respective successors in interest and
assigns. Either party may only assign this Agreement to their
respective parent corporation or to its successor-in-interest that has
assumed all or substantially all of the assets or obligations of the
parent corporation; provided, however, that such assignee assumes in
writing the liabilities, obligations and responsibilities of the
assigning party. The assigning party shall notify the other party in
writing of such assignment. If ASI subcontracts or delegates any of its
duties or obligations of performance in this Agreement or in a Purchase
Order to any third party, ASI shall remain fully responsible for
complete performance of all of ASI's obligations set forth in this
Agreement or in such Purchase Order and for any such third party's
compliance with the non-disclosure and confidentiality provisions set
forth in this Agreement.
For purposes of this Agreement, the following transactions relating to
the parties shall not be deemed an assignment of this Agreement and
shall not give rise to any requirement of approval or consent by any
party to this Agreement, nor result in any right to terminate or alter
this Agreement: any merger (including, without limitation, a
reincorporation merger), consolidation, reorganization, stock exchange,
sale of stock or substantially all of the assets or other similar or
related transaction in which EDS or ASI, as applicable, is the
surviving entity or, if not the surviving entity, the surviving entity
continues to conduct the business conducted by such party prior to
consummation of the transaction.
8.2 Counterparts. This Agreement may be executed in several counterparts,
all of which taken together shall constitute one single agreement
between the parties.
8.3 Headings. The Article and Section headings used in this Agreement are
for reference and convenience only and shall not enter into the
interpretation hereof.
8.4 Authorized Agency. From time to time and at any time, EDS may assume
operational responsibility for computer software programs acquired
directly or indirectly from ASI by third parties which become customers
or affiliates, or which are acquired by EDS, after the Effective Date.
(a) With respect to such customers, and immediately upon execution of
a contract between EDS and a customer, the computer software
programs acquired from ASI by such customer shall be governed by
the terms and conditions of this Agreement and EDS may use such
computer software programs in accordance with this Agreement at no
additional charge to EDS or its customer, provided, however, that
such computer software programs may only be used by EDS on behalf
of that customer. With respect to each such customer, ASI, EDS and
the customer shall execute an access agreement authorizing EDS'
use of the computer software programs. Such access agreement shall
be in a form substantially similar to the Third Party System
Access Agreement attached to this Agreement as Exhibit C.
(b) With respect to any such affiliate, and upon ASI's receipt of
written notice from EDS and such affiliate, the license or other
agreement governing the use and support of such computer software
programs shall automatically be deemed to have been assigned to
EDS, provided, however, that such assigned license or other
agreement shall be superseded by, and the use and support of the
computer software programs shall be governed by, the terms and
conditions of this Agreement.
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(c) With respect to any third party with which EDS either (i) buys,
leases, or otherwise acquires all or a substantial part of the
assets or business of such third party, or (ii) consolidates with
or merges with said third party, the license or other agreement
governing the use and support of such computer software programs
shall automatically be deemed to have been assigned to EDS. At
that time, EDS may supersede such assigned license or other
agreement with the terms and conditions of this Agreement, in
which case the use and support of such computer software programs
shall be governed by the terms and conditions of this Agreement,
or EDS may elect to have the assigned license or other agreement
continue to govern the use of such computer software programs.
8.5 Relationship of Parties. ASI is performing pursuant to this Agreement
only as an independent contractor. ASI has the sole obligation to
supervise, manage, contract, direct, procure, perform or cause to be
performed its obligations set forth in this Agreement, except as
otherwise agreed upon by the parties. Nothing set forth in this
Agreement shall be construed to create the relationship of principal
and agent between ASI and EDS. ASI shall not act or attempt to act or
represent itself, directly or by implication, as an agent of EDS or its
affiliates or in any manner assume or create, or attempt to assume or
create, any obligation on behalf of, or in the name of, EDS or its
affiliates.
8.6 Confidentiality. Each party acknowledges that in the course of
performance of its obligations pursuant to this Agreement, it may
obtain confidential and/or proprietary information of the other party
or its affiliates or customers. "Confidential Information" includes:
information relating to development plans, costs, finances, marketing
plans, equipment configurations, data, access or security codes or
procedures utilized or acquired, business opportunities, names of
customers, research, and development; the terms, conditions and
existence of this Agreement; any information designated as confidential
in writing or identified as confidential at the time of disclosure if
such disclosure is verbal or visual; and any copies of the prior
categories or excerpts included in other materials created by the
recipient party. Each party agrees that, for a period of two (2) years
following its receipt of Confidential Information from the other party
or the other party's affiliates or customers, whether before or after
the Effective Date, such recipient party shall use the same means it
uses to protect its own confidential and proprietary information, but
in any event not less than reasonable means to prevent the disclosure
and to protect the confidentiality of the Confidential Information.
Further, the recipient party shall only use the Confidential
Information for purposes of this Agreement, and shall not disclose the
Confidential Information without the prior written consent of the other
party. This provision shall not apply to Confidential Information which
is (i) already known by the recipient party without an obligation of
confidentiality, (ii) publicly known or becomes publicly known through
no unauthorized act of the recipient party, (iii) rightfully received
from a third party (other than an affiliate or customer of the party
owning the Confidential Information) without an obligation of
confidentiality, (iv) disclosed without similar restrictions by the
owner of the Confidential Information to a third party (other than an
affiliate or customer of the party owning the Confidential
Information), (v) approved by the party owning the Confidential
Information, in writing, for disclosure, or (vi) required to be
disclosed pursuant to a requirement of a governmental agency or law so
long as the recipient party provides the other party with timely prior
written notice of such requirement.
8.7 Media Releases. Except for any announcement intended solely for
internal distribution by ASI or any disclosure required by legal,
accounting, or regulatory requirements beyond the reasonable control of
ASI, all media releases, public announcements, or public disclosures
(including, but not limited to, promotional or marketing material) by
ASI or its employees or
19
<PAGE> 23
agents relating to this Agreement or its subject matter, or including
the name, trade name, trade mark, or symbol of EDS or any affiliate of
EDS, shall be coordinated with and approved in writing by EDS prior to
the release thereof. ASI shall not represent directly or indirectly
that any Licensed Software or Service provided by ASI to EDS has been
approved or endorsed by EDS or include the name, trade name, trade
mark, or symbol of EDS or any affiliate of EDS on a list of ASI's
customers without EDS' express written consent.
8.8 Dispute Resolution. In the event of any disagreement regarding
performance under or interpretation of this Agreement and prior to the
commencement of any formal proceedings, the parties shall continue
performance as set forth in this Agreement and shall attempt in good
faith to reach a negotiated resolution by designating a representative
of appropriate authority to resolve the dispute.
8.9 Electronic Communications. If ASI and EDS mutually agree, business
communications between the parties, including, but not limited to,
purchase orders, invoices, and payment may be submitted electronically.
In such case, the parties shall mutually agree in writing upon
supplemental terms and conditions, including technical standards, for
the electronic exchange of such items.
8.10 Proposals and Special Projects. EDS may request a written proposal,
quote, or bid from ASI for the provision of Licensed Software and/or
Services for a specific EDS project which may be governed by separately
negotiated terms and conditions. In such event, any Licensed Software
and Services obtained for such project shall be deemed for purposes of
calculating accumulated purchases and any discounts set forth in this
Agreement, to have been obtained pursuant to this Agreement.
8.11 Governmental Customers. This Agreement shall apply to the acquisition
of Licensed Software or Services for use in or in support of the
performance of, or resale under, a contract with a state, county, or
local governmental entity (a "Governmental Customer"). ASI and EDS may
negotiate in good faith a supplemental agreement incorporating required
flow-down provisions or other provisions relating to, applicable to, or
required by such Governmental Customer or the proposed contract between
EDS and such Governmental Customer. All Licensed Software and Services
obtained pursuant to this Section shall be deemed for purposes of
calculating accumulated purchases and any discounts set forth in this
Agreement, to have been obtained pursuant to this Agreement, including
purchases made by EDS in support of the United States Federal
Government under a separate contract with ASI.
8.12 International Business. This Agreement shall apply to the acquisition
of Licensed Software and Services for use in or in support of the
performance or remarketing of Licensed Software and Services in
countries outside the United States and its territories. ASI and EDS
and/or their respective agents, distributors, or affiliates authorized
to conduct business in such countries may negotiate in good faith
supplemental agreements incorporating further terms and conditions
required by local law. All Licensed Software and Services obtained
pursuant to this Section shall be deemed for purposes of calculating
accumulated purchases and any discounts set forth in this Agreement, to
have been obtained pursuant to this Agreement.
8.13 Compliance with Laws. In the performance of Services or the provision
of Licensed Software pursuant to this Agreement, ASI shall comply with
the requirements of all applicable laws, ordinances, and regulations of
the United States or any state, country, or other governmental entity.
In particular, ASI agrees to comply with the United States Export
Administration Act, Executive Order No. 11246, as amended by Executive
Order No. 11375, the Vietnam Era Veterans Readjustment Assistance Act
of 1974, the Rehabilitation Act of 1973, the Immigration Reform and
Control Act of 1986,
20
<PAGE> 24
and the Americans With Disabilities Act. This Section incorporates by
reference all provisions required by such laws, orders, rules,
regulations, and ordinances. ASI shall indemnify, defend, and hold EDS
harmless from and against any and all claims, actions, or damages
arising from or caused by ASI's failure to comply with the foregoing.
8.14 Labor. ASI shall comply with any labor jurisdictions applicable to
ASI's performance pursuant to this Agreement and shall cooperate with
EDS in resolving any disputes resulting from any jurisdictional or
labor claims or stoppages. Upon request by ASI, EDS shall provide to
ASI clarification and guidelines regarding relationships with labor and
ASI's responsibilities with respect thereto.
8.15 Export. Neither party shall export any Licensed Software or information
protected hereunder by an obligation of confidentiality from the United
States, either directly or indirectly, without first obtaining a
license or clearance as required from the U.S. Department of Commerce
or other agency or department of the United States Government.
8.16 Notices. Wherever one party is required or permitted to give notice to
the other pursuant to this Agreement, such notice shall be deemed given
when delivered in hand, when mailed by registered or certified mail,
return receipt requested, postage prepaid, or when sent by a third
party courier service where receipt is verified by the receiving
party's acknowledgment, and addressed as follows:
In the case of EDS:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attn: Manager, Contracts Administration
With a copy to EDS:
Electronic Data Systems Corporation
700 Tower Drive
Troy, Michigan 48098
Attn: Contracts Administration
In the case of ASI:
Advanced Systems International
25300 Telegraph Road
Suite 455
Southfield, Michigan 48034
Attn: Chief Financial Officer
Either party may from time to time change its address for notification
purposes by giving the other party written notice of the new address
and the date upon which it will become effective; first class, postage
prepaid, mail shall be acceptable for provision of change of address
notices.
8.17 Force Majeure. The term "Force Majeure" shall be defined to include
fires or other casualties or accidents, acts of God, severe weather
conditions, strikes or labor disputes, war or other violence, or any
law, order, proclamation, regulation, ordinance, demand, or requirement
of any governmental agency.
(a) A party whose performance is prevented, restricted, or interfered
with by reason of a Force Majeure condition shall be excused from
such performance to the extent of such Force Majeure condition so
long as such party provides the other party with prompt written
notice describing the Force Majeure condition and takes all
reasonable steps
21
<PAGE> 25
to avoid or remove such causes of nonperformance and immediately
continues performance whenever and to the extent such causes are
removed.
(b) If, due to a Force Majeure condition, the scheduled time of
delivery or performance is or will be delayed for more than thirty
(30) days after the scheduled date, the party not relying upon the
Force Majeure condition may terminate, without liability to the
other party, the Purchase Order or any portion thereof covering
the delayed Products or Services.
(c) If a Force Majeure condition or other delay by ASI causes EDS to
terminate its business relationship with a third party for whom
delayed Products were ordered and EDS has no alternative use for
the Products after using reasonable efforts to relocate or
otherwise utilize the Products, then EDS may terminate the
applicable Purchase Order and ASI shall refund to EDS all amounts
paid thereunder.
8.18 Severability. If, but only to the extent that, any provision of this
Agreement is declared or found to be illegal, unenforceable, or void,
then both parties shall be relieved of all obligations arising under
such provision, it being the intent and agreement of the parties that
this Agreement shall be deemed amended by modifying such provision to
the extent necessary to make it legal and enforceable while preserving
its intent. If that is not possible, another provision that is legal
and enforceable and achieves the same objective shall be substituted.
If the remainder of this Agreement is not affected by such declaration
or finding and is capable of substantial performance, then the
remainder shall be enforced to the extent permitted by law.
8.19 Waiver. Any waiver of this Agreement or of any covenant, condition, or
agreement to be performed by a party under this Agreement shall (i)
only be valid if the waiver is in writing and signed by an authorized
representative of the party against which such waiver is sought to be
enforced, and (ii) apply only to the specific covenant, condition or
agreement to be performed, the specific instance or specific breach
thereof and not to any other instance or breach thereof or subsequent
instance or breach.
8.20 Remedies. All remedies set forth in this Agreement, or available by law
or equity shall be cumulative and not alternative, and may be enforced
concurrently or from time to time.
8.21 Survival of Terms. Termination or expiration of this Agreement for any
reason shall not release either party from any liabilities or
obligations set forth in this Agreement which (i) the parties have
expressly agreed shall survive any such termination or expiration, or
(ii) remain to be performed or by their nature would be intended to be
applicable following any such termination or expiration.
8.22 Nonexclusive Market and Purchase Rights. It is expressly understood and
agreed that this Agreement does not grant to ASI an exclusive right to
provide to EDS any or all of the Licensed Software and Services and
shall not prevent EDS from developing or acquiring from other suppliers
computer software programs or services similar to the Licensed Software
and Services. ASI agrees that acquisitions by EDS pursuant to this
Agreement shall neither restrict the right of EDS to cease acquiring
nor require EDS to continue any level of such acquisitions. Estimates
or forecasts furnished by EDS to ASI prior to or during the term of
this Agreement shall not constitute commitments.
8.23 No Hire. ASI and EDS each agree that they shall not, except with prior
written consent of the other, employ or contract with any person
employed by the other then or within the preceding twelve (12) months
who was directly or indirectly involved in the performance of this
Agreement. Except with
22
<PAGE> 26
respect to persons who were directly involved in the performance of
this Agreement, this Section shall not prohibit one party from hiring
any employee of the other who: (i) responds to regular employment
solicitation efforts to the general public, such as newspaper
advertisements, or widely distributed announcements of job openings, or
(ii) requests employment without solicitation from the other party.
23
<PAGE> 27
8.24 GOVERNING LAW. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT SHALL NOT BE GOVERNED BY THE PROVISIONS OF THE 1980 UNITED
NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.
RATHER THESE RIGHTS AND OBLIGATIONS SHALL BE GOVERNED BY THE LAWS,
OTHER THAN CHOICE OF LAW RULES, OF THE STATE OF TEXAS.
8.25 Entire Agreement. This Agreement constitutes the entire and exclusive
statement of the agreement between the parties with respect to its
subject matter and there are no oral or written representations,
understandings or agreements relating to this Agreement which are not
fully expressed in the Agreement. This Agreement shall not be amended
except by a written agreement signed by both parties. All exhibits,
documents, and schedules referenced in this Agreement or attached to
this Agreement, and each Purchase Order are an integral part of this
Agreement. In the event of any conflict between the terms and
conditions of this Agreement and any such exhibits, documents, or
schedules, the terms of this Agreement shall be controlling unless
otherwise stated or agreed. In the event of a conflict between the
terms and conditions of this Agreement and a Purchase Order issued in
accordance with Article II, the Purchase Order shall be controlling
with respect to those transactions covered by that Purchase Order. Any
other terms or conditions included in any shrink-wrap license
agreements, quotes, invoices, acknowledgments, bills of lading, or
other forms utilized or exchanged by the parties shall not be
incorporated in this Agreement or be binding upon the parties unless
the parties expressly agree in writing or unless otherwise provided for
in this Agreement.
IN WITNESS WHEREOF, ASI and EDS acknowledge that each of the provisions
of this Agreement were expressly agreed to and have each caused this Agreement
to be signed and delivered by its duly authorized officer or representative as
of the Effective Date.
ELECTRONIC DATA SYSTEMS CORPORATION ADVANCED SYSTEMS INTERNATIONAL
By: By: /s/ Richard A. Penington
--------------------------------- ---------------------------------
Printed Name: Printed Name: Richard A. Penington
----------------------- -----------------------
Title: Title: Chief Operating Officer
------------------------------ ------------------------------
Date: Date: 11/20/98
------------------------------- -------------------------------
Fed. Tax ID #: 133953047
---------------------
24
<PAGE> 1
EXHIBIT 10.18
ADVANCED SYSTEMS INTERNATIONAL, INC.
AND
AUTOMATIC TIME SYSTEMS CORP.
25300 Telegraph Road, Suite 455
Southfield, MI 48034
July 15, 1999
Mr. Carlos E. Bravo
1713 Skyhawk Ct
Daytona Beach, FL 32124
Dear Carlos:
I am very happy that you have joined our Board, effective July 15,
1999. Enclosed are three copies of a booklet containing your initial stock
option grant under the AdSys Directors Stock Option Plan and a copy of the Plan
itself. Please sign all three where indicated, and return two copies to me for
the Company's records. The third is, of course, for your files.
I am also pleased to confirm your engagement by AdSys' operating
subsidiary, Automatic Time Systems Corp., as a consultant to assist our
management team on an "as requested - as needed" basis subject to our mutually
agreeable arrangements. You will consult with our management team as to general
and specific information relating to marketing our products, gathering and
analyzing market and competitive data, and locating, introducing and referring
ATSC in respect of sales and partnering opportunities. Of course, none of the
services you may be called on to render to ATSC or AdSys may conflict with your
duties and obligations to your main employer, US internetworking, Inc.
Because these consulting services are in addition to, and over and
above, your service as a member of the board of the directors of AdSys, ATSC
will, itself, directly compensate you for these services. Each calendar quarter
starting July 15, 1999, you will receive an option to acquire a number of AdSys
shares equal to $12,500 divided by the then market price for the shares. The
option will vest immediately and be for a ten year term, with the strike price
equal to market price on the grant date. The option will be issued under the
AdSys Employee Option Plan. Of course, either one of us may terminate this
consulting arrangement as of the end of any calendar quarter starting July 15,
1999, on ten (10) days written notice.
<PAGE> 2
If this letter accurately states our understanding, please countersign
one copy where indicated below and return it to me.
Very truly yours,
ADVANCED SYSTEMS INTERNATIONAL, INC.
and
AUTOMATIC TIME SYSTEMS CORP.
Gerald A. Pesut, Chairman and President
Accepted and Agreed:
- ------------------------
Carlos E. Bravo
Dated: , 1999
--------------
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-1-1999 JAN-1-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 33,091 216,765
<SECURITIES> 0 0
<RECEIVABLES> 1,708,138 365,860
<ALLOWANCES> 8,700 8,700
<INVENTORY> 42,560 23,169
<CURRENT-ASSETS> 2,081,421 599,384
<PP&E> 359,099 118,578
<DEPRECIATION> 103,354 28,993
<TOTAL-ASSETS> 2,738,769 714,260
<CURRENT-LIABILITIES> 2,017,298 1,152,055
<BONDS> 0 0
0 0
0 0
<COMMON> 11,689 8,237
<OTHER-SE> 393,480 (1,181,393)
<TOTAL-LIABILITY-AND-EQUITY> 2,738,769 714,260
<SALES> 1,762,260 314,001
<TOTAL-REVENUES> 1,762,260 314,001
<CGS> 118,833 26,612
<TOTAL-COSTS> 1,440,796 625,179
<OTHER-EXPENSES> 15,123 31,322
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,123 31,322
<INCOME-PRETAX> 306,341 (342,500)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 306,341 (342,500)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 306,341 (342,500)
<EPS-BASIC> 0.03 (0.04)
<EPS-DILUTED> 0.02 (0.03)
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