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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999, or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number:
IGO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3174623
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
9393 GATEWAY DRIVE
RENO, NEVADA 89511
(Address of principal executive offices)
Registrant's telephone number, including area code: (775) 746-6140
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant based upon the closing sale price of the Registrant's Common
Stock on the Nasdaq National Market on March 1, 2000 was approximately
$40,601,156 as of such date. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
There were 20,195,200 shares of Registrant's Common Stock issued and
outstanding as of March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2000 Annual
Meeting of Stockholders are incorporated by reference in Part III of this Form
10-K.
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The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. The following discussion was prepared by
iGo Corporation (referred throughout this document where appropriate, as "iGo,"
"Company," "we," "our," and "us"), and should be read in conjunction with, and
is qualified in its entirety by, the Financial Statements and the Notes thereto
included in this report as well as the Factors That May Effect Future Results
that follow this discussion. The following discussion and other material in this
report on Form 10-K contain certain forward-looking statements. The
forward-looking statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable, are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond our control, and upon assumptions with respect to
future business decisions which are subject to change. Accordingly, actual
results could differ materially from those contemplated by such forward-looking
statements.
iGo, iGo.com and Mobile Technology Outfitter are trademarks of iGo. Road
Warrior is a registered trademark of a subsidiary of iGo. This report also
contains brand names, service marks and trademarks of other companies which are
the property of their respective holders.
PART I
ITEM 1. BUSINESS
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OVERVIEW
iGo is a leading provider of hard-to-find, model-specific accessories and
services for mobile electronic devices such as laptop computers, cellular phones
and handheld electronic organizers. For the professional who offices on the go,
iGo is the mobile technology outfitter that powers being productive anywhere,
anytime. We provide a compelling electronic commerce solution for the highly
fragmented portable computing and mobile communications marketplace by utilizing
the convenience and functionality of the Internet to serve the
business-to-business and business-to-consumer markets. Our business combines the
following key elements:
o our proprietary product, supplier and compatibility databases;
o our use of search technology to simplify the ordering process;
o our capability to rapidly ship business-critical orders;
o our focus on a high repeat purchase and replacement market; and
o our ability to offer customized solutions for corporate customers.
As a result of these factors, we have rapidly grown our net revenues and
our customer database, maintained high gross margins and established a leading
online destination to serve our market. Our customer database includes profiles
of over 592,000 mobile users and detailed transaction histories on over 212,000
buyers. Approximately 65% of the Fortune 500 have purchased products or services
from us. In addition, we have developed strategic relationships with key
business partners such as IBM, Mapquest, Ariba, Motorola, NEC, AT&T, Intelisys
and PurchasePro. In January 2000, iGo completed the acquisitions of AR
Industries, Inc., d.b.a. Road Warrior International, and CAW Products, Inc.,
d.b.a. Cellular Accessory Warehouse, in unrelated transactions. Road Warrior is
a designer and distributor of laptop power and mobile connectivity products, as
well as model-specific laptop hard drive upgrades. Cellular Accessory Warehouse
is a distributor of model specific cellular accessories. Both of these companies
serve the business to business market.
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INDUSTRY BACKGROUND
PORTABLE COMPUTING AND MOBILE COMMUNICATIONS MARKETPLACE
The use of portable computers and mobile communications devices has grown
rapidly due to infrastructure and hardware improvements which have simplified
use, increased portability and reduced equipment and cellular airtime cost.
International Data Corporation, or IDC, estimates that there were 15.5 million
portable personal computers, or PCs, shipped in 1998 and that 29.3 million
portable PCs will ship in 2003. Dataquest estimates that there were
approximately 187 million digital wireless subscribers worldwide at the end of
1998 and that the number of subscribers will grow to 590 million by the end of
2002. Sherwood Research Inc., an independent research firm focused on the mobile
products market, estimates that the market for accessories and batteries for
mobile electronic devices will grow from $5.4 billion in 1999 to $8.1 billion in
2001. Ericsson, one of the leading manufacturers of cellular phones, estimates
that there will be 60 million wireless Internet users by 2004. This move will
spawn the introduction of a whole new class of battery dependent Internet
devices.
Busy professionals and other time-constrained people are increasingly
incorporating mobile electronic devices into their daily lives. The more these
individuals utilize the functionality of their mobile electronic devices, the
more dependent they become on these devices to maintain their lifestyles and
work patterns. Businesses and individuals are increasingly willing to spend more
on mobile devices, accessories, batteries and services to increase productivity
and add flexibility. Emerging handheld devices, which combine computing and
communications features, such as email-capable pagers, palmtop computers and
personal digital assistants are likely to continue to be increasingly critical
in the daily routines of their users, even more so than single-function devices
such as laptops and cellular phones. As the number and utilization of these
devices increases, the demand for consistent and reliable accessories, batteries
and other supporting products will increase.
GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The Internet has emerged as a global communications medium, enabling
millions of users to obtain and share information, interact with each other and
conduct business electronically. IDC estimates that the number of Internet users
worldwide will increase from approximately 142 million at the end of 1998 to
approximately 502 million by the end of 2003. The increasing adoption of the
Internet as an important communications tool provides businesses with a new,
attractive vehicle to deliver product information, market and sell products and
services and provide ongoing customer support. IDC estimates that worldwide
electronic commerce revenue will increase from approximately $50 billion in 1998
to more than $1.3 trillion in 2003, representing a compound annual growth rate
of approximately 90%.
The widespread adoption of intranets and the acceptance of the Internet as
a business communications platform has also created a foundation for
business-to-business electronic commerce that offers the potential for
organizations to streamline complex processes, lower costs and improve
productivity. Internet-based, business-to-business electronic commerce is poised
for rapid growth and is expected to represent an even larger opportunity than
business-to-consumer electronic commerce. According to IDC, business-to-business
electronic commerce is expected to account for more than 80% of the dollar value
of electronic commerce in the United States by 2003. In addition, because
business transactions are typically recurring and nondiscretionary, the average
order size and lifetime value of a business-to-business customer is generally
greater than that of an individual consumer.
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THE ONLINE MARKET OPPORTUNITY FOR MOBILE ELECTRONIC DEVICES
The Internet represents an attractive medium to reach users of portable
computing and mobile communications products. In addition, these businesses and
individual consumers are not well served by traditional channels, which include
mobile device manufacturers, traditional retailers and mail-order companies.
There is a significant market opportunity for electronic commerce companies to
meet the needs of this large and underserved marketplace. This opportunity stems
from the capabilities created by the Internet medium and the nature of the
products and the limitations of the traditional buying process:
o THE NATURE OF THE PRODUCTS. Most accessories and batteries for
laptop computers, cellular phones and handheld electronic devices
are brand and model-specific, creating a complex set of
product/accessory combinations that will continue to proliferate as
new device models are introduced. In addition, these products are
peripheral and are often overlooked by manufacturers and retailers
in the industry, who typically focus on the newest hardware models.
o NO ONE-STOP SOURCE. Laptop computers, cellular phones and other
handheld electronic devices are manufactured and distributed by many
companies and there is no one complete source for model-specific
products and accessories in this fragmented marketplace. Unlike the
personal computer, book and music markets, there is no major
distributor that carries even a fraction of the products needed to
serve the mobile device and accessories market. As the installed
base of mobile electronic devices continues to grow, it becomes
increasingly difficult to maintain the comprehensive selection of
products and accessories essential to meet the purchasing needs of
individuals and businesses.
o LACK OF CUSTOMER SERVICE CAPABILITIES. Businesses and consumers are
interested in obtaining the right accessories and batteries for
their mobile electronic devices quickly and easily. However, mobile
device manufacturers and traditional retailers are focused primarily
on selling the newest "big ticket" products and are therefore
typically unable to adequately serve peripheral markets, which
include model-specific accessories and batteries. Generally,
manufacturers, distributors, value added resellers and retailers are
not adequately staffed or trained to handle the wide array of
product availability and compatibility questions.
Because online retailers can leverage centralized inventories and the
data-intensive nature of the Internet, they can overcome these limitations to
offer a solution that combines a broad product selection, convenient access,
rapid delivery and excellent customer service for mobile devices, model-specific
accessories, batteries and services.
THE iGo SOLUTION
Through our iGo.com website, corporate sales team and customer solutions
representatives, we enable businesses and individual consumers to efficiently
identify, locate and purchase model-specific accessories and services for mobile
electronic devices. Our proprietary relational databases of over 6,500 products
from more than 350 suppliers, combined with our comprehensive industry knowledge
and service expertise, create a valuable one-stop solution for our customers. We
believe that our business model offers a comprehensive Internet-based solution
with significant benefits to mobile device manufacturers, business enterprises,
mobile professionals and other people on the go.
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Our mission is to be the expert mobile technology outfitter that powers
being productive anytime, anywhere. We are in the business of fueling our
customers' productivity with products and services that transform any space into
a productive workspace. As an online merchant, we are not constrained by shelf
space and can offer customers a vast selection of mobile electronic devices and
accessories. In addition, by serving a large global market through centralized
distribution and operations, we can realize significant cost advantages relative
to traditional retailers. We also provide customized Internet stores to meet the
complete product and service needs of businesses that have large mobile
professional staffs and field personnel.
Key elements of the iGo solution include:
COMPREHENSIVE SELECTION OF MOBILE PRODUCTS. We believe that we offer the
world's largest selection of portable computing and mobile communications
devices, batteries and accessories. We offer over 6,500 accessories and
batteries compatible with the majority of brands and models of mobile devices
sold over the past fifteen years. In addition, approximately 2,000 of our most
popular stock keeping units, or SKUs, representing 87% of total orders, are kept
in inventory and can be delivered overnight to customers throughout the United
States.
PROPRIETARY RELATIONAL DATABASES. We have developed a proprietary
relational database architecture that enables our customers to accurately match
their mobile accessories to compatible device brands and models. Our databases
contain over 49,000 part numbers and 10,000 models, with high resolution images
and detailed product specifications. Our supplier database includes information
on over 350 suppliers around the world. Our databases were assembled from
primary research conducted over six years and would be difficult for potential
competitors to replicate, especially since mobile device manufacturers often do
not maintain information on older model devices, accessories and batteries.
AUTHORITATIVE SOURCE FOR MOBILE PRODUCT INFORMATION. We provide our
customers with solutions by answering important technical support questions and
making purchase recommendations for mobile devices and accessories. Our industry
knowledge enables us to better serve our customers. Our product reference guide
and our quality customer service encourage repeat purchases and word-of-mouth
referrals. By leveraging authoritative content such as our proprietary
"High-Tech Tips for Road Warriors(R)" book and our website resources and our
strategic relationships with original equipment manufacturers such as IBM and
NEC, we have been able to create commerce opportunities to attract and retain
customers. Our online support enables customers to efficiently find solutions to
their problems in the field.
STRONG DIRECT MARKETING EXPERTISE. Our direct marketing experience has
allowed us to develop an effective customer acquisition and retention model.
Since our inception in 1993, we have assembled detailed profiles of over 592,000
mobile users. These profiles typically include the brands and models of each
user's portable devices along with the original advertising lead source that
prompted the user to contact us. In addition, this database contains detailed
transaction histories on over 212,000 of our customers. The knowledge derived
from these detailed transaction histories enables us to electronically recommend
model-specific and customer-specific accessories and devices.
CORPORATE AND MANUFACTURER BENEFITS. Corporate purchasing managers use iGo
to simplify the process of purchasing mobile devices and accessories. We enable
enterprises to efficiently support their skilled mobile workforces and protect
their investment in expensive, productivity-enhancing computing and
communications devices by providing batteries and accessories that keep these
devices running. We also effectively solve the problem of how to support older
models of laptops. Manufacturers, such as IBM and NEC, work closely with us to
provide product specification information and free customer referrals because we
provide quality service to their customers. We save manufacturers money on call
center and customer service costs by handling after-market battery and accessory
sales for their laptops and cell phones.
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STRATEGY
Our strategy is to continue to offer a comprehensive, Internet-based
solution that provides significant benefits to all participants in the mobile
product marketplace, including manufacturers, business enterprises, mobile
professionals and other people on the go. Our goal is to be the leading one-stop
solution for the mobile product marketplace, and to reach this goal, we plan to:
FOCUS ON THE BUSINESS TO BUSINESS MARKET. We intend to leverage our brand,
our electronic commerce platform, our strategic relationships and our operating
infrastructure to pursue additional opportunities in the corporate market. We
have implemented a customized Internet store for Dell Computer and Lucent
Technologies, and we plan to increase our online corporate sales by expanding
the number of customized corporate Internet stores that we operate. We also have
relationships with Internet- based corporate purchasing solutions such as Ariba,
Purchase Pro and Intelisys.
PROVIDE CO-BRANDED OUTSOURCE SOLUTIONS FOR OTHER MOBILE RELATED WEBSITES.
We believe the combination of comprehensive selection and high service positions
us as an potential outsource partner for other mobile related websites that are
looking to drive addition revenue sources to their customer base. We have
implemented a co-branded mobile accessory store for Mapquest that we operate,
and have announced a similar program for Portable Life.
ENHANCE OUR PROPRIETARY DATABASES. In order to offer the highest value to
our customers and extend our leadership position, we must continue to update our
proprietary product, supplier, compatibility and customer databases. New mobile
devices are introduced almost daily. We will continue to grow our relationships
with customers, suppliers and mobile product manufacturers in order to obtain
the data necessary to expand and update our compatibility databases. For
example, we have agreements with suppliers that provide us detailed information
on and access to large new products as they are released.
PURSUE INTERNATIONAL OPPORTUNITIES. We believe the global reach of the
Internet, the international scope of many of our corporate customers and the
worldwide demand for mobile devices present opportunities for us to expand
internationally. A majority of our current product offering is compatible with
products used internationally. We plan to leverage our relational databases, our
industry expertise and our existing supplier infrastructure to expand into
Europe and Asia within the next 12 months.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. There are many businesses
serving certain elements of the mobile device market. In addition to our recent
acquisitions of Road Warrior International and Cellular Accessory Warehouse, we
intend to continue to pursue opportunities to acquire companies to further
enhance our mobile market capabilities and business to business presence. We
also plan to acquire customer lists or technologies that extend our reach and
service capabilities. For example, in 1997, we acquired the mobile database of
61,000 customers from Hello Direct, a direct marketer of telephone accessories.
In addition, we intend to pursue strategic alliances with electronic commerce
companies and mobile product manufacturers to create direct online links to
iGo.com.
BUILD THE iGo BRAND. We intend to capitalize on our early-market entry
advantage to become the leading electronic commerce solution for businesses and
individuals. We are pursuing a brand development strategy through selected mass
market advertising, targeted one-to-one marketing, online promotions and
iGo-branded products. In addition, we sticker many of our products with our
brand, our website address and our toll free telephone number. As a result, we
have a large and growing "sticker salesforce" in the field working to drive
direct sales when products wear out and need to be replaced.
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IMPROVE THE iGo.com COMMERCE EXPERIENCE. We believe our comprehensive
selection of hard-to-find, model-specific accessories, batteries, mobile
electronic devices, and services, together with our advanced search
functionality and highly-trained corporate and customer solutions
representatives, provides businesses and consumers with a compelling online
commerce experience. We recently upgraded the user interface and functionality
of our website, and we plan to continuously improve our customers' online
commerce experience. We use our knowledge of the problems faced by people on the
go to better target and serve consumers. For example, we have published and
distributed our "High-Tech Tips for Road Warriors(R)" book, and we plan to add a
fully searchable version of this helpful content on our website to increase our
customer support and improve our customer loyalty.
THE iGo.com EXPERIENCE
We offer a comprehensive online purchasing destination for businesses and
customers in search of solutions to their portable computing and mobile
communications needs. We offer products, services and content geared to the
unique requirements of business professionals that office on the go. Our
proprietary databases enable customers to easily identify the exact products and
services they need. Our customized content contains recommendations for
solutions to problems typically faced by mobile professionals and others who use
laptop computers, cell phones and other portable electronic devices.
iGo.com provides customers with a compelling purchasing experience.
Customers are greeted by a home page that is designed for efficient searching
and purchasing. We enable businesses and consumers to search for mobile devices,
accessories, batteries and services in a number of ways. Depending on their
preferences, customers can shop by keyword search, accessory category, device
category, product guide item number, brand or model. Daily specials and other
promotions are also prominently featured on the iGo.com home page and elsewhere
on our website. Corporate customers are directed to information about customized
buying programs.
On our home page, we offer customers valuable advice tailored to their
needs. Our "Tips and Advice" section answers frequently-asked questions and
makes purchase recommendations and offers advice on how to get the most
productive use out of your batteries and other accessories. We also offer
real-time text chat with our customer solutions representatives for our online
customers who need technical support or purchase advice. Customers can also
contact our highly-trained customer solutions representatives via a toll-free
telephone number. The overall customer experience is designed to provide
expertise and responsiveness to customers who are often frustrated by the
traditional means of inquiring about and purchasing mobile electronic devices
and accessories.
PRODUCT OFFERINGS
We focus on providing a comprehensive selection of quality products for
mobile professionals and other people on the go. Prices typically range from $69
to $269, but can be as low as $10 and as high as $4,300. We offer an extensive
selection of product categories, including:
o LAPTOP COMPUTER ACCESSORIES AND SERVICES. We offer a broad selection
of model-specific laptop accessories including batteries, chargers,
power adapters, car cords, hard drive upgrades, external storage
media, modems, port replicators, peripherals, mobile software and
carrying cases.
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o WIRELESS DATA SERVICES. We offer wireless modem/CDPD services from
AT&T and Bell Atlantic, and interactive paging for remote business
users from Bell South and Metrocall.
o CELLULAR PHONES, ACCESSORIES AND SERVICES. We offer the most popular
models of cellular phones from Nokia, Motorola and Ericsson, as well
as AT&T cellular phone service. We offer model-specific accessories
including batteries, hands-free devices, chargers, power adapters,
car cords, laptop modem adapters and protective cases.
o HANDHELD ELECTRONIC DEVICES AND ACCESSORIES. We offer a selection of
handheld devices, including Palm and Windows CE devices, from
companies such as 3Com, Casio, Compaq, NEC, Motorola and Philips. We
also carry a wide selection of model-specific accessories for these
products, including batteries, modems, stylus tools, software and
peripherals. We plan to be a leading provider of handheld internet
access devices, accessories and services, capitalizing on the
increasing popularity of WAP (Wireless Applications Protocol).
o OTHER MOBILE DEVICES AND TRAVEL-RELATED PRODUCTS. We offer a large
selection of often hard-to-find mobile and travel accessories,
including two-way radios, Global Positioning Systems or GPS devices,
presentation equipment, camcorder batteries, carrying cases, and
international power and phone adapters. We also offer mobile and
travel-related software.
STRATEGIC RELATIONSHIPS
We intend to continue to establish and leverage key strategic
relationships with mobile device manufacturers, suppliers and electronic
commerce partners. In June 1999, we entered into a strategic sourcing and
marketing relationship with the NEC Computer Systems Division, or NEC, a leading
global supplier of computer products. This relationship provides us with direct
Internet and phone links from NEC to our customer solutions representatives. In
addition, our relationship with NEC allows us to purchase products directly from
NEC pursuant to our reseller agreement, which increases our gross margin on
those products, and gives us direct access to detailed mobile product
cross-reference information.
In November 1999, we entered into a strategic referral and sourcing
relationship with IBM, one of the premier manufacturers of laptops. This
relationship is evidenced by a series of agreements between iGo and IBM. The
agreements establish iGo as the exclusive distribution partner under the options
continuation program. Under the terms of the agreements, IBM exclusively refers
customers in need of mobile accessories for legacy ThinkPad and WorkPad products
directly to iGo. The agreements provide for both direct links from the IBM
website and live telephone transfers. In addition, we have a tier-one direct
purchasing relationship with IBM for mobile options. This allows us to buy
ThinkPad and WorkPad accessories directly from IBM and gives us access to
certain of IBM offshore accessory suppliers. We plan to replicate this program
with several of the top laptop manufacturers to continue to expand and update
our product and compatibility databases and to increase high gross margin sales.
We have been approved as a launch partner for the new Ariba enterprise
purchasing system. This electronic commerce-based system allows global
enterprises to automate the requisition, approval, purchasing and delivery of
supplies and services. Our relationship with Ariba enables their customers to
quickly and easily order our entire range of products from within the Ariba
purchasing system. We plan to leverage this relationship with Ariba to further
penetrate enterprises worldwide with our solution. In February 2000, we further
expanded our business to business capabilities by partnering with Intelisys
Electronic Commerce, Inc. to make the iGo product offering available to the
three million small and medium size businesses that are part of the Intelisys'
purchasing community. Our presence on the online purchasing portals was further
expanded in February 2000, when we formed a strategic alliance with PurchasePro.
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Our strategic relationship with Motorola allowed us early access to the
Motorola StarTAC(R) Clip-on Organizer for Motorola's StarTAC(R) telephone. Our
relationship with Motorola also includes product sourcing for our iGo-branded
products. Motorola is currently designing and manufacturing a number of cellular
phone batteries exclusively for iGo.
Our strategic relationship with Motorola is not subject to a formal
written agreement, and our agreements with NEC and Ariba are terminable by
either party at any time upon written notice. In addition, under our agreement
with NEC we are currently obligated to purchase at least $4,000,000 of product
per year, which requirement may be increased, decreased or waived by NEC at its
discretion. The terms of one agreement with IBM require us to purchase at least
$2,000,000 of product per year. If iGo fails to meet this purchase level, IBM
has the discretion to allow iGo to cure before terminating the agreement. Also,
either party may terminate the agreement with or without cause on three months
written notice. Because our agreements with NEC and IBM were only recently
established, it is uncertain whether we will meet or exceed the stated purchase
obligations. Consequently, these relationships will continue to evolve over
time. We can provide no assurance that these relationships will continue on
their current terms or at all.
MARKETING AND CUSTOMER ACQUISITION
We employ a combination of traditional and online marketing programs to
acquire customers and build brand awareness. These programs are designed to
cost-effectively acquire high-value purchasing agents and mobile users as
customers and generate online sales. We believe our marketing and advertising
strategy efficiently reaches our target market in the environments in which they
use our products--at work, at home, and while traveling. In addition, because we
sell devices, accessories and batteries for leading national brands, we believe
that we are able to leverage the large advertising and promotional investments
of mobile device manufacturers to generate demand for the products we sell. We
expect to continue to significantly increase our investment in marketing,
advertising and promotion to acquire and retain customers.
OFFLINE MARKETING AND PROMOTION. Our offline advertising strategy is based
on multiple media, including print, radio, outdoor and direct mail. We advertise
in key business periodicals such as BUSINESS WEEK and FORBES; technology
magazines such as MOBILE COMPUTING and PC WORLD; in-flight magazines such as
AMERICAN WAY and SKY; and national newspapers such as THE WALL STREET JOURNAL
and USA TODAY. We have also tested 30-second radio spots in metropolitan areas
with large numbers of mobile customers.
We use our corporate buyers guide and product reference guide as
cost-effective vehicles to drive customers to our website. We distribute
approximately 13 million of these full-color direct mail pieces annually. Mobile
device manufacturers and service providers supply cooperative advertising
support to subsidize the cost of producing these guides. Our corporate buyers
guide and product reference guide demonstrates our comprehensive mobile product
selection and creates strong brand awareness. We also use our direct mail pieces
to promote the benefits of online procurement in general, as well as the
specific benefits of our solutions and tips.
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ONLINE MARKETING AND PROMOTION. Our online marketing and promotion
strategy is designed to build brand recognition, increase customer traffic to
our website, acquire new customers and encourage repeat purchasing behavior.
Through our advertising and promotions, we target purchasing agents and mobile
professionals and other people who are themselves purchasers or who influence
the purchase of mobile products and accessories at work. Our advertising
campaigns are designed to identify with the unique needs of these people, who
typically require products and services to simplify their lives, as well as
complete solutions to their everyday portable computing and mobile
communications problems.
We have developed four primary means of reaching our potential customers
online: banner advertising, sponsorships, outbound email marketing and an online
affiliate program. We place banner advertisements on websites targeted to the
needs and interests of mobile professionals. We also buy banners through keyword
searches on major online portals such as Lycos and Yahoo! We have entered into
marketing and sponsorship arrangements with electronic commerce companies such
as AOL, Portera.com and Stamps.com. These arrangements generally provide for us
to be the preferred mobile electronics product retailer on their websites. Our
affiliate program is designed to create incentives for others to create inbound
links that connect directly to our website. We pay our registered affiliates a
referral fee of 7% to 15% of the purchase price based upon annual sales
generated through these referrals of any sale generated via their link to our
website. Finally, we attempt to maximize the value of our 592,000 person mobile
user database by delivering special product offerings to customers and prospects
via email. For example, we can send special promotions to all owners of cell
phones or only to owners of a certain brand, or we can send email to customers
at a specified time period after initial purchase to remind them to replace
their laptop batteries.
CORPORATE SALES
According to a survey by Sherwood Research, 89% of laptops are purchased
by corporations. To take advantage of this opportunity we established a
dedicated corporate sales team in 1998. Our corporate sales team targets large
corporations, medium-to-small businesses and government agencies and educational
institutions, in an effort to generate large and recurring orders and to direct
sales to our website. In particular, our corporate sales representatives target
enterprises with large field salesforces or large installed bases of laptop
computers or cell phones, including pharmaceutical, insurance, financial,
telecommunications and consulting companies. To date, we have sold products to
approximately 65% of the Fortune 500. From the second fiscal quarter of 1999 to
the fourth fiscal quarter of 1999, the proportion of our total net revenue
generated from corporate, government and educational accounts increased from 26%
to 42%.
Our corporate sales team generates leads from individual purchasers within
large organizations found in our user database, by conducting primary research
and outbound calls, by meeting corporate purchasing managers in the field and by
responding to corporate requests for proposals. In addition, we have begun to
enter into relationships with large companies, such as Dell Computer and Lucent
Technologies, in which we offer a secure online purchasing solution dedicated to
their authorized employees. In these customized Internet stores, site design,
product pricing and SKUs available for sale can all be tailored and controlled
to meet the needs of our corporate customers.
As of March 31, 2000, we employed 35 corporate account managers and a
director of corporate sales. We intend to increase the number of our corporate
account managers through 2000.
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CUSTOMER SERVICE
Our goal is to provide our customers with the highest level of customer
support. Our customer solutions representatives are available in our customer
contact center 24 hours-per-day, 365 days-per-year. Representatives handle
contacts with customers, through telephone, fax, email and live text chat. We
will add voice over Internet protocol capabilities in 2000. Our support services
include product inquiries, ordering, technical support and customer service
issues. We provide a high level of support by utilizing our sophisticated
product and compatibility databases and by training our representatives with the
in-depth knowledge required to meet the needs of professionals that office on
the go.
We have retained a third-party call center to handle overflow or possible
disaster conditions. Representatives in this third-party call center have been
trained in our customer service philosophy.
TECHNOLOGY AND OPERATIONS
We have developed a scalable, secure and reliable technology
infrastructure to support our website and customer contact center, as well as to
maintain and integrate our proprietary databases, our supply chain, and our
accounting, finance and management reporting functions. Our website is designed
to be accessible from all standard browsers without the need for additional
client software. Our systems are designed to capture large amounts of
customer-specific data, which is important to our ability to provide superior
post-sale service and to target customers for future purchases. We also
incorporate a variety of encryption and fraud detection technologies designed to
protect the privacy of customer information and the integrity of customer
transactions.
Our software system architecture uses industry standard technologies to
maximize reliability and scalability. We use Secure Socket Layer for secure
transactions. Our applications run on arrays of Intel-based server systems
running Microsoft Windows NT and SQL Server. To scale our service as traffic
increases, we believe that we need only to install additional servers or
increase the number of processors per server. Our production data and hosting
center is located at Internet Emporium in Phoenix, Arizona, which provides
routing and high bandwidth communication lines to a variety of major Internet
backbone providers, as well as 24 hour-per-day monitoring and support. Our
production data center also includes multiple redundant backup systems and power
generators. We maintain server and bandwidth overcapacity at our hosting center
so that if traffic spikes or a server fails we can maintain service for our
entire user base.
We believe that our technology platform provides state-of-the-art
electronic commerce functionality and integration, including the following key
systems:
o IBM's DB2 and Microsoft SQL server relational databases;
o sophisticated enterprise accounting and logistics software;
o Onyx total customer relationship management software;
o real-time Internet customer service from Facetime;
o automated email response technology from Kana;
o automated call distribution through an interactive intelligence
system; and
o the IBM Net.Commerce electronic commerce platform.
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<PAGE>
In addition, we plan to enhance our next-generation integrated
communications system to add more functionality in 2000. These enhancements will
allow us to manage all customer contacts, including live text chat, customer
emails, voice over Internet Protocol, incoming calls and outgoing calls through
single workstations. It will also enable contacts to be routed to appropriate
customer support representatives based upon the inquiry and the appropriate
skill level of each representative. Further, this system will provide our
customers, at their option, Integrated Voice Response technology which will
allow them to place an order, check status of an existing order or determine
their account balance automatically.
We manage our own fulfillment center where we receive, pick, pack and ship
our products. We believe controlling the fulfillment process is important to
providing a high standard of customer care. Control of our fulfillment center
allows us to expedite shipments, balance resource needs and maintain direct
contact with our customers. We currently stock approximately 2,000 of our most
popular inventory items, representing approximately 87% of all orders, in our
fulfillment center. We frequently evaluate sales volume, new product offerings
and marketing forecasts to balance inventory levels with the growth of our
business.
COMPETITION
The portable computing and mobile communications market is highly
fragmented. In addition, the electronic commerce market in which we operate is
new, rapidly evolving and highly competitive. Our competitors operate in a
number of different distribution channels, including electronic commerce,
traditional retailing, catalog retailing and direct selling. We believe no
single competitor competes directly with us with respect to all of the products
and services we offer; however, we currently or potentially compete with a
variety of other companies in the sale of products in specific categories,
including:
o mobile products suppliers such as Targus;
o mass merchant retailers such as CDW and CompUSA;
o direct marketers such as Buy.com, Insight and Microwarehouse; and
o traditional mobile device manufacturers such as Fujitsu and Toshiba.
Many of these current and potential competitors may have the ability to
devote substantially more resources to marketing, and systems and website
development than we do. In addition, larger and more well-financed entities may
acquire, invest in or form joint ventures with our competitors. Some of our
competitors may be able to secure products from suppliers on more favorable
terms, fulfill customer orders more efficiently and adopt more aggressive
pricing or inventory availability policies then we can. Finally, new
technologies and the expansion of existing technologies, such as price
comparison programs that search for products from a variety of websites, may
direct customers to other online merchants.
We believe that the principal competitive factors in our marketplace are
product selection and customer service. While there can be no assurance that we
will be able to compete successfully against current and future competitors, we
believe our ability to compete favorably is enhanced by our proprietary product
database, our strategic supplier relationships, and our sophisticated logistics
and supply management capabilities. We believe that any competitor that seeks to
establish an electronic commerce presence within our marketplace will confront
significant challenges. Among these challenges are developing the required
software and technology infrastructure, establishing an efficient supply and
logistics system, and most importantly, establishing a comprehensive database of
industry products, suppliers and customers.
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<PAGE>
INTELLECTUAL PROPERTY
We regard our brand and substantial elements of our website and relational
databases as proprietary, and seek their protection through trademark, service
mark, copyright and trade secret laws as critical to our success. We enter into
non-disclosure agreements with our employees and consultants, and generally with
strategic partners. Despite these precautions, it may be possible for third
parties to copy or otherwise obtain and use our intellectual property without
our authorization.
Our iGo brand and our Internet address, www.iGo.com, are important
components of our business strategy. We have recently filed federal trademark
applications for "iGo," and "iGo.com. " In July 1999, the United States Patent
and Trademark Office, or PTO, preliminarily declined registration of "iGo",
"iGo.com" and the iGo logo when used in connection with our services because, in
the PTO examiner's opinion, there was a likelihood that if these marks were to
be registered, they would be confused with a prior trademark registration for
"IGO" that covers interactive teaching equipment (PTO Registration No.
2,086,551). In addition, the examiner requested non-substantive revisions to the
identification and classification of services. Effective September 30, 1999, we
acquired by assignment the rights to the registered mark (PTO Registration No.
2,086,551) cited by the PTO examiner and will record this assignment promptly
with the PTO. We responded to the PTO's preliminary action on January 13, 2000.
The PTO subsequently cited three additional marks ("GO.WEB," "GO.EDU" and
"GO.NET") against the "IGO" marks on the ground that if these marks register,
there may be a likelihood of confusion. Pending resolution of the cited
applications, the "IGO" applications have been suspended. We intend to respond
to these citations, arguing that there is no likelihood of confusion. We cannot
guarantee that we will be able to secure registration of these marks.
We also rely to a material extent on technology developed and licensed
from third parties. These licenses may not continue to be available to us on
commercially reasonable terms in the future. The loss of existing technology
licenses could harm the performance of our existing services until equivalent
technology can be identified, obtained and integrated. Failure to obtain new
technology licenses may result in delays or reductions in the introduction of
new features, functions or services, which would harm our business. We have not
been notified that our technologies infringe on the proprietary rights of
others. However, there can be no assurances that third parties will not claim
infringement in the future. We expect that the continued growth of the Internet
will result in an increasing number of infringement claims as legal standards
related to our market continue to evolve. Any such claim, with or without merit,
could be time consuming, result in costly litigation, and may have a material
adverse effect on our business and results of operations.
GOVERNMENT REGULATION
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet, covering issues such as user privacy, freedom of expression, pricing,
content and quality of products and services, taxation, advertising,
intellectual property rights and information security. The nature of this
legislation and the manner in which it may be interpreted and enforced cannot be
fully determined and, therefore, this legislation could subject us to potential
liability, which in turn could harm our business. The adoption of any such laws
or regulations might also decrease the rate of growth of Internet use, which in
turn could decrease the demand for our products and services, or increase the
13
<PAGE>
cost of doing business, or otherwise harm our business, financial condition and
results of operations. In addition, applicability to the Internet of existing
laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. The vast majority of these laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of electronic commerce.
Several states have also proposed legislation that would limit the use of
personal information gathered online or require websites to establish privacy
policies. The Federal Trade Commission has also initiated action against at
least one website regarding the manner in which information is collected from
users and provided to third parties. Changes to existing laws or the passage of
new laws intended to address these issues, including some recently proposed
changes, could create uncertainty in the marketplace that could reduce demand
for our products or services, increase the cost of doing business as a result of
litigation costs or increased service delivery costs. In addition, because our
products and services are accessible throughout the United States, other
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in a particular state. We are qualified to do business in
California and Nevada. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties for the failure to qualify and could result in our inability to
enforce contracts in those jurisdictions. Any new legislation or regulation of
this kind, or the application of laws or regulations from jurisdictions whose
laws do not currently apply to our business, could harm our business, financial
condition or results of operations.
EMPLOYEES
As of March 31, 2000, we had 225 full-time employees, including 56 in our
customer contact center, 92 in sales and marketing, 71 in technology and
operations, and 6 in executive management and administration. We devote, and
will continue to devote, substantial resources to attract high-quality employees
and build a strong corporate culture that encourages and rewards success. We
believe that our investments in recruiting and training help us attract and
retain key managers and productive employees. None of our employees is
represented by a labor union, we have never experienced a work stoppage and we
consider our employee relations to be good.
EXECUTIVE OFFICERS OF iGo
The following table sets forth certain information regarding our executive
officers as of March 31, 2000:
NAME AGE POSITION
---- --- --------
Ken Hawk.................. 36 Chairman of the Board, President, Chief
Executive Officer and Chief Energizing Officer
Mick Delargy.............. 36 Senior Vice President, Finance and Business
Development, Chief Financial Officer and
Secretary
Rod Hosilyk............... 60 Vice President, Operations
Tom de Jong............... 35 Vice President, Channel Sales
14
<PAGE>
KEN HAWK is the founder of iGo and has served as Chairman of our board of
directors, President, Chief Executive Officer and Chief Energizing Officer since
our incorporation in March 1993. Mr. Hawk was the Multimedia Product Manager for
Windows at Microsoft Corporation from June 1992 until September 1992 and ran
North American Operations for Venture Manufacturing Singapore from November 1988
until September 1991. From June 1986 until November 1988, he served as Silicon
Valley District Sales Manager for Silicon Systems, Inc., a subsidiary of TDK.
Mr. Hawk holds a B.S. in electrical engineering from the University of Michigan
and an M.B.A. from Stanford University.
MICK DELARGY has served as our Senior Vice President, Finance and Business
Development, Chief Financial Officer and Secretary since July 1999. He also
served as our Vice President, Finance and Operations from May 1996 to June 1997.
From August 1997 to July 1999, Mr. Delargy served as Senior Vice President of
Finance and Business Development for Accolade, Inc. (now Infogrames North
America). From April 1992 to May 1996, he served as Chief Financial Officer of
Storybook Heirlooms. From January 1987 to April 1992, Mr. Delargy served as an
Audit Manager for KPMG Peat Marwick. Mr. Delargy holds a B.S. in business
administration and a B.S. in accounting from the University of Kansas and is a
certified public accountant.
ROD HOSILYK has served as our Vice President of Operations since March
2000. He was President and founder of Road Warrior International, a manufacturer
of portable computer accessories, since its inception in 1994. Road Warrior was
acquired by iGo in January 2000. From 1988 until 1994, he was President and
founder of Computer Products Plus, a catalog retailer of portable computer
accessories. From 1986 to 1988, Mr. Hosilyk worked with Toshiba America setting
up their U.S. laptop manufacturing operations. Mr. Hosilyk was President of
Rosscomp Inc., a manufacturer of streaming tape drives for mainframe and mini
computers from 1980 until 1986. From 1976 to 1980, he was a Senior Vice
President of BASF charged with setting up the U.S. manufacturing operations for
the company's new video tape drive. Mr. Hosilyk was director of operations for
Califone-Roberts, a division of Rheem Manufacturing Company, responsible for all
product development and manufacturing operations. Mr. Hosilyk holds a B.S. in
electrical and mechanical engineering from the University of Panama.
TOM DE JONG has served as our Vice President of Channel Sales since March
2000. Mr. de Jong was formerly the founder and President of Cellular Accessory
Warehouse from its inception in 1993 until its acquisition by iGo in January
2000. Prior to founding Cellular Accessory Warehouse, Mr. de Jong owned and
operated several retail wireless phone stores from 1990 through 1993. From April
1988 until September 1989, Mr. de Jong was a financial analyst with Electronic
Data Systems (EDS). Mr. de Jong holds a B.S. in business administration from
California State University, Hayward.
ITEM 2. PROPERTIES
----------
Our corporate offices are located in Reno, Nevada. We rent approximately
85,000 square feet under a fourteen year lease that expires in December 2013.
The lease also contains an option to renew for two additional five-year terms.
We anticipate that our current space will meet our facility needs for at least
the next 36 months.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
-----------------
LEGAL PROCEEDINGS
From time to time we are involved in litigation incidental to the conduct
of our business. We are not party to any lawsuit or proceeding that, in our
opinion, is likely to seriously harm our business.
On July 19, 1999, the company from whom we purchased the rights to the
1-800-Batteries toll-free telephone number and name gave us notice that they
believe we have failed to cure a material breach of our agreement with them. The
notice also stated that they are terminating their agreement with us and
demanding a return of their rights as well as unspecified monetary damages. At
the same time, they made a demand for arbitration of the matter with the
American Arbitration Association ("AAA") in Richmond, Virginia. We responded to
their demand by formally denying their claims as well as challenging the
location of the arbitration proceedings. Subsequently, AAA ruled that the
arbitration would be held in Richmond, Virginia, and an arbitrator has been
selected. Many of our customers may rely on the1-800-Batteries phone number to
reach our customer solutions representatives and to the extent that the
arbitrator disagrees with our position and allows this agreement to terminate,
we could be harmed, although it is difficult to estimate the extent or
materiality of such harm.
On October 11, 1999, in the Second Judicial District Court of the State of
Nevada in and for the County of Washoe, Microflex Corporation filed a lawsuit
against us and certain of our employees based upon circumstances surrounding our
hiring of several former Microflex employees. The suit alleges that we have
induced certain former Microflex employees to breach the terms of their
nondisclosure and nonsolicitation agreements with Microflex, that we have
interfered with Microflex's contractual relations and prospective economic
advantage, and that we have engaged in unfair competition. Microflex seeks
injunctive relief, monetary damages, costs and attorney's fees. We believe that
this suit is without merit and have filed a motion to dismiss which is currently
pending before the court. While we intend to vigorously defend our actions in
this matter, we cannot be certain that we will be successful in our defense.
Furthermore, if we are unsuccessful in defending this action, any remedies
awarded to Microflex could harm our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of our stockholders during the fourth
quarter of the year ending December 31, 1999.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
----------------------------------------------------
SHAREHOLDER MATTERS
-------------------
iGo's Common Stock has been traded on the Nasdaq National Market under the
symbol IGOC since October 14, 1999, the first trading day following the
effectiveness of our initial public offering. Prior to the initial public
offering, no public market existed for the Common Stock. The following table
presents the high and low closing sale prices for our Common Stock as reported
in the Nasdaq National Market for the period indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Period from October 14, 1999 through December 31, 1999........ $ 22.250 $ 8.875
</TABLE>
As of March 1, 2000, we had approximately 87 stockholders of record and
approximately 4501 beneficial owners of our Common Stock. iGo's stock price may
be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
our Common Stock in any given period. Additionally, we may not learn of, or be
able to confirm, revenue or earnings variations from estimates until late in the
fiscal quarter, which could result in an even more immediate and adverse effect
on the trading price of our Common Stock. Finally, we participate in a highly
dynamic industry, which often results in significant stock price volatility.
We have never paid cash dividends on our capital stock and do not
anticipate paying cash dividends in the foreseeable future. We intend to retain
future savings for reinvestment in our business. Any future determination to pay
cash dividends will be at the discretion of the Board of Directors and will be
dependent upon our financial condition, results of operations, capital
requirements and such other factors as our Board of Directors deems relevant.
CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with our initial public offering of common stock, we filed a
Registration Statement on Form S-1, SEC File No. 333-84723 (the "Registration
Statement"), which was declared effective by the Commission on October 13, 1999.
Pursuant to the Registration Statement, we registered 5,750,000 shares of our
common stock, $.001 par value per share, including 750,000 shares available for
sale to the underwriters upon the exercise of their over-allotment option. The
aggregate offering price of the shares sold was $60.0 million, $4.2 million of
which was applied towards the underwriters discounts and commissions. Other
expenses related to the offering $1.3 million. The net proceeds to us from the
sale of common stock in the initial public offering were approximately $62.6
million, including exercise of the underwriters' over-allotment option.
We have used a portion of the proceeds for investment in sales and
marketing, and general corporate purposes, including working capital and capital
expenditures, as well as strategic acquisitions. The remainder of the proceeds
have been invested in short-term, interest-bearing, investment-grade securities.
The use of proceeds from the offering does not represent a material change in
the use of proceeds described in our prospectus filed on October 15, 1999.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
The following selected financial data should be read in conjunction with
the consolidated financial statements and related notes to the consolidated
financial statements and Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The statements of operations
data for the years ended December 31, 1999, 1998 and 1997 and the balance sheet
data at December 31, 1999 and 1998 are derived from the financial statements
included elsewhere in this Report which have been audited by Deloitte & Touche
LLP, independent auditors, as set forth in their report appearing herein. The
statements of operations data for the year ended December 31, 1995 and the
balance sheet data at December 31, 1996 and 1995 are derived from unaudited
financial statements not included herein. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial condition, results of operations and cash flows
have been included.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net product revenue............................... $ 21,043 $ 12,318 $ 7,422 $ 4,508 $ 1,790
Development revenue............................... -- 502 665 -- --
---------- ---------- ---------- ---------- ----------
Total net revenues........................... 21,043 12,820 8,087 4,508 1,790
Cost of goods sold..................................... 14,793 8,602 5,320 2,977 1,215
---------- ---------- ---------- ---------- ----------
Gross profit 6,250 4,218 2,767 1,531 575
Operating expenses:
Sales and marketing............................... 15,396 3,883 2,485 943 451
Product development............................... 1,544 511 113 87 33
General and administrative........................ 4,657 1,666 1,076 558 246
---------- ---------- ---------- ---------- ----------
Total operating expenses..................... 21,597 6,060 3,674 1,588 730
---------- ---------- ---------- ---------- ----------
Loss from operations................................... (15,347) (1,842) (907) (57) (155)
Other income (expense), net............................ 334 (44) 21 12 (2)
---------- ---------- ---------- ---------- ----------
Net loss (15,013) (1,886) (886) (45) (157)
Preferred stock dividends.............................. -- (247) (140) (71) --
---------- ---------- ---------- ---------- ----------
Net loss attributable to common stockholders........... $ (15,013) $ (2,133) $ (1,026) $ (116) $ (157)
========== ========== ========== ========== ==========
Net loss per share--basic and diluted................... $ (1.01) $ (0.36) $ (0.19) $ (0.02) $ (0.03)
========== ========== ========== ========== ==========
Weighted-average shares outstanding.................... 14,818 5,998 5,544 5,400 5,400
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 57,364 $ 2,504 $ -- $ 1,012 $ 50
Working capital........................................ 55,776 3,447 157 1,125 (218)
Total assets........................................... 67,667 5,536 2,384 1,886 330
Long-term portion of capital lease obligations and
long term debt......................................... 789 23 20 -- --
Mandatory redeemable preferred stock................... -- 7,890 1,680 1,539 --
Total stockholders' equity (deficit)................... 59,143 (3,425) (1,314) (288) (172)
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
iGo was incorporated in March 1993 and began offering products for sale
later that year, but did not generate meaningful revenues until 1995. For the
period from inception to 1995, our operating activities related primarily to the
development of our proprietary databases and to locating favorable sources of
supply. In 1995, we launched our first direct marketing campaign and focused on
building sales volume and fulfillment capabilities, and in 1996, we launched our
website. Since 1997, we have significantly increased the depth of our management
team to help implement our growth strategy. In June 1997, we relocated from San
Jose, California to Reno, Nevada to take advantage of lower operating costs for
our customer contact and fulfillment centers.
Revenues from sales of products and shipping fees are recognized at the
time the merchandise is shipped to customers, net of any discounts and reserves
for expected returns. The majority of orders are shipped the same day they are
received. To date, approximately 75% of customer purchases have been made with
credit cards. We generally receive payment from the credit card companies within
one to four business days after shipment of the product. We also extend credit
terms, typically net 30 days, to corporate accounts that we have evaluated for
creditworthiness. Inventory is carried at the lower of cost or market. We use
the first-in-first-out method to determine cost. Advertising and promotional
costs are expensed as incurred and are recorded net of any cooperative
advertising amounts due from our suppliers at that time. In the case of direct
mail campaigns, the expenses are recorded at the time the promotional piece is
mailed to potential customers because the projected future revenue stream from
these mailings, which can occur over a two month period, cannot be ultimately
determined at the time the mailing occurs.
We incurred net losses of $15.0 million in 1999, $1.9 million in 1998 and
$886,000 in 1997. At December 31, 1999, we had an accumulated deficit of
approximately $19.1 million. The net losses resulted from costs associated with
marketing programs to attract new customers, developing our website and
proprietary databases and the development of our operational infrastructure.
We plan to invest heavily in marketing and promotion, to hire additional
employees and to enhance our website and operating infrastructure. Therefore we
expect to incur increasing sales and marketing, general and administrative and
product development expenses. As a result, we will need to generate
significantly higher revenues to achieve and maintain profitability, although we
may never be able to do so. If our revenue growth is slower than we anticipate
or our operating expenses exceed our expectations, our losses will be
significantly greater.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NET PRODUCT REVENUE. Net product revenue consists of product sales to
customers and outbound shipping charges, net of any discounts and reserves for
expected returns. Net product revenue increased from $7.4 million in 1997 to
$12.3 million in 1998 and to $21.0 million in 1999, primarily as a result of
expanded marketing efforts.
DEVELOPMENT REVENUE. Development revenue represents sales of proprietary
products developed and manufactured for a specific customer. No product
development revenue was generated in 1999 as compared to $502,000 in 1998 and
$665,000 in 1997. This decrease reflects our strategy of focusing on the sale of
products with broad appeal to businesses and individuals rather than on
proprietary products for a specific customer's application. We do not anticipate
generating significant development revenue in the future.
COST OF GOODS SOLD. Cost of goods sold consists primarily of the cost of
products sold to customers, inbound shipping expense and outbound shipping
charges. Cost of goods sold increased from $5.3 million in 1997 to $8.6 million
in 1998 and to $14.8 million in 1999. The decrease in gross margin from 33% in
1998 to 30% in 1999 was primarily the result of higher than anticipated in-bound
and outbound freight costs to meet internal customer service goals as well as
19
<PAGE>
the impact of certain fourth quarter marketing programs that shifted the sales
mix away from high margin model specific accessories toward lower margin gadget
and gift items. The decrease in gross margin from 34% in 1997 to 33% in 1998 was
a result of a moderate shift in the sales mix to higher volume corporate
accounts with more aggressive multi-unit pricing and the establishment for a
reserve of inventory obsolescence in the amount of $109,000, the equivalent of
1.3% of total cost of goods sold and 5.9% of loss from operations. The reserve
for obsolescence was established to account for estimated writedowns on slower
moving inventory items as a result of increased inventory levels during 1998.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
advertising costs, fulfillment expenses, credit card costs and the salary and
benefits of our sales, marketing and customer contact center personnel.
Advertising and promotional expenses include online marketing efforts, print
advertising, trade shows and direct marketing costs. Sales and marketing
expenses increased from $2.5 million in 1997 to $3.9 million in 1998 and to
$15.4 million in 1999. The increase primarily reflected an increase in
advertising and promotional costs, including direct campaigns to promote our
website. Advertising and promotional expenses increased from $1.5 million in
1997 to $2.1 million in 1998 and to $11.9 million in 1999. All other sales and
marketing expenses, consisting primarily of payroll expenses increased from $1.0
million in 1997 to $1.8 million in 1998 and to $3.5 million in 1999. We intend
to continue to pursue an aggressive marketing strategy to attract new customers.
Therefore, we expect sales and marketing expenses to increase significantly in
absolute dollar terms in future periods.
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
payroll and related expenses for merchandising and website personnel, site
hosting fees and web content and design expenses. Product development expenses
increased from $113,000 in 1997 to $511,000 in 1998 and to $1.5 million in 1999.
The increases are the result of expenses incurred to improve our website
interface, the introduction of new Internet-based technology and the overall
expansion of our mobile product offerings. We intend to continue to build the
infrastructure necessary to provide a high level of service. Therefore, we
expect product development expenses to increase in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
salaries and related costs for our executive, administrative and finance
personnel, support services and professional fees, as well as general corporate
expenses such as rent and depreciation. General and administrative expenses
increased from $1.1 million in 1997 to $1.7 million in 1998 and to $4.7 million
in 1999. The increases are primarily attributable to increased personnel, as
well as costs associated with the complete upgrade of our customer contact
database and finance systems including depreciation and service costs. We
upgraded these systems in January 1999 to increase functionality and to provide
for expected growth. In addition, in 1999, we recorded $2.0 million in deferred
compensation for new option grants to employees and directors and expensed
$387,000, principally related to these grants. In 1998 we recorded $203,000 in
deferred compensation and expensed $15,000. This deferred compensation amount
represents the difference between the deemed fair value of the common stock and
the exercise price at the time the options were granted, and is expensed on a
straight line basis over the four-year vesting period of the options.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists
primarily of interest income earned on cash and cash equivalents, interest
expense on borrowing and capital leases and losses resulting from sale-leaseback
transactions. Other income (expense), net, changed from income of $21,000 in
1997 to expense of $44,000 in 1998 and to income of $334,000 in 1999. The change
from 1997 to 1998 was primarily the result of an increase in interest expense of
$87,000 partially offset by an increase in interest income of $14,000. The
change from 1998 to 1999 was primarily a result of a $219,000 loss incurred on
the sale and leaseback of computer equipment and software, resulting from the
system upgrade in January 1999, offset by $720,000 in interest income from
interest earned on the net proceeds from the initial public offering in October
1999 and the July 1999 preferred stock financing.
20
<PAGE>
INCOME TAXES. The Company did not provide any current or deferred U.S.
federal, state or foreign income tax provision or benefit for any of the periods
presented because it has experienced losses since inception. Utilization of the
Company's net operating loss carryforwards, which begin to expire in 2011, may
be subject to certain limitations under Section 382 of the Internal Revenue Code
of 1986, as amended. The Company has provided a full valuation allowance on the
deferred tax asset, consisting primarily of net operating loss carryforwards,
because of uncertainty regarding its realizability.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statements of
operations data for each of the eight quarters in the period ended December 31,
1999. In the opinion of management, this unaudited information has been prepared
on the same basis as the annual financial statements, and includes all
adjustments (consisting only of normal recurring adjustments) necessary for the
fair presentation of our results of operations for those periods. This
information should be read in conjunction with the financial statements and
related notes appearing elsewhere in this filing. The results of operations for
any quarter are not necessarily indicative of the results of operations for any
future period.
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENDED
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1999 1999 1999 1999 1998 1998 1998 1998
---- ---- ----- ----- ----- ----- ----- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net product revenue......................... $7,995 $ 5,330 $ 4,240 $ 3,478 $ 3,399 $ 3,140 $ 2,954 $ 2,825
Development revenue......................... -- -- -- -- -- -- -- 502
-------- -------- -------- -------- -------- -------- -------- --------
Total net revenues..................... 7,995 5,330 4,240 3,478 3,399 3,140 2,954 3,327
Cost of goods sold............................... 6,266 3,514 2,739 2,274 2,248 2,079 2,002 2,273
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit .................................... 1,729 1,816 1,501 1,204 1,151 1,061 952 1,054
Operating expenses:
Sales and marketing......................... 7,144 4,076 1,982 2,194 1,010 939 1,176 758
Product development......................... 1,025 168 141 210 256 95 82 78
General and administrative.................. 1,652 1,200 1,060 745 472 409 412 373
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses............... 9,821 5,444 3,183 3,149 1,738 1,443 1,670 1,209
-------- -------- -------- -------- -------- -------- -------- --------
Loss from operations............................. (8,092) (3,628) (1,682) (1,945) (587) (382) (718) (155)
Other income (expense), net...................... 559 (14) (232) 21 22 (33) (15) (18)
-------- -------- -------- -------- -------- -------- -------- --------
Net loss............................... $(7,533) $(3,642) $(1,914) $(1,924) $ (565) $ (415) $ (733) $ (173)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Our net product revenue has increased successively each quarter as a
result of sales to new customers, repeat purchases by existing customers and
overall growth from the installed base of mobile electronic devices requiring
accessories and batteries. Gross margins have varied as we have found better
sources for products and leveraged our buying power and changed our product mix.
Our sales and marketing, product development and general and administrative
expenses have generally increased as we have aggressively built our operational
infrastructure and marketed our solution to new customers. Our spending on
marketing and promotional activities to attract new customers has historically
been influenced by our access to capital. For example, in the third quarter of
1998 and the second quarter of 1999, the total amount spent on sales and
marketing declined compared to the preceding quarter. Whereas in the third and
fourth quarter of 1999 our access to capital increased due to our initial public
offering in October. As a result of the offering, our expenditures on sales and
marketing significantly increased. This greatly impacts the comparability of our
results of operations for the eight quarters in the period ended December 31,
1999.
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We believe that we may experience seasonality in our business.
Traditionally, business-related purchases decline in the summer months and
consumer purchasing peaks in the fourth quarter. We believe Internet usage also
has the same seasonal patterns. Any seasonality in our business may have been
obscured due to our net product revenue growth in each successive quarter and
the number of new customers added each period. See "Factors That May Effect
Future Results" for a discussion of other factors affecting our quarterly
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed our operations primarily
through the sale of preferred stock, capital lease obligations and revolving
credit facilities. As of December 31, 1999, we have received $13.2 million from
the sale of preferred stock, net of issuance costs. Of this amount, $1.4 million
was received in June 1996, $6.0 million in October 1998 and $5.8 million in July
1999. Proceeds from equipment financed under a sale-leaseback transaction, net
of principal repayments, amounted to $685,000 during the year ended December 31,
1999. Proceeds from our initial public offering in October 1999, net of offering
costs, amounted to approximately $62.6 million.
Net cash used in operating activities was $11.4 million for the year ended
December 31, 1999, $2.5 million for the year ended December 31, 1998 and
$798,000 for the year ended December 31, 1997. Net cash used in operating
activities consisted primarily of net losses, as well as increased inventory
balances and fluctuation in accounts receivable between periods, partially
offset by increased depreciation and reserve accounts.
Net cash used in investing activities was $3.8 million for the year ended
December 31, 1999. Of this amount, $702,000 was financed through sale-leaseback
transactions. The terms of the lease line provide a total facility of $2.0
million, of which $1.3 million was available at December 31, 1999, and requires
repayment over 30 to 42 months. Net cash used in investing activities was
$848,000 for the year ended December 31, 1998, and $133,000 for the year ended
December 31, 1997, and reflects purchases of equipment commensurate with the
overall growth of our business. Net cash used in investing activities consists
primarily of capital expenditures for computers, software and office furniture,
as well as costs to acquire internet domain names.
Net cash provided by financing activities was $70.1 million for the year
ended December 31, 1999, and $5.9 million for the year ended December 31, 1998.
Cash provided by financing activities reflected sales of preferred stock,
equipment leases and bank borrowings in 1999 and 1998 and our initial public
offering in October 1999. On June 23, 1999, we entered into a lease to finance
the acquisition of equipment. The lease expires 42 months from the date of the
lease. As of December 31, 1999, the aggregate obligation under this capital
lease was $666,000. Net cash used in financing activities was $82,000 for the
year ended December 31, 1997 and reflected the repayment of a short-term note.
On July 30, 1999, we received gross proceeds of $5.8 million from the sale
of Series C preferred stock and entered into a loan agreement which provides for
borrowings of up to $3.5 million. On July 30, 1999 we borrowed $1.2 million
under this facility. Borrowings under this credit facility bear interest at 11%
per annum, are due in 36 months and are secured by substantially all of our
assets. The terms of the debt require interest-only payments for the first 12
months and interest and principal repayments for the next 24 months. This debt
is secured but subordinate to future credit arrangements with banks of similar
lenders. As of December 31, 1999, we had an outstanding balance of $191,000.
This reflects the original loan amount of $1.2 million net of a conversion of
$980,000 into 124,982 shares of our capital stock in connection with our initial
public offering in October 1999.
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We offered 5,000,000 shares of our common stock in our initial public
offering on October 13, 1999, an additional 750,000 were issued upon exercise of
the underwriters overallotment option in November 1999. Our common stock is
quoted on the NASDAQ National Market under the symbol "IGOC." The initial public
offering price was $12.00 per share.
We currently anticipate that the net proceeds of our recent equity and debt
financings together with our available funds, will be sufficient to meet our
anticipated working capital and capital expenditure needs for at least the next
12 months. We may need to raise additional funds before the expiration of the 12
month period in the event that we pursue strategic acquisitions or experience
operating losses that exceed our expectations. If we raise additional funds
through the issuance of equity securities or convertible debt securities, our
existing stockholders may experience significant dilution. Furthermore,
additional financing may not be available when needed or, if it is available,
the terms may not be favorable to our stockholders or us.
YEAR 2000 COMPLIANCE
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM. The Year 2000 computer problem
refers to the potential for system and processing failures of date-related data
as a result of computer-controlled systems using two digits rather than four to
define the applicable year. For example, computer programs that have
time-sensitive software may recognize a date represented as "00" as the Year
1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities. To date, we have experienced no Year 2000
issues with any of our material internal systems, and we do not expect to
experience any. As a result, we have not adopted a specific Year 2000
contingency program.
STATE OF READINESS OF OUR INTERNAL SYSTEMS. In 1999, we upgraded our
customer contact and financial systems as part of the expansion of our business.
We have obtained assurances from our third-party vendors for these new systems
and all other material systems in use by us that such systems are Year 2000
compliant.
STATE OF READINESS OF OUR OPERATIONS. Our internal operations and business
are also dependent upon the computer-controlled systems of third parties such as
suppliers, customers and service providers. We have developed a questionnaire to
help us determine whether our suppliers are Year 2000 compliant and sent it to
our largest suppliers. All of these vendors have responded that they are Year
2000 compliant. Even if some of our vendors are not Year 2000 compliant, we have
alternative sources of supply. We believe that absent a systemic failure outside
our control, such as a prolonged loss of electrical or telephone service, Year
2000 problems at such third-party facilities will not have a material impact on
our operations.
COST OF YEAR 2000 COMPLIANCE. We replaced all of our major internal
systems less than a year ago to increase functionality and to accommodate
expected growth. These new systems have been certified Year 2000 compliant. All
of our systems and operations have been reviewed by our own information
technology employees. To date, we have made no material expenditures for Year
2000 compliance. Based on our assessment to date, we do not anticipate that
costs associated with remediating our internal systems will exceed $50,000.
ADDITIONAL RISKS. Although we believe our internal systems are Year 2000
compliant, if our belief is incorrect, any failure of our internal systems to be
Year 2000 compliant could result in a decrease in sales of our products, an
increase in allocation of resources to address Year 2000 problems of our
23
<PAGE>
customers without additional revenue commensurate with such dedication of
resources, or an increase in litigation costs relating to losses suffered by our
customers due to such Year 2000 problems. Failures of our internal systems could
temporarily prevent us from processing orders, issuing invoices, and developing
products, and could require us to devote significant resources to correcting
such problems. An example of our worse case scenario would be if one or more of
our computers were not Year 2000 compliant or if an employee were to load a
non-compliant software program onto his or her computer. Should this happen, we
would replace the computer with a computer we know is compliant or remove the
software from the computer. We keep spare computers in inventory that we know
are compliant.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters for all fiscal years beginning after June 15,
2000. Although we do not believe SFAS No. 133 will have a material impact on its
financial statements, because of the complexity of SFAS No. 133, the ultimate
impact has not yet been determined.
MARKET RISK
Our exposure to market risk for changes in interest rates is limited to
the exposure related to our debt instruments which are tied to market rates. We
plan to ensure the safety and preservation of our invested principal funds by
limiting default risks, market risk and reinvestment risk. We have invested in
high-quality, investment-grade securities. As a result, we do not believe that
we are subject to material market risk.
FACTORS THAT MAY EFFECT FUTURE RESULTS
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR POTENTIAL FOR
FUTURE SUCCESS
We were incorporated in 1993 and did not begin to generate meaningful
revenues until 1995. Accordingly, we have only a limited operating history upon
which you can evaluate our business and prospects. You must consider the risks
and uncertainties frequently encountered by growth stage companies in new and
rapidly evolving markets, such as electronic commerce. These risks include our
ability to continue to:
o sustain historical growth rates;
o implement our business model;
o attract new customers,
o retain existing customers and maintain customer satisfaction;
o maintain our gross margins in the event of price competition or rising
wholesale prices;
o minimize technical difficulties and system downtime;
o manage distribution of our direct marketing materials; and
o attract, train and retain employees.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be harmed.
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<PAGE>
WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE.
Since our inception in 1993, we have incurred significant net losses,
resulting primarily from costs related to developing our proprietary databases,
establishing our brand, building our customer contact center, developing
relationships with suppliers and attracting users to our website. At December
31, 1999, we had an accumulated deficit of approximately $19.1 million. Although
we have experienced an increase in net product revenue each period, this growth
may not be sustainable. Because of our plans to invest heavily in marketing and
promotion, hire additional employees and enhance our website and operating
infrastructure, we expect to incur increasing sales and marketing and general
and administrative expenses. As a result, we will need to generate significantly
higher revenues to achieve and maintain profitability, although we may be unable
to do so. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater.
OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR
QUARTERLY OPERATING RESULTS.
Our revenues for the foreseeable future will remain primarily dependent on
sales of mobile electronic devices, accessories, batteries and services through
our website and our customer contact center. Although independent market
research firms forecast that shipments of portable personal computers, the
number of wireless subscribers and the market for accessories and batteries for
mobile electronic devices will grow substantially over the next few years, we
cannot be certain that this growth will actually occur or that our sales will
grow at the same rate. We cannot forecast with any degree of certainty the
extent of our sales of these products or services. We expect our operating
results could fluctuate significantly from quarter to quarter as a result of
various factors including:
o our ability to attract visitors to our website and convert them into
customers;
o the level of merchandise returns we experience;
o changes and seasonal fluctuations in the buying patterns of our customers;
o our inability to obtain adequate supplies of high-demand products;
o unanticipated cost increases or delays in shipping of our products,
transaction processing, or production and distribution of our direct
marketing materials;
o unanticipated delays with respect to product introductions; and
o the costs, timing and impact of our marketing and promotional initiatives.
Because of these and other factors, we believe that quarter to quarter
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of securities
analysts and investors in some future periods, our stock price will likely
decline. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations" for more information on
our quarterly operating results.
ESTABLISHING THE iGo BRAND IS CRITICAL TO OUR SUCCESS
During 1999 we launched our new iGo brand, and with a portion of the
proceeds of our recent stock offerings we have begun to implement aggressive
traditional and online marketing programs to promote our brand in order to
attract visitors to our website. We believe that strengthening the iGo brand
will be critical to the success of our business. We cannot be certain that our
brand will attract new customers or retain existing customers. Additionally, our
new iGo brand may cause confusion to current and potential customers, which may
harm our business, financial condition and results of operations.
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<PAGE>
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS AND PROSPECTS COULD BE
SERIOUSLY HARMED
Our ability to execute our business model in a rapidly evolving market
requires an effective planning and management process. At December 31, 1998, we
had a total of 60 full-time employees and at December 31, 1999, we had a total
of 169 full-time employees. Our recent acquisitions of Road Warrior
International and Cellular Accessory Warehouse added an additional 12 employees
to our organization. We plan to continue to hire additional employees and to
expand our warehouse facilities. This growth has placed, and we expect our
anticipated growth to continue to place, a significant strain on our management
systems and resources. To manage our growth, we must successfully implement
operational and financial systems and controls, properly integrate acquired
businesses, and recruit, train and retain new employees. Some key members of our
management team have recently been hired. These individuals have had little
experience working in our organization. We cannot be certain that we will be
able to integrate new executives or other employees into our organization
effectively. In addition, there will be significant administrative burdens
placed on our management team as a result of our status as a public company. If
we do not manage growth effectively, our business, financial condition and
results of operations could be harmed.
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS AND WE MAY NOT BE ABLE TO
HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS
Our performance is substantially dependent on the continued services and on
the performance of our executive officers, particularly Ken Hawk, our Chief
Executive Officer. The loss of the services of any of our executive officers
could harm our business. Additionally, we will need to attract, retain and
motivate talented management and other highly skilled employees to be
successful. In particular, competition for employees that possess knowledge of
the Internet industry is intense. None of our employees is bound by an
employment agreement for any specific term. Any of our officers or employees can
terminate his or her employment relationship at any time. The loss of any of our
officers or our inability to attract or retain other qualified employees could
harm our results of operations and financial condition. We may be unable to
retain our key employees or attract, assimilate and retain other highly
qualified employees in the future, which could harm our business, financial
condition and results of operations.
COMPETITION MAY DECREASE OUR MARKET SHARE, NET REVENUES AND GROSS MARGINS AND
MAY CAUSE OUR STOCK PRICE TO DECLINE
We believe the portable computing and mobile communications market is
highly fragmented. In addition, the electronic commerce market in which we
operate is new, rapidly evolving and highly competitive. We believe no single
competitor competes directly with us with respect to all of the products and
services we offer; however, we currently or potentially compete with a variety
of companies in the sale of products in specific categories, including:
o mobile products suppliers such as Targus;
o mass merchant retailers such as Circuit City and CompUSA;
o direct marketers such as Buy.com, Insight and Microwarehouse; and
o traditional mobile device manufacturers such as Fujitsu and Toshiba.
Many of these current and potential competitors may have the ability to
devote substantially more resources to marketing, and systems and website
development than we do. In addition, larger and more well-financed entities may
acquire, invest in or form joint ventures with our competitors. Some of our
competitors may be able to secure products from suppliers on more favorable
terms, fulfill customer orders more efficiently and adopt more aggressive
pricing or inventory availability policies then we can. Finally, new
technologies and the expansion of existing technologies, such as price
comparison programs that search for products from a variety of websites, may
direct customers to other online merchants.
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<PAGE>
THE LOSS OF OUR PROPRIETARY DATABASES WOULD SERIOUSLY HARM OUR BUSINESS
Our proprietary databases are a key competitive advantage. If we fail to
keep these databases current or if the proprietary customer, product, supplier
and compatibility information contained in these databases is damaged or
destroyed, our business would be seriously harmed and our stock price would
decline.
THE FAILURE TO SUCCESSFULLY GROW, MANAGE AND USE OUR DATABASE OF CUSTOMERS AND
USERS WOULD HARM OUR BUSINESS
We intend to continually expand our database of customers, potential
customers and website registrants to more effectively create targeted direct
marketing offers. We seek to expand our customer database by using information
we collect through our website and our customer contact center as well as from
purchased or rented lists. We must also continually develop and refine our
techniques for segmenting this information to maximize its usefulness. If we are
unable to expand our customer database or if we fail to utilize this information
successfully, our business model may not be successful. In addition, if federal
or state governments enact privacy legislation resulting in the increased
regulation of mailing lists, we could experience increased costs in complying
with potentially burdensome regulations concerning the solicitation of consents
to keep or add customer names to our mailing lists.
FAILURE OF OUR STRATEGIC RELATIONSHIPS TO ATTRACT CUSTOMERS COULD HARM OUR
BUSINESS
We intend to continue to establish, leverage and grow key strategic
relationships with manufacturers, suppliers and electronic commerce partners to
enable us to collect crucial product-specific information, ensure access to
adequate product supply and acquire new customers. For example, we have entered
into strategic relationships with the NEC Computer Systems Division, or NEC,
IBM, and Motorola, that provide us with priority access to new products and
gives us the ability to offer a more integrated electronic commerce solution for
enterprises. In addition, we plan to establish additional online partnerships
that create direct online links from other websites and from the portable
computing and mobile communications areas of major Internet portals. For
example, we recently entered into an agreement with Ariba, which enables
customers to order our products from the Ariba purchasing system, and we
recently launched our online affiliate program. We cannot be certain that any of
these strategic relationships or partnerships will be successful in attracting
new customers. In addition, the strategic relationship with Motorola is not
subject to a written agreement and the agreements with Ariba and NEC may be
terminated by any party at any time upon written notice. Furthermore, under our
agreement with NEC we are currently obligated to purchase at least $4,000,000 of
product per year, which requirement may be increased, decreased or waived by NEC
at its discretion. Because our agreement with NEC was only recently established,
it is uncertain whether we will meet or exceed the stated purchase obligation.
The terms of one agreement with IBM require us to purchase at least $2,000,000
of product per year. If iGo fails to meet this purchase level, IBM has the
discretion to allow iGo to cure before terminating the agreement. Also, either
party may terminate the agreement with or without cause on three months written
notice. Consequently, we cannot be certain that we will be able to maintain
these strategic relationships in the future. If these programs fail to attract
additional customers or we are unable to maintain these relationships, our
business, financial condition and results of operations could be harmed.
WE MUST EFFECTIVELY MANAGE OUR VENDORS TO MINIMIZE INVENTORY RISK AND MAINTAIN
OUR GROSS MARGINS
In order to fulfill our orders, we depend upon our vendors to produce
sufficient quantities of products according to schedule. We may maintain high
inventory levels in some categories of merchandise in an effort to ensure that
these products are available to our customers. This may expose us to risks of
excess inventory and outdated merchandise, which could harm our business. If we
underestimate customer demand, we may disappoint customers who may purchase from
our competitors. We also negotiate with our vendors to get the best quality
available at the best prices in order to maintain and increase our gross
margins. Our failure to be able to manage our vendors effectively would harm our
operating results.
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FAILURE OF THIRD PARTY SUPPLIERS TO SHIP PRODUCTS DIRECTLY TO OUR CUSTOMERS
COULD HARM OUR BUSINESS
For the year ended December 31, 1999, approximately 25% of our total net
revenues were from products shipped to our customers directly from our
suppliers. The failure of these suppliers to continue to ship products directly
to our customers or to ship products to our customers in a timely manner could
result in lost revenues, customer dissatisfaction and damage to our reputation.
In addition, if we could not depend on these suppliers to ship products to our
customers directly, we would have to carry the products in our inventory, which
would expose us to risks of excess inventory, outdated merchandise and increased
warehouse costs, all of which could harm our business.
FAILURE OF THIRD-PARTY CARRIERS TO DELIVER OUR PRODUCTS TIMELY AND CONSISTENTLY
COULD HARM OUR BUSINESS
Our supply and distribution system is primarily dependent upon our
relationships with United Parcel Service, Federal Express and AirborneExpress.
We ship substantially all of our orders with these carriers. Because we do not
have written agreements with these carriers that guarantee continued service, we
cannot be sure that our relationships with these carriers will continue on terms
favorable to us, or at all. If our relationship with one or more of these
carriers is terminated or impaired, or if one or more of these carriers is
unable to ship products for us, whether through labor shortage, slow down or
stoppage, deteriorating financial or business conditions or for any other
reason, we would be required to rely on the other carriers. These carriers may
not be able to accommodate the increased shipping volume, in which case we may
be required to use alternative carriers, with whom we may have no prior business
relationship, for the shipment of products to our customers. We may be unable to
engage an alternative carrier on a timely basis or upon terms favorable to us.
Changing carriers would likely harm our business, financial condition and
results of operations. Potential adverse consequences include:
o reduced package tracking information;
o delays in order processing and product delivery;
o increased delivery costs, resulting in reduced gross margins; and
o reduced shipment quality, which may result in damaged products and
customer dissatisfaction.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS, INTERNET ADDRESSES AND
INTELLECTUAL PROPERTY RIGHTS
We seek to protect our brand and our other intellectual property through a
combination of copyright, trade secret and trademark laws. Our iGo brand and our
Internet address, WWW.IGO.COM, are important components of our business
strategy. We have recently filed federal trademark applications for "iGo," and
"iGo.com. " In July 1999, the United States Patent and Trademark Office, or PTO,
preliminarily declined registration of "iGo", "iGo.com" and the iGo logo when
used in connection with our services because, in the PTO examiner's opinion,
there was a likelihood that if these marks were to be registered, they would be
confused with a prior trademark registration for "IGO" that covers interactive
teaching equipment (PTO Registration No. 2,086,551). In addition, the examiner
requested non-substantive revisions to the identification and classification of
services. Effective September 30, 1999, we acquired by assignment the rights to
the registered mark (PTO Registration No. 2,086,551) cited by the PTO examiner
and will record this assignment promptly with the PTO. We responded to the PTO's
preliminary action on January 13, 2000. The PTO subsequently cited three
additional marks ("GO.WEB," "GO.EDU" and "GO.NET") against the "IGO" marks on
the ground that if these marks register, there may be a likelihood of confusion.
Pending resolution of the cited applications, the "IGO" applications have been
suspended. We intend to respond to these citations, arguing that there is no
likelihood of confusion. We cannot guarantee that we will be able to secure
registration of these marks.
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If we are unable to secure registration of these marks or otherwise obtain
the right to use these marks under contract or common law, we may be required to
stop using these marks. This could cause confusion to our customers and in the
marketplace and harm our business, financial condition and results of
operations. In addition, this could cause confusion to potential investors,
which could cause the price of our common stock to decline. We are in the
process of filing trademark applications for "iGo," "iGo.com" and our logo in
various jurisdictions outside the United States. We cannot guarantee that we
will be able to secure the registration of these trademarks in foreign
countries, and this may affect our ability to do business in the countries where
we currently conduct business or in to which we intend to expand.
In addition, we currently hold various Internet domain names, including
iGo.com. The acquisition and maintenance of domain names generally is regulated
by Internet regulatory bodies. The regulation of domain names in the United
States and in foreign countries is subject to change. Governing bodies may
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in all countries in
which we conduct business. Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights continues to evolve. Therefore, we may be unable to prevent third parties
from acquiring domain names that are similar to, infringe upon or otherwise
decrease the value of our trademarks and other proprietary rights.
THE LOSS OF OUR CURRENT TOLL-FREE TELEPHONE NUMBER AND ASSOCIATED RIGHTS COULD
HARM OUR BUSINESS
On July 19, 1999, the company from whom we purchased the rights to the
1-800-Batteries toll-free telephone number and name gave us notice that they
believe we have failed to cure a material breach of our agreement with them. The
notice also stated that they are terminating their agreement with us and
demanding a return of their rights as well as unspecified monetary damages. At
the same time, they made a demand for arbitration of the matter with the
American Arbitration Association ("AAA") in Richmond, Virginia. We responded to
their demand by formally denying their claims as well as challenging the
location of the arbitration proceedings. Subsequently, AAA ruled that the
arbitration would be held in Richmond, Virginia, and an arbitrator has been
selected. Many of our customers may rely on the 1-800-Batteries phone number to
reach our customer solutions representatives and to the extent that the
arbitrator disagrees with our position and allows this agreement to terminate,
we could be harmed, although it is difficult to estimate the extent or
materiality of such harm.
THE FAILURE TO SUCCESSFULLY DEFEND A LAWSUIT CHALLENGING OUR HIRING PRACTICES
COULD HARM OUR BUSINESS
On October 11, 1999, in the Second Judicial District Court of the State of
Nevada in and for the County of Washoe, Microflex Corporation filed a lawsuit
against us and certain of our employees based upon circumstances surrounding our
hiring of several former Microflex employees. The suit alleges that we have
induced certain former Microflex employees to breach the terms of their
nondisclosure and nonsolicitation agreements with Microflex, that we have
interfered with Microflex's contractual relations and prospective economic
advantage, and that we have engaged in unfair competition. Microflex seeks
injunctive relief, monetary damages, costs and attorney's fees. We believe that
this suit is without merit and have filed a motion to dismiss which is currently
pending before the court. We cannot be certain that we will be successful in
defending our actions. Furthermore, if we are unsuccessful in our defense, any
remedies awarded to Microflex could harm our business.
29
<PAGE>
WE MAY BE VULNERABLE TO NEW TAX OBLIGATIONS THAT COULD BE IMPOSED ON ELECTRONIC
COMMERCE TRANSACTIONS
We do not expect to collect sales or other similar taxes or goods shipped
into most states. However, one or more states or the federal government may seek
to impose sales tax collection obligations on out-of-state companies, such as
ours, which engage in or facilitate electronic commerce. A number of proposals
have been made at the state and local levels that would impose additional taxes
on the sale of goods and services through the Internet. These proposals, if
adopted, could substantially impair the growth of electronic commerce and cause
purchasing through our website to be less attractive to customers. In October
1998, the United States Congress passed legislation limiting for three years the
ability of the states to impose taxes on Internet-based transactions. Failure to
renew this legislation could result in the imposition by various states of taxes
on electronic commerce. Further, states have attempted to impose sales tax
collection obligations on direct marketing sales from businesses such as ours. A
successful assertion by one or more states that we should have collected or be
collecting sales taxes on the sale of products could harm our business.
IF WE EXPAND OUR BUSINESS INTERNATIONALLY, OUR BUSINESS WOULD BECOME
INCREASINGLY SUSCEPTIBLE TO NUMEROUS INTERNATIONAL RISKS AND CHALLENGES THAT
COULD AFFECT OUR RESULTS OF OPERATIONS
Although we have not had meaningful international revenues to date, we
intend to increase our international sales efforts. International sales are
subject to inherent risks and challenges that could affect our results of
operations, including:
o the need to develop new supplier relationships;
o unexpected changes in international regulatory requirements and tariffs;
o difficulties in staffing and managing foreign operations;
o potential adverse tax consequences;
o price controls or other restrictions on, or fluctuations in, foreign
currency; and
o difficulties in obtaining export and import licenses.
To the extent we generate international sales in the future, any negative
effects on our international business could harm our business, financial
condition and results of operations as a whole. In particular, gains and losses
on the conversion of foreign payments into U.S. dollars may contribute to
fluctuations in our results of operations, and fluctuating exchange rates could
cause reduced revenues from dollar-denominated international sales.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION
We have recently bought and may again invest in or buy complementary
businesses, products or technologies in the future. In the event of any
investments or purchases, we could:
o issue stock that would dilute the percentage ownership of our current
stockholders;
o incur debt;
o assume liabilities;
o incur amortization expenses related to goodwill and other intangible
assets; or
o incur large and immediate write-offs.
These acquisitions could also involve numerous operational risks,
including:
30
<PAGE>
o problems combining the purchased operations, products or technologies;
o unanticipated costs;
o diversion of management's attention away from our core business;
o adverse effects on existing business relationships with suppliers and
customers;
o risks associated with entering markets in which we have no or limited
prior experience; and
o potential loss of key employees, particularly those of the purchased
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products or technologies that we have acquired or might acquire in
the future.
THE LOSS OF TECHNOLOGIES LICENSED FROM THIRD PARTIES COULD HARM OUR BUSINESS
We rely to a material extent on technology developed and licensed from
third parties. The loss of existing technology licenses could harm the
performance of our existing services until equivalent technology can be
identified, obtained and integrated. Failure to obtain new technology licenses
may result in delays or reductions in the introduction of new features,
functions or services, which would harm our business.
WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR THOSE OF
MATERIAL THIRD-PARTIES ARE NOT YEAR 2000 COMPLIANT
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the Year 1900 rather than the Year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. It is generally
believed that the full impact of the Year 2000 problem may not be known until
late in the calendar year 2000.
The failure of our internal systems, or any material third-party systems,
to be Year 2000 compliant could harm our business, financial condition and
results of operations. We have obtained assurances from a substantial number of
our suppliers that their systems or products are or will be Year 2000 compliant.
We have reviewed the Year 2000 readiness disclosures of our major suppliers and
service providers.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. However, we may fail to discover Year
2000 compliance problems in our systems that will require substantial revisions
or replacements. In the event that the fulfillment and operational facilities
that support our business, or our web-hosting facilities, are not Year 2000
compliant, portions of our website may become unavailable and we would be unable
to deliver services to our customers. In addition, there can be no assurance
that third-party software, hardware or services incorporated into our internal
systems will not need to be revised or replaced, which could be time-consuming
and expensive. Our inability to fix or replace third-party software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs and other business interruptions, any of which could harm our business,
financial condition and results of operations. Moreover, the failure to
adequately address Year 2000 compliance issues in our software, hardware or
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by these entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
31
<PAGE>
including, for example, a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering our services to our
customers, decrease the use of the Internet or prevent customers from accessing
our services, any of which would harm our business, financial condition and
results of operations.
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE HARMED IF
WE WERE TO BE LIABLE FOR DEFECTS IN THE PRODUCTS WE OFFER
We may be subject to product liability claims for the products we sell.
While we believe that our product liability coverage of $4,000,000 is currently
adequate, we can provide no assurance that the insurance can be maintained in
the future at a reasonable cost or in amounts sufficient to protect us against
losses due to liability. A successful liability claim brought against us in
excess of relevant insurance coverage could harm our business, financial
condition and results of operations.
Damage to or destruction of our warehouse could result in loss of our
inventory, which could harm our business, financial condition and results of
operations.
If all or most of the inventory in our warehouse were damaged or destroyed,
we might be unable to replace the inventory in a timely manner and, as a result,
be unable to process orders in a timely manner or at all. Approximately 75% of
the products we sell come from the inventory in our warehouse. We cannot be
certain that we would be able to replace the inventory as quickly as our
customer orders demand, which may result in the loss of revenue and customers,
which would harm our business, financial condition and results of operations.
RISKS RELATED TO THE INTERNET INDUSTRY
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
Our industry is new and rapidly evolving. Our business would be harmed if
Internet usage does not continue to grow. Internet usage may be inhibited for a
number of reasons, including:
o inadequate Internet infrastructure;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. In addition, websites, including ours, have experienced
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. We anticipate that these outages
or delays will occur from time to time in the future and, if they occur
frequently or for extended periods of time, Internet usage, including usage of
our website, could grow more slowly or decline.
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE ELECTRONIC COMMERCE
MARKET, WHICH IS UNCERTAIN
Our future revenues substantially depend upon the widespread acceptance and
use of the Internet as an effective medium of commerce by consumers. Demand for
recently introduced products and services over the Internet is subject to a high
level of uncertainty. Although independent market research firms forecast that
the number of Internet users worldwide will grow substantially in the next few
years, we cannot be certain that this growth will occur or that our sales will
grow at the same rate. The development of the Internet as a viable commercial
marketplace is subject to a number of risks including:
32
<PAGE>
o potential customers may be unwilling to shift their purchasing from
traditional vendors to online vendors;
o insufficient availability of or changes in telecommunications services
could result in slower response times, which could delay the acceptance of
the Internet as an effective commerce medium;
o continued growth in the number of Internet users;
o concerns about transaction security;
o continued development of the necessary technological infrastructure;
o development of enabling technologies; and
o uncertain and increasing government regulations.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR WEBSITES AND SYSTEMS OBSOLETE AND
REQUIRE SIGNIFICANT CAPITAL EXPENDITURES
The Internet and the electronic commerce industry are characterized by
rapid technological change, sudden changes in customer requirements and
preferences, frequent new product and service introductions incorporating new
technologies and the emergence of new industry standards and practices that
could render our existing websites and transaction processing systems obsolete.
The emerging nature of these products and services and their rapid evolution
will require that we continually improve the performance, features and
reliability of our online services, particularly in response to competitive
offerings. Our success will depend, in part, on our ability:
o to enhance our existing products and services; and
o to respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
The development of websites and other proprietary technology entails
significant technical and business risks and requires substantial expenditures
and lead time. We may be unable to use new technologies effectively or adapt our
website, proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards which could harm our business.
Updating our technology internally and licensing new technology from third
parties may require significant additional capital expenditures and could affect
our results of operations.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH ELECTRONIC COMMERCE SECURITY AND CREDIT
CARD FRAUD, WHICH MAY REDUCE COLLECTIONS AND DISCOURAGE ONLINE TRANSACTIONS
Consumer concerns about privacy or the security of transactions conducted
on the Internet may inhibit the growth of the Internet and electronic commerce.
To date, approximately 75% of our customer purchases have been made with credit
cards. To securely transmit confidential information, such as customer credit
card numbers, we rely on encryption and authentication technology that we
license from third parties. We cannot predict whether the algorithms we use to
protect customer transaction data will be compromised. Furthermore, our servers
may be vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions. We may need to expend significant additional capital and
other resources to protect against a security breach or to alleviate problems
caused by any security breaches. The measures we take to protect against
security breaches may not be successful. Our failure to prevent security
breaches could harm our business.
To date, we have suffered minor losses as a result of orders placed with
fraudulent credit card data even though the associated financial institution
approved payment of the orders in each case. Under current credit card
practices, a merchant is liable for fraudulent credit card transactions where,
as is the case with the transactions we process, that merchant does not obtain a
cardholder's signature. A failure to adequately control fraudulent credit card
transactions could reduce our revenues and harm our business.
33
<PAGE>
WE COULD FACE LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATIONS THROUGH
OUR WEBSITE
We may be subject to claims for defamation, negligence, copyright or
trademark infringement or other claims relating to the information we publish on
our website. These types of claims have been brought, sometimes successfully,
against Internet companies as well as print publications in the past. We also
utilize email as a marketing medium, which may subject us to potential risks,
such as:
o liabilities or claims resulting from unsolicited email;
o lost or misdirected messages; or
o illegal or fraudulent use of email.
These claims could result in substantial costs and a diversion of our
management's attention and resources, which could harm our business.
EFFORTS TO REGULATE OR ELIMINATE THE USE OF MECHANISMS THAT AUTOMATICALLY
COLLECT INFORMATION ON VISITORS TO OUR WEBSITE MAY INTERFERE WITH OUR ABILITY TO
TARGET OUR MARKETING EFFORTS
Websites typically place a small tracking program on a user's hard drive
without the user's knowledge or consent. These programs automatically collect
data about any visits that a user makes to various websites. Website operators
use these mechanisms for a variety of purposes, including the collection of data
derived from users' Internet activity. Most currently available Internet
browsers allow users to elect to remove these tracking programs at any time or
to prevent this information from being stored on their hard drive. In addition,
some commentators, privacy advocates and governmental bodies have suggested
limiting or eliminating the use of these tracking mechanisms. Any reduction or
limitation in the use of this software could limit the effectiveness of our
sales and marketing efforts.
WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF AND
LEGAL UNCERTAINTIES SURROUNDING THE INTERNET
New Internet legislation or regulation or the application of existing laws
and regulations to the Internet and electronic commerce could harm our business,
financial condition and results of operations. We are subject to regulations
applicable to businesses generally and laws or regulations directly applicable
to communications over the Internet and access to electronic commerce. Although
there are currently few laws and regulations directly applicable to electronic
commerce, it is possible that a number of laws and regulations may be adopted
with respect to the Internet covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust, taxation and characteristics and
quality of products and services. For example, the United States Congress
recently enacted Internet laws regarding children's privacy, copyrights and
transmission of sexually explicit material. In addition, the European Union
recently enacted its own Internet privacy regulations. Furthermore, the growth
and development of the market for electronic commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The adoption of any additional laws or
regulations regarding the Internet may decrease the growth of the Internet or
electronic commerce, which could, in turn, decrease the demand for our products
and services and increase our cost of doing business. In addition, if we were
alleged to have violated federal, state or foreign civil or criminal law, we
could be subject to liability, and even if we could successfully defend such
claims, they may involve significant legal compliance and litigation costs.
34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Our financial statements are set forth in this Annual Report on Form 10-K
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Effective January 1, 1999, Deloitte & Touche LLP was engaged as our
independent accountants and replaced other auditors who were dismissed as our
independent accountants on the same date. The decision to change accountants was
approved by our board of directors. The report of Grant Thornton LLP on our
financial statements for the year ended December 31, 1997 did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to any uncertainty, audit scope or accounting principles. During the last two
fiscal years through the date of our change in accountants, there were no
disagreements with Grant Thornton on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Grant Thornton, would have
caused them to make reference thereto in any of their reports. Grant Thornton
has not audited or reported on any of the financial statements included in this
report. Prior to January 1999, we had not consulted with Deloitte & Touche LLP
on items that involved our accounting principles or the form of audit opinion to
be issued on our financial statements.
PART III
Certain information required by Part III is incorporated by reference from
our definitive Proxy Statement for our annual meeting of shareholders to be held
June 1, 2000, which Proxy Statement will be filed within 120 days after the end
of our fiscal year pursuant to Regulation 14A. Some of the information included
in the Proxy Statement is incorporated herein by reference as detailed below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item regarding our executive officers is
set forth in "Item 1 -- Business -- Executive Officers of iGo" in this Form
10-K. The information required by this item regarding our directors is
incorporated by reference from the information under the caption "Proposal No. 1
Election of Directors" in our Proxy Statement. The information required by this
item regarding compliance with Section 16 of the Securities Exchange Act of 1934
is incorporated by reference from the information under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" in our Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in our Proxy Statement.
35
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in our Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors'
Report
Balance Sheets at December 31, 1999 and 1998
Statements of Operations, Years ended December 31, 1999, 1998
and 1997
Statements of Stockholders' Equity (Deficit), Years ended
December 31, 1999, 1998 and 1997
Statements of Cash Flows, Years ended December 31, 1999, 1998,
and 1997
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the financial statements or notes thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation
S-K)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Certificate of Incorporation
3.2(1) Bylaws
4.1(2) Specimen Common Stock Certificate
4.2(2) Stock Subscription Warrant dated June 14, 1996
4.3(2) Warrant Agreement to Purchase Shares of Preferred Stock
dated June 23, 1999
4.4(2) Second Amended and Restated Registration Rights
Agreement dated as of July 30, 1999, between Registrant
and certain of its stockholders and a warrant holder
10.1(2) Amended and Restated 1996 Stock Option Plan
10.2(2)(3) 1999 Employee Stock Purchase Plan
10.3(2)(3) Form of Indemnification Agreement
36
<PAGE>
10.4(2)(3) Form of Change of Control Agreement (Model A)
10.5(2)(3) Form of Change of Control Agreement (Model B)
10.6(2) Master Lease Agreement dated June 23, 1999, between iGo
and Comdisco, Inc.
10.7(2) Subordinated Loan and Security Agreement dated July 30,
1999, between iGo and Comdisco, Inc.
10.8 Lease Agreement dated December 16, 1999 for the
facilities at 9393 Gateway Drive, Reno, Nevada, between
iGo and Dermody Family Limited Partnership I & Guila
Dermody Turville
10.9(2)(4) NEC Computer Systems Division Authorized Reseller Master
Agreement Number 306552 dated June 23, 1999 between NEC
Computer Systems Division and the Registrant and
addendum thereto
10.10(2) Ariba Supplier Link Program Memorandum of Understanding
dated November 3, 1998, between Ariba Technologies, Inc.
and iGo
10.11 IBM Business Partner Agreement Distributor Profile dated
November 15, 1999, between iGo and International
Business Machines Corporation
10.12 Agreement and Plan of Reorganization among iGo
Corporation, ARI Acquisition Corp., AR Industries, Inc.,
and the Shareholders of AR Industries, Inc., dated as of
January 11, 2000
10.13(3) Settlement Agreement and Mutual Release dated January
12, 2000, between iGo and Robert Bauer
10.14(3) Resignation Agreement dated March 3, 2000, between iGo
and Lou Borrego
10.15(3) Settlement Agreement and Mutual Release dated February
24, 2000, between iGo and Joe Bergeon
10.16(3) Employment Agreement dated January 4, 2000, between Tom
de Jong and CAW Products, Inc.
10.17(3) Employment Agreement dated January 11, 2000, between Rod
Hosilyk and AR Industries, Inc.
21.1 Subsidiaries of iGo
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (See Page F-19 of this Report)
27.1 Financial Data Schedule
(1) Incorporated by reference to Exhibit 3.4 filed with our
Registration Statement on Form S-1, as amended (File No.
333-84723), which became effective on October 13, 1999.
(2) Incorporated by reference to identically numbered exhibits
filed with our Registration Statement on Form S-1, as amended
(File No. 333-84723), which became effective on October 13,
1999.
(3) Management contract or compensatory plan or arrangement.
(4) Confidential treatment has been granted or requested by order
from the Securities and Exchange Commission with respect to
certain portions of this Exhibit.
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended December 31,
1999.
37
<PAGE>
<TABLE>
iGo CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.................................................................. F-2
Consolidated Financial Statements:
Balance Sheets, December 31, 1999 and 1998.................................................... F-3
Statements of Operations, Years Ended December 31, 1999, 1998 and 1997........................ F-4
Statements of Stockholders' Equity (Deficit), Years Ended December 31, 1999, 1998 and 1997.... F-5
Statements of Cash Flows, Years Ended December 31, 1999, 1998 and 1997........................ F-6
Notes to Consolidated Financial Statements.................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of iGo Corporation:
We have audited the accompanying consolidated balance sheets of iGo
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 14. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial staements taken as a whole, presents fairly
in all material respects the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
Reno, Nevada
January 25, 2000
F-2
<PAGE>
<TABLE>
iGo CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 57,363,630 $ 2,504,351
Accounts receivable, net......................... 2,160,688 464,214
Inventory, net................................... 2,556,134 1,387,171
Prepaid expenses................................. 1,430,168 102,651
------------- -------------
Total current assets........................ 63,510,620 4,458,387
Property and equipment, net........................... 3,521,891 997,156
Intangibles and other assets.......................... 634,474 80,135
------------- -------------
Total.................................. $ 67,666,985 $ 5,535,678
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable ................................ $ 3,991,316 $ 780,565
Accrued liabilities.............................. 3,455,715 194,012
Current portion of capital lease obligations
and long-term debt.......................... 123,687 16,504
Short-term note payable.......................... 165,005 20,787
------------- -------------
Total current liabilities................... 7,735,723 1,011,868
Deferred rent......................................... -- 36,379
Long-term portion of capital lease obligations
and long-term debt................................ 788,664 22,720
------------- -------------
Total liabilities........................... 8,524,387 1,070,967
------------- -------------
Commitments and contingencies (notes 5, 6, 7 and 12)
Mandatory redeemable preferred stock.................. -- 7,889,536
------------- -------------
Stockholders' equity (deficit):
Common stock, $0.001 par value; 50,000,000
and 17,332,500 shares authorized;
20,119,052 and 6,590,646 shares issued
and outstanding............................... 20,119 6,591
Additional paid-in capital....................... 80,067,254 300,002
Deferred compensation............................ (1,805,332) (187,534)
Receivable from stockholder...................... (52,228) (46,364)
Accumulated deficit.............................. (19,087,215) (3,497,520)
------------- -------------
Total stockholders' equity (deficit)........ 59,142,598 (3,424,825)
------------- -------------
Total.................................. $ 67,666,985 $ 5,535,678
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
<TABLE>
iGo CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net product revenue ........................... $ 21,043,226 $ 12,318,092 $ 7,421,631
Development revenue ........................... -- 502,004 665,716
------------- ------------- -------------
Total net revenues ....................... 21,043,226 12,820,096 8,087,347
Cost of goods sold ................................. 14,793,185 8,602,057 5,320,218
------------- ------------- -------------
Gross profit ....................................... 6,250,041 4,218,039 2,767,129
------------- ------------- -------------
Operating expenses:
Sales and marketing ........................... 15,396,027 3,883,265 2,485,031
Product development ........................... 1,543,910 510,762 112,851
General and administrative .................... 4,657,138 1,666,329 1,076,350
------------- ------------- -------------
Total operating expenses ................. 21,597,075 6,060,356 3,674,232
------------- ------------- -------------
Loss from operations ............................... (15,347,034) (1,842,317) (907,103)
Other income (expense):
Interest income ............................... 719,964 35,953 21,852
Interest expense .............................. (111,786) (90,144) (2,931)
Loss on disposal of assets .................... (263,649) -- --
Miscellaneous income
(expense) .................................. (10,564) 10,290 2,131
------------- ------------- -------------
Loss before provision for income
taxes ........................................... (15,013,069) (1,886,218) (886,051)
Provision for income taxes ......................... -- -- --
------------- ------------- -------------
Net loss ........................................... (15,013,069) (1,886,218) (886,051)
Preferred stock dividends .......................... -- (246,678) (140,434)
------------- ------------- -------------
Net loss attributable to common
stockholders .................................... $(15,013,069) $ (2,132,896) $ (1,026,485)
============= ============= =============
Net loss per share:
Basic and diluted ............................. $ (1.01) $ (0.36) $ (0.19)
============= ============= =============
Weighted-average shares outstanding:
Basic and diluted ............................. 14,817,915 5,997,546 5,543,562
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
iGo CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
ADDITIONAL RECEIVABLE
COMMON STOCK PAID-IN DEFERRED FROM ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER DEFICIT TOTAL
---------- -------- ------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ...................... 6,285,600 $ 6,286 $ 83,566 $ -- $ (39,852) $ (338,139) $ (288,139)
Net loss ...................................... -- -- -- -- -- (886,051) (886,051)
Stock options exercised ....................... 95,916 96 4,220 -- -- -- 4,316
Accrued interest .............................. -- -- -- -- (3,831) -- (3,831)
Mandatory redeemable preferred stock dividends. -- -- -- -- -- (140,434) (140,434)
---------- -------- ------------ ------------ ---------- ------------- -------------
Balance, December 31, 1997 .................... 6,381,516 6,382 87,786 -- (43,683) (1,364,624) (1,314,139)
Net loss ...................................... -- -- -- -- -- (1,886,218) (1,886,218)
Deferred compensation on stock options granted. -- -- 203,013 (203,013) -- -- --
Compensation expense related to stock options . -- -- -- 15,479 -- -- 15,479
Stock options exercised ....................... 209,130 209 9,203 -- -- -- 9,412
Accrued interest .............................. -- -- -- -- (2,681) -- (2,681)
Mandatory redeemable preferred stock dividends. -- -- -- -- -- (246,678) (246,678)
---------- -------- ------------ ------------ ---------- ------------- -------------
Balance, December 31, 1998 .................... 6,590,646 6,591 300,002 (187,534) (46,364) (3,497,520) (3,424,825)
Net loss ...................................... -- -- -- -- -- (15,013,069) (15,013,069)
Deferred compensation on stock options granted. -- -- 2,004,745 (2,004,745) -- -- --
Compensation expense related to stock options . -- -- (21,376) 386,947 -- -- 365,571
Stock options and warrants exercised .......... 135,352 135 25,450 -- -- -- 25,585
Accrued interest .............................. -- -- -- -- (5,864) -- (5,864)
Initial public offering, net .................. 5,750,000 5,750 62,549,266 -- -- -- 62,555,016
Conversion of preferred stock ................. 7,643,054 7,643 15,209,167 -- -- (576,626) 14,640,184
---------- -------- ------------ ------------ ---------- ------------- -------------
Balance, December 31, 1999 ....................20,119,052 $ 20,119 $80,067,254 $(1,805,332) $ (52,228) $(19,087,215) $ 59,142,598
========== ======== ============ ============ ========== ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
iGo CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $(15,013,069) $ (1,886,218) $ (886,051)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation expense related to stock options ................. 365,571 15,479 --
Accrued interest on stockholder note receivable ............... (5,864) (2,681) (3,831)
Provisions for bad debt and inventory ......................... 593,186 465,908 226,823
Loss on sale leaseback and disposal of property and equipment . 263,649 -- --
Depreciation and amortization ................................. 539,745 137,148 48,305
Changes in:
Accounts receivable ......................................... (2,091,455) 139,820 (856,850)
Inventory ................................................... (1,367,168) (399,281) (752,465)
Prepaid expenses ............................................ (1,116,717) (40,699) (1,802)
Accounts payable, accrued liabilities and deferred rent ..... 6,436,075 (976,996) 1,428,136
------------- ------------- -------------
Net cash used in operating activities ..................... (11,396,047) (2,547,520) (797,735)
------------- ------------- -------------
Cash flows from investing activities:
Acquisition of property and equipment ........................... (3,207,653) (838,622) (108,698)
Acquisition of intangibles and other assets ..................... (629,094) (9,123) (23,970)
------------- ------------- -------------
Net cash used in investing activities ..................... (3,836,747) (847,745) (132,668)
------------- ------------- -------------
Cash flows from financing activities:
Principal payments on short-term note and capital leases ........ (132,118) (72,765) (86,195)
Proceeds from sale leaseback .................................... 702,376 -- --
Proceeds from initial public offering, net ...................... 62,555,016 -- --
Proceeds from exercise of stock options and warrants ............ 25,585 9,412 4,316
Net proceeds from issuance of mandatory redeemable preferred
stock: ....................................................... 5,770,648 5,962,969 --
Net proceeds from issuance of debt .............................. 1,170,566 -- --
------------- ------------- -------------
Net cash provided by (used in) financing activities ....... 70,092,073 5,899,616 (81,879)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .............. 54,859,279 2,504,351 (1,012,282)
Cash and cash equivalents, beginning of year ...................... 2,504,351 -- 1,012,282
------------- ------------- -------------
Cash and cash equivalents, end of year ............................ $ 57,363,630 $ 2,504,351 $ --
============= ============= =============
Supplemental disclosure of cash flows information:
Cash paid during the year for interest .......................... $ 111,786 $ 90,144 $ 2,931
============= ============= =============
Supplemental schedule of noncash investing and financing
activities:
Conversion of debt to preferred stock ......................... $ 980,000 $ -- $ --
============= ============= =============
Equipment acquired through capital leases ....................... $ 45,720 $ 18,993 $ 41,830
============= ============= =============
Mandatory redeemable preferred stock dividends accrued and
mandatory conversion of preferred stock to common stock ...... $ 14,640,184 $ 246,678 $ 140,434
============= ============= =============
Intangibles and other assets acquired with short-term notes ..... $ -- $ 83,148 $ --
============= ============= =============
Deferred compensation on stock options issued ................... $ 2,004,745 $ 203,013 $ --
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
iGo Corporation (formerly Battery Express, Inc.) (the "Company") was
incorporated in California in 1993 and is headquartered in Reno, Nevada. The
Company is a leading provider of hard-to-find, model-specific accessories and
services for mobile electronic devices. Through its iGo.com website and customer
solutions representatives, the Company enables businesses and individual
consumers to efficiently identify, locate and purchase these products and
services. The Company's proprietary relational databases of over 6,500 products
from more than 350 suppliers combined with its comprehensive industry knowledge
and service expertise, create a valuable one-stop solution for its customers.
STOCK SPLIT AND DELAWARE REINCORPORATION
On August 30, 1999, the Company reincorporated in Delaware and effected a
6-for-1 share stock split. The number of shares issued and outstanding, the
conversion factors for all series of preferred stock, stock option information,
and per share information for all periods presented have been adjusted to
reflect the stock split.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of iGo
Corporation and its three wholly owned subsidiaries. The subsidiaries were
formed for specific transactions, such as acquisitions. As of December 31, 1999
no subsidiaries had material transactions. All significant intercompany balances
and transactions have been eliminated in consolidation.
INITIAL PUBLIC OFFERING
On October 13, 1999, the Company conducted its initial public offering of
5,000,000 shares of its common stock and in November 1999 the underwriters
exercised their over-allotment option of 750,000 shares, the net proceeds of
which aggregated approximately $62.6 million. At the closing of the offering,
all issued and outstanding shares of the Company's mandatory redeemable
preferred stock were converted into an aggregate of 7,643,054 shares of common
stock.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents, and such items
are recorded at cost, which approximates fair market value.
F-7
<PAGE>
INVENTORY
Inventory is stated at the lower of first-in, first-out cost or market,
and consists primarily of batteries and electronic accessories held for sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded under
the straight-line method over the following estimated useful lives: leasehold
improvements, the shorter of the estimated useful life or the remaining life of
the lease; furniture and fixtures, four to seven years; and purchased software,
four years. Costs of normal repairs and maintenance are charged to expense as
incurred.
INTANGIBLES AND OTHER ASSETS
The costs of trademarks, and copyrights acquired are being amortized on
the straight-line method over their remaining lives ranging from one to 15
years. Amortization expense charged to operations in 1999, 1998 and 1997 was
$65,605, $45,978 and $24,463, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred income taxes reflect
the net tax effects of (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes and (b) operating loss and tax credit carry forwards.
CONCENTRATIONS OF CREDIT RISK
As of December 31, 1999, 1998, and 1997, there were no customers that
represented a significant percentage of sales or accounts receivable.
Concentrations with respect to trade receivables are limited due to the
Company's large number of customers and their geographic and economic
dispersion. Financial instruments that potentially subject the Company to credit
risks consist primarily of cash accounts on deposit with banks, which, at times,
may exceed federally insured limits. The Company believes it is not exposed to
any significant credit risk related to cash or accounts receivable.
REVENUE RECOGNITION
Sales of products, shipping fees and development revenues are recognized
at the time merchandise is shipped to customers, net of any discounts and
reserves for expected returns.
ADVERTISING AND PROMOTIONAL EXPENSES
The Company expenses advertising and promotional costs as they are
incurred. Advertising and promotional expenses for the years ended December 31,
1999, 1998 and 1997 were $10,409,528, $2,055,436 and $1,507,735, respectively.
F-8
<PAGE>
RETIREMENT PLANS
The Company provides a tax-qualified 401(k) retirement plan for the
benefit of eligible employees. The plan is designed to provide employees with
retirement funds on a tax-deferred basis and allows for discretionary matching
by the employer. Currently, the Company does not match employee contributions.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provides pro forma disclosures of material amounts, if any, in the
notes to the consolidated financial statements, as if the measurement provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation" had been adopted. The
Company has adopted SFAS No. 123 for stock-based compensation related to
nonemployees.
NET LOSS PER SHARE
Net loss per share--basic and diluted, is computed using the
weighted-average number of common shares outstanding during the period. Stock
options and warrants were not included in the computations because they would
have been antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include: accounts receivable, accounts
payable, notes payable and capital leases. The Company has estimated that the
carrying amount of accounts receivable and accounts payable approximates fair
value due to the short-term maturities of these instruments. The fair value of
the Company's notes and capital leases approximates the carrying value. The fair
value is based on management's estimate of current rates available to the
Company for similar debt with the remaining maturity.
SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one principal business segment across domestic and
international markets. International sales have been insignificant throughout
the history of the Company. There were no transfers between geographic areas.
Substantially all of the domestic operating results and identifiable assets are
in the United States. There were no significant sales to any one customer or
customers which would constitute a major customer or concentration of risk.
Disclosure regarding revenues from external customers for each group of similar
products and services has not been included because it is impracticable to do
so.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of its holdings of cash and
marketable securities. The Company's credit risk is managed by investing its
cash and marketable securities in high-quality money markets instruments and
securities of the U.S. government and its agencies and high-quality corporate
issuers. At December 31, 1999, the Company has no significant concentration of
credit risk.
F-9
<PAGE>
LONG-LIVED ASSETS
In accordance with Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standard ("SFAS") No.121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the carrying
value of intangible assets and other long-lived assets is reviewed on a regular
basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. To date, no such impairment has been
indicated. Should there be an impairment in the future, the Company will measure
the amount of the impairment based on undiscounted expected future cash flows
from the impaired assets. The cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary assumptions and
projections at the time.
PRODUCT DEVELOPMENT COSTS
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's website. Such
website development costs are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial
statements. Actual amounts could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters for all fiscal years beginning after June 15,
2000. Although the Company does not believe SFAS No. 133 will have a material
impact on its consolidated financial statements, because of the complexity of
SFAS No. 133, the ultimate impact of its adoption has not yet been determined.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the 1999 presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
1999 1998
----- ----
Trade receivables....................... $ 2,725,263 $ 633,808
Allowance for bad debt.................. (564,575) (169,594)
------------ ------------
Total accounts receivable, net..... $ 2,160,688 $ 464,214
============ ============
F-10
<PAGE>
3. INVENTORY
Inventory consists of the following at December 31:
1999 1998
---- ----
Products on hand......................... $ 2,863,478 $ 1,496,310
Inventory reserve........................ (307,344) (109,139)
------------ ------------
Total inventory, net................ $ 2,556,134 $ 1,387,171
============ ============
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1999 1998
---- ----
Leasehold improvements.....................$ 364,681 $ 37,418
Furniture and equipment.................... 2,212,404 498,956
Purchased software......................... 1,318,193 615,598
Accumulated depreciation and amortization.. (373,387) (154,816)
------------ ------------
Total property and equipment, net.....$ 3,521,891 $ 997,156
============ ============
5. LEASE COMMITMENTS
OPERATING LEASES
The Company leases certain equipment under non-cancelable operating
leases. Lease expense for all equipment operating leases was $859 for the years
ended December 31, 1999, 1998, and 1997.
The Company leases its facility under a non-cancelable operating lease,
which was entered into in December 1999 and is effective through December 2014.
All costs, including termination costs, associated with the Company's previous
lease agreement have been fully recorded in 1999. The new lease requires monthly
rental payments, which do not increase over the lease term. The Company records
rent expense on a straight-line basis. The Company may extend the lease term for
two additional five year periods. The Company recorded rent expense on the
previous lease agreement for the years ended December 31, 1999, 1998 and 1997 of
$138,334, $138,615 and $92,112, respectively.
The following is a schedule of the future minimum lease payments under the
equipment and facility operating leases as of December 31, 1999:
FISCAL YEAR
2000................................................. $ 840,859
2001................................................. 840,787
2002................................................. 840,000
2003................................................. 840,000
2004................................................. 840,000
Thereafter........................................... 7,560,000
------------
$11,761,646
============
F-11
<PAGE>
CAPITAL LEASES AND LONG-TERM DEBT
The Company conducts a portion of its operations with equipment under
leases, which have been capitalized. The leases are non-cancelable and expire on
various dates through 2004. The capitalized value of the equipment is
approximately $812,278, and the related accumulated amortization is $106,159,
$13,547, and $3,600 as of December 31, 1999, 1998, and 1997, respectively. The
Company has a note with an outstanding balance of $190,566 as of December 31,
1999. The note requires interest payments only through September 2000 at which
time principal and interest payments are due through maturity in August 2002.
The following is a schedule of the future minimum payments under capital leases
and long-term debt as of December 31, 1999 (see Note 7):
FISCAL YEAR
2000.......................................................$ 253,022
2001....................................................... 683,877
2002....................................................... 186,562
2003....................................................... 11,565
2004....................................................... 11,565
-----------
1,146,591
Amount representing interest............................... (234,240)
-----------
Net present value of future minimum lease payments......... 912,351
Current portion of capital lease obligation................ (123,687)
-----------
Noncurrent portion of capital lease obligations............$ 788,664
===========
6. LINE OF CREDIT
In September 1999, the Company entered into a $500,000 line of credit with
Wells Fargo Bank, funds from which are to be used for general working capital
expenditures. This line of credit is secured by receivables, inventory, and
intangibles. Interest is payable monthly at a rate of 1.75% above the prime rate
(9.50% as of December 31, 1999), and all outstanding principal is due upon
expiration of the line of credit. As of December 31, 1999, no amounts were
outstanding on this line of credit.
7. LEASE LINE OF CREDIT
On June 28, 1999, the Company signed a $2.0 million equipment lease line
of credit with a leasing company. The line may be used to finance equipment
purchases. A portion of the line was used in a sale leaseback transaction of
certain computer hardware and software owned by the Company. The lease was
recorded as a capital lease, and resulted in a loss of $219,137 recorded in the
Company's statement of operations for the year ended December 31, 1999.
In connection with this line, the Company issued a warrant to the leasing
company to purchase 16,132 shares of Series C at an exercise price of $6.82. The
warrant expires three years following the initial public offering.
F-12
<PAGE>
8. SUBORDINATED CONVERTIBLE DEBT
On July 30, 1999, the Company entered into a $3.5 million subordinated
convertible debt agreement with a leasing company. Amounts borrowed under such
agreement bear interest at an annual rate of 11%. Interest only is payable for
the first 12 months, then principal and interest for the final 24 months. On
August 6, 1999, the Company drew down $1,167,000 under this agreement.
On September 10, 1999 the leasing company converted $980,000 of the
$1,167,000 outstanding subordinated convertible debt into 124,982 shares of the
Series C preferred stock.
9. INCOME TAXES
The provision for income taxes recognized for the years ended December 31
consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax benefit at U.S. statutory rates........................... $ 5,104,444 $ 734,529 $ 301,259
Other items................................................... (5,974) (5,708) (4,117)
Deductible IPO fees........................................... 128,185 -- --
Difference in prior year estimated income taxes............... (310,631) -- --
Stock options................................................. (131,562) (5,263) --
Increase in valuation allowance............................... (4,784,462) (723,558) (297,142)
------------ ------------ ------------
Tax benefit................................................... $ -- $ -- $ --
============ ============ ============
</TABLE>
The following summarizes the effect of deferred income tax items and the
impact of temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. The tax
items composing the Company's net deferred tax asset as of December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current deferred tax asset:
Accrued liabilities.......................................... $ 374,145 $ 183,863
Other........................................................ 272 --
Current deferred tax liability:
Prepaid expenses............................................. (384,921) --
Valuation allowance............................................. 10,504 (183,863)
------------ ------------
Net current deferred tax asset.................................. -- --
Non-current deferred tax asset:
Net operating loss........................................... 5,924,855 943,067
Other........................................................ 1,487 13,037
Non-current deferred tax liability:
Difference between book and tax basis of fixed asset and
intangibles................................................ (57,153) (65,744)
Valuation allowance............................................. (5,869,189) (890,360)
------------ ------------
Net non-current deferred tax asset.............................. -- --
------------ ------------
Net deferred tax asset.......................................... $ -- $ --
============ ============
</TABLE>
Due to the uncertainty of the realization of certain tax carryforward
items, a valuation allowance has been established in the aggregate amount of
$5,858,685 and $1,074,223, at December 31, 1999 and 1998, respectively.
Realization of a significant portion of the assets offset by the valuation
allowance is dependent on the Company generating sufficient taxable income prior
to the expiration of the loss and credit carryforwards. As of December 31, 1999
and 1998, the Company had net operating loss carryforwards of approximately
$17,426,000 and $2,758,000, respectively, available to offset future taxable
income, which are available through 2019. The availability of the loss and
credit carryforwards may be subject to further limitation under Section 382 and
383 of the Internal Revenue Code in the event of a significant change of
ownership.
F-13
<PAGE>
10. EQUITY SECURITIES
MANDATORY REDEEMABLE PREFERRED STOCK
The Company issued 3,667,500 shares of Series A mandatory redeemable
preferred stock ("Series A") during 1996 and 3,000,000 shares of Series B
mandatory redeemable preferred stock ("Series B") during 1998. Holders of Series
A and Series B were entitled to receive dividends at 8% per annum, prior to
conversion of their shares into common stock at a ratio of 1:1 excluding accrued
dividends. The conversion ratio for Series A would have been adjusted upon
issuance of common stock at less than $0.45 per share. The conversion ratio for
Series B would have been adjusted upon issuance of common stock at less than
$2.00 per share. Conversion was automatic upon the Company's initial public
offering at a share price of not less than $1.25, with aggregate proceeds of not
less than $15.0 million. If elected by the holders of 66 2/3% of the preferred
stock then outstanding, unconverted preferred stock would have been redeemed, on
a quarterly basis, over eight consecutive quarters beginning in June 2003 at the
original issuance price plus any declared but unpaid dividends, or upon a sale
or merger of the Company meeting certain criteria. Holders of Series A and
Series B were also entitled to a liquidation preference over common stock equal
to the original price plus any accrued but unpaid dividends.
On July 30, 1999, the Company received gross proceeds of approximately
$5.8 million on the sale of 850,572 shares of Series C mandatory redeemable
preferred stock ("Series C") at $6.82 per share. The Series C shareholders had
the same rights, preferences, and privileges as the Series A and Series B
shareholders .
No dividends were declared or paid as of December 31, 1999. The Company
recorded accrued dividends on Series A of $140,434 during the year ended
December 31, 1997 and $152,011 and $94,667 on Series A and Series B,
respectively, during the year ended December 31, 1998. The Company recorded
accrued dividends of $122,176, $373,042 and $81,409 on Series A, Series B and
Series C, respectively, during the year ended December 31, 1999.
On October 13, 1999, the Company conducted an initial public offering of
5,750,000 shares of its common stock at a price of $12.00 per share, including
750,000 shares available for sale to the underwriters upon the exercise of their
over-allotment option. All shares of Series A, B and C automatically converted
into common stock upon the consummation of the offering.
WARRANTS
In connection with the issuance of Series A, the Company issued warrants
for the purchase of 81,000 shares of its common stock at $0.445 per share. The
warrants expire on June 14, 2003. As of December 31, 1999, 40,500 shares of the
warrants were converted into common stock. The Company has reserved 56,632 and
81,000 shares of common stock for issuance under outstanding warrants as of
December 31, 1999 and 1998, respectively (see Note 7).
ISSUANCE OF UNVESTED COMMON STOCK AND STOCKHOLDER LOAN
In connection with the issuance of Series A to an investor group, the
Company issued 885,600 shares of common stock to its president at $0.05 per
share in exchange for a note receivable of $39,852. These shares vest to the
president only upon the successful achievement of certain sales and
profitability performance goals or upon a sale of the Company at a price
sufficient to meet a specified internal rate of return criteria. At the
conclusion of the performance period, any unvested shares may be repurchased by
the Company, at the Company's discretion, at the original issuance price of the
stock. At December 31, 1999, the president had vested in 100% of the shares
issued under this arrangement.
F-14
<PAGE>
The stockholder loan calls for interest to be accrued at 6% and is due
upon the sale of the Company or, if no sale occurs, on June 13, 2003. The
stockholder loan is secured by the stock issued under this arrangement and the
Company has recourse against the stockholder.
11. STOCK OPTION PLAN
The Company has a stock option plan under which the Board of Directors has
reserved an aggregate of 3,256,800 shares of common stock for issuance. Under
the plan, the Company may grant incentive stock options to employees and
non-qualified stock options to employees, directors, and consultants.
Incentive stock options may be granted at a price not less than the
estimated fair market value of the common stock (110% of estimated fair value
for options granted to stockholders of 10% or more of the voting stock) at the
date of grant. Options are exercisable over periods not to exceed ten years from
the date of grant (five years for stockholders owning 10% or more of common
stock). Non-qualified options may be granted at a price not less than 85% of the
estimated fair market value of the common stock at the date of grant and are
exercisable over periods not to exceed ten years. Options can be exercised at
any time following grant. The Company has the right to repurchase at the option
exercise price shares that have not vested. Options granted to date vest over a
four-year term, with 25% of the options vesting after the first year and the
remaining options vesting on a monthly basis thereafter.
Stock option activity under the plan is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
OF OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance, January 1, 1997.................... 797,118 $ 0.05
Granted................................ 309,000 0.05
Exercised.............................. (95,916) 0.05
Forfeited.............................. (347,202) 0.05
----------- ------
Balance, December 31, 1997.................. 663,000 0.05
Granted................................ 409,878 0.16
Exercised.............................. (209,130) 0.05
Forfeited.............................. (228,870) 0.05
----------- ------
Balance, December 31, 1998.................. 634,878 0.12
Granted................................ 840,324 1.87
Exercised.............................. (94,852) 0.10
Forfeited.............................. (36,000) 0.83
----------- ------
Balance, December 31, 1999.................. 1,344,350 $ 1.19
=========== ======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
EXERCISE OPTIONS REMAINING AVERAGE OF OPTIONS AVERAGE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.04 259,248 8.2 years $ 0.04 24,765 $ 0.04
0.20 581,628 8.9 years 0.20 15,202 0.20
0.83 52,500 9.4 years 0.83 0 0.83
5.49 142,662 9.7 years 5.49 0 5.49
3.97 236,312 9.5 years 3.97 0 3.97
5.09 72,000 9.6 years 5.09 0 5.09
---------
1,344,350
=========
</TABLE>
F-15
<PAGE>
The Company applies the provisions of APB No. 25 and related
interpretations in accounting for its stock options. For years ended 1997 and
1998, because the compensation cost for the Company's stock options determined
based on the fair value at the grant dates for awards consistent with the method
prescribed by SFAS No. 123 does not differ significantly from the compensation
cost recorded pursuant to the provisions of APB No. 25, pro forma loss per share
is not presented. For year ended 1999, had the Company recorded stock-based
compensation cost consistent with the provisions of SFAS No. 123, the Company's
net loss would have been increased to the pro forma amounts included in the
table below. The below paragraph discloses the weighted-average assumptions used
in estimating the fair value of stock options using the Black-Scholes option
valuation model and the weighted-average fair value of the stock options
granted. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. Additionally, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock-based compensation has characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's stock-based compensation.
The weighted average fair value of options granted during 1999, 1998 and
1997 was estimated at $4.48, $3.05 and $0.32 per share, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for the grants: risk-free interest rates of 5.9%, 4.6% and 5.7%
in 1999, 1998 and 1997, respectively; dividend yield of 0%; expected lives of
four years in 1999, 1998 and 1997; and volatility of 133.5% in 1999 and no
expected volatility (because the Company's stock had not been publicly traded)
in 1998 and 1997.
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1999
---------------------------------------------- ----
Net loss - as reported.................................... $ (15,013)
Net loss - pro forma...................................... (15,236)
Basic and diluted loss per share - as reported............ $ (1.01)
Basic and diluted loss per share - pro forma.............. (1.03)
The Company recorded deferred compensation during 1999 and 1998
aggregating $2,004,745 and $203,013, respectively, related to stock options.
Compensation expense for 1999 and 1998 totaled $365,571 and $15,479,
respectively. The remaining balance of deferred compensation at December 31,
1999 will be recognized as expense over the remaining vesting periods of the
options as follows:
2000.......................................................$ 548,040
2001....................................................... 545,177
2002....................................................... 523,564
2003....................................................... 188,551
-----------
$1,805,332
===========
F-16
<PAGE>
Deferred compensation was computed as the difference between the deemed
fair value of the common stock and the option exercise price at the date of
grant of the options. Deemed fair value was derived from prices paid by
independent investors in the Series A and Series B and Series C financings.
12. LEGAL PROCEDINGS
On July 19, 1999, the company from whom the Company purchased the rights
to the 1-800-Batteries toll free telephone number and name gave the Company
notice that they believe the Company has failed to cure a material breach of the
Company's agreement with them. The notice also stated that they are terminating
their agreement with the Company and demanding a return of their rights as well
as unspecified monetary damages. At the same time, they made a demand for
arbitration of the matter with the American Arbitration Association ("AAA") in
Richmond, Virginia. The Company responded to their demand by formally denying
their claims as well as challenging the location of the arbitration proceeding.
Subsequently, AAA ruled that the arbitration would be held in Richmond,
Virginia, and an arbitrator has been selected. Many of the Company's customers
may rely on the 1-800-Batteries phone number to reach the Company's customer
solutions representatives and to the extent that the arbitrator disagrees with
the Company's position and allows this agreement to terminate, the Company could
be harmed, although it is difficult to estimate the extent or magnitude of such
harm.
On October 11, 1999, the Company and certain employees were named as
defendants in a lawsuit alleging that the Company has induced certain of the
plaintiff's former employees to breach the terms of their nondisclosure and
nonsolicitation agreements with the plaintiff, that the Company has interfered
with the plaintiff's contractual relations and prospective economic advantage,
and that the Company has engaged in unfair competition. The plaintiff seeks
injunctive relief, monetary damages, costs and attorney's fees. The Company
believes that this suit is without merit and has filed a motion to dismiss which
is currently pending before the court. While the Company intends to vigorously
defend its actions in this matter, it cannot be certain that it will be
successful in its defense. Furthermore, if the Company is unsuccessful in
defending this action, any remedies awarded to the plaintiff could have an
adverse effect on the Company's financial position or results of future
operations.
13. MARKETING AND STRATEGIC RELATIONSHIPS
During June 1999, the Company entered into a strategic sourcing and
marketing relationship with the NEC Computer Systems Division ("NEC"). Under
such agreement with NEC, the Company is obligated to purchase at least
$4,000,000 of product per year, which requirement may be increased, decreased or
waived by NEC in its discretion. This agreement may be terminated by either
party at any time upon written notice. Because the agreement with NEC was only
recently established, it is uncertain whether the Company will meet or exceed
the stated purchase obligation.
During June 1999, the Company also initiated an affiliate program that
provides for the payment of a seven percent to fifteen percent commission to
other web sites that register to participate in the program and refer customers
that place orders. The commission is calculated based on the annual revenue
derived from these customers and will be recorded as sales and marketing
expenses at the time the merchandise is shipped.
In November 1999, we entered into a strategic referral and sourcing
relationship with IBM, one of the premier manufacturers of laptops. This
relationship is evidenced by a series of agreements between iGo and IBM. The
agreements establish iGo as the exclusive distribution partner under the options
continuation program. Under the terms of the agreements, IBM exclusively refers
customers in need of mobile accessories for legacy ThinkPad and WorkPad products
F-17
<PAGE>
directly to iGo. The agreements provide for both direct links from the IBM
website and live telephone transfers. In addition, we have a tier-one direct
purchasing relationship with IBM for mobile options. This allows us to buy
ThinkPad and WorkPad accessories directly from IBM and gives us access to
certain of IBM offshore accessory suppliers. We plan to replicate this program
with several of the top laptop manufacturers to continue to expand and update
our product and compatibility databases and to increase high gross margin sales.
In January 2000, we were selected by AT&T as one of the first e-commerce
direct distributors of the AT&T Digital One Rate plan for cellular phones. The
agreement allows us to ship fully activated phones to any corporate or consumer
customer thorough out the United States.
We have been approved as a launch partner for the new Ariba enterprise
purchasing system. This electronic commerce-based system allows global
enterprises to automate the requisition, approval, purchasing and delivery of
supplies and services. Our relationship with Ariba enables their customers to
quickly and easily order our entire range of products from within the Ariba
purchasing system. We plan to leverage this relationship with Ariba to further
penetrate enterprises worldwide with our solution. In February 1999, we further
expanded our business to business capabilities by partnering with Intelisys
Electronic Commerce, Inc to make the iGo product offering available to the 3
million small and medium size businesses that are part of the Intelisys'
purchasing community. Our presence on the online purchasing portals was further
expanded in March 1999, when we formed a strategic alliance with Purchase Pro.
Our strategic relationship with Motorola allowed us early access to the
Motorola StarTAC(R) Clip-on Organizer for Motorola's StarTAC(R) telephone. Our
relationship with Motorola also includes product sourcing for our iGo-branded
products. Motorola is currently designing and manufacturing a number of cellular
phone batteries exclusively for iGo.
Our strategic relationship with Motorola is not subject to a formal
written agreement, and our agreements with NEC and Ariba are terminable by
either party at any time upon written notice. In addition, under our agreement
with NEC we are currently obligated to purchase at least $4,000,000 of product
per year, which requirement may be increased, decreased or waived by NEC at its
discretion. The terms of the agreement with IBM require us to purchase at least
$2,000,000 of product per year. Because our agreement with NEC and IBM were only
recently established, it is uncertain whether we will meet or exceed the stated
purchase obligations. Consequently, these relationships will continue to evolve
over time. We can provide no assurance that these relationships will continue on
their current terms or at all.
14. SUBSEQUENT EVENTS
ACQUISITIONS
On January 4, 2000, the Company acquired CAW Products, Inc., d.b.a.
Cellular Accessory Warehouse, for $353,458 comprised of $100,000 in cash and
$253,458 in common stock (29,167 shares of common stock having a market value of
$8.69 per share on the closing date of the transaction). Additionally, on
January 11, 2000, the Company acquired AR Industries Inc., d.b.a. Road Warrior
International, for $2,704,167 comprised of $750,000 in cash and $1,954,167 in
common stock (279,167 shares of common stock having a market value of $7.00 per
share on the closing date of the transaction). Road Warrior is a designer and
distributor of laptop connectivity and power products, as well as model-specific
laptop hard drive upgrades. Cellular Accessory Warehouse is a distributor of
model-specific cellular accessories. The purchase method of accounting will be
used for both transactions.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Reno,
Nevada on this 29th day of March, 2000.
iGo CORPORATION
By: /s/ Mick Delargy
----------------------------------------
Mick Delargy
Senior Vice President, Finance and
Business Development, Chief Financial
Officer and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ken Hawk and Mick Delargy, jointly and
severally, his or her attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ken Hawk Chairman of the Board, President, Chief Executive March 29, 2000
--------------------------------- Officer and Chief Energizing Officer
(Ken Hawk) (Principal Executive Officer)
/s/ Mick Delargy Senior Vice President, Finance and Business March 29, 2000
--------------------------------- Development, Chief Financial Officer and Secretary
(Mick Delargy) (Principal Financial and Accounting Officer)
/s/ Darrell Boyle Director March 29, 2000
---------------------------------
(Darrell Boyle)
/s/ David Callard Director March 29, 2000
---------------------------------
(David Callard)
/s/ Peter Gotcher Director March 29, 2000
---------------------------------
(Peter Gotcher)
</TABLE>
F-19
<PAGE>
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
BALANCE AT
BEGINNING OF ACCOUNTS WRITTEN BALANCE AT END
PERIOD PROVISIONS OFF OF PERIOD
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR BAD DEBT:
Year ended 12/31/99 $ 169,594 $ 718,677 $ 323,696 $ 564,575
=========== =========== =========== ===========
Year ended 12/31/98 $ 127,613 $ 356,769 $ 314,788 $ 169,594
=========== =========== =========== ===========
Year ended 12/31/97 $ 47,000 $ 226,823 $ 146,210 $ 127,613
=========== =========== =========== ===========
ALLOWANCE FOR SALES RETURNS:
Year ended 12/31/99 $ 236,809 $ (2,706) $ 87,171 $ 146,932
=========== =========== =========== ===========
Year ended 12/31/98 $ 62,937 $ 1,968,599 $ 1,794,727 $ 236,809
=========== =========== =========== ===========
Year ended 12/31/97 $ 7,183 $ 559,246 $ 503,492 $ 62,937
=========== =========== =========== ===========
INVENTORY RESERVE:
Year ended 12/31/99 $ 109,139 $ 356,614 $ 158,409 $ 307,344
=========== =========== =========== ===========
Year ended 12/31/98 $ 0 $ 109,139 $ 0 $ 109,139
=========== =========== =========== ===========
Year ended 12/31/97 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
</TABLE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IGO CORPORATION
The undersigned, Ken Hawk and Mick Delargy, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of IGO CORPORATION, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on June 24, 1999 and amended and
restated on August 8, 1999.
3. The Certificate of Incorporation of this corporation shall be
amended and restated to read in full as set forth on EXHIBIT A attached hereto.
4. The Amended and Restated Certificate of Incorporation has been duly
adopted by this corporation's Board of Directors and stockholders in accordance
with the applicable provisions of Section 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
Executed at Reno, Nevada on January 19, 2000.
/S/ KEN HAWK
-------------------------------
Ken Hawk, President
/S/ MICK DELARGY
-------------------------------
Mick Delargy, Secretary
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
IGO CORPORATION
ARTICLE I
---------
A. NAME. The name of the corporation is IGO CORPORATION (the
"Corporation").
B. PURPOSE. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE II
----------
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
-----------
This Corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock." The total number of shares of
Common Stock which the Company shall have the authority to issue shall be
50,000,000, $0.001 par value per share, and the total number of shares of
Preferred Stock the Company shall have the authority to issue shall be
5,000,000, $0.001 par value per share. The Preferred Stock may be issued from
time to time in one or more series pursuant to a resolution or resolutions
providing for such issue duly adopted by the Board of Directors (authority to do
so being hereby expressly vested in the Board). The Board of Directors is
further authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares in any such
series then outstanding), the number of shares of any series subsequent to the
issue of shares of that series.
ARTICLE IV
----------
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal Bylaws of the Corporation.
-1-
<PAGE>
ARTICLE V
---------
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VI
----------
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VI, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article VI, shall eliminate or reduce the effect of this
Article VI in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VI, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII
-----------
1. The affirmative vote of sixty-six and two-thirds percent (66-2/3%)
of the voting power of the then outstanding shares having voting privileges (the
"Voting Stock"), voting together as a single class, shall be required for the
adoption, amendment or repeal of any section of Article II of the Corporation's
Bylaws by the stockholders of this Corporation.
2. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of the stockholders called in accordance
with the Bylaws.
3. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
4. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal this Article VII.
-2-
<PAGE>
ARTICLE VIII
------------
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
-3-
DERMODY
P R O P E R T I E S
STANDARD INDUSTRIAL LEASE For Landlord Use Only:
(NET-NET-NET) Building #: 15
Lease Preparation Date: October 26, 1999
Landlord: DERMODY FAMILY LIMITED PARTNERSHIP I, A WASHINGTON LIMITED
PARTNERSHIP, AND GUILA DERMODY TURVILLE, A MARRIED WOMAN DEALING WITH HER SOLE
AND SEPARATE PROPERTY, LOCATED AT 1200 FINANCIAL BOULEVARD, P. O. BOX 7097,
RENO, NEVADA 89510
Tenant: iGo CORPORATION, A DELAWARE CORPORATION, FKA BATTERY EXPRESS, INC. DBA
1-800-BATTERIES
Trade Name (dba): iGo
1. LEASE TERMS
1.01 Premises: The Premises referred to in this Lease contain an
approximately eighty-five thousand, four hundred twenty-eight (85,428) square
foot building (the "Building") as described on Exhibit A attached hereto. The
address of the Premises is: 9393 GATEWAY DRIVE, RENO, NEVADA 89511.
1.02 Project: The Project in which the Premises are located contain
approximately five and 72/100ths (5.72) acres of land and all improvements
including the Premises located thereon as shown on Exhibit A. There are no other
tenants of the Landlord in the Project.
1.03 Tenant's Notice Address: TENANT'S NOTICE ADDRESS IS THE ADDRESS OF
THE PREMISES , ATTN: LOU BORREGO.
1.04 Landlord's Notice Address: LANDLORD'S NOTICE ADDRESS IS P. O. BOX
7097, RENO, NEVADA 89510, ATTN: DAVID E. LIGON.
1.05 Tenant's Permitted Use: WAREHOUSING, DISTRIBUTION, LIGHT
MANUFACTURING, AND ASSEMBLY OF MOBILE ELECTRONIC DEVICES AND ACCESSORIES AND
RELATED OFFICE USES IN FULL COMPLIANCE WITH THE TERMS OF THIS LEASE.
1.06 Lease Term: The Lease Term is for fourteen (14) years and
commences on the date of closing (the "Lease Commencement Date") under that
certain Sales Agreement and Joint Escrow Instructions dated December, 1999 by
and between Landlord as "Purchaser," and Lockheed Martin Corporation, a Maryland
corporation ("LMC"), as "Seller," for the acquisition by Landlord of the Project
and any amendments or restatements thereof (the "Sale Agreement") and expires
fourteen (14) years thereafter. Tenant shall also be entitled to the options to
1
<PAGE>
extend the Lease Term for two (2) additional five (5) year periods (each, an
"Extension Term" and collectively, the "Extension Terms") as defined in Section
41.01 below, subject to and in compliance with the terms and conditions
specified in Article 41. below. For purposes of this Lease, the terms "Lease
Term," "term of the Lease," and "term" shall mean and include the initial period
of the Lease specified above, together with the Extension Term(s) to the extent
exercised by Tenant pursuant to Section 41.01 below, and the term "Initial Lease
Term," shall mean the initial period of the Lease as specified above. Landlord
and Tenant acknowledge and agree that this Lease and the parties' respective
obligations hereunder are conditioned upon Landlord's acquiring title to the
Project under the Sale Agreement as more particularly set forth in Section 42.01
below.
1.07 Base Monthly Rent: Landlord and Tenant acknowledge and agree that
this Lease is intended to qualify as a "Section 467 Lease" pursuant to Section
467 of the Internal Revenue Code of 1986, as amended. Base Monthly Rent during
the Initial Lease Term shall accrue and be allocated, and be payable in
accordance with the schedules attached hereto as Exhibits B-1 and B-2. Landlord
and Tenant represent, warrant, covenant, and agree that they shall recognize and
report for federal income tax purposes rental income and expense and interest
income and expense in accordance with the columns entitled "Proportional Rent
Amount" and "Interest," respectively, and that Base Monthly Rent is payable in
accordance with the column entitled " Payment" set forth on Exhibit B-2.
1.08 Security Deposit: ONE HUNDRED FORTY THOUSAND DOLLARS ($140,000) in
lawful money of the United States of America. The Security Deposit shall be held
and disbursed pursuant to the provisions of Section 6.01 below.
1.09 Proportionate Share: Tenant's Proportionate Share is ONE HUNDRED
PERCENT (100%) based upon the total square footage of the Building and the total
square footage of the Premises.
1.10 Index: [INTENTIONALLY DELETED]
1.11 Parking: Tenant is entitled to all vehicle parking spaces located
within the Project subject to the provisions of Section 8.01 of the Lease.
1.12 Tenant Improvements: During the Lease Term, Landlord will be under
no obligation to alter, change, decorate or improve the Premises.
2. DEMISE AND POSSESSION
2.01 Landlord leases to Tenant and Tenant leases from Landlord the
Premises. By entering the Premises, Tenant acknowledges that it has examined the
Premises and accepts the Premises in their present condition, subject to the
provisions of this Section 2.01. Landlord represents and warrants to Tenant
that, as of the Lease Commencement Date, (1) the Premises shall be dusted,
vacuumed, and reasonably cleaned for occupancy; the irrigation system servicing
the Premises shall be in good working order; the exterior and interior windows
shall be cleaned; one of the skylights above the stairs shall be repaired; a
hole in the drywall shall be repaired; and the hardwood decks shall be
weatherproofed; and (2) to Landlord's, "knowledge," (i) the improvements on the
Premises comply with all applicable laws, building codes, ordinances and
regulations in effect when such improvements were constructed; (ii) the
2
<PAGE>
electrical, plumbing, fire sprinkler, lighting, HVAC systems, dock doors, and
structural integrity of the roof, walls, foundation shall be in good operating
condition and free of material defects, and (iii) the Project is in compliance
with all Environmental Laws (as hereinafter defined). For purposes of this
Lease, the term "knowledge" shall mean the actual knowledge of John A. Dermody
and David E. Ligon on the Lease Commencement Date, without the imputation of any
constructive knowledge. John A. Dermody and David E. Ligon are primarily
responsible for property acquisitions by Landlord. Tenant agrees to notify
Landlord not later than six (6) months after the Lease Commencement Date of any
items which need correction under the foregoing warranty, and after such notice,
Landlord agrees to exercise its commercially reasonably efforts to correct the
same as promptly as reasonably possible. The foregoing warranty shall expire six
(6) months from the Lease Commencement Date. Landlord shall give prompt written
notice to Tenant upon learning of any fact, occurrence, or other basis which
causes or could reasonably be expected to cause a breach of any of the
representations and warranties specified in this Section 2.01 above. Landlord
acknowledges that Tenant has agreed with LMC to occupy the Premises for a term
ending on the Lease Commencement Date. As a result, Tenant acknowledges and
agrees that it will have had possession and occupancy of the Premises prior to
the Lease Commencement Date and the reasonable opportunity to investigate the
same. Except as expressly set forth in this Section 2.01, nothing contained in
this Lease, including any Exhibits hereto, shall be interpreted or is intended
in any way as a representation or warranty by Landlord as to the quantity,
quality, or fitness of the Premises, including, without limitation, a fitness
for any particular purpose, each of which is expressly disclaimed by Landlord
hereunder. Tenant acknowledges and agrees that, except as expressly set forth in
this Section 2.01, (1) Landlord is not making and has not made at any time any
warranties or representations of any kind or character, express or implied with
respect to the Premises or Project, including, but not limited to, any
warranties or representations as to habitability, merchantability, or fitness
for a particular purpose, and (2) Tenant is occupying the Premises "as is, where
is, with all faults," and (3) Tenant has reviewed and approved the status of
title to the Project, and Tenant has not relied on and will not rely on, and
Landlord is not liable for or bound by any express or implied warranties,
guarantees, statements, representations, or information pertaining to the
Project or Premises or relating thereto made or furnished by Landlord or any of
its representatives, or any real estate broker or agent representing or
purporting to represent Landlord, to whomever made or given, directly or
indirectly, orally or in writing, unless specifically set forth in this Lease.
Without limiting the foregoing, Tenant specifically acknowledges and agrees that
the land included in the Project includes only Assessor's Parcel No. 160-240-05
(comprising approximately 5.72 acres of land) and specifically does not include
the parcel of land described as Assessor's Parcel No. 160-290-05 which is owned
by South Meadows and contains existing volleyball courts, landscaping, horseshoe
pit, and other related facilities.
2.02 [INTENTIONALLY DELETED]
3. BASE MONTHLY RENT
3.01 Base Monthly Rent: On the first day of every calendar month of the
Lease Term commencing on the one month anniversary of the Lease Commencement
Date (January 1, 2000 assuming a December 1, 1999 Lease Commencement Date for
purposes of illustration only), Tenant will pay, without deduction or offset,
prior notice or demand, Base Monthly Rent as set forth in Section 1.07 and 41.02
3
<PAGE>
at the place designated by Landlord. However, the second month's Base Monthly
Rent and Security Deposit are due and payable upon execution of this Lease. In
the event that the Lease Term commences or ends on a day other than the first
day of a calendar month, a prorated amount of Base Monthly Rent shall be due on
the first day of the second month following the Lease Commencement Date and/or
the final partial month of the Lease Term, as applicable, and each will be
calculated using a thirty (30) day month. Both parties agree to complete and
execute a Commencement Date Certificate in the form of Exhibit E attached hereto
within ten (10) days of the Lease Commencement Date.
3.02 [INTENTIONALLY DELETED]
3.03 Any installment of rent or any other charge payable which is not
paid within ten (10) days after it becomes due will be considered past due and
Tenant will pay to Landlord as Additional Rent a late charge equal to twelve
percent (12%) per annum of such installment for each month or fractional month
transpiring from the date due until paid. A twenty-five dollar ($25.00) handling
charge will be paid by Tenant to Landlord for each returned check and,
thereafter, Tenant will pay all future payments of rent or other charges due by
money order or cashier's check. In the event a late charge is assessed for three
(3) consecutive rental periods, whether or not it is collected, the rent shall
without further notice become due and payable quarterly in advance
notwithstanding any provision of this Lease to the contrary. If Tenant shall be
served with a demand for the payment of past due rent, any payments tendered
thereafter to cure any default by Tenant shall be made only by cashier's check.
3.04 [INTENTIONALLY DELETED]
4. COMMON AREAS
4.01 Definitions: "Common Areas": "Common Area" is defined as all areas
and facilities outside the Premises and within the exterior boundary line of the
Project that are provided and designated by Landlord for the non-exclusive use
of Landlord and Tenant and their respective employees, agents, customers and
invitees. Common Areas include, but are not limited to: all parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, corridors, landscaped areas and any restrooms.
4.02 Subject to the provisions of Section 8.01 below, Tenant, its
employees, agents, customers and invitees have the non-exclusive right (in
common with Landlord) to use of the Common Areas. Tenant agrees to abide by and
conform to, and to cause its employees, agents, customers and invitees to abide
by and conform to all rules and regulations established by Landlord subject to
provisions of Section 24.
4.03 Landlord has the right, in its sole discretion, from time to time,
to: (1) as required in the case of emergency, by governmental or administrative
authority or under any law, rule, or regulation to make changes to the Common
Areas, including without limitation, changes in the location, size, shape and
number of driveways, entrances, parking spaces, parking areas, ingress, egress,
direction of driveways, entrances, corridors parking areas and walkways; (2)
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close temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (3) as required in the case
of emergency, by governmental or administrative authority or under any law,
rule, or regulation to add additional buildings and improvements to the Common
Areas; (4) use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Project or any portion thereof; and (5) do and
perform any other acts or make any other changes in, to or with respect to the
Common Areas and Project as Landlord may, be required in the case of emergency,
by governmental or administrative authority, or under any law, rule, or
regulation.
5. ADDITIONAL RENT
5.01 All charges payable by Tenant other than Base Monthly Rent are
called "Additional Rent". Unless this Lease provides otherwise, Additional Rent
is to be paid with the next monthly installment of Base Monthly Rent and is
subject to the provisions of Section 3.03. The term "rent" whenever used in this
Lease means Base Monthly Rent and Additional Rent.
5.02 Operating Costs
A. "Operating Costs" are all costs and expenses of ownership,
operation, maintenance, management, repair and insurance incurred by Landlord
for the Project including, but not limited to the following: all supplies,
materials, labor and equipment, used in or related to the operation and
maintenance of the Common Areas; all utilities, including but not limited to:
water, electricity, gas, heating, lighting, sewer, waste disposal related to the
maintenance or operation of the Common Areas; all air-conditioning and
ventilating costs related to the maintenance or operation of the Project; all
Landlord's costs in managing, maintaining, repairing, operating and insuring the
Project, including, for example, clerical, supervisory, and janitorial staff;
all maintenance, management and service agreements, including but not limited
to, janitorial, security, trash removal related to the maintenance or operation
of the Project; all legal and accounting costs and fees for licenses and permits
related to the ownership and operation of the Project; all insurance premiums
and costs of fire, casualty, and liability coverage, rent abatement and
earthquake insurance and any other type of insurance related to the Project,
including any deductible for a loss attributable to the Premises; all operation,
maintenance and repair costs to the Common Areas, including but not limited to,
sidewalks, walkways, parkways, parking areas, loading and unloading areas, trash
areas, roadways, driveways, corridors, and landscaped area, including for
example, costs of resurfacing and restriping parking areas; all maintenance and
repair costs of building exteriors (including painting, asphalt repair and
replacement and roof maintenance, repair and replacement), restrooms used in
common by Landlord and Tenant and signs and directories of the Project;
amortization (along with reasonable financing charges) of capital improvements
made to the Project which may be required by any government authority or which
will improve the operating efficiency of the Project (which amortization shall
be over the life of the improvement); a reasonable reserve for repairs and
replacement; a five percent (5%) fee for Landlord's supervision of the Common
Areas (five percent (5%) of the total above mentioned costs and expenses
incurred in a calendar year). Operating Costs will not include depreciation of
the Project.
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B. Tenant shall pay to Landlord Tenant's Proportionate Share of the
Operating Costs as indicated in Section 1.09. Such payment shall be paid by
Tenant with and in addition to the monthly payment of Base Monthly Rent.
C. Failure by Landlord to provide Tenant with a statement by April 1st
of each year shall not constitute a waiver by Landlord of its right to collect
Tenant's share of Operating Costs for a particular calendar year; Landlord's
right to charge Tenant for such expenses in subsequent years is not waived.
D. Subject to the provisions of this paragraph 5.02D, Tenant shall have
the right to inspect and audit Landlord's records with respect to Operating
Costs during normal business hours at Landlord's business premises upon
reasonable notice and in a reasonable manner, at Tenant's sole cost and expense,
but not more frequently than annually. Tenant's audit rights shall be limited to
Operating Costs for which Landlord received an invoice within the twelve (12)
month period immediately prior to the date of such audit.
5.03 Taxes
A. "Real Project Taxes" are: (i) any fee, license fee, license tax,
business license fee, commercial rental tax, levy, charge, assessment, penalty
or tax imposed by any taxing authority against the Project; (ii) any tax or fee
on Landlord's right to receive, or the receipt of, rent or income from the
Project or against Landlord's business of leasing the Project, (iii) any tax or
charge for fire protection, streets, sidewalks, road maintenance, refuse or
other services provided to the Project by any governmental agency; (iv) any tax
based upon a re-assessment of the Project due to a change in ownership or
transfer of all of part or Landlord's interest in the Project; (v) any charge or
fee replacing, substituting for, or in addition to any tax previously included
within the definition of real property tax; and (vi) the Landlord's cost of any
tax protest relating to any of the above. Real Project Taxes do not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes, or penalties assessed against Landlord, unless such penalties are caused
by a default by Tenant under this Lease.
B. Tenant shall pay to Landlord Tenant's Proportionate Share of the
Real Project Taxes as indicated in Section 1.09. Such payment shall be paid by
Tenant quarterly upon being invoiced for such taxes in addition to the monthly
payment of Base Monthly Rent.
C. Personal Property Taxes: Tenant will pay all taxes charged against
trade fixtures, furnishing, equipment or any other personal property belonging
to Tenant. Tenant will have personal property taxes billed separately from the
Project. If any of Tenant's personal property is taxed with the Project, Tenant
will pay Landlord the taxes for the personal property upon demand by Landlord.
5.04 Based on Tenant's Proportionate Share defined in Section 1.09,
Tenant agrees to pay as Additional Rent to Landlord its share of any parking
charges, utility surcharges, water service payments, PUD and CC&R assessments
and dues, occupancy taxes, subject to the provisions of Section 7.02 below, any
other costs resulting from the statutes or regulations, or interpretations
thereof, enacted by any governmental authority in connection with the use or
occupancy of the Project or the parking facilities serving the Project, or any
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part thereof, and all other costs resulting from any requirements or
restrictions affecting the Project.
5.05 [INTENTIONALLY DELETED]
6. SECURITY DEPOSIT
6.01 If Tenant defaults with respect to any provision of this Lease,
Landlord may retain, use or apply all or any part of the Security Deposit to
compensate Landlord for any loss or damage suffered by Tenant's default
including but not limited to, the payment of Base Monthly Rent, Additional Rent
or other rental sums due, and for payment of amounts Landlord is obligated to
spend by reason of Tenant's default. If any portion is so retained, used or
applied, Tenant, upon demand, will deposit with Landlord an amount sufficient to
restore the deposit to its original amount, as adjusted pursuant to this Section
6.01. Landlord will not be required to keep the Security Deposit separate from
its general funds, and except as specifically provided in this Section 6.01,
Tenant will not be entitled to interest on it. If as of the Fifth (5th)
anniversary of the Lease Commencement Date, (i) Tenant has fully and faithfully
performed every provision of this Lease, (ii) no event of default under this
Lease has occurred which remains uncured, (iii) there exists no facts or
circumstances which, with the provision of notice or the passage of time, or
both, would constitute an event of default under this Lease, and (iv) Landlord
approves Tenant's financial condition in Landlord's reasonable discretion in
accordance with the following provisions, Seventy Thousand Dollars ($70,000) of
the Security Deposit together with accrued interest thereon as provided below,
will be returned to Tenant. Landlord's approval of Tenant's financial condition
shall be based upon Tenant's financial capability to satisfy its obligations
under the Lease as compared to the financial condition of other tenants of
Landlord under comparable lease agreements, in Landlord's reasonable discretion.
In the event each of the foregoing conditions are satisfied on the 5th
anniversary of the Lease Commencement Date, then Tenant shall also be paid
interest on the Seventy Thousand Dollar ($70,000) portion of the Security
Deposit to be refunded, which shall accrue at the rate of four percent (4%) per
annum, compounded semi-annually. In the event any of the foregoing conditions
are not satisfied on the 5th anniversary of the Lease Commencement Date as
specified above, then Landlord shall retain such portion of the Security Deposit
together with interest as set forth above, which was to be returned or paid to
Tenant subject to the provisions of this Section 6.01. If Tenant fails to
satisfy any of the foregoing conditions as of the Fifth (5th) anniversary of the
Lease Commencement Date, Tenant's compliance with the foregoing conditions shall
be reevaluated again on the Tenth (10th) anniversary of the Lease Commencement
Date, and, in the event each of the foregoing conditions are satisfied on the
Tenth (10th) anniversary of the Lease Commencement Date, then Tenant shall be
refunded Seventy Thousand Dollars ($70,000) of the Security Deposit, together
with interest thereon accruing as provided above. In the event any of the
foregoing conditions are also not satisfied on the Tenth (10th) anniversary of
the Lease Commencement Date as specified above, then Landlord shall retain such
portion of the Security Deposit together with interest as set forth above, which
was to be returned or paid to Tenant subject to the provisions of this Section
6.01. Any remaining balance of the Security Deposit held by Landlord will be
returned to Tenant within thirty (30) days after expiration of the Lease Term,
including any Extension Term(s), subject to application as provided in this
Section 6.01 above. In no event will Tenant have the right to apply any part of
the Security Deposit to any rents payable under this Lease.
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7. USE OF PREMISES: QUIET CONDUCT; COMPLIANCE
7.01 The Premises may be used and occupied only for Tenant's Permitted
Use as shown in Section 1.05 and for no other purpose, without obtaining
Landlord's prior written consent. Landlord shall not unreasonably withhold or
delay its consent to any written request for modification of the Permitted Use,
so long as the same will not impair or adversely affect the structural integrity
of the improvements included in the Premises, and the mechanical, electrical,
fire sprinkler, structural, or other systems therein, or the exterior appearance
of the Building and other improvements included in the Project, and so long as
such modified Permitted Use otherwise complies with all governmental and
administrative requirements, all laws, rules, and regulations then in effect,
and the terms and conditions of this Lease. Tenant will comply with all laws,
ordinances, orders and regulations affecting the Premises. Tenant will not
perform any act or carry on any practices that injure the Project or the
Premises or be a nuisance or menace, or disturb the quiet enjoyment of other
lessees in the Project including but not limited to equipment which causes
vibration, use or storage of chemicals, except in full compliance with all
governmental and administrative requirements, and all laws, rules, codes, and
regulations, or heat or noise which is not properly insulated. Tenant will not
cause, maintain or permit any outside storage on or about the Premises. In
addition, Tenant will not allow any condition or thing to remain on or about the
Premises which diminishes the appearance or aesthetic qualities of the Premises
and/or the Project or the surrounding property.
7.02 Compliance.
A. Tenant acknowledges and agrees that Tenant is occupying the Premises
"as is, where is, and with all faults," pursuant to and except as expressly set
forth in, Section 2.01 above. In the event any applicable law, covenant or
restriction of record, building code, regulation or ordinance (individually, an
"Applicable Requirement" and collectively, "Applicable Requirements") require
during the Lease Term the construction of an addition to or an alteration of the
Project, or the reinforcement or other physical modification of the Building or
other portion of the Project ("Capital Expenditure"), Landlord and Tenant shall
allocate the cost of such work as follows.
B. If such Capital Expenditure is required (1) as a result of the
specific use of the Premises by Tenant as compared with uses by tenants in
general, or (2) for any other reason prior to the date two (2) years prior to
the expiration of the Initial Lease Term, Tenant shall be fully responsible for
the cost thereof. Notwithstanding the above, the full cost of any Capital
Expenditures which are triggered by Tenant as a result of an actual or proposed
change in use, change in intensity or use, or modification, addition, or
alteration to the Premises shall be the full responsibility of Tenant.
C. If such Capital Expenditure (1) is not the result of the specific
use of the Premises by Tenant or any other matter identified in the last
sentence of paragraph 7.02B above (such as governmentally mandated seismic
modifications), or (2) such Capital Expenditure is required on or after the date
two (2) years prior to the expiration of the Initial Lease Term for any other
reason not identified in clause (1) of this paragraph 7.02C., Landlord and
Tenant shall allocate the obligation to pay for such costs pursuant to the
provisions of this Paragraph 7.02C; provided, however, that if Landlord
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reasonably determines that it is not economically feasible to pay its share
thereof, Landlord shall have the option to terminate this Lease upon ninety (90)
days prior written notice to Tenant unless Tenant notifies Landlord, in writing,
within ten (10) days after receipt of Landlord's termination notice that Tenant
will pay for such Capital Expenditure. If Landlord does not elect to terminate,
and fails to tender its share of any such Capital Expenditure, Tenant may
advance such funds and deduct same, with interest, from Base Monthly Rent until
Landlord's share of such costs has been fully paid. If Tenant is unable to
finance Landlord's share, or if the balance of the Base Monthly Rent due and
payable for the remainder of this Lease is not sufficient to fully reimburse
Tenant on an offset basis, Tenant shall have the right to terminate this Lease
upon thirty (30) days written notice to Landlord. Such termination date shall,
however, in no event be earlier than the last day that Tenant could legally use
the Premises without commencing such Capital Expenditure. The cost of any
Capital Expenditure required under this Paragraph 7.02C shall be considered an
Operating Cost covered by Paragraph 5.02A above. If the Premies or the systems
of the Premises cannot be repaired other than at a cost which is in excess of
Fifty Percent (50%) of the cost of replacing them, then the cost thereof shall
be amortized over the useful life of the improvement pursuant to Paragraph 5.02A
above, and Tenant shall only be obligated to pay, each month during the
remainder of the Lease Term (including any Extension Term(s)), on the date on
which Base Monthly Rent is due, an amount equal to the product of multiplying
the cost of such replacement by a fraction, the numerator of which is one, and
the denominator of which is the number of months of the useful life of such
replacement as such useful life is specified pursuant to Federal income tax
regulations or guidelines for depreciation thereof (including interest on the
unamortized balance as is then commercially reasonable in the judgment of
Landlord's accountants), with Tenant reserving the right to prepay its
obligation at any time.
7.03 As used in this Lease, the term "Hazardous Waste" means:
A. Those substances defined as "hazardous substances", "hazardous
materials", "toxic substances", "regulated substances", or "solid waste" in the
Toxic Substance Control Act, 15 U.S.C.ss. 2601 ET. SEQ., as now existing or
hereafter amended ("TSCA"), the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C.ss. 9601 ET. SEQ., as now
existing or hereafter amended ("CERCLA"), the Resource, Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 ET. SEQ., as now existing or
hereafter amended ("RCRA"), the Federal Hazardous Substances Act, 15 U.S.C.ss.
1261 ET. SEQ., as now existing or hereafter amended ("FHSA"), the Occupational
Safety and Health Act of 1970, 29 U.S.C.ss.651 ET. SEQ., as now existing or
hereafter amended ("OSHA"), the Hazardous Materials Transportation Act, 49
U.S.C.ss. 1801 ET. SEQ., as now existing or hereafter amended ("HMTA"), and the
rules and regulations now in effect or promulgated hereafter pursuant to each
law referenced above;
B. Those substances defined as "hazardous waste", "hazardous material",
or "regulated substances" in Nev. Rev. Stat. ch 459, 1989 Nev. Stat. ch. 598 and
1989 Nev. Stat. ch 363, or in the regulations now existing or hereafter
promulgated pursuant thereto or in the Uniform Fire Code, 1988 edition;
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C. Those substances listed in the United States Department of
Transportation table (49 CFRss.172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto); and
D. Such other substances, mixtures, materials and waste which are
regulated under applicable local, state or federal law, or which are classified
as hazardous or toxic under federal, state or local laws or regulations (all
laws, rules and regulations referenced in paragraphs (a), (b), (c) and (d) are
collectively referred to as "Environmental Laws").
7.04 Tenant's Covenants. Tenant does not intend to and Tenant will not,
nor will Tenant allow any other person (including partnerships, corporations and
joint ventures), during the term of this Lease to manufacture, process, store,
distribute, use, discharge or dispose of any Hazardous Waste in, under or on the
Project, the Common Areas, or any property adjacent thereto. Notwithstanding the
foregoing, Tenant may use any ordinary and customary materials reasonably
required to be used in the normal course of its Permitted Use (such as the
storage of batteries and the use of small amounts of cleaning solvents), so long
as such use is in full compliance with all governmental and administrative
requirements, and all laws, rules, codes, regulations, including, without
limitation, all Environmental Laws, and does not expose the Project or any
neighboring property to any risk of contamination or damage or expose the
Landlord to any liability therefor.
A. Tenant shall notify Landlord promptly in the event of any spill or
release of Hazardous Waste into, on, or onto the Project regardless of the
source of spill or release, whenever Tenant knows or suspects that such a
release occurred.
B. Tenant will comply with all Environmental Laws in operations at or
near the Project which could lead to the imposition on the Tenant or the
Landlord of liability or the creation of a lien on the Project, under the
Environmental Laws.
C. Tenant shall, upon twenty-four (24) hour prior notice by Landlord
and during normal working hours (except in the case of emergency), permit
Landlord or Landlord's agent access to the Project to conduct an environmental
site assessment with respect to the Project.
7.05 Indemnity. Tenant for itself and its successors and assigns
undertakes to protect, indemnify, save and defend Landlord, its agents,
employees, directors, officers, shareholders, affiliates, consultants,
independent contractors, successors and assigns (collectively the "Indemnitees")
harmless from any and all liability, loss, damage and expense, including
reasonable attorneys' fees, claims, suits and judgments that Landlord or any
other Indemnitee, whether as Landlord or otherwise, may suffer as a result of,
or with respect to:
A. The violation by Tenant or Tenant's agents, employees, invitees,
licensees or contractors of any Environmental Law, including the assertion of
any lien thereunder and any suit brought or judgment rendered regardless of
whether the action was commenced by a citizen (as authorized under the
Environmental Laws) or by a government agency;
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B. To the extent caused, directly or indirectly by Tenant or Tenant's
agents, employees, invitees, licensees or contractors, any spill or release of
or the presence of any Hazardous Waste affecting the Project whether or not the
same originates or emanates from the Project or any contiguous real estate,
including any loss of value of the Project as a result of a spill or release of
or the presence of any Hazardous Waste;
C. To the extent caused, directly or indirectly by Tenant or Tenant's
agents, employees, invitees, licensees or contractors, any other matter
affecting the Project within the jurisdiction of the United States Environmental
Protection Agency, the Nevada State Environmental Commission, the Nevada
Department of Conservation and Natural Resources, or the Nevada Department of
Commerce, including costs of investigations, remedial action, or other response
costs whether such costs are incurred by the United States Government, the State
of Nevada, or any Indemnitee;
D. To the extent caused, directly or indirectly by Tenant or Tenant's
agents, employees, invitees, licensees or contractors, liability for clean-up
costs, fines, damages or penalties incurred pursuant to the provisions of any
applicable Environmental Law; and
E. To the extent caused, directly or indirectly by Tenant or Tenant's
agents, employees, invitees, licensees or contractors, liability for personal
injury or property damage arising under any statutory or common-law tort theory,
including, without limitation, damages assessed for the maintenance of a public
or private nuisance, or for the carrying of an abnormally dangerous activity,
and response costs.
7.06 Remedial Acts. In the event of any spill or release of or the
presence of any Hazardous Waste affecting the Project, caused by Tenant, its
employees, agents, invitees, licensees, or contractors, whether or not the same
originates or emanates from the Project or any contiguous real estate, and/or if
Tenant shall fail to comply with any of the requirements of any Environmental
Law, Landlord may, without notice to Tenant, at its election, but without
obligation so to do, gives such notices and/or cause such work to be performed
at the Project and/or take any and all other actions as Landlord shall deem
necessary or advisable in order to remedy said spill or release of Hazardous
Waste or cure said failure of compliance and any amounts paid as a result
thereof, together with interest at the rate equal to the product of twelve
percent (12%) per annum of such installment for each month or fractional month
transpiring from the date due until paid.
7.07 Settlement. Landlord upon giving Tenant thirty (30) days prior
notice (or such shorter period as may be required by governmental, court or
administrative order or requirement, or any law, rule, or regulation) shall have
the right in good faith to pay, settle or compromise, or litigate any claim,
demand, loss, liability, cost, charge, suit, order, judgment or adjudication
under the belief that Tenant is liable therefor, whether liable or not, without
the consent or approval of Tenant unless Tenant within said period shall protest
in writing and simultaneously with such protest deposit with Landlord collateral
satisfactory to Landlord sufficient to pay and satisfy any penalty and/or
interest which may accrue as a result of such protest and any judgment or
judgments as may result, together with attorney's fees and expenses, including,
but not limited to, environmental consultants.
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8. PARKING
8.01 Tenant and Tenant's customers, suppliers, employees, and invitees
have the exclusive right to park in the parking facilities located on the
Project. Tenant agrees to reasonably cooperate with Landlord in the use of the
parking facilities. To the extent required by governmental or administrative
authority, by law, rule, code or regulation or by emergency, Landlord reserves
the right to make changes in the parking from time to time. Tenant acknowledges
and agrees that Landlord shall be under no obligation to enforce Tenant's
exclusive parking rights as set forth in this Section 8.01.
9. UTILITIES
9.01 Tenant will be responsible for and shall pay for all water, gas,
heat, light, power, sewer, electricity, or other services metered, chargeable to
or provided to the Premises separate from and in addition to the costs outlined
in Section 5.02 dealing with the utility costs for Common Area Maintenance.
Tenant agrees to cause such billings to be transferred to Tenant's name as of
the Lease Commencement Date.
9.02 Landlord will not be liable or deemed in default to Tenant nor
will there be any abatement of rent for any interruption or reduction of
utilities or services not caused by any act of Landlord or any act reasonably
beyond Landlord's control. Tenant agrees to comply with energy conservation
programs implemented by Landlord by reason of enacted laws or ordinances.
9.03 Tenant will contract and pay for all telephone and such other
services for the Premises subject to the provisions of 10.03.
10. ALTERATIONS, MECHANIC'S LIENS
10.01 Tenant will not make any alterations to the Premises without
Landlord's prior written consent. Landlord's consent shall be contingent upon
Tenant providing Landlord with the following items or information, all subject
to Landlord's reasonable and prompt approval: (i) Tenant's contractor, (ii)
certificates of insurance by Tenant's contractor for commercial general
liability insurance with limits not less than $2,000,000 General
Aggregate,$1,000,000 Products/Complete Operations Aggregate,$1,000,000 Personal
& Advertising Injury, $1,000,000 Each Occurrence, $50,000 Fire Damage, $5,000
Medical Expense, $1,000,000 Auto Liability (Combined Single Limit, including
Hired/Non-Owned Auto Liability), Workers Compensation, including Employer's
Liability, as required by state statute endorsed to show Landlord as an
additional insured and for worker's compensation as required and (iii) detailed
plans and specifications for such work. Tenant agrees that it will have its
contractor execute a waiver of mechanic's lien upon payment for work and that
Tenant will remove any mechanic's lien placed against the Project within twenty
(20) days of receipt of notice of lien by bonding pursuant to Section 108.2413
of the NRS or otherwise. In addition, before alterations may begin, valid
building permits or other permits or licenses required must be furnished to
Landlord, and, once the alterations begin, Tenant will diligently and
continuously pursue their completion. At Landlord's option, any alterations may
become part of the realty and belong to Landlord. If requested by Landlord,
Tenant will pay, prior to the commencement of the construction, an amount
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determined by Landlord necessary to cover the costs of demolishing such
alterations and/or the cost of returning the Premises to its condition prior to
such alterations. As a further condition to giving such consent, Landlord may
require Tenant to provide Landlord, at Tenant's sole cost and expense, a payment
and performance bond in form acceptable to Landlord, in a principal amount not
less than one and one-half times the estimated costs of such alterations, to
ensure Landlord against any liability for mechanic's and materialmen's liens and
to ensure completion of work. Tenant, at Landlord's option, shall at Tenant's
expense remove all alterations and repair all damage to the Premises.
10.02 Notwithstanding anything in Section 10.01 to the contrary, Tenant
may, with written consent of Landlord, which consent shall not be unreasonably
withheld or delayed, install trade fixtures, equipment, and machinery in
conformance with the ordinances of the applicable city and county, and they may
be removed upon termination of its Lease provided the Premises are not damaged
by their removal.
10.03 Any private telephone systems and/or other related
telecommunications equipment and lines must be installed within Tenant's
Premises and, upon termination of this Lease removed and the Premises restored
to the same condition as before such installation.
10.04 Tenant will pay all costs for alterations and will keep the
Premises, the Project and the underlying property free from any liens arising
out of work performed for, materials furnished to or obligation incurred by
Tenant.
10.05 Landlord will have the right to alter any public areas in and
around the Project as may be required by governmental or administrative
authority or by law, rule, code or regulation. Notwithstanding anything which
may be contained in this Lease, Tenant understands this right of Landlord and
agrees that such construction will not be deemed to constitute a breach of this
Lease by Landlord and Tenant waives any such claim which it might have arising
from such construction.
11. FIRE INSURANCE: HAZARDS AND LIABILITY INSURANCE
11.01 Except as expressly provided as Tenant's Permitted Use, or as
otherwise consented to by Landlord in writing, Tenant shall not do or permit
anything to be done within or about the Premises which will increase the
existing rate of insurance on the Project and shall, at its sole cost and
expense, comply with any requirements, pertaining to the Premises, of any
insurance organization insuring the Project and Project-related apparatus.
Tenant agrees to pay to Landlord, as Additional Rent, any increases in premiums
on policies resulting from Tenant's Permitted Use or other use consented to by
Landlord which increases Landlord's premiums or requires extended coverage by
Landlord to insure the Premises.
11.02 Tenant, at all times during the term of this Lease and at
Tenant's sole expense, will maintain a policy of standard fire and extended
coverage insurance with "all risk" coverage on all Tenant's improvements and
alterations in or about the Premises and on all personal property and equipment
to the extent of at least ninety percent (90%) of their full replacement value.
The proceeds from this policy will be used by Tenant for the replacement of
personal property and equipment and the restoration of Tenant's improvements
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and/or alterations. This policy will contain an express waiver, in favor of
Landlord, of any right of subrogation by the insurer.
11.03 Tenant, at all times during the term on this Lease and at
Tenant's sole expense, will maintain a policy of commercial general liability
coverage with limits of not less than $2,000,000 combined single limit for
bodily injury and property damage insuring against all liability of Tenant and
its authorized representatives arising out of or in connection with Tenant's use
or occupancy of the Premises.
11.04 All insurance will name Landlord and/or Landlord's designated
partners and affiliates as an additional insured and will include an express
waiver of subrogation by the insurer in favor of Landlord and Tenant and will
release Landlord from any claims for damage to any person, to the Premises, and
to the Project, and to Tenant's personal property, equipment, improvements and
alterations in or on the Premises of the Project, caused by or resulting from
risks which are to be insured against by Tenant under this Lease. All insurance
required to be provided by Tenant under this Lease will (a) be issued by an
insurance company authorized to do business in the state in which the Premises
are located and which has and maintains a rating of A/X in the Best's Insurance
Reports or the equivalent, (b) be primary and noncontributing with any insurance
carried by Landlord, and (c) contain an endorsement requiring at least thirty
(30) days prior written notice of cancellation to Landlord before cancellation
or change in coverage, scope or limit of any policy. Tenant will deliver a
certificate of insurance or a copy of the policy to Landlord within thirty (30)
days of execution of this Lease and will provide evidence of renewed insurance
coverage at each anniversary, and prior to the expiration of any current
policies; however, in no event will Tenant be allowed to occupy the Premises
before providing adequate and acceptable proof of insurance as stated above.
Tenant's failure to provide evidence of this coverage to Landlord may, in
Landlord's sole discretion, constitute a default under this Lease.
12. INDEMNIFICATION AND WAIVER OF CLAIMS
12.01 Tenant waives all claims against Landlord for damage to any
property in or about the Premises and for injury to any persons, including death
resulting therefrom, regardless of cause or time of occurrence, except for
damage caused by Landlord's employees', agents', visitors' or licensees' gross
negligence or intentional misconduct. Tenant will defend, indemnify and hold
Landlord harmless from and against any and all claims, actions, proceedings,
expenses, damages and liabilities, including attorney's fees, arising out of,
connected with, or resulting from any use of the Premises by Tenant, its
employees, agents, visitors or licensees, including, without limitation, any
failure of Tenant to comply fully with all of the terms and conditions of this
Lease except for any damage or injury which is the direct result of the gross
negligence or intentional misconduct by Landlord, its employees, agents,
visitors or licensees.
13. REPAIRS
13.01 Tenant shall, at its sole expense, keep and maintain the Project
and every part thereof (except such items as Landlord agrees to repair as
provided in Section 13.05 below), including interior and exterior windows,
skylights, doors, plate glass, any store fronts, the roof, parking area,
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landscaping, building exterior, and the interior of the Premises, in good and
sanitary order, condition and repair. Tenant will, also, at its sole cost keep
and maintain all utilities, fixtures, plumbing and mechanical equipment used by
Tenant in good order and repair and furnish all expendables (light bulbs, paper
goods, soaps, etc.) used in the Premises. The standard for comparison and need
of repair will be the condition of the Premises at the time of commencement of
this Lease and all repairs will be made by a licensed and bonded contractor
approved by Landlord.
13.02 Tenant will not make repairs to the Premises at the cost of
Landlord whether by deductions of rent or otherwise, or vacate the Premises or
terminate the Lease if repairs are not made. If during the Lease Term, any
alteration, addition or change to the Premises is required by legal authorities,
subject to the provisions of Section 7.02 above, Tenant, at its sole expense,
shall promptly make the same. Landlord reserves the right to make any such
repairs not made or maintained in good condition by Tenant and Tenant shall
reimburse Landlord for all such costs upon demand.
13.03 If repairs deemed necessary by Landlord or any government
authority are not made by Tenant within the prescribed time frame as provided in
writing, Tenant shall be in default of this Lease.
13.04 Tenant shall, at its own expense, within thirty (30) days of the
Lease Commencement Date, contract with a vendor acceptable to Landlord for the
maintenance service of the HVAC which will be furnished to the Landlord upon
request. If Tenant fails to obtain and maintain such a maintenance service
contract Landlord shall have the right to obtain such a maintenance service
contract at the expense of Tenant.
13.05 Landlord shall keep and maintain the structural soundness of the
roof, foundations, and exterior walls of the Premises in good repair, except
that Landlord shall not be responsible for any repairs or maintenance provided
herein caused by Tenant's misuse of the Project, Tenant's or Tenant's agents',
employees', invitees', licensees', or contractors' negligence or intentional
misconduct not covered by insurance maintained by Landlord on the Project, or
the failure of Tenant to perform or observe any conditions or agreements
contained in this Lease. Landlord shall not be required to commence any repairs
and shall not have any liability or responsibility therefor, except upon notice
of the need therefor from Tenant and a reasonable opportunity to complete the
same. All repair costs by Landlord under this Section 13.05 shall be considered
part of the Operating Costs of the Project as specified in paragraph 5.02A
above. Landlord agrees to exercise commercially reasonable efforts to conduct
such repairs as promptly as possible after receiving notice from Tenant in a
manner which will not unreasonably and materially interfere with Tenant's
occupancy of, or the conduct of Tenant's business from, the Premises.
13.06 In the event Landlord or Tenant (the "Determining Party") has
determined that the other party (the "Maintaining Party") has not made the
repairs or complied with their maintenance obligations specified in Sections
13.02 and 13.05, respectively, the Determining Party shall thereafter notify the
Maintaining Party in writing. If the Maintaining Party disagrees with the
Determining Party's determination, Landlord and Tenant agree to negotiate in
good faith in an attempt to resolve the dispute. In the event Landlord and
Tenant have not resolved the dispute within thirty (30) days after the
Maintaining Party's receipt of the Determining Party's notice, then either party
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may submit the dispute to binding arbitration. The dispute shall be resolved by
a sole arbitrator, whose decision shall be final and binding on the parties. The
parties shall select the arbitrator by mutual agreement or, if the parties fail
to agree upon an arbitrator within ten (10) days from the date of the election
to arbitrate, the arbitrator shall be selected by the American Arbitration
Association. The Commercial Arbitration Rules of the American Arbitration
Association shall govern the arbitration, including selection of the arbitrator
if the parties cannot agree upon the arbitrator. The parties shall each bear
their own costs associated with the arbitration and shall share equally the cost
of the arbitrator. In the event that either party fails to comply with the terms
of the arbitrator's final decision, either party may petition a court of
competent jurisdiction to enter a judgment upon the arbitrator's final decision.
The arbitration shall be held in Reno, Nevada. Nothing in this Section 13.06
shall be construed to preclude any party from seeking injunctive relief or
exercising any of its other rights and remedies pursuant to this Lease.
14. AUCTIONS, SIGNS, AND LANDSCAPING
14.01 Tenant will not conduct or permit to be conducted any sale by
auction on the Premises. All landscaping and the placement, size, and quality of
signs shall be subject to Landlord's prior written approval, which shall not be
unreasonably withheld or delayed. Tenant will not make alterations or additions
to the landscaping and will not place any signs nor allow the placement of any
signs, which are visible from the outside, on or about any building of the
Project, nor in any landscape area, without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed.
15. ENTRY BY LANDLORD
15.01 Tenant will permit Landlord and Landlord's agents to enter the
Premises at all reasonable times and upon reasonable notice (except in the case
of emergency or as may be required by law, rule, or regulation, or court,
administrative, or governmental order or requirement for which no notice is
required) for the purpose of inspecting the same, or for the purpose of
maintaining the Project, or for the purpose of making repairs, alterations or
additions to any portion of the Project, including the erection and maintenance
of such scaffolding, canopies, fences and props as may be required, or for the
purpose of posting notices of nonresponsibility for alterations, additions or
repairs , or for the purpose of showing the Premises to prospective tenants
during the last six months of the Lease Term, or placing upon the Project any
usual or ordinary "for sale" signs, without any rebate of rents and without any
liability to Tenant for any loss of occupation or quiet enjoyment of the
Premises thereby occasioned. Tenant will permit Landlord at any time within
sixty (60) days prior to the expiration of this Lease, to place upon the
Premises any usual or ordinary "to let" or "to lease" signs. Tenant will not
install a new or additional lock or any bolt on any door of the Premises without
the prior written consent of Landlord, which will not be unreasonably withheld.
If Landlord gives its consent, such work shall be undertaken by a locksmith
approved by Landlord, at Tenant's sole cost.
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16. ABANDONMENT
16.01 Tenant will not vacate or abandon the Premises, which shall be
deemed to occur any time during the Lease Term if Tenant does not conduct
business for a period of fifteen (15) consecutive days and/or leaves the
Premises unoccupied for any period of time. If Tenant abandons, vacates or
surrenders the Premises, or is dispossessed by process of law, or otherwise, any
personal property belonging to Tenant left in or about the Premises will, at the
option of Landlord be deemed abandoned and may be disposed of by Landlord in the
manner provided for by the laws of the state in which the Premises are located.
17. DESTRUCTION
17.01 In the case of total destruction of the Premises, or any portion
of the Premises substantially interfering with Tenant's use thereof, whether by
fire or other casualty, not caused by the fault or negligence of Tenant, its
agents, employees, servants, contractors, subtenants, licensees, customers or
business invitees, this Lease shall terminate except as herein provided. If
Landlord notifies Tenant in writing within forty-five (45) days of such
destruction of Landlord's election to repair said damage, and if Landlord
proceeds to and does repair such damage with reasonable dispatch not to exceed
two hundred forty (240) days, this Lease shall not terminate, but shall continue
in full force and effect, except that Tenant shall be entitled to a reduction in
the minimum rent in an amount equal to that proportion of the minimum rent which
the number of square feet of floor space in the unusable portion bears to the
total number of square feet of floor space in the Premises. Said reduction shall
be prorated so that the rent shall only be reduced for those days any given area
is actually unusable. Landlord agrees to utilize commercially reasonable efforts
in connection with such construction so that it does not materially and
unreasonably interfere with Tenant's use of the Premises. In the event Landlord
has not substantially completed such restoration within the two hundred forty
(240) day time period as provided above, then after expiration of such time
period, Tenant may provide Landlord with a notice of its intention to terminate
this Lease (a "Termination Notice"). In the event Landlord substantially
completes the restoration within thirty (30) days of receipt of the Termination
Notice, then this Lease shall not terminate. In the event Landlord does not
substantially complete the restoration within such thirty (30) day period, then
the Lease shall terminate as of the expiration of such thirty (30) day period.
Any such termination shall be effective as of the date of such damage or
destruction. In the event Landlord elects to repair the Premises as provided
above, Landlord agrees to exercise commercially reasonably efforts to locate
temporary premises then owned by Landlord and not subject to lease or
negotiation with another prospective tenant of Landlord (the "Temporary
Premises"), for Tenant to occupy during such period of repair and
reconstruction. During such period of occupancy, Tenant shall be required to pay
to Landlord the fair rental value of the Temporary Premises. The foregoing shall
not constitute a requirement by Landlord to construct or acquire a building for
the Temporary Premises, attempt to cause the early termination of the occupancy
rights of any existing tenants, or cease or defer negotiations with prospective
tenants. In determining compliance with the time periods specified above, such
periods shall be extended for delays caused by labor disputes, civil commotion,
war, warlike operations, invasion, rebellion, hostilities, military or usurped
power, sabotage, governmental regulations or control, fire or other casualty,
inability to obtain any materials or services, acts of God and other causes
beyond Landlord's control. If this Lease is terminated pursuant to this Section
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17 and if Tenant is not in default hereunder, rent shall be prorated as of the
date of termination, any security deposited with Landlord shall be returned to
Tenant, less any reasonable offsets and all rights and obligations hereunder
shall cease and terminate.
17.02. Notwithstanding the foregoing provisions, in the event the
Premises or any portion thereof shall be damaged by fire or other casualty due
to the fault or negligence of Tenant, its agents, employees, servants,
contractors, subtenants, licensees, customers or business invitees, then,
without prejudice to any other rights and remedies of Landlord, this Lease shall
not terminate, the damage shall be repaired at Tenant's cost to the extent not
covered by Landlord's insurance maintained on the Project, and there shall be no
apportionment or abatement of any rent.
17.03 [INTENTIONALLY DELETED]
17.04 The provisions of this Article 17. with respect to Landlord shall
be limited to such repair as is necessary to place the Premises in the condition
existing as of the date of the damage or destruction (excluding Tenant's trade
fixtures, equipment, and other personal property) and when placed in such
condition the Premises shall be deemed restored and rendered tenantable promptly
following which time Tenant, at Tenant's expense shall repair or replace its
stock in trade, fixtures, furniture, furnishings, floor coverings and equipment,
and if Tenant has closed, Tenant shall promptly reopen for business.
17.05 All insurance proceeds payable under any rental insurance and any
property insurance applicable to the Project or Premises shall be payable solely
to Landlord and Tenant shall have no interest therein. Tenant shall in no case
be entitled to compensation for damages on account of any annoyance or
inconvenience in making repairs under any provision of this Lease. Except to the
extent provided for in this Article 17, neither the rent payable by Tenant nor
any of Tenant's other obligations under any provision of this Lease shall be
affected by any damage to or destruction of the Premises or any portion thereof
by any cause whatsoever.
18. ASSIGNMENT, SUBLETTING AND TRANSFERS OF OWNERSHIP
18.01 Except for a Permitted Assignment (as provided in Section 18.08
below) Tenant will not, without Landlord's prior written consent, assign, sell,
mortgage, encumber, convey or otherwise transfer all or any part of Tenant's
leasehold estate, or permit the Premises to be occupied by anyone other than
Tenant and Tenant's employees or sublet the premises or any portion thereof
(collectively called "Transfer"). Tenant must supply Landlord with any and all
documents deemed necessary by Landlord to evaluate any proposed Transfer at
least sixty (60) days in advance of Tenant's proposed Transfer date.
18.02 Except for a Permitted Assignment (as provided in Section 18.08
below), Landlord need not consent to any Transfer for reasons including, but not
limited to, whether or not: (a) in the reasonable judgment of Landlord the
transferee is of a character or is engaged in a business which is not in keeping
with the standard of Landlord for the Project; (b) in the reasonable judgment of
Landlord any purpose for which the transferee intends to use the Premises is not
in keeping with the standards of Landlord for the Project; provided in no event
may any purpose for which transferee intends to use the Premises be in violation
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of this Lease; (c) the portion of the Premises subject to the transfer is not
regular in shape with appropriate means of entering and exiting, including
adherence to any local, county or other governmental codes, or is not otherwise
suitable for the normal purposes associated with such a Transfer; or (d) Tenant
is in default under this Lease or any other Lease with Landlord.
18.03 In the event Landlord consents to a Transfer, Tenant will pay
Landlord Fifty percent (50%) of the excess, if any, of the rent and other
charges reserved in the Transfer over the allocable portion of the rent and
other charges hereunder for that portion of the Premises subject to the
Transfer. For the purpose of this section, the rent reserved in the Transfer
will be deemed to include any lump sum payment or other consideration given to
Tenant in consideration for the Transfer. Tenant will pay or cause the
transferee to pay to Landlord this additional rent together with the monthly
installments of rent due.
18.04 Any consent to any Transfer which may be given by Landlord, the
acceptance of any rent, charges or other consideration by Landlord from Tenant
or any third party, or the consummation of any Permitted Assignment will not
constitute a waiver by Landlord of the provisions of this Lease or a release of
Tenant from the full performance by it of the covenants stated herein; and any
consent given by Landlord to any Transfer will not relieve Tenant (or any
transferee of Tenant) from the above requirements for obtaining the written
consent of Landlord to any subsequent Transfer.
18.05 If a default under this Lease should occur while the Premises or
any part of the Premises are assigned, sublet or otherwise Transferred
(including, without limitation, a Permitted Assignment), Landlord, in addition
to any other remedies provided for within this Lease or by law, may at its
option collect directly from the transferee all rent or other consideration
becoming due to Tenant under the Transfer and apply these monies against any
sums due to Landlord by Tenant; and Tenant authorizes and directs any transferee
to make payments of rent or other consideration direct to Landlord upon receipt
of notice from Landlord. No direct collection by Landlord from any transferee
should be construed to constitute a novation or a release of Tenant or any
guarantor of Tenant from the further performance of its obligations in
connection with this Lease.
18.06 If Tenant is a corporation or a partnership, the issuances of any
additional stock or equity interest and/or the transfer, assignment or
hypothecation of any stock or interest in such corporation or partnership in the
aggregate in excess of Twenty-five percent (25%) of such interests, as the same
may be constituted as of the date of this lease, whether directly or indirectly,
shall be deemed to be a Transfer within the meaning of this Section 18.
18.07 In the event Tenant requests Landlord's consent to an Assignment,
Sub-Let or Transfer of Tenant's interest in the leased Premises, Tenant agrees
to pay Landlord all reasonable attorney's fees incurred by Landlord for any
legal services for document review of any and all documents deemed necessary by
Landlord and Tenant to Assign, Sub-let or Transfer Tenant's interest in the
leased Premises.
18.08 Notwithstanding the foregoing or any other provision of this
Lease, Tenant shall be entitled to (1) assign its entire interest in this Lease
and the Premises to an Affiliate (as hereinafter defined) of Tenant, and (2)
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sublease all or any portion of the Premises ("Permitted Assignment"), without
the prior written consent of Landlord on the following terms of conditions. For
purposes of this Lease, the term "Affiliate" shall mean an entity Controlling,
Controlled by, or under common Control (as hereinafter defined) with Tenant. The
term "Control" or any derivation thereof shall mean the ownership of a majority
of the ownership interest in such entity and the possession, directly or
indirectly, of the irrevocable power to direct or cause the direction of the
management and policies of such entity, whether through such ownership of voting
securities or by contract or otherwise. No Permitted Assignment shall release or
otherwise affect Tenant's obligations under this Lease or constitute an express
or implied consent to any other assignment, sublease, Transfer, or other
Permitted Assignment of all or any part of Tenant's leasehold estate or any
interest therein, or the occupation of the Premises by anyone other than Tenant
or Tenant's employees, unless expressly provided in writing by Landlord in
accordance with the provisions of this Article 18. Tenant shall provide Landlord
with prompt notice of any Permitted Assignment and copies of all documentation
executed by Tenant in connection therewith, which shall include an express and
unconditional proportionate assumption by the permitted assignee or subtenant of
Tenant's obligations under this Lease.
19. BREACH BY TENANT
19.01 Tenant will be in breach of this Lease if at any time during the
term of this Lease (and regardless of the pendency of any bankruptcy,
reorganization, receivership, insolvency or other proceedings in law, in equity
or before any administrative tribunal which have or might have the effect of
preventing Tenant from complying with the terms of this Lease):
A. Tenant fails to make payment of any installment of Base Monthly
Rent, Additional Rent, or of any other sum herein specified to be paid by
Tenant, within ten (10) days of when due; or
B. Tenant fails to observe or perform any of its other covenants,
agreements or obligations hereunder, and such failure is not cured within twenty
(20) days after Landlord's written notice to Tenant of such failure; provided,
however, that if the nature of Tenant's obligation is such that more than twenty
(20) days are required for performance, then Tenant will not be in breach if
Tenant commences performance within such 20 day period and thereafter diligently
prosecutes the same to completion; or
C. Tenant, Tenant's assignee, subtenant, guarantor, or occupant of the
Premises becomes insolvent, makes a transfer in fraud of its creditors, makes a
transfer for the benefit of its creditors, is the subject of a bankruptcy
petition, is adjudged bankrupt or insolvent in proceedings filed against Tenant,
a receiver, trustee, or custodian is appointed for all or substantially all of
Tenant's assets, fails to pay its debts as they become due, convenes a meeting
of all or a portion of its creditors, or performs any acts of bankruptcy or
insolvency, including the selling of its assets to pay creditors; or
D. Tenant has abandoned the Premises as defined in paragraph 16 above.
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E. Tenant fails to take possession of the Premises within thirty (30)
days of receiving notice by Landlord that the Premises are available.
20. REMEDIES OF LANDLORD
20.01 Nothing contained herein shall constitute a waiver of Landlord's
right to recover damages by reason of Landlord's efforts to mitigate the damage
to it by Tenant's default; nor shall anything in this Section adversely affect
Landlord's right, as in this Lease elsewhere provided, to indemnification
against liability for injury or damages to persons or property occurring prior
to a termination of this Lease.
20.02 All cure periods provided herein shall run concurrently with any
periods provided by law.
20.03 In the event of default, as designated herein above, in addition
to any other rights or remedies provided for herein or at law or in equity,
Landlord, at its sole option, shall have the following rights:
A. The right to declare the term of this Lease ended and reenter the
Premises and take possession thereof, and to terminate all of the rights of
Tenant in and to the Premises.
B. The right, without declaring the term of this Lease ended, to
reenter the Premises and to occupy the same, or any portion there of, for and on
account of the Tenant as hereinafter provided, and Tenant shall be liable for
and pay to Landlord on demand all such expenses as Landlord may have paid,
assumed or incurred in recovering possession of the Premises, including costs,
expenses, attorney's fees and expenditures placing the same in good order, or
preparing or altering the same for reletting, and all other expenses,
commissions and charges paid by the Landlord in connection with reletting the
Premises. Any such reletting may be for the remainder of the term of this Lease
or for a longer or shorter period. Such reletting shall be for such rent and on
such other terms and conditions as Landlord, in its sole discretion, deems
appropriate. Landlord may execute any lease made pursuant to the terms hereof
either in the Landlord's own name or in the name of Tenant or assume Tenant's
interest in any existing subleases to any tenant of the Premises, as Landlord
may see fit, and Tenant shall have no right or authority whatsoever to collect
any rent from such tenants, subtenants, of the Premises. In any case, and
whether or not the Premises or any part thereof is relet, Tenant, until the end
of the Lease term shall be liable to Landlord for an amount equal to the amount
due as Rent hereunder, less net proceeds, if any of any reletting effected for
the account of Tenant. Landlord reserves the right to bring such actions for the
recovery of any deficits remaining unpaid by the Tenant to the Landlord
hereunder as Landlord may deem advisable from time to time without being
obligated to await the end of the term of the Lease. Commencement of maintenance
of one or more actions by the Landlord in this connection shall not bar the
Landlord from bringing any subsequent actions for further accruals. In no event
shall Tenant be entitled to any excess rent received by Landlord over and above
that which Tenant is obligated to pay hereunder; or
C. The right, even though it may have relet all or any portion of the
Premises in accordance with the provisions of subsection B. above, to thereafter
at any time elect to terminate this Lease for such previous default on the part
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of the Tenant, and to terminate all the rights of Tenant in and to the Premises.
20.04 Pursuant to the rights of re-entry provided above, Landlord may
remove all persons from the Premises and may, but shall not be obligated to,
remove all property therefrom, and may, but shall not be obligated to, enforce
any rights Landlord may have against said property or store the same in any
public or private warehouse or elsewhere at the cost and for the account of
Tenant or the owner or owners thereof. Tenant agrees to hold Landlord free and
harmless from any liability whatsoever for the removal and/or storage of any
such property, whether of Tenant or any third party whomsoever. Such action by
the Landlord shall not be deemed to have terminated this Lease.
20.05 If Tenant breaches this Lease and abandons the Premises before
the end of the term, or if its right of possession is terminated by Landlord
because of Tenant's breach of this Lease, then this Lease may be terminated by
Landlord at its option. On such Termination Landlord may recover from Tenant, in
addition to the remedies permitted at law:
A. The worth, at the time of the award, of the unpaid Base Monthly
Rents and Additional Rents which had been earned at the time this Lease is
terminated;
B. The worth, at the time of the award, of the amount by which the
unpaid Base Monthly Rents and Additional Rents which would have been earned
after the date of termination of this Lease until the time of award exceeds the
amount of the loss of rents that Tenant proves could be reasonably avoided;
C. The worth, at the time of the award, of the amount by which the
unpaid Base Monthly Rent and Additional Rents for the balance of the Lease Term
after the time of award exceeds the amount of such rental loss for such period
as the Tenant proves could have been reasonably avoided; and
D. Any other amount, and court costs, necessary to compensate Landlord
for all detriment proximately caused by Tenant's breach of its obligations under
this Lease, or which in the ordinary course of events would be likely to result
therefrom. The detriment proximately caused by Tenant's breach will include,
without limitation, (i) expenses for cleaning, repairing or restoring the
Premises, (ii) expenses for altering, remodeling or otherwise improving the
Premises for the purpose of reletting the Premises, (iii) brokers' fees and
commissions, advertising costs and other expenses of reletting the Premises,
(iv) costs of carrying the Premises such as taxes, insurance premiums, utilities
and security precautions, (v) expenses of retaking possession of the Premises,
(vi) reasonable attorney's fees and court costs, (vii) any unearned brokerage
commissions paid in connection with this Lease, (viii) reimbursement of any
previously waived Base Rent, Additional Rent, free rent or reduced rental rate,
and (ix) any concession made or paid by Landlord to the benefit of Tenant in
consideration of this Lease including, but not limited to, any moving
allowances, contributions or payments by Landlord for tenant improvements or
build-out allowances or assumptions by Landlord of any of the Tenant's previous
lease obligations.
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20.06 In any action brought by the Landlord to enforce any of its
rights under or arising from this Lease, Landlord shall be entitled to receive
its costs and legal expenses including reasonable attorneys' fees, whether or
not such action is prosecuted to judgment.
20.07 The waiver by Landlord of any breach or default of Tenant
hereunder shall not be a waiver of any preceding or subsequent breach of the
same or any other term. Acceptance of any Rent payment shall not be construed to
be a waiver of the Landlord of any preceding breach of the Tenant.
20.08 All past due amounts owed by Tenant under the terms of this Lease
shall bear interest at twelve percent per annum unless otherwise stated.
20.09 Notwithstanding any other provision of this Lease, if this Lease
is terminated at any time prior to the expiration of the Lease Term for any
reason other than a default by Landlord, then Landlord shall, without limiting
or affecting any of Landlord's rights and remedies hereunder, or otherwise at
law or in equity, be entitled to retain all Base Monthly Rent paid by Tenant
prior to the accrual thereof under Section 467 of the Internal Revenue Code in
accordance with the Schedule set forth in Section 1.07 above.
21. SURRENDER OF LEASE NOT MERGER
21.01 The voluntary or other surrender of this Lease by Tenant, or
mutual cancellation thereof, will not work a merger and will, at the option of
Landlord, terminate all or any existing transfers, or may, at the option of
Landlord, operate as an assignment to it of any or all of such transfers.
22. ATTORNEYS FEES/COLLECTION CHARGES
22.01 In the event of any legal action or proceeding between the
parties hereto, reasonable attorneys' fees and expenses of the prevailing party
in any such action or proceeding will be added to the judgment therein. Should
Landlord be named as defendant in any suit brought against Tenant in connection
with or arising out of Tenant's occupancy hereunder, Tenant will pay to Landlord
its costs and expenses incurred in such suit, including reasonable attorney's
fees.
22.02 If Landlord utilizes the services of any attorney at law for the
purpose of collecting any rent due and unpaid by Tenant after five (5) days
written notice to Tenant of such nonpayment of rent or in connection with any
other breach of this Lease by Tenant, Tenant agrees to pay Landlord reasonable
attorneys' fees as determined by Landlord for such services, regardless of the
fact that no legal action may be commenced or filed by Landlord
23. CONDEMNATION
23.01 If twenty-five percent (25%) or more of the square footage of the
Premises is taken for any public or quasi-public purpose by any lawful
government power or authority, by exercise of the right of appropriation,
reverse condemnation, condemnation or eminent domain, or sold to prevent such
taking, and if the remaining portion of the Premises will not be reasonably
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adequate for the operation of Tenant's business after Landlord completes such
repairs or alterations as Landlord elects to make, either Tenant or the Landlord
may at its option terminate this Lease by notifying the other party hereto of
such election in writing within twenty (20) days after such taking. Landlord
shall endeavor to provide Tenant with a notice upon Landlord's becoming aware of
a condemnation action affecting the Project; provided, however, that failure of
Landlord to so notify Tenant shall not constitute a default by Landlord under
this Lease or otherwise provide Tenant with any cause of action for liability or
otherwise against Landlord. Tenant will not because of such taking assert any
claim against the Landlord or the taking authority for any compensation because
of such taking, and Landlord will be entitled to receive the entire amount of
any award without deduction for any estate of interest of Tenant.
Notwithstanding the foregoing, Tenant may make a claim with the condemning
authority for replacement of Tenant's trade fixtures and personal property
installed by Tenant and its cost of relocation, to the extent that the foregoing
does not reduce the amount payable to Landlord as a result of any such taking.
If less than twenty-five percent (25%) of the Premises is taken, Landlord at its
option may terminate this Lease. If Landlord does not so elect, Landlord will
promptly proceed to restore the Premises to substantially its same condition
prior to such partial taking, allowing for any reasonable effects of such
taking, and a proportionate allowance based on the loss of square footage will
be made to Tenant for the rent corresponding to the time during which, and to
the part of the Premises, which, Tenant is deprived on account of such taking
and restoration.
24. RULES AND REGULATIONS
24.01 Tenant will faithfully observe and comply with any Rules and
Regulations promulgated by Landlord for the Project and Landlord reserves the
right to modify and amend them as it deems necessary. Landlord will not be
responsible to Tenant for the nonperformance by any other Tenant or occupant of
the Project of any of said Rules and Regulations.
24.02 In the event that Tenant fails to cure any violations of such
Rules and Regulations following ten (10) days written notice by Landlord, such
failure to cure shall be deemed a material breach of this Lease by Tenant.
25. ESTOPPEL CERTIFICATE
25.01 Tenant will execute and deliver to Landlord, within ten (10)
business days of Landlords written demand, a statement in writing certifying
that this Lease is in full force and effect, and that the Base Monthly Rent and
Additional Rent payable hereunder is unmodified and in full force and effect
(or, if modified, stating the nature of such modification) and the date to which
rent and other charges are paid, if any, and acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder or
specifying such defaults if they are claimed and such other matters as Landlord
may reasonably request. Any such statement may be conclusively relied upon by
any prospective purchaser or encumbrancer of the Premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant that (1)
this Lease is in full force and effect, without modification except as may be
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and (3) not more than one (1) month's rents has been paid in
advance.
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26. SALE BY LANDLORD
26.01 In the event of a sale or conveyance by Landlord of the Project
the same shall operate to release Landlord from any liability upon any of the
covenants or conditions, expressed or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the responsibility of
the successor in interest of Landlord in and to this Lease. This Lease will not
be affected by any such sale, and Tenant agrees to attorn to the purchaser or
assignee.
27. NOTICES
27.01 All notices, statements, demands, requests, consents, approvals,
authorizations, offers, agreements, appointments, or designations under this
Lease by either party to the other will be in writing and will be considered
sufficiently given and served upon the other party if sent by certified or
registered mail, return receipt requested, postage prepaid, delivered
personally, or by a national overnight delivery service and addressed as
indicated in 1.03 and 1.04.
28. WAIVER
28.01 The failure of Landlord to insist in any one or more cases upon
the strict performance of any term, covenant or condition of the Lease will not
be construed as a waiver of a subsequent breach of the same or any other
covenant, term or condition; nor shall any delay or omission by Landlord to seek
a remedy for any breach of this Lease be deemed a waiver by Landlord of its
remedies or rights with respect to such a breach.
29. HOLDOVER
29.01 If Tenant remains in the Premises after the Lease expiration date
with the consent of the Landlord, and has not given prior written notice to
Landlord, such continuance of possession by Tenant will be deemed to be a
month-to-month tenancy at the sufferance of Landlord terminable on thirty (30)
day notice at any time by either party. All provisions of this Lease, except
those pertaining to term and rent, will apply to the month-to-month tenancy.
Tenant will pay a new Base Monthly Rent in an amount equal to 125% of the Base
Monthly Rent payable for the last full calendar month during the term of this
Lease. Upon expiration or earlier termination of this Lease, Tenant agrees to
vacate the Premises in good and clean condition, reasonable wear and tear
excepted, in compliance with the move out standards set forth on Exhibit G
attached hereto.
30. DEFAULT OF LANDLORD/LIMITATION OF LIABILITY
30.01 In the event of any default by Landlord hereunder, Tenant agrees
to give notice of such default, by registered mail, to Landlord at Landlord's
Notice Address as stated in 1.04 and to offer Landlord a reasonable opportunity
to cure the default. In the event of any actual or alleged failure, breach or
default hereunder by Landlord, Tenant's sole and exclusive remedy will be
against Landlord's interest in the Project, and Landlord, its directors,
officers, employees and any partner of Landlord will not be sued, be subject to
service or process, or have a judgement obtained against him in connection with
any alleged breach or default, and no writ of execution will be levied against
25
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the assets of any partner, shareholder or officer of Landlord. The covenants and
agreements are enforceable by Landlord and also by any partner, shareholder or
officer of Landlord.
31. SUBORDINATION
31.01 At the election of Landlord or any mortgagee with a lien on the
Project or any ground lessor with respect to the Project, provided that a
non-disturbance agreement reasonably acceptable to Tenant is first executed,
this Lease will be subject and subordinate at all times to (a) all ground leases
or underlying leases which may now exist or hereafter be executed affecting the
Project, and (b) the lien of any mortgage or deed of trust which may now exist
or hereafter be executed in any amount for which the Project, ground leases or
underlying leases, or Landlord's interest or estate in any of said items is
specified as security. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant will,
notwithstanding any subordination, attorn to and become the Tenant of the
successor in interest to Landlord, at the option of such successor in interest.
Tenant covenants and agrees to execute and deliver to Landlord any document or
instrument reasonably requested by Landlord or its ground lessor, mortgagee or
beneficiary under a deed of trust evidencing such subordination of this Lease
with respect to any such ground lease or underlying leases or the lien of any
such mortgage or deed of trust. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact of Tenant to execute, deliver and record any such document in
the name and on behalf of Tenant.
32. DEPOSIT AGREEMENT
32.01 Landlord and Tenant hereby agree that Landlord will be entitled
to immediately endorse and cash Tenant's good faith rent and the Security
Deposit check(s) accompanying this Lease. It is further agreed and understood
that such action will not guarantee acceptance of this Lease by Landlord, but,
in the event Landlord does not accept this Lease, such deposits will be promptly
refunded in full to Tenant. This Lease will be effective only after Tenant has
received a copy fully executed by both Landlord and Tenant.
33. GOVERNING LAW
33.01 This Lease is governed by and construed in accordance with the
laws of the State of Nevada, and venue of any suit will be in the county where
the Premises are located unless the Premises are not located in Nevada in which
case the venue will be Washoe County in the State of Nevada.
34. NEGOTIATED TERMS
34.01 This Lease is the result of the negotiations of the parties and
has been agreed to by both Landlord and Tenant after prolonged discussion.
35. SEVERABILITY
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35.01 If any provision of this Lease is found to be unenforceable, all
other provisions shall remain in full force and effect.
36. BROKERS
36.01 Each party ("Indemnifying Party") warrants that it has had no
dealings with any broker or agent in connection with this Lease, and each
Indemnifying Party covenants to pay, hold harmless and indemnify the other party
from and against any and all cost, expense or liability for any compensation,
commissions and charges claimed by any broker or agent acting by or through the
Indemnifying Party, with respect to this Lease or its negotiation.
37. QUIET POSSESSION
37.01 Tenant, upon paying the rentals and other payments herein
required from Tenant, and upon Tenant's performance of all of the terms,
covenants and conditions of this Lease on its part to be kept and performed, may
quietly have, hold and enjoy the Premises during the Term of this Lease without
disturbance from Landlord or from any other person claiming through Landlord.
38. MISCELLANEOUS PROVISIONS
38.01 Whenever the singular number is used in this Lease and when
required by the context, the same will include the plural, and the masculine
gender will include the feminine and neuter genders, and the word "person" will
include corporation, firm, partnership, or association. If there is more than
one Tenant, the obligations imposed upon Tenant under this Lease will be joint
and several.
38.02 The headings or titles to paragraphs of this Lease are not a part
of this Lease and will have no effect upon the construction or interpretation of
any part of this Lease.
38.03 This instrument contains all of the agreements and conditions
made between the parties to this Lease. Tenant acknowledges that neither
Landlord nor Landlord's agents have made any representation or warranty as to
the suitability of the Premises to the conduct of Tenant's business. Any
agreements, warranties or representations not expressly contained herein will in
no way bind either Landlord or Tenant, and Landlord and Tenant expressly waives
all claims for damages by reason of any statement, representation, warranty,
promise or agreement, if any, not contained in this Lease.
38.04 Time is of the essence of each term and provision of this Lease.
38.05 Except as otherwise expressly stated, each payment required to be
made by Tenant is in addition to and not in substitution for other payments to
be made by Tenant.
38.06 Subject to Article 18, the terms and provisions of this Lease are
binding upon and inure to the benefit of the heirs, executors, administrators,
successors and assigns of Landlord and Tenant.
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38.07 All covenants and agreements to be performed by Tenant under any
of the terms of this Lease will be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent.
38.08 In consideration of Landlord's covenants and agreements
hereunder, Tenant hereby covenants and agrees not to disclose any terms,
covenants or conditions of this Lease to any other party without the prior
written consent of Landlord, except as may be required by law, including,
without limitation, the Securities Act of 1933, as amended from time to time.
38.09 Tenant agrees it will provide to Landlord such financial
information as is required to be disclosed by Tenant from time to time under the
Securities Act of 1933, the Securities Exchange Act of 1934, and otherwise by
law, as Landlord may reasonably request for the purpose of obtaining
construction and/or permanent financing or refinancing for the Project or in
connection with a sale thereof. In the event Tenant is not subject to the
reporting requirements of the Securities Act of 1933 or the Securities Exchange
Act of 1934, Tenant shall provide Landlord with such financial information as
Landlord may reasonably request for the purpose of obtaining construction and/or
permanent financing or refinancing for the Project or in connection with a sale
thereof.
38.10 If Tenant shall request Landlord's consent and Landlord shall
fail or refuse to give such consent, Tenant shall not be entitled to any damages
for any withholding by Landlord of its consent; Tenant's sole remedy shall be an
action for specific performance or injunction, and such remedy shall be
available only in those cases where Landlord has expressly agreed in writing not
to unreasonably withhold its consent or where as a matter of law Landlord may
not unreasonably withhold its consent.
38.11 Whenever a day is appointed herein on which, or a period of time
is appointed in which, either party is required to do or complete any act,
matter or thing, the time for the doing or completion thereof shall be extended
by a period of time equal to the number of days on or during which such party is
prevented from, or is reasonably interfered with, the doing or completion of
such act, matter or thing because of labor disputes, civil commotion, war,
warlike operation, sabotage, governmental regulations or control, fire or other
casualty, inability to obtain materials, or to obtain fuel or energy, weather or
other acts of God, or other causes beyond such party's reasonable control
(financial inability excepted); provided, however, that nothing contained herein
shall excuse Tenant from the prompt payment of any Rent or charge required of
Tenant hereunder.
38.12 No slot machine or other gambling game shall be permitted on the
Premises without the prior written consent of Landlord. The Premises shall not
be used for any "adult bookstore" or "adult motion picture theater" as said
terms are defined in NRS 278.0221, or any similar use, notwithstanding any local
zoning codes or ordinances or any other provisions of law to the contrary
permitting such use.
38.13 All representations, warrants, covenants, and agreements of the
parties hereto shall survive the expiration or earlier termination of this
Lease.
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38.14 Simultaneously with the execution of this Lease, Landlord and
Tenant shall execute the Memorandum of Lease in the form of Exhibit H-1 attached
hereto, setting forth the parties, description of the Premises, the Lease
Commencement Date, and term provisions of this Lease. Tenant shall cause said
Memorandum of Lease to be recorded in the Official Records of the County
Recorder of Washoe County, Nevada. In addition, simultaneously with the
execution of this Lease, Tenant agrees to execute the Quitclaim Deed in the form
of Exhibit H-2 attached hereto and Landlord is authorized to record such
Quitclaim Deed in the Official Records of the County Recorder of Washoe County,
Nevada, at any time after expiration of the Lease Term (including any Extension
Terms) or earlier termination of this Lease.
39. CHANGE ORDERS
39.01 [INTENTIONALLY DELETED]
40. SPECIAL PROVISIONS
40.01 Special provisions of this Lease numbers 41, 42 and 43 are a part
of this Lease and Exhibits A (Depiction of Premises), B-1 and B-2 (Base Monthly
Rent Schedules), C (Tenant Questionnaire), D (Rules and Regulations), E
(Commencement Date Certificate), and G (Move Out Standards), and H (H-1,
Memorandum of Lease, and H-2, Quitclaim Deed) are attached hereto and made a
part hereof.
41. OPTIONS TO EXTEND LEASE TERM
41.01 Tenant is hereby granted the options (each, an "Extension
Option," and collectively, the "Extension Options") to extend the Lease Term for
two (2) additional periods of five (5) years (each, an "Extension Term," and
collectively, the "Extension Terms"), each beginning on the day after expiration
of the Initial Lease Term or the first Extension Term, as the case may be, and
expiring on the date five (5) years thereafter (unless terminated sooner
pursuant to any other terms or provisions of the Lease), on all of the same
terms and conditions as set forth in the Lease, but at an adjusted Base Monthly
Rent as set forth in Section 41.02 below (and without any additional option to
extend the Lease Term after the expiration of the second Extension Term). The
Extension Options may be exercised by Tenant only by delivery of written notice
of such exercise (the "Extension Notice") to Landlord, which Extension Notice
must be received by Landlord at least two hundred twenty-five (225) days before
the expiration of the Initial Lease Term or the first Extension Term, as
applicable. If Tenant fails to timely deliver the Extension Notice, or if this
Lease is terminated pursuant to any of its other terms or provisions prior to
the expiration of the Initial Lease Term or the first Extension Term, as
applicable, all remaining Extension Options shall lapse, and Tenant shall have
no right to extend or further extend the Lease Term. The Extension Options shall
be exercisable by Tenant on the express conditions that (i) at the time of
delivery of Tenant's Extension Notice and at all times thereafter and prior to
the commencement of the applicable Extension Term, Tenant shall not be in
monetary default under this Lease, (ii) Tenant has not previously been in
monetary default (whether or not such default has been timely cured) under this
Lease on more than three (3) occasions during the Lease Term, and (iii) except
for a Permitted Assignment, Tenant has not assigned this Lease, sublet all or
any part of the Premises, or otherwise Transferred this Lease, it being
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understood that, except in the case of a Permitted Assignment, the Extension
Options are personal to the original named Tenant under this Lease. In the event
of any such assignment, sublease, or other Transfer other than a Permitted
Assignment, all unexercised Extension Options shall lapse and shall be null and
void and of no further force or effect. After agreement by Landlord and Tenant
on the Base Monthly Rent as provided in Section 41.02 below, Tenant's obligation
to renew shall be irrevocable by Tenant.
41.02 Base Monthly Rent during each Extension Term, including any
interim increases thereof, shall be the "Market Rent" of the Premises, as
hereinafter provided. The term "Market Rent" for the Premises during the
applicable Extension Term shall mean the rent, including all escalations, at
which an unrelated landlord and tenant, with neither being under undue influence
or duress, would be willing to lease the Project based upon its highest and best
use and for a five-year term. Tenant and Landlord agree to negotiate the amount
of Market Rent for the Project in good faith for a period of forty-five (45)
days after exercise by Tenant of each Extension Option as provided in Section
41.01 above (the "Negotiation Period"). In the event Landlord and Tenant agree
upon the Base Monthly Rent pursuant to the foregoing provisions within the
Negotiation Period, then Tenant's obligation to renew for the applicable
Extension Term shall become irrevocable. In the event Tenant and Landlord are
unable to agree upon the Base Monthly Rent within the Negotiation Period, then
at any time after expiration of the Negotiation Period, and prior to any
subsequent agreement on the amount of Base Monthly Rent, Landlord or Tenant may
terminate Tenant's right to lease the Premises for the applicable Extension Term
(but not the remaining portion of the then existing Lease Term) by delivering
written notice to the other. Landlord's and Tenant's agreement on Base Monthly
Rent for the applicable Extension Term shall be evidenced by a written amendment
to this Lease Agreement executed by Landlord and Tenant.
42. CONDITION PRECEDENT
42.01 Landlord and Tenant acknowledge and agree that this Lease and the
parties' respective obligations hereunder including, without limitation, the
obligations included in Article 43. below shall be conditioned upon the
acquisition by Landlord of title to the Project pursuant to the Sale Agreement,
and in the event Landlord does not acquire title to the Project pursuant to the
Sale Agreement or any amendments or restatements thereof, or otherwise, then
this Lease Agreement shall be null and void and the parties shall have no rights
or obligations hereunder. Upon the closing under the Sale Agreement, the Lease
Commencement Date shall occur, the current lease between LMC and South Meadows
Properties Limited Partnership (the "Existing Lease") shall automatically
terminate, and this Lease shall take effect. Tenant represents, warrants,
acknowledges and agrees that Landlord shall have no liability or obligation
whatsoever with respect to or in any way related to the Existing Lease.
43. ROBB DRIVE LEASE AGREEMENT
43.01 Landlord and Tenant acknowledge and agree that the lease
agreement between Landlord, as successor-in-interest to Elite Instruments, Inc.,
a Nevada corporation, and Tenant (the "Robb Drive Lease Agreement") for the
premises located at 2301 Robb Drive, Reno, Nevada (the "Robb Drive Premises")
shall be canceled in accordance with the terms and conditions set forth in this
Article 43. Tenant agrees to vacate the Robb Drive Premises in good and clean
30
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condition by January 31, 2000 (the "Robb Drive Premises Vacation Date"). Tenant
shall be relieved of the obligation to pay base monthly rent and all other rent
and other monetary obligations under the Robb Drive Lease Agreement (the "Robb
Drive Rent") and all other obligations under the Robb Drive Lease Agreement
accruing or arising after the date six (6) months after the Lease Commencement
Date (the "Robb Drive Lease Termination Date"); provided, however, that Landlord
and Tenant acknowledge and agree that Tenant will not be relieved of any of
Tenant's obligations under the Robb Drive Lease Agreement which arise or accrue
prior to the Robb Drive Lease Termination Date, all of which shall survive the
termination of the Robb Drive Lease Agreement. Nothing contained herein shall be
intended to or shall be deemed to release Tenant from or waive Landlord's rights
with respect to any obligations of Tenant or any default by Tenant under the
Robb Drive Lease Agreement prior to the Robb Drive Lease Termination Date.
Landlord agrees to exercise commercially reasonable efforts to release the Robb
Drive Premises on commercially reasonable terms. In the event that Landlord
enters into a binding lease agreement with a third party tenant prior to the
Robb Drive Lease Termination Date, (1) Tenant shall receive a credit against the
Robb Drive Rent payable by Tenant through the Robb Drive Lease Termination Date
in the amount of rent actually received by Landlord prior to the Robb Drive
Lease Termination Date under such third party lease agreement, and (2) Tenant
shall not be responsible for any obligations other than Robb Drive Rent which
arise or accrue after the date possession of the Robb Drive Premises is granted
to such third party. In the event Landlord executes a lease agreement with a
third party prior to or on the Robb Drive Lease Termination Date, Tenant shall
be responsible for fifty percent (50%) of the lease commission paid by Landlord
attributable to the then remaining lease term under the Robb Drive Lease
Agreement. In the event Landlord executes a lease agreement with a third party
subsequent to the Robb Drive Lease Termination Date, Landlord shall be
responsible for one hundred percent (100%) of the lease commission payable by
Landlord, if any, with respect thereto.
43.02 Tenant represents, warrants, covenants and agrees with Landlord
that on the Lease Commencement Date and on the Robb Drive Lease Termination
Date, (1) there are no existing defaults by Landlord under the Robb Drive Lease
Agreement, (2) Landlord shall be relieved of all obligations under the Robb
Drive Lease Agreement as of the Lease Commencement Date, (3) the Robb Drive
Lease Agreement is the only agreement, written, oral, or otherwise between
Landlord and Tenant pertaining to the Robb Drive Premises and the Robb Drive
Lease Agreement has not been amended, superseded, added to or interpreted, in
writing, orally, or otherwise, at any time, (4) no party other than Tenant has
any right to, or interest in, the Robb Drive Premises, (5) upon delivery of the
Robb Drive Premises in accordance with this Article 43, Landlord shall receive
good and absolute title to the Robb Drive Premises free and clear of any and all
liens, charges, encumbrances or claims of whatever kind or nature arising out
of, or in connection with, Tenant's use, occupancy, or operation of the Robb
Drive Premises, and Tenant does not have any claim or action of any kind or
nature against the Landlord arising under or pursuant to the Robb Drive Lease or
in connection with the Robb Drive Premises.
43.03 Tenant shall completely vacate the Robb Drive Premises and
deliver actual physical possession of the Robb Drive Premises and improvements
to Landlord on or before the Robb Drive Premises Vacation Date. Immediately upon
vacating the Robb Drive Premises, Tenant shall deliver to Landlord all keys,
pass keys, key cards, plans, specifications, designs, blueprints, permits and
similar items relating to the Robb Drive Premises and all other items and
31
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information in its possession necessary for Landlord to obtain complete access
to the Robb Drive Premises otherwise related thereto. Tenant shall cause the
utilities and services to the Robb Drive Premises to be read as of the Robb
Drive Lease Termination Date and such bills will be sent to and paid by Tenant.
Tenant agrees to terminate any and all contracts and agreements of any kind with
agents, consultants, advisors, or dealers for the management, maintenance, or
other services otherwise relating to the Robb Drive Premises as of the Robb
Drive Premises Vacation Date. Any property remaining in the Robb Drive Premises
after the Robb Drive Premises Vacation Date shall be absolutely, irrevocably,
and conclusively presumed to have been abandoned, and may either be retained by
Landlord as its property, or sold or otherwise disposed of in such manner as
Landlord shall determine in its sole and absolute discretion. If any part
thereof shall be sold, Landlord may receive and retain the proceeds of such sale
for its own benefit.
43.04 Except as otherwise provided in this Article 43., Landlord and
Tenant agree that all rights of Tenant under the Robb Drive Lease Agreement
shall automatically, absolutely, and irrevocably terminate and Tenant's interest
in the Robb Drive Lease Agreement and the Robb Drive Premises shall be
completely extinguished for all purposes and all respects at 5:00 p.m. on the
Robb Drive Premises Vacation Date, as if the Robb Drive Premises Vacation Date
were the date set forth in the Robb Drive Lease Agreement for the expiration
thereof. Except as otherwise provided in the immediately following sentence,
Landlord and Tenant agree that the termination of the Robb Drive Lease Agreement
shall be self-executing and effective without the need for further
documentation. Landlord and Tenant agree to execute, acknowledge, and deliver to
the other party such other documents, including, without limitation, a
Memorandum of Termination of Lease, in a form and content reasonably acceptable
to the parties, as reasonably requested by the other party.
43.05 In the event Tenant fails to relinquish complete possession of
the Robb Drive Premises and deliver the same to Landlord in accordance with the
provisions of this Article 43. or otherwise fails to perform its obligations to
this Article 43., Landlord shall have the right to avail itself of any and all
rights and remedies which Landlord may have under this agreement, or otherwise
at law or in equity.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year indicated by Landlord's execution date as written below.
Individuals signing on behalf of a Tenant warrant that they have the
authority to bind their principals. In the event that Tenant is a corporation,
Tenant shall deliver to Landlord, concurrently with the execution and delivery
of this Lease, a copy of corporate resolutions adopted by Tenant authorizing
said corporation to enter into and perform the Lease and authorizing the
execution and delivery of the Lease on behalf of the corporation by the parties
executing and delivering this Lease. THIS LEASE, WHETHER OR NOT EXECUTED BY
TENANT, IS SUBJECT TO ACCEPTANCE AND EXECUTION BY LANDLORD, ACTING ITSELF OR BY
ITS AGENT.
Landlord: Dermody Family Limited Tenant: iGo Corporation, a Delaware
Partnership I, a Washington corporation
limited partnership, and Guila
Dermody Turville
By: /s/ Lou Borrego
--------------------------------
By: Dermody Family Limited Liability
Company I, a Washington limited
liability company, its general Its: Lou Borrego, VP Operations
partner -------------------------------
(Name, Title)
By: /s/ John A. Dermody
-----------------------------
John A. Dermody, Member Date: 12-10-99
---------------------
(Execution Date)
Date: 12-13-99
---------------------
(Execution Date)
/s/ Guila Dermody Turville
- ---------------------------
Guila Dermody Turville
Date: 12-15-99
---------------------
(Execution Date)
32
[IBM LOGO]
- --------------------------------------------------------------------------------
PERSONAL SYSTEMS GROUP EXECUTED DOCUMENT
CONFIRMATION
CONTRACT OPERATIONS
IBM PERSONAL SYSTEMS GROUP
3039 CORNWALLIS RD.
BLDG. 203
RESEARCH TRIANGLE PARK, NC 27709
FAX: (919) 517-1860
DATE: DECEMBER 3, 1999
BUSINESS PARTNER LEGAL NAME: IGO CORPORATION
ENCLOSED IS AN EXECUTED COPY OF THE FOLLOWING BETWEEN YOU AND
THE IBM PERSONAL SYSTEMS GROUP:
IBM Business Partner Agreement Distributor Profile
Contract Duration: 24 Months Contract Expiration: November 30, 2001
Please contact me if there are any questions.
Lisa Fitzgerald
Contract Operations
IBM Personal Systems Group
(919) 517-0119
Enclosure
<PAGE>
IBM Business Partner Agreement [IBM LOGO]
Distributor Profile
- --------------------------------------------------------------------------------
We welcome you as an IBM Business Partner-Distributor.
This Profile covers the details of your approval to actively market Products and
Services, as our Distributor.
By signing below, each of us agrees to the terms of the following (collectively
called the "Agreement"):
(A) this Profile;
(B) General Terms (Z125-5478-04 12/98);
(C) the applicable Attachments referred to in this Profile; and
(D) the Exhibit.
This Agreement and its applicable transaction documents are the complete
agreement regarding this relationship, and replace any prior oral or written
communications between us. Once this Profile is signed, 1) any reproduction of
this Agreement or a transaction document made by reliable means (for example,
photocopy or facsimile) is considered an original, to the extent permissible
under applicable law, and 2) all Products and Services you market and Services
you perform under this Agreement are subject to it. If you have not already
signed an Agreement for Exchange of Confidential Information (AECI), your
signature on this Profile includes your acceptance of the AECI.
After signing this Profile, please return a copy to the IBM address shown below.
Revise Profile (yes/no): YES Date received by IBM: December 3, 1999
------- ----------------
AGREED TO: (IBM Business Partner AGREED TO:
Name) International Business Machines
iGo Corporation Corporation
By: /s/ Robert Bauer By: /s/ Diane Godbee
----------------------------- -----------------
Authorized signature Authorized signature
Name (type or print): Robert Bauer Name (type or print): Diane Godbee
Date: November 15, 1999 Date:
IBM Business Partner address: IBM address:
2301 ROBB DRIVE 3039 CORNWALLIS ROAD
RENO, NV 89523 BUILDING 203
RESEARCH TRIANGLE PARK, NC 27709
Page 1 of 5
<PAGE>
DETAILS OF OUR RELATIONSHIP
CONTRACT PERIOD START DATE (MONTH/YEAR): 12/1/99 DURATION: 24 MONTHS
--------- ---------
RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS:
FOR EACH APPROVED RELATIONSHIP, EACH OF US AGREES TO THE TERMS OF THE FOLLOWING
BY SIGNING THIS PROFILE. COPIES OF THE ATTACHMENTS ARE INCLUDED.
<TABLE>
<CAPTION>
APPROVED RELATIONSHIP APPLICABLE ATTACHMENT
(YES/NO)
<S> <C> <C>
Distributor Attachment yes Z125-5486-03 12/98
Remarketer Terms Attachment yes Z125-5497-02 12/98
Warranty Service Attachment no Z125-5499-02 12/98
---------------
Complimentary Marketing Terms Attachment
for Distributors no Z125-5775-00 03/98
---------------
Authorized Assembler Attachment no Z125-5530-01 04/97
---------------
North American Marketing Attachment
for Distributors no Z125-5892-01 06/99
---------------
Federal Remarketer Attachment no Z125-5514-01 02/99
---------------
Attachment for Services Marketing for Remarketers yes Z125-5750-00 11/97
Attachment for Financial Services from IBM Credit Corp. no Z125-5795-02 05/99
---------------
Attachment for ServiceSuite - Remarketer no Z125-5767-01 02/99
---------------
Internet Service Provider Attachment no Z125-6030-00 10/99
---------------
</TABLE>
PRODUCT AND SERVICES APPROVAL:
THE FOLLOWING PRODUCTS AND SERVICES ARE LISTED IN THE EXHIBIT. THE TERMS OF AN
EXHIBIT APPLY TO THE PRODUCTS AND SERVICES LISTED IN IT.
WHEN WE APPROVE YOU FOR PRODUCTS LISTED IN THE EXHIBIT, YOU ARE ALSO APPROVED TO
MARKET THEIR ASSOCIATED PROGRAMS AND PERIPHERALS.
WHEN WE APPROVE YOU FOR PRODUCTS INCLUDED IN THE IBM BUSINESS PARTNER EXHIBIT,
YOU ARE ALSO APPROVED FOR THEIR ASSOCIATED PRODUCTS LISTED IN THE IBM PERSONAL
COMPUTER PRODUCTS EXHIBIT AND THOSE ELIGIBLE PRODUCTS LISTED IN THE PARTNERLINK.
FOR PRODUCTS AND SERVICES WE SPECIFY YOU ACQUIRE FROM US, WE MAY SPECIFY IN YOUR
EXHIBIT THAT YOU ACQUIRE THE PRODUCTS AND SERVICES FROM A SUPPLIER INSTEAD OF
FROM US. WHEN YOU ACQUIRE THE PRODUCTS AND SERVICES FROM A SUPPLIER, THE TERMS
OF THE AGREEMENT RELATING TO YOUR ACQUISITION OF PRODUCTS AND SERVICES DIRECTLY
FROM US (FOR EXAMPLE, TERMS RELATING TO THE ORDERING OF PRODUCTS AND SERVICES)
ARE NOT APPLICABLE. ALL OTHER TERMS APPLY.
<TABLE>
APPROVED TO MARKET TO:
<CAPTION>
SYSTEM TYPES (1) IBM APPROVED REMARKETERS ALL REMARKETERS END USERS
(YES/NO) (YES/NO) (YES/NO)
<S> <C> <C> <C>
1) IBM System/390 (2) (5) no
-----------
IBM R/390 no
-----------
IBM P/390 no
-----------
2) IBM RS/6000 (6) no
-----------
3) IBM RS/6000 SP (6) no
-----------
4) IBM AS/400 (6)
9401 no
-----------
9401/150 no
-----------
9402 no
-----------
9406 no
-----------
5) IBM 469X Point of Sale Products (6) no
-----------
IBM 4614 SureOne (6) no
-----------
</TABLE>
Page 2 of 5
<PAGE>
<TABLE>
APPROVED TO MARKET TO:
<CAPTION>
IBM APPROVED REMARKETERS ALL REMARKETERS END USERS
(YES/NO) (YES/NO) (YES/NO)
<S> <C> <C> <C>
IBM PERSONAL COMPUTER PRODUCTS (3) (6)
1) IBM PC Desktop no
-----------
2) IBM PC Server no
-----------
3) IBM Mobile no
-----------
4) ASCII Terminals no no no
----------- --------- ---------
5) Cables & Associated Products no no no
----------- --------- ---------
6) PC Features & Options yes no no
----------- --------- ---------
ADDITIONAL PRODUCTS (1)
1) IBM Network Integration Products no
-----------
2) 3745 Communications Controller no
-----------
3) 3746 Expansion Unit/Controller no
-----------
4) Graphics no
-----------
5) Finance Products Category J1 no
-----------
6) IBM Storage Products (6) no
-----------
Category S1 Products no
-----------
Category S2 Products no
-----------
Category S3 Products no
-----------
Category S6 Products no
-----------
Category S7 Products no
-----------
Category S9 Products no
-----------
SOFTWARE ONLY
1) Tivoli Enterprise Software no
-----------
Category (SW1B1) no
-----------
Category (SW1C1) no
-----------
2) F.A.S.T. Software no
-----------
3) Enterprise File Systems no
-----------
IBM GLOBAL SERVICES (4)
1) Product Support Services no
-----------
a) Hardware Support Services no
-----------
b) Software Services no
-----------
c) Systems Management Services no
-----------
d) Site & Connectivity Services no
-----------
e) Business & Technology Solutions no
-----------
f) Business Recovery Services no
-----------
g) Other Services no
-----------
2) IBM Professional Services
a) IBM Consulting Services no
-----------
</TABLE>
CERTIFIED PRODUCTS YOU ARE APPROVED TO MARKET.
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
(1) When approved for other than IBM Personal Computer Company Products
additional terms apply. These terms are included in the Distributor
Schedule A transaction document.
(2) Eligible Products are identified in Schedule A.
(3) Please refer to the IBM Personal Computer Products Exhibit for details on
acquisition criteria.
(4) You may market this Service without the requirement to have marketed a
Machine or Program.
(5) When we approve you to market these Products, you are also approved to
market the associated Programs under complementary marketing terms only.
These Programs are not available for marketing under remarketer terms.
(6) These Products are eligible for marketing under the terms of the North
American Marketing Attachment - Distributors.
Page 3 of 5
<PAGE>
EXCLUSIONS, IF APPLICABLE:
ALTHOUGH INCLUDED BY REFERENCE IN PRODUCT OR SERVICES APPROVAL, YOU ARE NOT
APPROVED TO MARKET THESE INDIVIDUAL PRODUCTS OR SERVICES.
- ------------------------ ------------------------- -------------------------
- ------------------------ ------------------------- -------------------------
- ------------------------ ------------------------- -------------------------
MINIMUM ANNUAL ATTAINMENT:
PRODUCT/SERVICE VOLUME/REVENUE MEASUREMENT
PERIOD DATES
PC FEATURES & OPTIONS $2 MILLION
--------------------------- ------------------- --------------------------
--------------------------- ------------------- --------------------------
--------------------------- ------------------- --------------------------
LOCATIONS:
Location (street address, city, ZIP code)
2301 Robb Drive
Reno, NV 89523
YOUR COMMITMENT, IF APPLICABLE:
THIS SECTION IDENTIFIES YOUR REVENUE COMMITMENT AND THE APPLICABLE ADDITIONAL
DISCOUNT PERCENTAGE. AT YOUR REQUEST WE WILL REVIEW YOUR REVENUE ATTAINMENT
AGAINST YOUR REVENUE COMMITMENT AT ANY TIME TO DETERMINE IF YOU QUALIFY FOR A
HIGHER APPLICABLE ADDITIONAL DISCOUNT PERCENTAGE.
AFTER EACH ANNUAL MEASUREMENT PERIOD, IBM WILL REVIEW YOUR REVENUE ATTAINMENT.
IF YOUR REVENUE ATTAINMENT IS LESS THAN THE REVENUE COMMITMENT, YOUR APPLICABLE
ADDITIONAL DISCOUNT PERCENTAGE WILL BE ADJUSTED DOWNWARD TO THE APPROPRIATE
LEVEL. ADDITIONALLY IF YOUR REVENUE ATTAINMENT IS GREATER THAN YOUR REVENUE
COMMITMENT, YOUR APPLICABLE ADDITIONAL DISCOUNT PERCENTAGE WILL BE ADJUSTED
UPWARD AS APPROPRIATE.
IBM Network Revenue Applicable Additional
Integration Commitment Discount Percentage (1)
Products (Annual)
---------- ----------------
IBM 3746 Revenue Applicable
Communications Commitment Discount
Control (Annual) Percentage
---------- ----------------
(1) The products eligible for the Applicable Additional Discount Percentage are
identified in the Business Partner Exhibit.
Page 4 of 5
<PAGE>
ASSIGNMENT OF WARRANTY SERVICE RESPONSIBILITY, IF APPLICABLE:
YOU ASSIGN TO US, OR AN IBM PREMIER PERSONAL COMPUTER SERVICER, WARRANTY SERVICE
RESPONSIBILITY FOR THE FOLLOWING MACHINES.
TYPE/MODEL TYPE/MODEL TYPE/MODEL TYPE/MODEL
- ---------------- ------------------ ----------------- ----------------------
- ---------------- ------------------ ----------------- ----------------------
- ---------------- ------------------ ----------------- ----------------------
- ---------------- ------------------ ----------------- ----------------------
UNLESS YOU ARE ASSIGNED TO US, PLEASE SPECIFY THE NAME OF THE IBM PREMIER
PERSONAL COMPUTER SERVICE:
- -----------------------
Page 5 of 5
<PAGE>
IBM Business Partner Agreement - IBM logo
General Terms
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION TITLE PAGE
1. Definitions .....................................................2
2. Agreement Structure and Contract Duration .......................3
3. Our Relationship ................................................4
4. Status Change ...................................................5
5. Confidential Information ........................................5
6. Marketing Funds and Promotional Offerings........................6
7. Production Status ...............................................6
8. Patents and Copyrights ..........................................6
9. Liability .......................................................7
10. Trademarks ......................................................7
11. Changes to the Agreement Terms ..................................8
12. Internal Use Products ...........................................8
13. Demonstration, Development and Evaluation
Products ........................................................8
14. Electronic Communications .......................................9
15. Geographic Scope ................................................9
16. Governing Law ...................................................9
Page 1 of 10
<PAGE>
IBM Business Partner Agreement - IBM logo
General Terms
- --------------------------------------------------------------------------------
1. DEFINITIONS
BUSINESS PARTNER is a business entity which is approved by us to market
Products and Services under this Agreement.
CUSTOMER is either an End User or a Remarketer. We specify in your Profile
if we approve you to market to End Users or Remarketers, or both.
END USER is anyone, who is not part of the Enterprise of which you are a
part, who uses services or acquires Products for its own use and not for
resale.
ENTERPRISE is any legal entity (such as a corporation) and the
subsidiaries it owns by more than 50 percent. An Enterprise also includes
other entities as IBM and the Enterprise agree in writing.
LICENSED INTERNAL CODE is called "Code". Certain Machines we specify
(called "Specific Machines") use Code. International Business Machines
Corporation or one of its subsidiaries owns copyrights in Code or has the
right to license Code. IBM or a third party owns all copies of Code,
including all copies of Code, including all copies made from them.
MACHINE is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term "Machine" includes an
IBM Machine and any non-IBM Machine (including other equipment) that we
approve you to market.
PRODUCT is a Machine or Program, that we approve you to market, as we
specify in your Profile.
PROGRAM is an IBM Program or a non-IBM Program provided by us, under its
applicable license terms, that we approve you to market.
RELATED COMPANY is any corporation, company or other business entity:
1. more than 50 percent of whose voting shares are owned or controlled,
directly or indirectly, by either of us, or
2. which owns or controls, directly or indirectly, more than 50 percent
of the voting shares of either of us, or
3. more than 50 percent of whose voting shares are under common ownership
or control, directly or indirectly, with the voting shares of either
of us.
However, any such corporation, company or other business entity is
considered to be a Related Company only so long as such ownership or
control exists. "Voting shares" are outstanding shares or securities
representing the right to vote for the election of directors or other
managing authority.
REMARKETER is a business entity which acquires Products and Services, as
applicable, for the purpose of marketing.
SERVICE is performance of a task, provision of advice and counsel,
assistance, or access to a resource (such as a network and associated
enhanced communication and support) that we approve you to market.
Page 2 of 10
<PAGE>
2. AGREEMENT STRUCTURE AND CONTRACT DURATION
PROFILES
We specify the details of our relationship (for example, the type of
Business Partner you are) in a document called a "Profile". Each of us
agrees to the terms of the Profile, the General Terms, the applicable
Attachments referred to in the Profile, and the Exhibit (collectively
called the "Agreement") by signing the Profile.
GENERAL TERMS
The General Terms apply to all of our Business Partners.
ATTACHMENTS
We describe, in a document entitled an "Attachment", additional terms that
apply. Attachments may include, for example, terms that apply to the
method of Product distribution (Remarketer Terms Attachment or
Complementary Marketing Terms Attachment) and terms that apply to the type
of Business Partner you are, for example, the terms that apply to a
Distributor relationship as described in the Distributor Attachment. We
specify in your Profile the Attachments that apply.
EXHIBITS
We describe in an Exhibit, specific information about Products and
Services, for example, the list of Products and Services you may market,
and warranty information about the Products.
TRANSACTION DOCUMENTS
We will provide to you the appropriate "transaction documents." The
following are examples of transaction documents, with examples of the
information and responsibilities they may contain:
1. invoices (item, quantity, payment terms and amount due); and
2. order acknowledgments (confirmation of Products and quantities
ordered).
CONFLICTING TERMS
If there is a conflict amount the terms in the various documents, the
terms of:
1. a transaction document prevail over those of all the documents;
2. an Exhibit prevail over the terms of the Profile, Attachments and the
General Terms;
3. a Profile prevail over the terms of an Attachment and the General
Terms; and
4. an Attachment prevail over the terms of the General Terms.
If there is an order of precedence within a type of document, such order
will be stated in the document (for example, the terms of the Distributor
Attachment prevail over the terms of the Remarketer Terms Attachment, and
will be so stated in the Distributor Attachment).
OUR ACCEPTANCE OF YOUR ORDER
Products and Services become subject to this Agreement when we accept your
order by:
1. sending you a transaction document; or
2. providing the Products or Services.
Page 3 of 10
<PAGE>
ACCEPTANCE OF THE TERMS IN A TRANSACTION DOCUMENT
You accept the terms in a transaction document by doing any of the
following:
1. signing it (those requiring a signature must be signed);
2. accepting the Product or Services;
3. providing the Product or Services to your Customer; or
4. making any payment for the Product or Services.
CONTRACT DURATION
We specify the contract start date and the duration of your Profile.
Unless we specify otherwise in writing, the Agreement will be renewed
automatically for subsequent two year periods. However, you may advise us
in writing not to renew the Agreement. Each of us is responsible to
provide the other three months written notice if this Agreement will not
be renewed.
3. OUR RELATIONSHIP
RESPONSIBILITIES
Each of us agrees that:
1. you are an independent contractor, and this Agreement is
non-exclusive. Neither of us is a legal representative or legal agent
of the other. Neither of us is legally a partner of the other (for
example, neither of us is responsible for debts incurred by the
other), and neither of us is an employee or franchise of the other,
nor does this Agreement create a joint venture between us;
2. each of us is responsible for our own expenses regarding fulfillment
of our responsibilities and obligations under the terms of this
Agreement;
3. neither of us will disclose the terms of this Agreement, unless both
of us agree in writing to do so, or unless required by law;
4. neither of us will assume or create any obligations on behalf of the
other or make any representations or warranties about the other, other
than those authorized;
5. any terms of this Agreement, which by their nature extend beyond the
date this Agreement ends, remain in effect until fulfilled and apply
to respective successors and assignees;
6. we may withdraw a Product or Service from marketing at any time;
7. we will allow the other a reasonable opportunity to comply before it
claims the other has not met its obligations, unless we specify
otherwise in the Agreement;
8. neither of us will bring a legal action against the other more than
two years after the cause of action arose, unless otherwise provided
by local law without the possibility of contractual waiver;
9. failure by either of us to insist on strict performance or to exercise
a right when entitled does not prevent either of us from doing so at a
later time, either in relation to that default or any subsequent one;
Page 4 of 10
<PAGE>
10. neither of us is responsible for failure to fulfill obligations due to
causes beyond the reasonable control of either of us;
11. IBM reserves the right to assign, in whole or in part, this Agreement,
to a Related Company, but may assign its rights to payment or orders
to any third party;
12. IBM does not guarantee the results of any of its marketing plans; and
13. each of us will comply with all applicable laws and regulations (such
as those governing consumer transactions).
OTHER RESPONSIBILITIES
You agree:
1. to be responsible for customer satisfaction for all your activities,
and to participate in customer satisfaction programs as we determine;
2. that your rights under this Agreement are not property rights and,
therefore, you can not transfer them to anyone else or encumber them
in any way. For example, you can not sell your approval to market our
Products or Services or your rights to use our Trademarks;
3. to maintain the criteria we specified when we approved you;
4. to achieve and maintain the certification requirements for the
Products and Services you are approved to market, as we specify in
your Profile;
5. not to assign or otherwise transfer this Agreement, your rights under
this Agreement, or any of its approvals, or delegate any duties,
unless expressly permitted to do so in this Agreement. Otherwise, any
attempt to do so is void;
6. to conduct business activities with us (including placing orders)
which we specify in the operations guide, using our automated
electronic system if available. You agree to pay all your expenses
associated with it such as your equipment and communication costs;
7. that when we provide you with access to our information systems, it is
only in support of your marketing activities. Programs we provide to
you for your use with our information systems, which are in support of
your marketing activities, are subject to the terms of their
applicable license agreements, except you may not transfer them;
8. to promptly provide us with documents we may require from you or the
End User (for example, our license agreement signed by the End User)
when applicable; and
9. to comply with the highest ethical principles in performing under this
Agreement. You will not offer or make payments or gifts (monetary or
otherwise) to anyone for the purpose of wrongfully influencing
decisions in favor of IBM, directly or indirectly. IBM may terminate
this Agreement immediately in case of 1) a breach of this clause or 2)
when IBM reasonably believes such a breach has occurred, or is likely
to occur.
OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT
We may periodically review your compliance with this Agreement. You agree
to provide us with relevant records on request. We may reproduce and
retain copies of these records. We, or an independent auditor, may conduct
a review of your compliance with this Agreement on your premises during
your normal business hours.
If, during our review of your compliance with this Agreement, we find you
have materially breached the terms of this relationship, in addition to
our rights under law and the terms of this Agreement, for transactions
that are the subject of the breach, you agree to refund the amount equal
to the discount (or fee, if applicable) we gave you for the Products or
Services
Page 5 of 10
<PAGE>
or we may offset any amounts due to you from us.
4. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) of any change or anticipated change in your financial
condition, business structure, or operating environment (for example, a
material change in equity ownership or management or any substantive
change to information supplied in your application). Upon notification of
such change, (or in the event of failure to give notice of such change)
IBM may, at its sole discretion, immediately terminate this Agreement.
5. CONFIDENTIAL INFORMATION
This section comprises a Supplement to the IBM Agreement for Exchange of
Confidential Information. "Confidential Information" means:
1. all information IBM marks or otherwise states to be confidential;
2. any of the following prepared or provided by IBM:
a. sales leads,
b. information regarding prospects or Customers
c. unannounced information about Products and Services,
d. business plans, or
e. market intelligence;
3. any of the following written information you provide to us on our
request and which you mark as confidential;
a. reporting data,
b. financial data, or
c. the business plan.
All other information exchanged between us is nonconfidential, unless
disclosed under a separate Supplement to the IBM Agreement for Exchange of
Confidential Information.
6. MARKETING FUNDS AND PROMOTIONAL OFFERINGS
We may provide marketing funds and promotional offerings to you. If we do,
you agree to use them according to our guidelines and to maintain records
of your activities regarding the use of such funds and offerings for three
years. We may withdraw or recover marketing funds and promotional
offerings from you if you breach any terms of the Agreement. Upon
Notification of termination of the Agreement, marketing funds and
promotional offerings will no longer be available for use by you, unless
we specify otherwise in writing.
7. PRODUCTION STATUS
Each IBM Machine is manufactured from new parts, or new and used parts. In
some cases, the IBM Machine may not be new and may have been previously
installed. Regardless of the IBM Machine's production status, our
appropriate warranty terms apply. You agree to inform
Page 6 of 10
<PAGE>
your Customer of these terms in writing (for example, in your proposal or
brochure).
8. PATENTS AND COPYRIGHTS
For the purpose of this section only, the term Product includes Licensed
Internal Code (if applicable).
If a third party claims that a Product we provide under this Agreement
infringes that party's patents or copyrights, we will defend you against
that claim at our expense and pay all costs, damages, and attorneys' fees
that a court finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If you maintain an inventory, and such a claim is made or appears likely
to be made about a Product in your inventory, you agree to permit us
either to enable you to continue to market and use the Product, or to
modify or replace it. If we determine that none of these alternatives is
reasonably available, you agree to return the Product to us on our written
request. We will then give you a credit, as we determine, which will be
either 1) the price you paid us for the Product (less any price-reduction
credit), or 2) the depreciated price.
This is our entire obligation to you regarding any claim of infringement.
CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE
We have no obligation regarding any claim based on any of the following:
1. anything you provide which is incorporated into a Product;
2. your modification of a Product, or a Program's use in other than its
specified operating environment;
3. the combination, operation, or use of a Product with any Products not
provided by us as a system, or the combination, operation, or use of a
Product with any product, data, or apparatus that we did not provide;
or
4. infringement by a non-IBM Product alone, as opposed to its combination
with Products we provide to you as a system.
9. LIABILITY
Circumstances may arise where, because of a default or other liability,
one of us is entitled to recover damages from the other. In each such
instance, regardless of the basis on which damages can be claimed, the
following terms apply as your exclusive remedy and our exclusive
liability.
OUR LIABILITY
We are responsible only for:
1. payments referred to in the "Patents and Copyrights" section above;
2. bodily injury (including death), and damage to real property and
tangible personal property caused by our Products; and
Page 7 of 10
<PAGE>
3. the amount of any other actual loss or damage, up to the greater of
$100,000 or the charges (if recurring, 12 months' charges apply) for
the Product or Service that is the subject of the claim.
ITEMS FOR WHICH WE ARE NOT LIABLE
Under no circumstances (except as required by law) are we liable for any
of the following:
1. third-party claims against you for damages (other than those under the
first two items above in the subsection entitled 'Our Liability');
2. loss of, or damage to, your records or data; or
3. special, incidental, or indirect damages, or for any economic
consequential damages (including lost profits or savings) even if we
are informed of their possibility.
YOUR LIABILITY
In addition to damages for which you are liable under law and the terms of
this Agreement, you will indemnify us for claims made against us by others
(particularly regarding statements, representations, or warranties not
authorized by us) arising out of your conduct under this Agreement or as a
result of your relations with anyone else.
10. TRADEMARKS
We will notify you in written guidelines of the IBM Business Partner title
and emblem which you are authorized to use. You may not modify the emblem
in any way. You may use our Trademarks (which include the title, emblem,
IBM trade marks and service marks) only:
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market;
and
3. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the Trademarks
will be waived, since the use of this asset is in conjunction with
marketing activities for Products and Services.
You agree to promptly modify any advertising or promotional materials that
do not comply with our guidelines. If you receive any complaints about
your use of a Trademark, you agree to promptly notify us. When this
Agreement ends, you agree to promptly stop using our Trademarks. If you do
not, you agree to pay any expenses and fees we incur in getting you to
stop.
You agree not to register or use any mark that is confusingly similar to
any of our Trademarks.
Our Trademarks, and any goodwill resulting from your use of them, belong
to us.
11. CHANGES TO THE AGREEMENT TERMS
We may change the terms of this Agreement by giving you one month's
written notice.
We may, however, change the following terms without advance notice:
1. those we specify in this Agreement as not requiring advance notice;
Page 8 of 10
<PAGE>
2. those of the Exhibit unless otherwise limited by this Agreement; and
3. those relating to safety and security.
Otherwise, for any other change to be valid, both of us must agree in
writing. Changes are not retroactive. Additional or different terms in any
written communication from you (such as an order), are void.
12. INTERNAL USE PRODUCTS
You may acquire Products you are approved to market for your internal use
within your Business Partner operations. Except for personal computer
Products, you are required to advise us when you order Products for your
internal use.
We will specify in your Exhibit the discount or price, as applicable, at
which you may acquire the Products for internal use. Such Products do not
count, unless we specify otherwise in the Exhibit, toward 1) your minimum
annual attainment, 2) determination of your discount price, as applicable,
or 3) determining your marketing or promotional funds.
Any value added enhancement or systems integration services otherwise
required by y our relationship is not applicable when you acquire Products
for internal use. You must retain such Products for a minimum of 12
months, unless we specify otherwise in the Exhibit.
13. DEMONSTRATION, DEVELOPMENT AND EVALUATION PRODUCTS
You may acquire Products you are approved to market for demonstration,
development and evaluation purposes, unless we specify otherwise in the
Exhibit. Such Products must be used primarily in support of your Product
marketing activities. Additionally, such Products do not count unless we
specify otherwise in the Exhibit, toward 1) your minimum annual
attainment, 2) determination of your discount or price, as applicable, or
3) determining your marketing or promotional funds.
We will specify in your Exhibit the Products we make available to you for
such purposes, the applicable discount or price, and the maximum quantity
of such Products you may acquire and the period they are to be retained.
The maximum number of input/output devices you may acquire is the number
supported by the system to which they attach.
If you acquired the maximum quantity of Machines, you may still acquire a
field upgrade, if available.
We may decrease the discount we provide for such Products on one month's
written notice.
You may make these Products available to a Customer for the purpose of
demonstration and evaluation. Such Products may be provided to an End User
for no more than three months. For a Program, you agree to ensure the
Customer has been advised of the requirement to accept the terms of a
license agreement before using the Program.
14. ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means, and such
communication is acceptable as a signed writing to the extent permissible
under applicable law. Both of us agree that for all electronic
communications, an identification code (called a "user ID") contained in
an electronic document is sufficient to verify the sender's identity and
the document's authenticity.
Page 9 of 10
<PAGE>
15. GEOGRAPHIC SCOPE
All the rights and obligations of both of us are valid only in the United
States and Puerto Rico.
16. GOVERNING LAW
The laws of the State of New York govern this Agreement.
The "United Nations Convention on Contracts for the International Sale of
Goods" does not apply.
Page 10 of 10
<PAGE>
IBM Business Partner Agreement IBM logo
Distributor Attachment
- --------------------------------------------------------------------------------
THESE TERMS PREVAIL OVER AND ARE IN ADDITION TO OR MODIFY THE REMARKETER TERMS
ATTACHMENT, AND THE COMPLEMENTARY MARKETING TERMS ATTACHMENT FOR DISTRIBUTORS.
1. MARKETING APPROVAL
You may be approved as a Distributor under a remarketer relationship or
under a complementary marketing relationship, or both. If we approve
you to market the same Products and Services under both remarketer and
complementary marketing terms, all transactions will be under
remarketer terms. You may unilaterally elect not to participate under
remarketer terms for a specific transaction or business segment by
providing us a signed IBM Business Partner Statement of Election. If
you meet the requirements of the Marketing Approval Section of the
Complementary Marketing Terms Attachment for Distributors, you may
participate under those terms.
You are approved to market Products and Services to Business Partners
(but not to IBM approved Distributors unless we specify otherwise in
your Profile) and to End Users. Your Profile will specify to whom you
may market Products and Services.
2. YOUR RESPONSIBILITIES TO IBM
You agree:
1. to develop a mutually acceptable business plan with us, if we
require one. Such plan will document each of our marketing plans as
they apply to our relationship. We will review the plan, at a
minimum, once a year;
2. for marketing to Remarketers, that, unless precluded by applicable
law, one of the requirements for you to retain this relationship is
that you achieve the minimum annual attainment we specify in your
Profile;
3. for marketing to Remarketers, to order Products and Services as we
specify in the operations guide;
4. to maintain trained personnel, as we specify in your Profile or
Exhibit, as applicable;
5. to provide us, on our request, relevant financial information about
your business so we may, for example, use this information in our
consideration to extend credit terms to you. We may require an
annual audited financial report;
6. unless we specify otherwise in the Exhibit, to maintain the
capability to demonstrate the Products we approve you to market;
7. to maintain sufficient inventory of Products to meet Remarketer
demands. We may specify in your Exhibit certain Products we require
you to have regularly available;
8. to secure from your Business Partners a signed Program license
agreement for Programs requiring signature; and
9. to ensure that the terms in any agreement you may have with your
Business Partners are not in conflict with this Agreement.
If, during our review of your Business Partner's compliance with its
Business Partner Agreement with us, we find the Business Partner has
materially breached the terms of its Business Partner Agreement, you
agree to refund the amount equal to the discount or fee, as applicable,
we gave you for the Products that are the subject of the breach, if we
require you to do so.
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3. YOUR RESPONSIBILITIES TO YOUR BUSINESS PARTNERS
THE FOLLOWING TERMS APPLY ONLY WHEN YOU ARE MARKETING UNDER REMARKETING
TERMS:
You agree to:
1. provide Products and Services to them on an equitable basis;
2. fulfill all their valid orders for eligible Products and Services;
3. give written notification to the Remarketer of any modification you
make to a Product and the name of the warranty service provider, and
advise that such modification may void the warranty for the Product;
and
4. provide a copy of the Licensed Internal Code agreement to
Remarketers and inform them of those Machines containing such Code.
THE FOLLOWING TERMS APPLY WHEN YOU ARE MARKETING UNDER EITHER
REMARKETING OR COMPLEMENTARY TERMS:
You agree to:
1. provide development, demonstration, evaluation and internal use
Products (we specify eligible Products in the Exhibit) to those
Business Partners who are eligible to acquire such Products. You
must make such Products available to each of them on the same terms,
regarding the maximum quantity of Products that may be acquired and
the minimum retention period, as we make available to you;
2. provide the Program license agreement to them, if applicable, and
require them to provide the agreement to the End User; and
3. provide the following items to Business Partners when we have given
such items to you for distribution to them:
a. promotional offerings and material;
b. incentives;
c. marketing funds;
d. support documentation; and
e. advertising material.
You agree to distribute them proportionally and according to the
procedures we specify, and to require the Business Partners to properly
implement or distribute them, as applicable.
Except for personal computer Products, you also agree to:
1. inform them that you are available to provide Product and Services
support to them;
2. provide pre- and post-installation sales support to them. You agree
you are responsible for their satisfaction with such support;
3. provide configuration support to them, for Products we specify;
4. assist them in Product problem determination and resolution; and
5. advise them of the terms regarding the date of installation for
Products IBM installs.
4. YOUR REMARKETERS' RESPONSIBILITIES
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When you market Products and Services to Remarketers who do not have a
contractual relationship with IBM for such Products and Services, you
agree to inform them of their responsibility to:
1. provide the support necessary to maintain customer satisfaction;
2. provide Program Services to their End Users;
3. provide Product configuration support to their End Users;
4. assist their End Users to achieve productive use of the Products and
Services they marketed;
5. inform their End Users of Product installation requirements;
6. comply with all terms regarding Program upgrades;
7. refund the amount paid for a Product returned if such return is
provided for in its warranty or license or a money-back guarantee we
offer End Users. The Remarketer may return the Product to you for
credit, as we specify in the operations guide
8. for a Program requiring the End User's signature on the Program
license agreement, obtain the signature before providing the Program
to the End User and return the agreement as we specify;
9. provide warranty information to their End Users, when applicable;
10. comply with all export laws and regulations of the country in which
the Product is imported or exported, as well as those of the United
States, and advise their End User that IBM's warranty
responsibilities do not apply to exported products (unless the
Product's warranty or license terms state otherwise);
11. provide a dated sales receipt or its equivalent (such as an
invoice) to their End User;
12. give written notice to their End Users of any modification you or
the Remarketer made to a Product and the name of the warranty
service provider and advise that such modification may void the
warranty for the Product;
13. if applicable, provide the Licensed Internal Code license agreement
to their End Users before the sale is finalized;
14. inform their End Users that the sales receipt (or other
documentation, such as Proof of Entitlement if it is required) will
be necessary for proof of warranty entitlement or for Program
upgrades;
15. inform their End Users of educational offerings, as applicable;
16. advise their End Users of the terms regarding a Machine's
production status;
17. assist you in locating Products if we require such assistance from
you; and
18. retain records of each sales transaction for three years.
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IBM Business Partner Agreement IBM logo
Remarketer Terms Attachment
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION TITLE PAGE
1. Our Relationship.................................................2
2. Ordering and Delivery ...........................................2
3. Inventory Adjustments ...........................................3
4. Price, Invoicing, Payment and Taxes .............................3
5. Licensed Internal Code ..........................................5
6. Machine Code.....................................................5
7. Programs ........................................................5
8. Export ..........................................................6
9. Title............................................................6
10. Risk of Loss.....................................................6
11. Installation and Warranty .......................................6
12. Warranty Service ................................................7
13. Marketing of Service ............................................7
14. Marketing of Financing ..........................................9
15. Engineering Changes .............................................9
16. Ending the Agreement.............................................9
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IBM Business Partner Agreement IBM logo
Remarketer Terms Attachment
- --------------------------------------------------------------------------------
1. OUR RELATIONSHIP
As our IBM Business Partner, you market to your Customers the Products
and Services (including "shrink-wrap" Services) we provide to you.
These terms apply to a Business Partner whose method of distribution is
under our remarketer terms, and includes Distributors, Resellers,
Solution Providers, and Systems Integrators.
RESPONSIBILITIES
Each of us agrees:
1. we offer a money-back guarantee to End Users for certain Products.
You agree to inform the End User of the terms of this guarantee
before the applicable sale. For any such Product, you agree to 1)
accept its return in the time frame we specify 2) refund the full
amount paid to you for it, and 3) dispose of it (including all its
components) as we specify. We will pay a transportation charge for
return of the Product to us and will give you an appropriate credit.
2. each of us is free to set its own prices and terms; and
3. neither of us will discuss its Customer prices and terms in the
presence of the other.
OTHER RESPONSIBILITIES
You agree to:
1. refund the amount paid for a Product or Service returned to you if
such return is provided for in its warranty or license. You may
return the Product to us for credit at our expense, as we specify in
the operations guide;
2. provide us with sufficient, free and safe access to your facilities,
at a mutually convenient time, for us to fulfill our obligations;
3. retain records, as we specify in the operations guide, of each
Product and Service transaction (for example, a sale or credit) for
three years;
4. provide us with marketing, sales, installation reporting and
inventory information for our Products and Services, as we specify
in the operations guide;
5. when you are approved to market to Remarketers, market Products and
Services which require certification, only to Remarketers who are
certified to market them;
6. comply with all terms regarding Program upgrades;
7. provide a dated sales receipt (or its equivalent, such as an
invoice) as we specify in the operations guide, to your Customers,
before or upon delivery of Products and Services; and
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8. report to us any suspected Product defects or safety problems, and
to assist us in training and locating Products.
2. ORDERING AND DELIVERY
You may order Products and Services from us as we specify in the
operations guide. You agree to order them in sufficient time to count
toward your minimum annual attainment, if applicable.
We will agree to a location to which we will ship. We may establish
criteria for you to maintain at such location (for example, certain
physical characteristics, such as a loading dock), as we specify in the
operations guide.
Upon becoming aware of any discrepancy between our shipping manifest
and the Products and Services received from us, you agree to notify us
immediately. We will work with you to reconcile any differences.
Although we do not warrant delivery dates, we will use reasonable
efforts to meet your requested delivery dates.
We select the method of transportation and pay associated charges for
Products and Services we ship.
We may not be able to honor your request for modification or
cancellation of an order. We may apply a cancellation charge for orders
you cancel within 10 business days before the order is scheduled to be
shipped. The Exhibit will specify if a cancellation charge applies and
where we will specify the charge.
If we are unable to stop shipment of an order you cancel, and you
return such Product to us after shipment, our inventory adjustment
terms apply.
3. INVENTORY ADJUSTMENTS
We will specify in your Exhibit the Products and Services to which this
section applies.
Products and Services you return to us for credit must have been
acquired directly from us. You must request and receive approval from
us to return the Products and Services.
Products and Services must be received by us within one month of our
approving their return, unless we specify otherwise to you in writing.
We will issue a credit to you when we accept the returned Products and
Services.
Certain Products may be acquired only as Machines and Programs packaged
together as a solution. These Products must be returned with all their
components intact.
For certain Products and services you return, a handling charge
applies. We will specify the handling charge percentage in the Exhibit.
We determine your total handling charge by multiplying the inventory
adjustment credit amount for the Products and services by the handling
charge percent.
You agree to pay transportation and associated charges for Products and
Services you return.
Unless we specify otherwise, returned Products and Services must be in
their unopened and undamaged packages.
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You agree to ensure the returned Products and Services are free of any
legal obligations or restrictions that prevent their return. We accept
them only from locations within the country to which we ship Products
and Services.
We will reject any returned Products and Services that do not comply
with these terms.
4. PRICE, INVOICING, PAYMENT AND TAXES
PRICE AND DISCOUNT
The price, and discount if we specify one, for each Product and Service
will be made available to you in a communication which we provide to
you in published form or through our electronic information systems or
a combination of both. Unless we specify otherwise, discounts do not
apply to Program upgrades, accessories, or field-installed Machine
features, conversions, or upgrades.
The price for each Product and Service is the lower of the price in
effect on the date we receive your order, or the date we ship a product
or "shrink-wrap" service, or the start date of a Service, if it is
within six months of the date we receive your order.
PRICE AND DISCOUNT CHANGES
We may change prices and increase discounts at any time. We may
decrease discounts on one month's written notice.
We will specify in your Exhibit if the following credit terms do not
apply to Products and Services we approve you to market.
If we decrease the price or increase the discount for a Product or
Service, you will be eligible to receive a price decrease credit or a
discount increase credit for those you acquired directly from us that
are in your inventory, or in transit, or if the Product's date of
installation or Service start date has not occurred. However, Products
acquired from us under a special offering (for example, a promotional
price or a special incentive) may not be eligible for a full credit.
You must certify your inventory to us in writing within one month of
the effective date of the change. The credit is the difference between
the price you paid, after any adjustments, and the new price.
THE FOLLOWING TERMS APPLY TO PROGRAMS LICENSED ON A RECURRING-CHARGE
BASIS:
We may increase a recurring charge for a Program by giving you three
months' written notice. An increase applies on the first day of the
invoice or charging period on or after the effective date we specify in
the notice.
INVOICING, PAYMENT AND TAXES
Amounts are due upon receipt of invoice and payable as specified in a
transaction document. You agree to pay accordingly, including any late
payment fee. Details of any late payment fee will be provided upon
request at the time of order and will be included in the notice.
You may use a credit only after we issue it.
If any authority requires us to include in our invoice to you a duty,
tax, levy, or fee which they impose, excluding those based on our net
income, upon any transaction under this Agreement, then you agree to
pay that amount.
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RESELLER TAX EXEMPTION
You agree to provide us with your valid reseller exemption
documentation for each applicable taxing jurisdiction to which we ship
Products and Services. If we do not receive such documentation, we will
charge you applicable taxes and duties. You agree to notify us promptly
if this documentation is rescinded or modified. You are liable for any
claims or assessments that result from any taxing jurisdiction refusing
to recognize your exemption.
PURCHASE MONEY SECURITY INTEREST
You grant us a purchase money security interest in your proceeds from
the sale of, and your accounts receivable for, Products and Services,
until we receive the amounts due. You agree to sign an appropriate
document (for example, a "UCC-1") to permit us to perfect our purchase
money security interest.
FAILURE TO PAY ANY AMOUNTS DUE
If you fail to pay any amounts due in the required period of time, you
agree that we may do one or more of the following, unless precluded by
law:
1. impose a finance charge, as w4e specify to you in writing, up to the
maximum permitted by law, on the portion which was not paid during
the required period;
2. require payment on or before delivery of Products and Services;
3. repossess any Products and Services for which you have not paid. If
we do so, you agree to pay all expenses associated with repossession
and collection, including reasonable attorneys' fees. You agree to
make the Products and Services available to us at a site that is
mutually convenient;
4. not accept your order until any amounts due are paid;
5. terminate this Agreement; or
6. Pursue any other remedy available at law.
We may offset any amounts due you, or designated for your use (for
example, marketing funds or promotional offerings), against amounts due
us or any of our Related Companies.
In addition, if your account with any of our Related Companies becomes
delinquent, we may invoke any of these options when allowable by
applicable law.
5. LICENSED INTERNAL CODE
Machines (Specific Machines) containing Licensed Internal Code (Code)
will be identified in the Exhibit. We grant the rightful possessor of a
Specific Machine a license to use the Code (or any replacement we
provide) on, or in conjunction with, only the Specific Machine,
designated by serial number, for which the Code is provided. We license
the Code to only one rightful possessor at a time. You agree that you
are bound by the terms of the separate license agreement that we will
provide to you.
YOUR RESPONSIBILITIES
You agree to inform your Customer, and record on the sales receipt,
that the Machine you provide is a Specific Machine using Licensed
Internal Code. The license agreement must be provided to the Customer
before the sale is finalized.
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6. MACHINE CODE
For certain Machines we may provide basic input/output system code,
utilities, diagnostics, device drivers, or microcode (collectively
called " Machine Code"). This Machine Code is licensed to the End User
under the terms of the agreement provided with it. You agree to ensure
the End User is provided such agreement.
7. PROGRAMS
You agree to ensure the End User has signed the license agreement for a
Program requiring a signature, as we specify in the Exhibit, before
such Program is provided to the End User, and to provide any required
documentation to us. All other Programs are licensed under the terms of
the agreement provided with them. You agree, where applicable, to
provide the Program license to the End User before such Program is
provided to the End User.
We will designate in the Exhibit if 1) we will ship the media and
documentation to you or, if you request and we agree, to the End User,
2) you may copy and redistribute the media and documentation to the End
User, or 3) you must copy and redistribute the media and documentation
to the End User. If we ship the media and documentation, we may charge
you. We will specify such charge to you in writing. If you copy and
redistribute, you must be licensed to use the Program from which you
make the copies. A Program license you acquired for use under the
Demonstration, Development and Evaluation Products terms fulfill this
requirement.
Programs licensed to you on a recurring-charge basis are licensed for
the period indicated in our invoice. You may market such Programs only
on the same basis as licensed to you. You may not charge an End User a
one-time charge for a Program you license from us on a recurring-charge
basis. However, you may charge the End User whatever amount you wish
for the recurring-charge.
PROGRAM SERVICES
Program Services are described in the Program's license agreement. You
are responsible to provide your Customers, who are licensed for a
Program, the Program Services we make available to you.
If the End User agrees in writing, you may:
1. Delegate this responsibility to another IBM Business Partner who is
approved to market the Program, or
2. Provide an enhanced version of this support through the applicable
IBM Service you market to the End User.
If you delegate your support responsibilities to another IBM Business
Partner, you retain customer satisfaction responsibility. However, if
you market our applicable Services to the End User, we assume customer
satisfaction responsibility for such support.
8. EXPORT
You may actively market Products and Services only within the
geographic scope specified in this Agreement. You may not market
outside this scope, and you agree not to use anyone else to do so.
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If a customer acquires a Product for export, our responsibilities, if
any, under this Agreement no longer apply to that Product unless the
Product's warranty or license terms state otherwise. You agree to use
your best efforts to ensure that your Customer complies with all export
laws and regulations, including those of the United States and the
country specified in the Governing Law Section of this Agreement, and
any laws and regulations of the country in which the Product is
imported or exported. Before your sale of such Product, you agree to
prepare a support plan for it and obtain your Customer's agreement to
that plan. Within one month of sale, you agree to provide us with the
Customer's name and address, Machine type/model, and serial number if
applicable, date of sale, and destination country.
We exclude these Products from:
1. any of your attainment toward your objectives; an d
2. qualification for applicable promotional offerings and marketing
funds.
We may also reduce future supply allocations to you by the number of
exported Products.
9. TITLE
When you order a Machine, we transfer title to you when we ship the
Machine.
Any prior transfer to you of title to a Machine reverts back to IBM
when it is accepted by us as a returned Machine.
We do not transfer a Program's title.
10. RISK OF LOSS
We bear the risk of loss of, or damage to, a Product or Service up to
and including its initial delivery from us to you or, if you request
and we agree, delivery from us to your Customer. Thereafter, you assume
the risk.
11. INSTALLATION AND WARRANTY
We will ensure that Machines we install are free from defects in
materials and workmanship and conform to their specifications. We
provide instructions to enable the set-up of Customer-Set-Up Machines.
We are not responsible for the installation of Programs or non- IBM
Machines. We do, however, preload Programs onto certain Machines. We
provide a copy of our applicable warranty statement to you. You agree
to provide it to the End User for review before the sale is finalized,
unless we specify otherwise.
We calculate the expiration date of an IBM Machine's warranty period
from the Machine's Date of Installation. Warranty terms for Programs
are described in the Programs' license terms.
We provide non-IBM Products WITHOUT WARRANTIES OF ANY KIND, unless we
specify otherwise. However, non-IBM manufacturers, suppliers, or
publishers may provide their own warranties to you.
For non-IBM Products we approve you to market, you agree to inform your
Customer in writing 1) that the Products are non-IBM, 2) the
manufacturer or supplier who is responsible for warranty (if any), and
3) of the procedure to obtain any warranty service.
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DATE OF INSTALLATION FOR A MACHINE WE ARE RESPONSIBLE TO INSTALL
The Date of Installation for a Machine we are responsible to install is
the business day after the day 1) we install it or, 2) it is made
available for installation, if you (or the End User) defer
installation. Otherwise (for example, if others install or break its
warranty seal), it is the day we deliver the Machine to you (or the End
User). In such event, we reserve the right to inspect the Machine to
ensure its qualification for warranty entitlement.
THE DATE OF INSTALLATION FOR A CUSTOMER-SET-UP MACHINE
The Date of Installation for a Customer-Set-Up Machine is the date the
Machine is installed which you or your Remarketer, if applicable,
record on the End User's sales receipt. You must also notify us of this
date upon our request.
INSTALLATION OF MACHINE FEATURES, CONVERSIONS, AND UPGRADES
We sell features, conversions and upgrades for installation on
Machines, and, in certain instances, only for installation on a
designated, serial numbered Machine. Many of these transactions involve
the removal of parts and their return to us. As applicable, you
represent that you have the permission from the owner and any lien
holders to 1) install features, conversions and upgrades and 2)
transfer the ownership and possession of removed parts (which become
our property) to us. You further represent that all removed parts are
genuine, and unaltered, and free from defects in materials and
workmanship and conform to specifications. A part that replaces a
removed part will assume the warranty and maintenance Service status of
the replaced part. You agree to allow us to install the feature,
conversion, or upgrade within 30 days of its delivery. Otherwise, we
may terminate the transaction and you must return the feature,
conversion, or upgrade to us at your expense.
12. WARRANTY SERVICE
We will specify in the Exhibit whether you or we are responsible to
provide Warranty Service for a machine.
When we are responsible for providing Warranty Service for Machines,
you are not authorized to provide such Service, unless we specify
otherwise in the Exhibit.
When you are responsible for providing Warranty Service, you agree to
do so according to the terms we specify in the Warranty Service
Attachment.
13. MARKETING OF SERVICES
The following are the conditions under which you may market Services;
1. if you marketed a Product to the End User, you may market the
Services, specified in the Exhibit; or
2. regardless of whether you marketed a Product to the End User you may
market the Services we specify in your Profile.
If you are an IBM Distributor the following paragraph applies:
The following are the conditions under which you may market Services:
1. if your Remarketer marketed a Product to the End User, you may
market the Services, specified in the Exhibit, to your Remarketer
only for the Remarketer's marketing to such End User; and
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2. regardless of whether your Remarketer marketed a Product to the End
User you may market the Services we specify in your Profile to your
Remarketer, who may market such Services.
You may market Services on eligible non-IBM Products regardless of
whether you marketed a Machine or Program to the End User.
MARKETING OF SERVICES FOR A FEE
The terms of this subsection apply when we perform the Services to the
End User at prices we set and under the terms of our Service agreement,
signed by the End User. We pay you a fee for marketing such Services.
You will receive a fee for marketing eligible Services when 1) you
identify the opportunity and perform the marketing activities, 2) you
provide us with the order and any required documents signed by the End
User, and 3) a standard Statement of Work is used and there are no
changes, and no marketing assistance from us is required.
Alternatively, you will receive a fee for a lead for eligible Services
when it 1)is submitted on the form we provide to you, 2) is for an
opportunity which is not known to us, and 3) results in the End User
ordering the Service from us within six months from the date we receive
the lead from you.
We will not pay you the fee if 1) the machine or program is already
under the applicable Service, 2) we have an agreement with the End User
to place the machine or program under the applicable Service, or 3) the
Service was terminated by the End User within the last six months.
If the Service is terminated within three months of the date payment
from the End User was due us, you agree to reimburse us for any
associated payments we made to you. The reimbursement may be prorated
if the Service is on a recurring charge basis.
We periodically reconcile amounts we paid you to amounts you actually
earned. We may deduct amounts due us from future payments we make to
you, or ask you to p ay amounts due us. Each of us agrees to promptly
pay the other any amounts due.
REMARKETING OF SERVICES
We provide terms in an applicable Service Attachment governing your
remarketing of eligible Services the End User acquires from you and
which we perform under the terms of the IBM Service agreement with the
End User.
Shrink-wrap Services are performed under the terms of the agreement
provided with them. If the terms of the agreement are not visible on
the shrink-wrap package, you agree to provide (or, if applicable,
request your Remarketer to provide) the Services terms to the End User
before such Services are acquired by the End User.
SERVICES WE PERFORM AS YOUR SUBCONTRACTOR
If approved on your Profile, we will provide terms in an applicable
Service Attachment governing our provision of the Services we perform
as your subcontractor. Such Services are those an End User purchases
from you under the terms of your service agreement.
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14. MARKETING OF FINANCING
If we approve you on your Profile, you may market our Financing
Services for Products and Services and any associated products and
services you market to the End User. If you market our Financing
Services, we will pay you a fee as we specify to you in your Exhibit.
We provide Financing Services to the End User under the terms of our
applicable agreements signed by the End User. You agree, that for the
items that will be financed, 1) you will promptly provide us any
required documents including invoices, with serial numbers, if
applicable, 2) the supplier will transfer clear title to us, and 3) you
will not transfer to us any obligations under your agreements with the
End User.
We will make payment for the items to be financed when the End User has
initiated financing and acknowledged acceptance of the items being
financed. Payment will be made to you, or the supplier, as appropriate.
15. ENGINEERING CHANGES
You agree to allow us to install mandatory engineering changes (such as
those required for safety) on all Machines in your inventory, and to
use your best efforts to enable us to install such engineering changes
on your Customers' Machines. Mandatory engineering changes are
installed at our expense and any removed parts become our property.
During the warranty period, we manage and install engineering changes
at:
1. your or your Customer's location for Machines for which we provide
Warranty Service; and
2. your location for other Machines.
Alternatively, we may provide you with the parts (at no charge) and
instructions to do the installation yourself. We will reimburse you for
your labor as we specify.
16. ENDING THE AGREEMENT
Regardless of the contract duration specified in the Profile, or any
renewal period in effect, either of us may terminate this Agreement,
with or without cause, on three months' written notice. If, under
applicable law, a longer period is mandatory, then the notice period is
the minimum notice period allowable.
If we terminate for cause (such as you not meeting your minimum annual
attainment), we may, at our discretion, allow you a reasonable
opportunity to cure. If you fail to do so, the date of termination is
that specified in the notice.
However, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of
such breach by you are: if you do not maintain customer satisfaction;
if you do not comply with the terms of a transaction document; if you
repudiate this Agreement; or if you make any material
misrepresentations to us. You agree that our only obligation is to
provide the notice called for in this section and we are not liable for
any claims or losses if we do so.
At the end of this Agreement, you agree to:
1. pay for or return to us, at our discretion, any Products or
shrink-wrap Services for which you have not paid; and
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2. allow us, at our discretion, to acquire any that are in your
possession on control, at the price you paid us, less any credits
issued to you.
Products and shrink-wrap Services to be returned must be in their
unopened and undamaged packages and in your inventory(or in transit
from us) on the day this Agreement ends. We will inspect them, and
reserve the right of rejection. You agree to pay all the shipping
charges.
At the end of this Agreement, each of us agrees to immediately settle
any accounts with the other. We may offset any amounts due you against
amounts due us, or any of our Related Companies as allowable under
applicable law.
You agree that if we permit you to perform certain activities after
this Agreement ends, you will do so under the terms of this Agreement.
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IBM Business Partner Agreement IBM logo
Attachment For Services Marketing for Remarketers
- --------------------------------------------------------------------------------
THESE TERMS PREVAIL OVER AND ARE IN ADDITION TO OR MODIFY THE REMARKETER TERMS
ATTACHMENT.
THE FOLLOWING TERMS GOVERN YOUR MARKETING OF SERVICES THE END USER PURCHASES
FROM YOU (OR IF YOU ARE OUR DISTRIBUTOR, FROM YOUR REMARKETER), AND WHICH WE
PERFORM UNDER THE TERMS OF THE IBM AGREEMENT FOR SERVICES ACQUIRED FROM AN IBM
BUSINESS PARTNER (IBM SERVICE AGREEMENT). WE PROVIDE ADDITIONAL TERMS TO YOU, IF
ANY, IN SPECIFIC SERVICE ATTACHMENTS, OR TRANSACTION DOCUMENTS.
1. IBM SERVICES
Services may be either standard offerings or customized to the End
User's specific requirements. Each Service transaction may include one
or more Services that:
1. expire at task completion or an agreed upon date;
2. automatically renew as another transaction with a specified contract
period. Renewals will continue until the Service is terminated; or
3. do not expire and are available for use until either of us
terminates the Service, or we withdraw the Service.
If we make a change to the terms of a renewable Service that affects
the End User's current Service Agreement contract period and the End
User considers it unfavorable and you advise us in writing, we will
defer the change until the end of that contract period.
2. PRICES AND PAYMENT
The amount payable for a Service will be based on one or more of the
following types of charges:
1. recurring (for example, a periodic charge for support Services).
2. time and materials (for example, charges for hourly Services); or
3. fixed price (for example, a specific amount agreed to between us for
a custom Service).
Services we make available to you on a recurring-charge basis are made
available for the period indicated in our invoice, statement of work,
or other transaction document, as applicable. You may market such
Services only on a recurring charge basis.
We may increase recurring charges for Services, as well as hourly or
daily rates and minimums for Services we perform under the IBM Service
Agreement, by giving you three month's written notice. An increase
applies on the first day of the applicable invoice or charging period,
on or after the effective date we specify in the notice;
We may increase one time charges without notice. However, an increase
to one time charges does not apply to you if 1) we receive your order
before the announcement date of the increase, and 2) we make the
Service available within three months of our receipt of your order.
Charges for Services are billed as we specify, which may be 1) in
advance, 2) periodically during the performance of the Service, or 3)
after the Service is completed.
Page 1 of 3
<PAGE>
Prepaid Services must be used within the applicable contract period. If
we withdraw a Service for which you prepaid, and we have not fully
provided such Service, we will give a prorated refund. Unless we
specify otherwise, we do not give credits or refunds for unused prepaid
Services.
If an End User is eligible for a credit under the terms of the IBM
Service Agreement (for example, a satisfaction guarantee credit, or a
credit for withdrawn Services not fulfilled), you agree to ensure the
applicable prorated credit is issued to the End User. We will issue the
appropriate credit to you. If you are our Distributor, you agree to
issue the applicable credit to your Remarketer.
ADDITIONAL CHARGES
We specify in the IBM Service Agreement additional charges that apply
under specific conditions. When applicable, such charges apply to you.
Depending on the particular Service or circumstance, if other charges
apply we will inform you in advance.
3. NOTICES
Each of us agrees to give the other a copy of notices or requests
received from or sent to an End User applicable to the IBM Service
Agreement.
You agree to ensure certain Services Attachments and transaction
documents, if any, are made available to End Users for their signature,
if required. Such documents may have terms in addition to those we
specify in the IBM Service Agreement.
4. SERVICES REQUIREMENTS CHANGES
During the Service period you may update the requirements, including
adding Products to be covered by the Service, as well as increasing the
Service requirements. We will adjust our invoicing to you accordingly.
5. TERMINATION OF SERVICES
If either IBM or the End User does not meet its obligations concerning
a Service, the other party may terminate the Service. We will inform
you of any such termination.
For a Service the End User terminates, you agree to ensure we are
provided one month's written notice from the End User. For a Service
you decide to terminate, you agree to provide one month's written
notice to us and the End User.
When an expiring or renewable Service transaction is terminated, such
termination will result in an adjustment charge equal to the lesser of:
1. the charges remaining to complete the contract period; or
2. one of the following if specified in the transaction document -
a. the charges remaining to complete the contract period
multiplied by the adjustment factor specified; or'
b. the amount specified.
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<PAGE>
You also agree to pay us for all Services we provide and any Material
we deliver through Service termination and any charges we incur in
terminating subcontracts.
Adjustment charges do not apply if you terminate:
1. a non-expiring Service on one month's written notice provided the
End User has met all minimum requirements specified in the
applicable Attachments and transaction documents, if any,
2. a renewable Service or a non-expiring maintenance Service on written
notice, provided the End User has met the minimum requirements
specified in the applicable Attachments and transaction documents,
if any, and any of the following circumstances occur:
a. the eligible Product for which the Service is provided is
permanently removed from productive use within the End
User's enterprise;
b. an increase in the Service charges, either alone or in
combination with prior increases over the previous twelve
months, is more than the maximum specified in the applicable
transaction document. If no maximum is specified, then the
circumstance does not apply;
c. the eligible location, for which the Service is provided, is
no longer controlled by the End User (for example, because
of sale or closing of the facility), or
d. the machine has been under maintenance Services for at least
six months and you ensure, for a Service the End User
terminates, we have been provided one month's written notice
by the End User prior to terminating the maintenance
Service. For such Service which you decide to terminate, you
agree to provide one month's written notice to us.
Page 3 of 3
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
IGO CORPORATION
ARI ACQUISITION CORP.
AR INDUSTRIES, INC.
AND
THE SHAREHOLDERS OF AR INDUSTRIES, INC.
DATED AS OF JANUARY 11, 2000
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND PLAN OF REORGANIZATION
PAGE
----
ARTICLE I
THE MERGER...................................................................1
Section 1.1 ACTIONS TO BE TAKEN............................................1
-------------------
Section 1.2 COMMON STOCK OF SURVIVING CORPORATION..........................2
-------------------------------------
Section 1.3 MERGER CONSIDERATION...........................................2
--------------------
Section 1.4 CONVERSION OR CANCELLATION OF ARI CAPITAL STOCK................2
-----------------------------------------------
Section 1.5 NO FRACTIONAL INTERESTS........................................2
-----------------------
Section 1.6 ARI STOCK OPTIONS..............................................3
-----------------
Section 1.7 ISSUANCE AND DELIVERY OF MERGER CONSIDERATION..................3
---------------------------------------------
Section 1.7 STOCK TRANSFER BOOKS...........................................4
--------------------
Section 1.8 FILING OF MERGER DOCUMENTS.....................................4
--------------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF ARI AND THE ARI SHAREHOLDERS..............................................5
Section 2.1 CORPORATE ORGANIZATION.........................................5
----------------------
Section 2.2 CAPITAL STRUCTURE..............................................5
-----------------
Section 2.3 NO OTHER AGREEMENTS TO SELL ASSETS, MERGE, ETC.................6
----------------------------------------------
Section 2.4 AUTHORIZATION; EXECUTION AND DELIVERY..........................6
-------------------------------------
Section 2.5 GOVERNMENTAL APPROVALS AND FILINGS.............................6
----------------------------------
Section 2.6 NO CONFLICT....................................................7
-----------
Section 2.7 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES.......7
--------------------------------------------------------
Section 2.8 ABSENCE OF CHANGES.............................................8
------------------
Section 2.9 CONTRACTS AND COMMITMENTS......................................9
-------------------------
Section 2.10 LEGAL PROCEEDINGS.............................................10
-----------------
Section 2.11 ERISA MATTERS.................................................11
-------------
Section 2.12 TAXES.........................................................13
-----
Section 2.13 INTELLECTUAL PROPERTY.........................................15
---------------------
Section 2.14 ENVIRONMENTAL MATTERS.........................................16
---------------------
Section 2.15 CERTAIN AGREEMENTS............................................17
------------------
Section 2.16 INTERESTS OF OFFICERS AND DIRECTORS...........................17
-----------------------------------
Section 2.17 RESTRICTIONS ON BUSINESS ACTIVITIES...........................17
-----------------------------------
Section 2.18 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF EQUIPMENT........................................18
----------------------
Section 2.19 COMPLIANCE WITH LAWS..........................................18
--------------------
Section 2.20 LABOR MATTERS.................................................18
-------------
Section 2.21 INSURANCE.....................................................19
---------
Section 2.22 BROKERS.......................................................19
-------
i
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Section 2.23 DISCLOSURE....................................................20
----------
Section 2.24 INVESTMENT REPRESENTATIONS....................................20
--------------------------
Section 2.25 COMPUTER SYSTEMS..............................................20
----------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
IGO AND SUB.................................................................21
Section 3.1 CORPORATE ORGANIZATION........................................21
----------------------
Section 3.2 CAPITAL STRUCTURE.............................................21
-----------------
Section 3.3 AUTHORIZATION, EXECUTION AND DELIVERY.........................21
-------------------------------------
Section 3.4 GOVERNMENTAL APPROVALS AND FILINGS............................22
----------------------------------
Section 3.5 NO CONFLICT...................................................22
-----------
Section 3.6 REPORTS; ACCURACY OF INFORMATION..............................22
--------------------------------
Section 3.7 LITIGATION....................................................23
----------
Section 3.8 NO MATERIAL ADVERSE CHANGE....................................23
--------------------------
Section 3.9 BROKERS.......................................................23
-------
Section 3.10 DISCLOSURE....................................................23
----------
Section 3.11 TAX MATTERS...................................................23
-----------
ARTICLE IV
COVENANTS OF THE ARI SHAREHOLDERS...........................................24
Section 4.1 ADVICE OF CHANGES.............................................24
-----------------
Section 4.2. STOCK TRANSFER RESTRICTIONS...................................24
---------------------------
ARTICLE V
COVENANT OF IGO AND SUB.....................................................25
Section 5.1 LISTING APPLICATION...........................................25
-------------------
ARTICLE VI
MUTUAL COVENANTS............................................................25
Section 6.1 CONFIDENTIALITY...............................................25
---------------
Section 6.2 EXPENSES......................................................27
--------
Section 6.3 PUBLIC ANNOUNCEMENTS..........................................27
--------------------
Section 6.4 AGREEMENTS TO COOPERATE.......................................27
-----------------------
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
IGO AND SUB.................................................................28
Section 7.1 REPRESENTATIONS AND WARRANTIES................................28
------------------------------
Section 7.2 PERFORMANCE OF COVENANTS......................................28
------------------------
Section 7.3 CERTIFICATE...................................................28
-----------
Section 7.4 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION.............29
-------------------------------------------------
Section 7.5 APPROVALS AND CONSENTS........................................29
----------------------
Section 7.6 DISSENTING SHARES.............................................29
-----------------
Section 7.7 NO MATERIAL ADVERSE CHANGE....................................29
--------------------------
Section 7.8 RESIGNATION OF OFFICERS AND DIRECTORS.........................29
-------------------------------------
ii
<PAGE>
Section 7.9 ..............................................................29
ARI Options and Warrants....................................................29
Section 7.10 ..............................................................29
Non-Competition Agreements..................................................29
Section 7.11 EXCHANGE AND ESCROW AGREEMENT.................................29
-----------------------------
Section 7.12 OPINION OF COUNSEL............................................30
------------------
Section 7.13 INTELLECTUAL PROPERTY.........................................30
---------------------
ARTICLE VIII
CONDITIONS TO ARI'S OBLIGATIONS.............................................30
Section 8.1 REPRESENTATIONS AND WARRANTIES................................30
------------------------------
Section 8.2 PERFORMANCE OF COVENANTS......................................30
------------------------
Section 8.3 CERTIFICATE...................................................30
-----------
Section 8.4 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION.............30
-------------------------------------------------
Section 8.5 APPROVALS AND CONSENTS........................................31
----------------------
Section 8.6 OPINION OF COUNSEL............................................31
------------------
Section 8.7 EMPLOYMENT AGREEMENTS.........................................31
---------------------
Section 8.8 BANK LINE.....................................................31
---------
ARTICLE IX
CLOSING.....................................................................31
ARTICLE X
INDEMNITY AND ESCROW........................................................31
Section 10.1 INDEMNIFICATION...............................................31
---------------
Section 10.2 ESCROW OF SHARES..............................................32
----------------
Section 10.3 REMEDIES......................................................33
--------
Section 10.4 TERM OF ESCROW................................................33
--------------
Section 10.5 ARI SHAREHOLDERS' REPRESENTATIVES.............................34
---------------------------------
Section 10.6 MECHANICS OF MAKING CLAIMS....................................34
--------------------------
Section 10.7 ESCROW AGENT'S DUTIES.........................................35
---------------------
ARTICLE XI
TERMINATION.................................................................36
Section 11.1 TERMINATION AND ABANDONMENT...................................36
---------------------------
Section 11.2 EFFECT OF TERMINATION.........................................37
---------------------
ARTICLE XII
MISCELLANEOUS PROVISIONS....................................................37
Section 12.1 TAX MATTERS...................................................37
-----------
Section 12.2 KNOWLEDGE.....................................................39
---------
Section 12.3 AMENDMENT AND MODIFICATION....................................39
--------------------------
Section 12.4 WAIVER OF COMPLIANCE..........................................39
--------------------
Section 12.5 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................39
---------------------------------------------
Section 12.6 NOTICES.......................................................39
-------
Section 12.7 ASSIGNMENT....................................................40
----------
iii
<PAGE>
Section 12.8 GOVERNING LAW.................................................40
-------------
Section 12.9 PARTIES IN INTEREST...........................................41
-------------------
Section 12.10 COUNTERPARTS..................................................41
------------
Section 12.11 HEADINGS AND REFERENCES.......................................41
-----------------------
Section 12.12 ENTIRE AGREEMENT..............................................41
----------------
Section 12.13 SEVERABILITY..................................................41
------------
Section 12.14 OTHER REMEDIES................................................41
--------------
Section 12.15 FURTHER ASSURANCES............................................41
------------------
Section 12.16 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS.....................41
-----------------------------------------
Section 12.17 MUTUAL DRAFTING...............................................42
---------------
EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Current List of the Names and Addresses of all Holders
of ARI Capital Stock
Exhibit C-1, C-2 Non-Competition Agreement
Exhibit D Exchange and Escrow Agreement
Exhibit E Opinion of AR Industries, Inc. Legal Counsel
Exhibit F Opinion of iGo Corporation Legal Counsel
Exhibit G-1, G-2 Employment Agreements
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "AGREEMENT") is entered
into as of January 11, 2000, among iGo Corporation, a Delaware corporation
("iGO"), ARI Acquisition Corp., a California corporation and a wholly-owned
subsidiary of iGo ("SUB"), AR Industries, Inc., a California corporation ("ARI")
and the shareholders of AR Industries, Inc. (the "ARI SHAREHOLDERS").
RECITALS
A. The Boards of Directors of iGo, Sub and ARI have deemed it advisable
that iGo and ARI combine their operations by a merger of Sub into ARI, under the
terms and conditions hereinafter set forth (the "MERGER").
B. The Boards of Directors of iGo, ARI and Sub, have approved and
adopted this Agreement and the Merger Agreement (as defined below) and intend
that the Merger qualify for federal income tax purposes as a reorganization
within the meaning of Sections 368(a)(1)(A) and (a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "CODE").
In consideration of the mutual representations, warranties, covenants
and agreements herein contained and subject to the conditions and other terms
herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 ACTIONS TO BE TAKEN. Upon performance (or waiver) of all
covenants and obligations of the parties contained herein and upon fulfillment
(or waiver) of all conditions to the obligations of the parties contained
herein, at the Effective Time (as defined below) and pursuant to the California
Corporations Code (the "CCC") the following will occur:
(a) ARI will be merged with and into Sub in accordance with
Section 368(a) of the Code. Sub will be the surviving corporation (the
"SURVIVING CORPORATION"), and the separate existence and corporate organization
of ARI will cease, and thereupon ARI and Sub will be a single corporation known
as "AR Industries, Inc.";
(b) Sub, as the Surviving Corporation, will succeed, insofar
as permitted by law, to all rights, assets, liabilities and obligations of ARI
in accordance with the CCC;
(c) the Articles of Incorporation and Bylaws of Sub will be
the Articles of Incorporation and Bylaws of the Surviving Corporation until
amended as provided by law;
(d) The officers and directors of Sub will be the initial
officers and directors of the Surviving Corporation at and after the Effective
Time, each to hold office in accordance with the Articles of Incorporation and
Bylaws of the Surviving Corporation.
1
<PAGE>
(e) As soon as practicable after each condition to the
obligations of iGo and Sub and ARI hereunder has been satisfied or waived, an
Agreement of Merger, in the form attached hereto as EXHIBIT A and properly
completed and executed in accordance with the CCC (the "MERGER AGREEMENT") will
be filed with the Secretary of State of the State of California, together with
the required officers' certificates. The Merger will become effective at the
time and on the date the Merger Agreement is so filed. The date and time when
the Merger becomes effective is referred to herein as the "EFFECTIVE TIME."
Section 1.2 COMMON STOCK OF SURVIVING CORPORATION. Following the
Effective Time, all issued and outstanding shares of Common Stock of Sub will
continue to be fully paid and nonassessable shares of Common Stock of the
Surviving Corporation. Each certificate of Sub evidencing ownership of any such
shares will continue to evidence ownership of the same number of shares of
Common Stock of the Surviving Corporation.
Section 1.3 MERGER CONSIDERATION. Upon the effectiveness of the Merger,
the ARI Shareholders will collectively be entitled to receive from iGo in
consideration of the cancellation and conversion of all shares of the
outstanding capital stock of ARI (the "ARI CAPITAL STOCK"), an aggregate of (a)
$750,000 in cash (the "MERGER CASH"), and (b) the Merger Securities (subject to
the escrow and holdback described in Sections 1.7(d) and 10.2 below).
Section 1.4 CONVERSION OR CANCELLATION OF ARI CAPITAL STOCK.
(a) The maximum number of shares of Common Stock of iGo,
$0.001 par value per share ("iGO COMMON STOCK") to be issued by iGo in
connection with the Merger (the "MERGER SECURITIES") shall be 279,167.
(b) At the Effective Time, by virtue of the Merger and without
any action on the part of any holder thereof, each share of the capital stock of
ARI, issued and outstanding immediately prior to the Effective Time (other than
any shares cancelled or retired pursuant to Section 1.4(c), the "ARI CAPITAL
STOCK") will cease to be outstanding and will be converted into the right to
receive the number of shares of iGo Common Stock, subject to the provisions of
Article X hereof, as is determined by a ratio (the "EXCHANGE RATIO"), the
numerator of which is the maximum number of Merger Securities and the
denominator of which is equal to the number of shares of ARI Capital Stock
outstanding as of the Effective Time.
(c) Each share of ARI Capital Stock which, immediately prior
to the Effective Time, was issued and held in the treasury of ARI or was issued
and outstanding and held by iGo, Sub, ARI or any subsidiary of ARI will be
cancelled or retired and no issuance of Merger Securities or other payment will
be made with respect thereto.
(d) Notwithstanding anything in this Agreement to the
contrary, there shall be no shares of ARI Capital Stock which constitute
dissenting shares under Section 1300(b) of the CCC.
Section 1.5 NO FRACTIONAL INTERESTS. Neither certificates nor scrip for
fractional interests in the Merger Securities issued pursuant to Section 1.4(b)
hereof will be issued, but in lieu thereof each holder of shares of ARI Capital
Stock who would otherwise have been entitled pursuant to Section 1.4(b) hereof
to a fraction of a share of iGo Common Stock will be paid an amount in cash
equal to such fraction multiplied by $12.00 (the "MERGER PRICE").
2
<PAGE>
Section 1.6 ARI STOCK OPTIONS. All options, warrants and other rights
to acquire shares of ARI Capital Stock have been fully exercised , cancelled or
otherwise terminated as of the date of this Agreement.
Section 1.7 ISSUANCE AND DELIVERY OF MERGER CONSIDERATION.
(a) At the Closing, iGo shall pay to the ARI Shareholders, via
wire transfer to a single bank account designated by Rod Hosilyk and Kevin
Prince, the Merger Cash. Each ARI Shareholder shall be entitled to its pro rata
percentage (the "PRO RATA PORTION") of the Merger Cash, calculated by dividing
(i) such person's aggregate holdings of ARI Capital Stock immediately prior to
the Effective Time by (ii) all outstanding shares of ARI Capital Stock
outstanding immediately prior to the effective time. Upon delivery of the wire
transfer of the Merger Cash to the designated bank account, neither iGo nor Sub
or ARI shall have any further responsibility for ensuring that any particular
ARI Shareholder receives their Pro Rata Portion of the Merger Cash.
(b) iGo and ARI hereby authorize U.S. Stock Transfer
Corporation to act as Exchange Agent (the "EXCHANGE AGENT") hereunder. As soon
as practicable following the Effective Time, iGo will issue and deliver to the
Exchange Agent certificates ("NEW CERTIFICATES") representing a sufficient
number of shares of iGo Common Stock for issuance pursuant to Sections 1.4(b)
and 1.7(d) hereof.
(c) As soon as practicable after the Effective Time, the
Exchange Agent will send written notice to each record holder of certificates
representing shares of ARI Capital Stock converted pursuant to Section 1.4(b)
hereof ("OLD CERTIFICATES") of the manner and basis for exchanging Old
Certificates for New Certificates.
(d) Upon surrender for cancellation to the Exchange Agent of
one or more Old Certificates, accompanied by a duly executed letter of
transmittal in proper form, the Exchange Agent will, as promptly as practicable,
deliver to each holder (other than Rod Hosilyk and Kevin Prince) of such
surrendered Old Certificates, New Certificates representing such holder's Pro
Rata Portion of the Merger Securities to which the holders of ARI Capital Stock
are entitled pursuant to Section 1.4(b) hereof, together with checks for payment
of cash in lieu of fractional interests to be issued in respect of the Old
Certificates. The foregoing sentence shall apply to Rod Hosilyk and Kevin Prince
except that the New Certificates received by them will be decreased to the
extent of their respective proportional interests (as between each of them based
upon their respective holdings of ARI Common Stock immediately prior to the
Closing) in the shares escrowed pursuant to this paragraph and Article X hereof.
iGo will deliver to the Exchange Agent, when required, cash sufficient to settle
the payment for fractional interests. Twenty-Seven Thousand Nine Hundred
Seventeen (27,917) of the number of shares of iGo Common Stock to which Rod
Hosilyk and Kevin Prince are entitled shall be deposited in escrow in accordance
with Article X hereof.
3
<PAGE>
(e) Until Old Certificates have been surrendered and exchanged
as herein provided for New Certificates, each outstanding Old Certificate will
be deemed for all corporate purposes of iGo, other than the payment of dividends
or any distributions, to evidence ownership of the number of shares of iGo
Common Stock into which the number of shares of ARI Capital Stock shown thereon
have been converted pursuant to Section 1.4(b) hereof. No dividends or other
distributions declared on iGo Common Stock will be paid to persons otherwise
entitled to receive the same until the Old Certificates have been surrendered in
exchange for New Certificates in the manner herein provided, but upon such
surrender, such dividends or other distributions will be paid to such persons in
accordance with the terms of such securities. In no event will the persons
entitled to receive such dividends or other distributions be entitled to receive
interest on such dividends or other distributions. From and after the Effective
Time, iGo will, however, be entitled to treat Old Certificates which have not
yet been surrendered for exchange as evidencing the ownership of the number of
shares of iGo Common Stock into which the shares of ARI Capital Stock
represented by such Old Certificates will have been converted, notwithstanding
any failure to surrender such Old Certificates.
(f) No transfer taxes will be payable by any shareholder of
ARI in connection with the exchange of Old Certificates for New Certificates,
except that if any New Certificate is to be issued in a name other than that in
which the Old Certificate surrendered in exchange therefor is registered, it
will be a condition of such exchange that the person requesting such exchange
will pay to the Exchange Agent any transfer or other taxes required by reason of
the issuance of the New Certificate in a name other than the registered holder
of the Old Certificate, or will establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
(g) In the event that the appointment of the Exchange Agent is
terminated, following such termination, Old Certificates will be surrendered to,
and New Certificates delivered by, iGo or its agent. If outstanding Old
Certificates are not surrendered prior to two years after the Effective Time
(or, in any particular case, prior to such earlier date on which dividends or
other distributions, if any, would otherwise escheat to or become the property
of any governmental unit or agency), the amount of dividends and other
distributions, if any, which have become payable and which thereafter become
payable on Merger Securities evidenced by such Old Certificates as provided
herein will, to the extent permitted by applicable law, become the property of
the Surviving Corporation (and, to the extent not in its possession, will be
paid over to it by iGo), free and clear of all claims or interest of any person
previously entitled thereto.
Section 1.8 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of ARI will be closed and no transfer of ARI Capital Stock will
thereafter be made.
Section 1.9 FILING OF MERGER DOCUMENTS. As soon as practicable after
each other condition to the obligations of iGo and Sub and ARI hereunder has
been satisfied or waived, ARI and Sub will deliver the Merger Agreement for
filing with the Secretary of State of the State of California and iGo and Sub
and ARI will take such other and further actions as may be required by the CCC
in connection with such filing and the consummation of the Merger.
4
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF ARI AND THE ARI SHAREHOLDERS
As of the date hereof, except as disclosed in a document referring
specifically to the relevant subsections of this Article II which is delivered
by ARI to iGo prior to execution of this Agreement (the "ARI DISCLOSURE
SCHEDULE"), ARI and the ARI Shareholders hereby represent and warrant to iGo and
Sub as follows:
Section 2.1 CORPORATE ORGANIZATION.
(a) Each of ARI and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate power and
authority and all necessary governmental authorizations to own, lease and
operate its properties and to conduct its business as it is now being conducted.
A true and complete list of such Subsidiaries is set out in the ARI Disclosure
Schedule, together with the jurisdiction of incorporation of each Subsidiary.
Each of ARI and its Subsidiaries is duly qualified or licensed to do business
and is in good standing as a foreign corporation in each state or other
jurisdiction in which the nature of its business or operations or ownership of
its property requires such qualification or licensing, except where the failure
to be so qualified or licensed would not, individually or in the aggregate,
materially and adversely affect the condition (financial or other), business,
properties, prospects (as currently contemplated), net worth or results of
operations of ARI and its Subsidiaries taken as a whole (collectively, "ARI'S
BUSINESS"). The minute books of ARI and its Subsidiaries, as made available to
iGo, contain complete and accurate records of all corporate action taken by ARI
and its Subsidiaries since their respective dates of incorporation.
(b) ARI has no direct or indirect interest in or loans to any
partnership, corporation, joint venture, business association or other entity
other than ARI's Subsidiaries, all of which are listed in the ARI Disclosure
Schedule. ARI has delivered to iGo complete and correct copies of the Articles
of Incorporation and Bylaws (or other organizational or charter documents) of
ARI and each of its Subsidiaries, in each case as amended to the date hereof. As
used in this Agreement, the term "SUBSIDIARY" means a "subsidiary" as defined in
Rule 1.01 in Regulation S-X promulgated under the Securities Act of 1933, as
amended (the "SECURITIES ACT"). To the extent that ARI has any Subsidiaries, all
representations pertaining to ARI under this Article II shall be interpreted to
refer to ARI and its Subsidiaries unless such representation specifically
provides otherwise.
Section 2.2 CAPITAL STRUCTURE. The authorized capital stock of ARI
consists of 50,000,000 shares of Common Stock, no par value ("ARI COMMON
STOCK"), 1,000,000 shares of Preferred Stock, no par value. There are currently
outstanding 115,115 shares of ARI Common Stock and no shares of Preferred Stock.
All outstanding shares of ARI Capital Stock are validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, ARI's
Articles of Incorporation or Bylaws or any agreement to which ARI or any of its
Subsidiaries is a party or by which ARI or any of its Subsidiaries may be bound.
ARI has provided iGo and its legal counsel with a complete and accurate list of
all issuances of Capital Stock by ARI.
5
<PAGE>
Attached as EXHIBIT B hereto is a current list of the names and addresses of all
holders of ARI Capital Stock, together with the number and type of shares held
by each holder. There are no options, warrants, calls, conversion rights,
commitments or agreements of any character to which ARI or any Subsidiary of ARI
is a party or by which any of them may be bound that do or may obligate ARI or
any Subsidiary of ARI to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of ARI Capital Stock or of the capital
stock of any Subsidiary of ARI or that do or may obligate ARI or any Subsidiary
of ARI to grant, extend or enter into any such option, warrant, call, conversion
right, commitment or agreement. ARI is the owner of all outstanding shares of
capital stock of each of its Subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. ARI is not under any
obligation to register under the Securities Act any of its presently outstanding
securities or any securities that may subsequently be issued. There are no
agreements or understandings to which ARI is a party or, to the knowledge of
ARI, any other agreements or understandings, with respect to the transfer or
voting of shares of ARI Capital Stock.
Section 2.3 NO OTHER AGREEMENTS TO SELL ASSETS, MERGE, ETC. Except as
provided hereby, ARI has no legal obligation, absolute or contingent, to any
person or firm to sell assets other than in the ordinary course of business or
to effect any merger, consolidation or reorganization of ARI or to enter into
any agreement with respect thereto.
Section 2.4 AUTHORIZATION; EXECUTION AND DELIVERY. ARI and the ARI
Shareholders have all requisite power and authority (a) to execute and deliver,
as applicable, this Agreement, the Merger Agreement and the agreements attached
as exhibits hereto (the "ARI ANCILLARY AGREEMENTS"), (b) to perform their
respective obligations under this Agreement, the Merger Agreement and the ARI
Ancillary Agreements, and (c) to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement, the
Merger Agreement and the ARI Ancillary Agreements by ARI and the consummation by
ARI of the transactions contemplated hereby and thereby have been duly approved
and authorized by all requisite corporate action of ARI, including obtaining any
necessary approval of its shareholders. This Agreement has been duly executed
and delivered by ARI and the ARI Shareholders and, and assuming its due
authorization, execution and delivery by iGo and Sub, constitutes the legal,
valid and binding obligation of ARI and the ARI Shareholders, enforceable in
accordance with its terms. The Board of Directors of ARI has unanimously
determined that it is advisable and in the best interest of ARI's shareholders
for ARI to enter into a strategic business combination with iGo upon the terms
and subject to the conditions of this Agreement.
Section 2.5 GOVERNMENTAL APPROVALS AND FILINGS. No approval,
authorization, consent, license, clearance or order of, declaration or
notification to, or filing, registration or compliance with, any governmental or
regulatory authority ("GOVERNMENTAL ENTITY") is required on the part of ARI in
order (a) to permit ARI to perform its obligations under this Agreement or (b)
to prevent the termination of any right, privilege, license or agreement of ARI
or any Subsidiary of ARI, or to prevent any loss to ARI's Business, by reason of
the transactions contemplated by this Agreement, except for the filing of the
Merger Agreement and a Certificate of Satisfaction from the Franchise Tax Board
of the State of California, as required by the CCC.
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Section 2.6 NO CONFLICT. Except for the receipt of any required
approval of the shareholders of ARI as contemplated by Section 1.8(a) hereof,
and compliance with the governmental and regulatory requirements described in
Section 2.5 hereof, neither the execution, delivery and performance of this
Agreement, the Merger Agreement and the ARI Ancillary Agreements by ARI nor the
consummation by ARI of the transactions contemplated hereby and thereby,
including the Subsequent Merger, will (a) conflict with, or result in a breach
of, any of the terms, conditions or provisions of ARI's or any of ARI's
Subsidiaries' Articles of Incor poration or Bylaws (or other organizational or
charter documents), (b) conflict with, result in a breach or violation of, give
rise to a termination right or a default under, result in the acceleration of
performance under (whether or not after the giving of notice or lapse of time or
both), any mortgage, lien, lease, agreement, note, bond, indenture, guarantee or
instrument or any license or franchise granted by or to a third party, in each
case, that is material to ARI's Business or that is referenced in the ARI
Disclosure Schedule, (c) conflict with, or result in a violation of, any
statute, regulation, law, ordinance, writ, injunction, order, judgment or decree
to which ARI or any ARI Subsidiary or any of their assets may be subject, (d)
give rise to a declaration or imposition of any lien, charge, security interest
or encumbrance of any nature whatsoever upon any of the assets of ARI or any ARI
Subsidiary, (e) adversely affect, in any material respect, any franchise,
license, permit or other governmental approval which is material to ARI's
Business or is necessary to enable ARI or any ARI Subsidiary to carry on its
business as presently conducted or is required of any employee or agent of ARI
or any ARI Subsidiary to enable each of them to carry out such person's duties
on behalf of ARI or any ARI Subsidiary or (f) require the consent of any third
party.
Section 2.7 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES.
(a) ARI has furnished iGo with the unaudited consolidated
balance sheets of ARI and its Subsidiaries as of November 30, 1999 and the
related audited consolidated statements of operations, cash flows and changes in
shareholders' equity for the year then ended, and the unaudited interim balance
sheet and related consolidated statements of operations, cash flows and changes
in shareholders' equity for the 11-month period ended November 30, 1999
(collectively, the "ARI FINANCIAL STATEMENTS"). The ARI Financial Statements,
including the notes thereto, (i) are in accordance with the respective books of
ARI and the its Subsidiaries; (ii) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved; (iii) present fairly the consolidated financial position of
ARI and the ARI Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows of ARI for the respective
periods indicated therein; and (iv) do not reflect any material items of
nonrecurring income except as stated therein. Since January 1, 1999 there has
been no change in ARI's accounting principles, methods or policies, except as
described in the notes to the ARI Financial Statements and except that the
unaudited interim financial statements (A) are subject to normal year-end audit
adjustments which are not expected to be material in the aggregate and (B) do
not include footnotes.
(b) ARI has no liabilities of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, which were
not disclosed or provided for in the ARI Financial Statements or the notes
thereto other than obligations not required to be disclosed or provided for
under generally accepted accounting principles and liabilities incurred since
January 1, 1999, which are not individually or in the aggregate, material to
ARI's Business. All reserves set forth on the ARI Financial Statements or the
notes thereto were adequate. There are no loss contingencies (as such term is
used in Statement of Financial Accounting Standards No. 5) which were not
adequately provided for in the ARI Financial Statements or reflected in the
notes thereto.
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(c) The accounts receivable shown on the ARI Financial
Statements at November 30, 1999 are collectible in the ordinary and usual course
of business, and are not subject to any defense or right of set-off that may be
asserted or any claim of set-off that may be made, other than as reflected in
the allowance for doubtful accounts shown on the consolidated balance sheet
contained in the ARI Financial Statements at November 30, 1999. The reserve for
doubtful accounts is adequate, and the values at which accounts receivable are
carried on such November 30, 1999 consolidated balance sheet reflect the
policies of ARI consistent with ARI's past practice and are in accordance with
generally accepted accounting principles applied on a consistent basis.
(d) ARI makes and keeps accurate books and records reflecting
in all material respects its assets and maintains internal accounting controls
which provide reasonable assurance that (i) transactions are executed in
accordance with management's authorization, (ii) transactions are recorded to
permit preparation of ARI's financial statements and to maintain accountability
in all material respects for the assets of ARI, (iii) access to the assets of
ARI is permitted only in accordance with management's authorization, and (iv)
the recorded accountability of the assets of ARI is compared with existing
assets at reasonable intervals.
Section 2.8 ABSENCE OF CHANGES. Since January 1, 1999, ARI has
conducted its business only in the ordinary course consistent with past practice
and there has or have been no (a) material adverse change in ARI's Business or
any development known to ARI that is reasonably expected to cause a material
adverse change in ARI's Business; (b) damage, destruction or loss (whether or
not covered by insurance) materially and adversely affecting any assets material
to ARI's Business; (c) change by ARI or its Subsidiaries in accounting
principles or methods except insofar as may be required by a change in generally
accepted accounting principles; (d) revaluation by ARI or any of its
Subsidiaries of any of their assets, including, without limitation, writing down
the value of inventory or writing off notes or accounts receivable; (e)
amendments or changes in the Articles of Incorporation or Bylaws of ARI; (f)
capital expenditures by ARI or additions of equipment to existing leases
exceeding $10,000 in the aggregate; (g) destruction, damage to, or loss of any
assets of ARI (whether or not covered by insurance); (h) labor trouble or claim
of wrongful discharge, discrimination or sexual harassment of which ARI has
received written notice or of which ARI is aware, or other unlawful labor
practice or action; (i) declaration, setting aside or payment of a dividend or
other distribution with respect to the shares of capital stock of ARI, or any
direct or indirect redemption, purchase or other acquisition by ARI of any of
its shares of capital stock; (j) increase in the salary or other compensation
payable or to become payable by ARI to any of its officers, directors or
employees, or the declaration, payment or commitment or any obligation of any
kind for the payment by ARI of a bonus or other additional salary or
compensation to any such person; (k) acquisition, sale or transfer of any
material asset of ARI other than in the ordinary course of business; (l)
amendment or termination of any contract, agreement or license to which ARI is a
party; (m) loan by ARI to any person or entity, or guarantee by ARI of any loan,
other than advances to employees for travel and business expenses in the
ordinary course of business and consistent with past practices; (n) waiver or
release of any material right or claim of ARI, including any write-off or other
compromise of any account receivable of ARI; (o) the commencement or notice or
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threat of commencement of any governmental proceeding against or investigation
of ARI or its affairs; or (p) negotiation or agreement by ARI or the ARI
Shareholders to do any of the things described in the preceding clauses (a)
through (o), other than negotiations with iGo regarding the transactions
contemplated by this Agreement.
Section 2.9 CONTRACTS AND COMMITMENTS.
(a) Neither ARI nor any of its Subsidiaries is a party or
subject to:
(i) Any union contract or collective bargaining agreement
or any employment contract or arrangement, written or oral, providing for future
compensation with any officer, consultant, director or employee which is not
terminable by it or its Subsidiary on 30 days' notice or less without penalty or
obligation to make payments related to such termination, other than (A) (in the
case of employees other than executive officers) such severance agreements as
are not different from standard arrangements offered to employees generally in
the ordinary course of business consistent with ARI's past practices, a
description of which is set forth in the ARI Disclosure Schedule and (B) such
agreements as may be imposed or implied by law;
(ii) Any plans, contracts or arrangements, written or
oral, which collectively require aggregate payments by ARI in excess of $10,000
for bonuses, pensions, deferred compensation, severance pay or benefits,
retirement payments, profit-sharing, or the like;
(iii) Any joint marketing, joint development or joint
venture contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other persons;
(iv) Any existing OEM agreement, distribution agreement,
volume purchase agreement, or other similar agreement in which the annual amount
involved in 1998 exceeded, or is expected to exceed in 1999 or any subsequent
year, $10,000 or pursuant to which ARI has granted or received most favored
customer provisions or exclusive marketing rights related to any product, group
of products or territory;
(v) Any lease for real or personal property pursuant to
which the amount of payments which ARI is required to make on an annual basis
exceeds $10,000;
(vi) Any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement, commitment or
authorization which may be, by its terms, terminated or breached by reason of
the execution of this Agreement, the Merger Agreement or any ARI Ancillary
Agreement, the closing of the Merger, or the consummation of the transactions
contemplated hereby or thereby, including the Subsequent Merger;
(vii) Except for trade indebtedness incurred in the
ordinary course of business, any instrument evidencing or related in any way to
indebtedness in excess of $10,000 incurred in the acquisition of companies or
other entities or indebtedness in excess of $10,000 for borrowed money by way of
direct loan, sale of debt securities, purchase money obligation, conditional
sale, guarantee, indemnification or otherwise;
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(viii) Any license agreement, either as licensor or
licensee;
(ix) Any contract containing covenants purporting to limit
ARI's freedom or that of any of its Subsidiaries to compete in any line of
business or in any geographic area or with any third party;
(x) Any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of $10,000; or
(xi) Any other agreement, contract or commitment which is
material to ARI's Business.
(b) Each agreement, contract, mortgage, indenture, plan,
lease, instrument, permit, concession, franchise, arrangement, license and
commitment listed in the ARI Disclosure Schedule is valid and binding on ARI or
its Subsidiaries, as applicable, and is in full force and effect, and neither
ARI nor any of its Subsidiaries, nor to the knowledge of ARI, any other party
thereto, has breached any material provision of, or is in default under the
terms of, any such agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license or commitment.
(c) None of the 20 largest customers of ARI or its
Subsidiaries during the twelve months ended November 30, 1999 (determined on the
basis of both revenues and bookings during such period) has materially reduced
or terminated, or has notified ARI in writing that it intends to reduce or
terminate, the amount of its business with ARI or any of its Subsidiaries.
(d) There is no agreement, judgment, injunction, order or
decree binding upon ARI or its Subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any material
current business practice of ARI or its Subsidiaries, any acquisition of
material property by ARI or its Subsidiaries or the conduct of business by ARI
or its Subsidiaries as currently conducted or as proposed to be conducted by ARI
or its Subsidiaries.
Section 2.10 LEGAL PROCEEDINGS. Each of ARI and its Subsidiaries is not
in violation of, and has not received any notice of any violation of (a) any
applicable statute, law, regulation, ordinance, writ, injunction, order,
judgment or decree, the effect of which violation could reasonably, individually
or in the aggregate, be expected to be materially adverse to ARI's Business, or
(b) any provision of the Articles of Incorporation or Bylaws (or other
organizational or charter document) of ARI or any ARI Subsidiary. There is no
order, writ, injunction, judgment or decree outstanding, and no legal,
administrative, arbitration or other proceeding, action, suit or governmental
investigation or inquiry against or relating to ARI or any of ARI's Subsidiaries
or their assets or business ("ARI LEGAL PROCEEDINGS") pending or, to the
knowledge of ARI, threatened and, to the knowledge of ARI, there are no claims
(including unasserted claims as to which there has been a manifestation by a
potential claimant of an awareness of such claim or it is considered probable
that a claim will be asserted and there is a reasonable possibility that the
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outcome will be unfavorable, all as such terms are used in Statement of
Financial Accounting Standards No. 5), against or relating to ARI or any of
ARI's Subsidiaries or their assets or business, which pending or threatened ARI
Legal Proceedings or claims would reasonably be expected to have, individually
or in the aggregate, a material adverse effect on ARI's Business. There is no
ARI Legal Proceeding which in any manner challenges or seeks to prevent, enjoin,
alter or delay any of the transactions contemplated hereby. There are no
existing liabilities that require ARI or any ARI Subsidiary to indemnify its
officers and directors for acts or omissions by such persons or existing
agreements to provide indemnification for such liabilities. The ARI Disclosure
Schedule sets forth with respect to each ARI Legal Proceeding, to the extent
that the aggregate remedies or damages claimed for each such complaint are
unspecified, involve specific performance or injunctive relief or exceed
$10,000, the forum, the parties thereto, a brief description of the subject
matter thereof and the amount of damages claimed.
Section 2.11 ERISA MATTERS.
(a) Set forth in Section 2.11(a) of the ARI Disclosure
Schedule is a true and complete list of all employees of ARI, including current
wage or salary. In addition, set forth in Section 2.11(a) of the ARI Disclosure
Schedule contains a true and complete list of all oral and written employment
contracts and all development and consulting contracts of ARI. Copies of all
such employment contracts and developer and consulting contracts have been
delivered to iGo. All such contracts are valid and are in full force and effect
in all respects, and neither ARI, nor any other party is in breach or default of
any such contract. ARI has no written or oral agreement or commitment to pay any
person anything of value upon or in connection with the termination of such
person's employment or engagement by ARI.
(b) All past and present directors, officers, employees,
developers and consultants of ARI who have had and who have access to the
Intellectual Property (as defined below) and other proprietary information of
ARI had and have executed and delivered to ARI agreements regarding the
confidentiality and non-disclosure of such Intellectual Property and proprietary
information and the assignment of intellectual property rights to ARI. All such
agreements are valid and remain in full force and effect, and neither ARI, nor
any other party is in breach or default of any such agreement.
(c) ARI has no knowledge of any Company employee that intends
to leave ARI's employ.
(d) To the knowledge of ARI, no employee of ARI is in material
violation of any contract or agreement, or any restrictive covenant, relating to
the right of any such employee to be employed by ARI or with respect to security
clearance, trade secrets or proprietary information of others, and the
employment of any employee of ARI does not subject ARI to any liability to any
third party.
(e) Except for the plans of ARI set forth in Section 2.11(e)
of the ARI Disclosure Schedule (the "PLANS"), neither ARI nor any corporation,
partnership or other trade or business, whether or not incorporated, which is or
has been treated as a single employer or controlled group member with ARI
pursuant to Section 4001 of the Employee Retirement Income Security Act of 1974,
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as amended (together with the rules and regulations promulgated thereunder
("ERISA")) or Code Section 414 (each such entity being referred to herein as an
"ERISA AFFILIATE") maintains or contributes to or has any liability with respect
to any "employee benefit plan" as that term is defined in Section 3(3) of ERISA,
and, or any other bonus, incentive, compensation, profit sharing, stock,
severance, retirement, health, life, disability, group insurance, vacation,
holiday, fringe benefit, employment, stock option, stock purchase, stock
appreciation right, supplemental unemployment, layoff or consulting plan,
agreement, policy or understanding (whether written or oral, qualified or
nonqualified, currently effective or terminated). True and complete copies of
all the Plan documents and summary plan descriptions have been furnished to iGo
(along with all related trust agreements, insurance contracts or other funding
agreements which implement each Plan, and all other documents, records or other
materials related thereto reasonably requested by iGo).
(f) With respect to each Plan, the requirements of ERISA, the
Code (including, without limitation Part 6 of Subtitle B of Title I of ERISA and
Sections 105(h) and 4980B of the Code) and all other applicable laws have been
fulfilled in all respects, and copies of all filings with the Internal Revenue
Service and the Department of Labor or other applicable Governmental Entity for
the three most recent plan years for the Plans have been furnished to iGo. No
written or oral representations have been made to any employee or former
employee of ARI promising or guaranteeing any employer payment or funding for
the continuation of medical, dental, life or disability coverage for any period
of time beyond the end of the current plan year (except to the extent of
coverage required under Section 4980B of the Code).
(g) Neither ARI nor any ERISA Affiliate has ever (i)
maintained or contributed to any plan subject to Section 412 of the Code and
Section 302 of ERISA or (ii) contributed to any "multi-employer plan," as such
term is defined in Section 3(37) of ERISA, and neither ARI nor any ERISA
Affiliate has effected either a "complete withdrawal" or a "partial withdrawal,"
as those terms are defined in Sections 4203 and 4205, respectively, of ERISA,
from any such multi-employer plan.
(h) All bonus, profit sharing, incentive, commission or other
compensation of any kind with respect to work done have been fully accrued on
the Financial Statements.
(i) Each Plan that is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) meets the requirements of a "qualified plan"
under Section 401(a) of the Code in form and in operation, and such Plan, and
each trust (if any) forming a part thereof, has received a favorable
determination letter, or a favorable determination letter has been applied for,
from the Internal Revenue Service as to the qualification under the Code of such
Plan and the tax-exempt status of such related trust, and nothing has occurred
since the date of such determination letter, or request therefor, that could
reasonably be expected to adversely affect the qualification of such Plan or the
tax-exempt status of such related trust.
(j) There are no unfunded liabilities existing under any Plan,
and, subject to compliance with applicable notice requirements under ERISA and
state laws, each Plan could be terminated promptly following the Effective Time
with no liability to iGo, ARI, any ERISA Affiliate or any person that is under
common control, or is treated as a single employer, with iGo under Section 414
of the Code or ERISA Section 4001.
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(k) With respect to each Plan (i) there have been no
non-exempt prohibited transactions as defined in Section 406 of ERISA or Section
4975 of the Code, (ii) no fiduciary (as defined in Section 3(21) of ERISA) has
liability for breaching of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of assets in such Plan, and
(iii) no actions, investigations, suits or claims with respect to the assets
thereof (other than routine claims for benefits) are pending or, to the
knowledge of the Shareholders, threatened, and the Shareholders have no
knowledge of any facts that would give rise to or could reasonably be expected
to give rise to any such actions, suits or claims.
Section 2.12 TAXES.
(a) DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "TAXES" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal income taxes and state income taxes), payroll and employee withholding
taxes, unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which are required to be paid, withheld or collected.
(ii) The term "RETURNS" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
(iii) The term "CODE" shall mean the Internal Revenue Code
of 1986, as amended.
(b) RETURNS FILED AND TAXES PAID. All Returns required to be
filed by or on behalf of ARI have been duly filed on a timely basis (or requests
for extensions to file ARI's Returns have been timely filed) and such Returns
are true, complete and correct. All Taxes shown to be payable on the Returns or
on subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of ARI under Section 6655 of the Code
or comparable provisions of state, local or foreign law, have been paid in full
on a timely basis or have been accrued on the Financial Statements, and no other
Taxes are payable by ARI with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns) or with respect
to any period prior to the date of this Agreement. ARI has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other third
party. There are no liens on any of the assets of ARI with respect to Taxes,
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other than liens for Taxes not yet due and payable or for Taxes that ARI is
contesting in good faith through appropriate proceedings and for which
appropriate reserves have been established. ARI has not been at any time a
member of any partnership or joint venture for a period for which the statue of
limitations for any Tax potentially applicable as a result of such membership
has not expired.
(c) TAX RESERVES. Except for Taxes described on the ARI
Disclosure Schedule, the amount of ARI's liability for unpaid Taxes for all
periods ending on or before the date of this Agreement does not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) solely with respect to ARI reflected on
the ARI Financial Statements, and the amount of ARI's liability for unpaid Taxes
for all periods ending on or before the Closing Date will not, in the aggregate,
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) solely with respect to ARI reflected on the balance
sheet as of the Closing Date.
(d) RETURNS FURNISHED. ARI has made available to iGo true and
complete copies of (i) relevant portions of income tax audit reports, statements
of deficiencies, closing or other agreements received by or on behalf of ARI
relating to Taxes, and (ii) all federal and state income or franchise tax
returns and state sales, use and property tax returns for ARI for all periods
ending on and after December 31, 1995. ARI has never been a member of an
affiliated group of corporations filing consolidated returns or a unitary group
of corporations filing combined returns. ARI does no business in and derives no
income from any state other than states for which Returns have been duly filed
and made available to iGo.
(e) TAX DEFICIENCIES; AUDITS; STATUTES OF LIMITATIONS. The
Returns of ARI have never been audited by a government or taxing authority, nor
is any such audit in process, pending or threatened. No deficiencies exist or
have been asserted or are expected to be asserted with respect to Taxes of ARI,
and ARI has not received written notice nor does it expect to receive notice
that it has not filed a Return or paid Taxes required to be filed or paid by it.
ARI is neither a party to any action or proceeding for assessment or collection
of Taxes, nor has such event been asserted or threatened against ARI or any of
its assets. No waiver or extension of any statute of limitations is in effect
with respect to Taxes or Returns of ARI. ARI has disclosed on its federal income
tax returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662.
(f) TAX SHARING AGREEMENTS. ARI is not (nor has it ever been)
a party to any tax sharing agreement.
(g) TAX ELECTIONS AND SPECIAL TAX STATUS. ARI is not a party
to any safe harbor lease within the meaning of Section 168(f)(8) of the Code, as
in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982. ARI is not, nor has it been, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and iGo is
not required to withhold tax by reason of Section 1445 of the Code. ARI is not
is a "consenting corporation" under Section 341(f) of the Code. ARI has not
entered into any compensatory agreements with respect to the performance of
services which payment thereunder would result in a nondeductible expense to ARI
pursuant to Section 280G of the Code or an excise tax to the recipient of such
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payment pursuant to Section 4999 of the Code. ARI has not participated in an
international boycott as defined in Code Section 999. ARI has not agreed to, nor
is it required to make any adjustment under Code Section 481(a) by reason of, a
change in accounting method, and it does not otherwise have any income
reportable for a period ending after the Closing Date attributable to a
transaction or other event (e.g., an installment sale) occurring prior to the
Closing Date involving in excess of $10,000. ARI is not nor has it been a
"reporting corporation" subject to the information reporting and record
maintenance requirements of Section 6038A and the regulations thereunder.
(h) LIMITATIONS. ARI is not obligated to make any payments and
is not a party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section 280G. ARI
has no net operating losses or other tax attributes currently subject to
limitation under Code Sections 382, 383, or 384 (or comparable provisions of
state law).
(i) S CORPORATION. ARI has made a valid election to be treated
as an S Corporation for Federal income tax purposes under Subchapter S of the
Code, and has filed a Form 2553 for such purpose with the Internal Revenue
Service which was executed by each of the relevant shareholders of ARI. Before
giving effect to the transactions contemplated by this Agreement (i) ARI's
election to be treated as an S Corporation has not been revoked or terminated
and continues, and will continue, in full force and effect through the Closing
Date, and (ii) no shares of ARI's capital stock have been transferred to or are
owned by any person or entity whose ownership thereof would cause termination of
such election.
Section 2.13 INTELLECTUAL PROPERTY.
(a) ARI owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights and any applications therefor, technology, know-how and tangible and
intangible proprietary information or material that are used or proposed to be
used in the business of ARI as currently conducted or as proposed to be
conducted that are material to such business or where the failure to have such
right would result or would be expected to result in a material adverse effect
on ARI's Business (the "INTELLECTUAL PROPERTY"). Section 2.13 of the ARI
Disclosure Schedule sets forth all patents, registered and unregistered
trademarks and service marks, registered and unregistered copyrights, trade
names and service marks, and any applications therefor, included in the
Intellectual Property, and specifies the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners. Section 2.13 of the ARI Disclosure Schedule also sets forth (i) all
licenses, sublicenses and other agreements to which ARI is a party and pursuant
to which any person is authorized to use any Intellectual Property and (ii) all
licenses, sublicenses and other agreements to which ARI is a party and pursuant
to which ARI is authorized to use any patents, trademarks, trade names, service
marks, copyrights and any applications therefor, technology, know-how and
tangible and intangible proprietary information or material of any third party
(the "THIRD PARTY INTELLECTUAL PROPERTY RIGHTS"), and Section 2.13 of the ARI
Disclosure Schedule includes the identity of all parties to such licenses,
sublicense and other agreements, a description of the nature and subject matter
thereof, the applicable royalty rates and the term thereof.
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(b) The execution and delivery of this Agreement and the
performance by ARI of its obligations hereunder will not (i) impair ARI's
rights, (ii) alter the rights or obligations of any third party under, or (iii)
violate any license, sublicense or other agreement described or required to be
described on the Disclosure Schedule, nor is ARI currently in violation of any
such license, sublicense or other agreement described or required to be
described on the Disclosure Schedule. No claims with respect to the Intellectual
Property, any trade secret of ARI or any Third Party Intellectual Property
Rights (to the extent arising out of any use, reproduction or distribution of
such Third Party Intellectual Property Rights by or through ARI) have been
asserted or are, to the knowledge of ARI and the ARI Shareholders, threatened by
any person or entity, nor, to the knowledge of ARI and the ARI Shareholders, are
there any valid grounds for any claims (i) to the effect that the manufacture,
sale, licensing or use of any product used, sold or licensed or proposed for
use, sale or license by ARI infringes on any Third Party Intellectual Property
Right or trade secret; (ii) against the use by ARI of any patents, trademarks,
trade names, service marks, copyrights, technology or know-how used in ARI's
business as cur rently conducted or as proposed to be conducted; (iii)
challenging the ownership, validity, enforceability or effectiveness of any
Intellectual Property or any trade secret of ARI or (iv) challenging ARI's
license or legally enforceable right to use any Third Party Intellectual
Property Rights. All patents, registered trademarks, service marks and
copyrights held by ARI are valid and subsisting.
(c) No Intellectual Property or trade secret of ARI or, to
ARI's knowl edge, Third Party Intellectual Property Right to which ARI holds a
license or sublicense is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting in any manner the licensing thereof by ARI.
ARI has not entered into any agreement to indemnify any other person against any
charge of infringement of any Intellectual Property, any trade secret of ARI or
any Third Party Intellectual Property Right.
Section 2.14 ENVIRONMENTAL MATTERS.
(a) No underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by applicable
state law to be radioactive, toxic, hazardous or otherwise a danger to health or
the environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the Untied States
Resource Con servation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to such laws (a "HAZARDOUS MATERIAL"), is present, as a
result of the actions of ARI, or, to the knowledge of ARI, as of result of any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water thereof, that ARI
has at any time owned, operated, occupied or leased.
(b) At no time prior to the Effective Time has ARI
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Effective Time, nor has ARI disposed of, transported, sold or
manufactured any product containing a Hazardous Material (collectively
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity to prohibit, regulate or
control Hazardous Materials or any Hazardous Materials Activities.
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(c) ARI holds all environmental approvals, permits, licenses,
clear ances and consents (the "ENVIRONMENTAL PERMITS") necessary for the conduct
of ARI's Hazardous Material Activities and other business activities of ARI that
are material to such activities or where the failure to have such Environmental
Permits would result or be expected to result in a material adverse effect on
ARI's Business.
(d) No action, proceeding, revocation proceeding, amendment
proce dure, writ, injunction or claim is pending or, to the knowledge of ARI,
threatened concerning or relating to ARI, any Environmental Permit or any
Hazardous Materials Activity of ARI. ARI is not aware of any fact or
circumstance that could reasonably be expected to involve ARI in any
environmental litigation or impose upon ARI any environmental liability that
would have a material adverse effect on ARI's Business. Section 2.15 CERTAIN
AGREEMENTS. Neither the execution and delivery of this Agreement, the Merger
Agreement and the ARI Ancillary Agreements, nor the consummation of the
transactions contemplated hereby or thereby will (a) result in any payment
(including, without limitation, severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director or employee of ARI,
under any Plan or otherwise, (b) increase any benefits otherwise payable under
any Plan, or (c) result in the acceleration of the time of payment or vesting of
any such benefits.
Section 2.16 INTERESTS OF OFFICERS AND DIRECTORS. No officer or
director of ARI or any "affiliate" or "associate" (as those terms are defined in
Rule 405 promulgated under the Securities Act) of any such person has had,
either directly or indirectly, a material interest in: (a) any person or entity
which purchases from or sells, licenses or furnishes to ARI or any of its
Subsidiaries any goods, property, technology or intellectual or other property
rights or services; (b) any contract or agreement to which ARI or any of its
Subsidiaries is a party or by which it may be bound or affected; or (c) any
property, real or personal, tangible or intangible, used in or pertaining to
ARI's Business, including any interest in the ARI Intellectual Property Rights.
Section 2.17 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon ARI or any of its
Subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of ARI or any of its
Subsidiaries, any acquisition of property by ARI or any of its Subsidiaries or
the conduct of business by ARI or any of its Subsidiaries as currently conducted
or as currently proposed to be conducted by ARI or any of its Subsidiaries.
Section 2.18 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF EQUIPMENT.
(a) The ARI Disclosure Schedule lists all facilities occupied
by ARI or any ARI Subsidiary, and indicates the nature of ARI's or its
Subsidiary's interest in such facilities. ARI and its Subsidiaries have good and
valid title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of their tangible properties and assets, real, personal and
mixed, used in their business, free and clear of any liens, charges, pledges,
security interests or other encumbrances, except as reflected in the ARI
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Financial Statements or except for such imperfections of title and encumbrances,
if any, which are not substantial in character, amount or extent, and which do
not materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby.
(b) The equipment owned or leased by ARI or its Subsidiaries
is, taken as a whole, (i) adequate for the conduct of the business of ARI and
its Subsidiaries consistent with their past practice, (ii) suitable for the uses
to which it is currently employed, (iii) in good operat ing condition, (iv)
regularly and properly maintained, (v) not obsolete, dangerous or in need of
renewal or replacement, except for renewal or replacement in the ordinary course
of business, and (vi) free from any defects, except, with respect to clauses
(ii) through (vi) above, as would not have been a material adverse effect on
ARI's Business.
Section 2.19 COMPLIANCE WITH LAWS. ARI has complied, and will be on the
Closing Date in compliance with all applicable, laws, ordinances, regulations
and rules, and all orders, writs, injunctions, awards, judgments and decrees,
applicable to ARI or to the assets, properties and business of ARI (except where
the failure to be in compliance would not have a material adverse effect on
ARI's Business), including, without limitation: (a) all applicable federal and
state securities laws and regulations, (b) all applicable federal, state and
local laws, ordinances and regulations, and all orders, writs, injunctions,
awards, judgments and decrees, pertaining to (i) the sale, licensing, leasing,
ownership or management of ARI's owned, leased or licensed real or personal
property, products, technical data and Intellectual Property, (ii) employment
and employment practices, terms and conditions of employment, and wages and
hours, and (iii) safety, health, fire prevention, environmental protection,
building standards, zoning and other similar matters, and (c) the Export
Administration Act and regulations promulgated thereunder and all other laws,
regulations, rules, orders, writs, injunctions, judgments and decrees applicable
to the export or re-export of controlled commodities or technical data. ARI has
received all material permits and approvals from, and has made all material
filings with, third parties, including government agencies and authorities, that
are necessary in connection with its present business.
Section 2.20 LABOR MATTERS.
(a) ARI and its Subsidiaries are in compliance in all material
respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment and
wages and hours and occupational safety and health and employment practices, and
are not engaged in any unfair labor practice. ARI and each of its Subsidiaries
has complied in all material aspects with all applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and has no
material obligations with respect to any former employees or qualifying
beneficiaries thereunder. Neither ARI nor any of its Subsidiaries has received
any notice from any Governmental Entity, and there has not been asserted before
any Governmental Entity, any claim, action or proceeding to which ARI or any of
its Subsidiaries is a party or involving ARI or any of its Subsidiaries, and
there is neither pending nor, to ARI's knowledge, threatened any investigation
or hearing concerning ARI or any of its Subsidiaries arising out of or based
upon any such laws, regulations or practices. Except as is not material to ARI's
Business, neither ARI nor any ARI Subsidiary has given to or received from, or
anticipates giving to or receiving from, any employee of ARI or any ARI
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Subsidiary notice of termination of employment. The ARI Disclosure Schedule sets
forth the terms pursuant to which all amounts may be payable (whether currently
or in the future) to current or former officers, directors, or employees of ARI
or any ARI Subsidiary as a result of or in connection with the Merger.
(b) Neither ARI nor any ARI Subsidiary is a party to any labor
agreement with respect to its employees with any labor organization, union,
group or association and there are no employee unions (nor any other similar
labor or employee organizations) under local statutes, custom or practice.
Neither ARI nor any ARI Subsidiary has experienced any attempt by organized
labor or its representatives to make ARI conform to demands of organized labor
relating to its employees or to enter into a binding agreement with organized
labor that would cover the employees of ARI or any ARI Subsidiary. To ARI's
knowledge, there is no labor strike or labor disturbance pending or threatened
against ARI nor is any grievance currently being asserted. Neither ARI nor any
ARI Subsidiary has experienced a work stoppage or other labor difficulty.
Section 2.21 INSURANCE. The ARI Disclosure Schedule contains a complete
and accurate list of all policies or binders of fire, liability, title, worker's
compensation, product liability and other forms of insurance maintained by ARI
and the ARI Subsidiaries. Neither ARI nor any ARI Subsidiary is in default under
any of such policies or binders, and neither ARI nor any ARI Subsidiary has
failed to give any notice or to present any claim under any such policy or
binder in a due and timely fashion. There are no facts known to ARI upon which
an insurer might be justified in reducing coverage or increasing premiums on
existing policies or binders. There are no outstanding unpaid claims under any
such policies or binders. All policies and binders provide sufficient coverage
for the risks insured against, are in full force and effect on the date hereof
and shall be kept in full force and effect through the Effective Time.
Section 2.22 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement. In the event that the
preceding sentence is in any way inaccurate, ARI agrees to indemnify and hold
harmless iGo and Sub from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which ARI or the ARI Shareholders is
responsible.
Section 2.23 DISCLOSURE. No representation or warranty made by ARI in
this Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared and furnished or to be
prepared and furnished by ARI or its representatives pursuant hereto, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements or facts contained
herein or therein not misleading in light of the circumstances under which they
were furnished. To the knowledge of ARI after reasonable inquiry, there is no
event, fact or condition that has resulted in, or could reasonably be expected
to result in, a material adverse effect on ARI's Business that has not been set
forth in this Agreement or in the ARI Disclosure Schedule. ARI has provided
copies to iGo of all documents and information requested by iGo pursuant to
iGo's diligence requests.
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Section 2.24 INVESTMENT REPRESENTATIONS. In connection with their
receipt of the Merger Securities, the ARI Shareholders each represent as
follows:
(a) The ARI Shareholder is aware of iGo's business affairs and
financial condition, and has acquired sufficient information about iGo
(including that information in iGo's public securities filings) to reach an
informed and knowledgeable decision to acquire the Merger Securities. The ARI
Shareholder is acquiring the Shares for my own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"DISTRIBUTION" thereof for purposes of the Securities Act.
(b) The ARI Shareholder understands that the Merger Securities
have not been registered under the Securities Act or in any state in reliance
upon specific exemptions therefrom, which exemptions depend upon, among other
things, the bona fide nature of my investment intent as expressed herein. The
ARI Shareholder understands that the Company is under no obligation to register
the Merger Securities for resale on the open market.
(c) By reason of the business or financial experience of the
ARI Shareholder or the ARI Shareholder's professional advisors who are
unaffiliated with the Company, the ARI Shareholder has the capacity to protect
his/her/its own interests in the acquisition of the Merger Securities.
Section 2.25 COMPUTER SYSTEMS. The computer systems and associated
peripheral equipment, computer software, technical and other documentation of
ARI and data entered into or created by the foregoing from time to time
constitute or, when installed will constitute, all such items necessary for the
operation of ARI's Business in the manner operated as of the Closing Date. Each
of such items are Year 2000 Compliant. For purposes hereof, "Year 2000
Compliant" means that such systems (a) can process, manipulate and store data
relating to dates after December 31, 1999 as well as dates on or prior thereto;
(b) can interpret and respond to two-digit year date input in a manner that
resolves any ambiguity as to the century in which the year occurs; and (c) will
function accurately and without interruption before, during, and after January
1, 2000, without any adverse change in operations associated with the advent of
the new century. Disaster recovery plans are in effect and are adequate to
ensure that such systems can be replaced or substituted without material
disruption to the business of ARI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
IGO AND SUB
As of the date hereof, and as of the Closing Date, except as disclosed
in a document referring specifically to the relevant subsections of this Article
III which is delivered by iGo to ARI prior to execution of this Agreement (the
"iGO DISCLOSURE SCHEDULE"), iGo and Sub hereby represent and warrant to ARI and
the ARI Shareholders as follows:
Section 3.1 CORPORATE ORGANIZATION. iGo and Sub are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and the State of California, respectively, and each has all requisite
corporate power and authority and all neces sary governmental authorizations to
own, lease and operate its properties and to conduct its business as it is now
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being conducted. iGo and Sub are duly qualified or licensed to do business and
are in good standing as foreign corporations in each state or other jurisdiction
in which the nature of their respective businesses or operations or ownership of
their property requires such qualification or licensing, except where the
failure to be so qualified or licensed would not, individually or in the
aggregate, materially and adversely affect the condition (financial or other),
business, properties, prospects (as currently contemplated), net worth or
results of operations of iGo and Sub taken as a whole (collectively, "iGO'S
BUSINESS"). iGo has delivered to ARI complete and correct copies of iGo's
Certificate of Incorporation and Bylaws and Sub's Articles of Incorporation and
Bylaws, in each case as amended to the date hereof.
Section 3.2 CAPITAL STRUCTURE. As of the date hereof the authorized
capital stock of iGo consists of 50,000,000 shares of iGo Common Stock, and
5,000,000 shares of Preferred Stock, $0.001 par value ("iGO PREFERRED STOCK").
At the close of business on December 27, 1999, 19,358,450 shares of iGo Common
Stock were outstanding and no shares of iGo Preferred Stock were outstanding.
All outstanding shares of iGo Common Stock are validly issued, fully paid,
nonassessable and free of preemptive rights. The shares of iGo Common Stock
issuable in connection with the Merger are duly authorized and reserved for
issuance and, when issued in accordance with the terms of this Agreement and the
Merger Agreement, will be validly issued, fully paid, nonassessable and free of
preemptive rights. As of the date hereof, the authorized capital stock of Sub
consists of 1,000 shares of Common Stock, no par value, all of which are validly
issued, fully paid and nonassessable and owned by iGo.
Section 3.3 AUTHORIZATION, EXECUTION AND DELIVERY. iGo and Sub each
has all requisite corporate power and authority (a) to execute and deliver this
Agreement, the Merger Agreement and the agreements attached as exhibits hereto
to which iGo or Sub is a party (the "iGO ANCILLARY AGREEMENTS"), (b) to perform
its respective obligations under this Agreement, the Merger Agreement and the
iGo Ancillary Agreements, and (c) to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement,
the Merger Agreement and the iGo Ancillary Agreements by iGo and Sub and the
consummation by iGo and Sub of the transactions contemplated hereby and thereby
have been duly approved and authorized by all requisite corporate action of iGo
and Sub. This Agreement has been duly executed and delivered by iGo and Sub and,
assuming its due authorization, execution and delivery by ARI, constitutes the
legal, valid and binding obligation of each of them, enforceable in accordance
with its terms. The Board of Directors of iGo has determined that it is
advisable and in the best interest of iGo's stockholders for iGo to enter into a
strategic business combination with ARI upon the terms and subject to the
conditions of this Agreement.
Section 3.4 GOVERNMENTAL APPROVALS AND FILINGS. No approval,
authorization, consent, license, clearance or order of, declaration or
notification to, or filing, registration or compliance with, any Governmental
Entity is required on the part of iGo or Sub in order (a) to permit iGo and Sub
to perform their respective obligations under this Agreement or (b) to prevent
the termination of any right, privilege, license or agreement of iGo, or to
prevent any loss to iGo's Business, by reason of the transactions contemplated
by this Agreement, except for (i) the filing of the Merger Agreement and the
Certificate of Satisfaction from the Franchise Tax Board of the State of
California, as required by the CCC, (ii) the registration requirements of the
Securities Act and of state securities or "Blue Sky" laws and (iii) the rules of
the Nasdaq National Market applicable to the iGo Common Stock.
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Section 3.5 NO CONFLICT. Except for compliance with the governmental
and regulatory requirements described in Section 3.4 hereof, neither the
execution, delivery and performance of this Agreement, the Merger Agreement and
the iGo Ancillary Agreements by iGo and Sub nor the consummation by iGo and Sub
of the transactions contemplated hereby and thereby, including the Subsequent
Merger, will (a) conflict with, or result in a breach of, any of the terms,
conditions or provisions of iGo's Certificate of Incorporation, Sub's Articles
of Incorporation, iGo's Bylaws or Sub's Bylaws, (b) conflict with, result in a
breach or violation of, give rise to a termination right or a default under, or
result in the acceleration of performance under (whether or not after the giving
of notice or lapse of time or both), any mortgage, lien, lease, agreement, note,
bond, indenture, guarantee or instrument or any license or franchise granted by
or to third party that is material to iGo's Business, (c) conflict with, or
result in a violation of, any statute, regulation, law, ordinance, writ,
injunction, order, judgment or decree to which iGo or Sub or any of their
respective assets may be subject, which conflict, breach, default or violation
would materially and adversely affect iGo's Business, (d) give rise to a
declaration or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the assets of iGo or Sub, (e) materially
and adversely affect any franchise, license, permit or other governmental
approval which is material to iGo's Business or is necessary to enable iGo or
Sub to carry on their respective businesses as presently conducted or is
required of any employee or agent thereof to enable each of them to carry out
such person's duties on behalf of iGo or Sub, as the case may be, or (f) require
the consent of any third party.
Section 3.6 REPORTS; ACCURACY OF INFORMATION. iGo has previously
delivered to ARI true and complete copies of (a) iGo's final prospectus dated
October 13, 1999, with respect to its initial public offering of securities, as
filed with the Securities Exchange Commission (the "COMMISSION") pursuant to the
Securities Act, and (b) its Form 10-Q for the fiscal quarter ended September 30,
1999, as filed with the Commission pursuant to the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"). As of their respective dates, such
prospectus and report (collectively, the "PUBLIC FILINGS") (i) complied with all
applicable provisions, rules and regulations of federal securities laws and (ii)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances in which such statements were
made, not misleading.
Section 3.7 LITIGATION. Except as set forth in the Public Filings,
there is no action, suit, proceeding, investigation or claim pending or, to the
knowledge of iGo, threatened against iGo or any its Subsidiaries which could,
individually or in the aggregate, have a material adverse effect on iGo's
Business or which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated hereby.
Section 3.8 NO MATERIAL ADVERSE CHANGE. Since the date of the balance
sheet included in iGo's most recently filed report on Form 10-Q, iGo has
conducted its business in the ordinary course and there has not occurred: (a)
any material adverse change in the financial condition, liabilities, assets or
business of iGo; (b) any amendment or change in the Articles of Incorporation or
Bylaws of iGo; (c) any damage to, destruction of or loss of any assets of the
iGo (whether or not covered by insurance) that materially and adversely affects
the financial condition or business of iGo; or (d) any sale of a material amount
of property of iGo, except in the ordinary course of business.
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Section 3.9 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement. In the event that the
preceding sentence is in any way inaccurate, iGo agrees to indemnify and hold
harmless ARI and the ARI Shareholders from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which iGo or any of
its directors, officers, partners, employees or representatives is responsible.
Section 3.10 DISCLOSURE. No representation or warranty made by iGo and
Sub in this Agreement, nor any document, written information, statement,
financial statement, certificate, schedule or exhibit prepared and furnished or
to be prepared and furnished by iGo and Sub or their representatives pursuant
hereto, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements or
facts contained herein or therein not misleading in light of the circumstances
under which they were furnished. To the knowledge of iGo and Sub after
reasonable inquiry, there is no event, fact or condition that has resulted in,
or could reasonably be expected to result in, a material adverse effect on the
business of iGo and Sub that has not been set forth in this Agreement or in the
iGo Disclosure Schedule. iGo and Sub have provided copies to ARI and the ARI
Shareholders of all documents and information requested by ARI and the ARI
Shareholders pursuant to their diligence requests.
Section 3.11 TAX MATTERS.
(a) Prior to the Merger, iGo will be in control of Surviving
Corporation within the meaning of Section 368(c) of the Code.
(b) Following the Merger, Surviving Corporation will not issue
additional shares of its stock that would result in iGo losing control of
Surviving Corporation within the meaning of Section 368(c) of the Code.
(c) iGo has no plan or intention to reacquire any of its stock
issued in the Merger.
(d) iGo has no plan or intention to liquidate Surviving
Corporation; to merge Surviving Corporation with or into another corporation; to
sell or otherwise dispose of the stock of Surviving Corporation; or to cause
Surviving Corporation to sell or otherwise dispose of any of the assets of ARI
acquired in the transaction, except for dispositions made in the ordinary course
of business or transfers described in Section 368(a)(2)(C) of the Code.
(e) Following the transaction, Surviving Corporation will
continue the historic business of ARI or use a significant portion of ARI's
business assets in a business.
(f) No stock of Surviving Corporation will be issued in the
transactions.
(g) Neither iGo nor Surviving Corporation are investment
companies as defined in Section 368(a)(iii) and (iv) of the Code.
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(h) Neither iGo nor Surviving Corporation will take any action
prior to, in connection with or following the acquisition of ARI as set forth
herein that would disqualify such acquisition as a tax-free reorganization under
Sections 368(a)(1)(A) and (a)(2)(D) of the Code, and agrees to treat the Merger
consistent therewith, including but not limited to, complying with Treasury
Regulation Section 1.368-3.
ARTICLE IV
COVENANTS OF THE ARI SHAREHOLDERS
Section 4.1 ADVICE OF CHANGES. The ARI Shareholders will promptly
advise iGo in writing of (a) any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of ARI or the ARI
Shareholders contained in this Agreement, untrue or inaccurate as of such future
date, or (b) any material adverse change in ARI's Business.
Section 4.2. STOCK TRANSFER RESTRICTIONS. The ARI Shareholders
acknowledge that the Merger Securities will constitute "restricted securities"
under Rule 144 promulgated under the Securities Act. In addition to the
restrictions on transfer imposed by applicable securities laws, each ARI
Shareholder covenants and agrees not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "DISPOSITION") any shares of Merger Securities, any options or
warrants to purchase any shares of Merger Securities or any securities
convertible into or exchangeable for shares of Merger Securities (collectively,
"SECURITIES") now owned or hereafter acquired directly by such ARI Shareholder
or with respect to which such ARI Shareholder has or hereafter acquires the
power of disposition, otherwise than (a) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(b) as a distribution to partners or shareholders of such ARI Shareholder,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (c) pursuant to a transfer to any trust for the direct or
indirect benefit of the ARI Shareholder or the immediate family of the ARI
Shareholder, provided that the trustee of the trust agrees to be bound by the
terms of this restriction, and provided further that any such transfer shall not
involve a disposition for value, or (d) with the prior written consent of iGo,
for a period commencing on the date hereof and continuing until such
restrictions lapse as to any Merger Securities pursuant to the provisions of
this paragraph. The restrictions set fort in this Section 4.2 shall lapse as to
(i) seventy-five percent (75%) of the Merger Securities acquired by such ARI
Shareholder (or permitted transferee thereof) on the date one (1) year following
the Effective Time of the Merger, (ii) as to twelve and one-half percent
(12-1/2%) of the Merger Securities acquired by such ARI Shareholder (or
permitted transferee thereof) on the date eighteen (18) months following the
Effective Time of the Merger, (iii) and as to the remaining twelve and one- half
percent (12-1/2%) of the Merger Securities acquired by such ARI Shareholder (or
permitted transferee thereof) on the date two (2) years following the Effective
Time of the Merger.
The foregoing restriction has been expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the restricted period, even if such Securities would be
disposed of by someone other than such holder. Such prohibited hedging or other
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transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
included, relates to or derives any significant part of its value from
Securities. The ARI Shareholders also agree and consent to the entry of stop
transfer instructions with iGo's transfer agent and registrar against the
transfer of shares of Securities held by the ARI Shareholders (or their
permitted transferees) except in compliance with the foregoing restrictions..
ARTICLE V
COVENANT OF IGO AND SUB
Section 5.1 LISTING APPLICATION. iGo will prepare and submit to the
Nasdaq National Market an additional listing application covering the Merger
Securities issuable in connection with the Merger and will use its best efforts
to obtain approval for the listing of such securities upon official notice of
issuance.
ARTICLE VI
MUTUAL COVENANTS
Section 6.1 CONFIDENTIALITY.
(a) In connection with the negotiation of this Agreement, the
preparation for the consummation of the transaction contemplated hereby, and the
performance of obligations hereunder, each party hereto acknowledges that it has
had, and will have, access to confidential information relating to the other
party, including, but not limited to, technical, manufacturing or marketing
information, ideas, methods, developments, inventions, improvements, business
plans, trade secrets, scientific or statistical data, diagrams, drawings,
specifications or other proprietary information relating thereto, together with
all analyses, compilations, studies or other documents, records or data prepared
by the parties or their respective representatives which contain or otherwise
reflect or are generated from such information. All such information is herein
referred to as "CONFIDENTIAL INFORMATION"; provided, however, that the term
"Confidential Information" does not include information received by a party in
connection with the transaction contemplated hereby which (i) is or becomes
generally available to the public other than as a result of a disclosure by such
party or its representatives, (ii) was within such party's possession (as
evidenced by duly authenticated writings) prior to its being furnished to such
party by or on behalf of the other party in connection with the transaction
contemplated hereby, provided that the source of such information was not known
by such party to be bound by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the other party
or any other person with respect to such information or (iii) becomes available
to such party on a non-confidential basis from a source other than the other
party or any of its representatives, provided that such source is not bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the other party or any other person with
respect to such information.
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(b) Nothing in this Section 6.1 is intended to grant any
rights under any patent or copyright of either party, nor shall this Section 6.1
grant any right in or to the other party's Confidential Information. Each party
shall use the other party's Confidential Information solely for the purpose of
consummating the transaction contemplated by this Agreement and shall use
reasonable efforts to treat all Confidential Information as confidential,
preserve the confidentiality thereof and not disclose any Confidential
Information, except to its representatives and affiliates who need to know such
Confidential Information in connection with the transaction contemplated hereby.
Each party shall cause its representatives to comply with the covenants in the
preceding sentence.
(c) All Confidential Information shall remain the property of
the party who originally possessed such information. In the event of the
termination of this Agreement for any reason whatsoever, iGo shall, and shall
cause its representatives to, promptly return to ARI, and ARI shall, and shall
cause its representatives to, promptly return to iGo, all Confidential
Information (including all copies, summaries and extracts thereof and all
analyses, compilations, studies or other documents, records or data which
contain, reflect or are generated from such Confidential Information) furnished
to iGo or ARI, as the case may be, by the other party in connection with the
transactions contemplated hereby.
(d) If a party or any of its representatives or affiliates is
requested or required (by oral questions, interrogatories, requests for
information or documents in legal proceedings, subpoena, civil investigative
demand or other similar process) or is otherwise required by opera tion of law
to disclose any Confidential Information, such party shall provide the other
party with prompt written notice of such request or requirement, which notice
shall, if practicable, be at least 48 hours prior to making such disclosure, so
that the other party may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Agreement. If, in the
absence of a protective order or other remedy or the receipt of such a waiver,
such party or any of its representatives are nonetheless, in the opinion of
counsel, legally compelled to disclose Confidential Information, then such party
may disclose that portion or the Confidential Information which such counsel
advises is legally required to be disclosed, provided that such party uses its
reasonable efforts to preserve the confidentiality of the Confidential
Information, whereupon such disclosure shall not constitute a breach of this
Agreement.
(e) Each party agrees that its obligations provided herein are
necessary and reasonable in order to protect the other party and its business,
and each party expressly agrees that monetary damages would be inadequate to
compensate a party for any breach by the other party of its covenants and
agreements set forth herein. Accordingly, each party agrees and acknowledges
that any such breach or threatened breach will cause irreparable injury to the
other party and that, in addition to any other remedies that may be available,
in law, in equity or otherwise, such party shall be entitled to obtain
injunctive relief against the threatened breach of this Agreement or the
continuation of any such breach, without the necessity of proving actual
damages.
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Section 6.2 EXPENSES. In the event the Merger is not consummated, iGo
and ARI will each separately bear its own expenses incurred in connection with
this Agreement or any transaction contemplated hereby. In the event that the
Merger occurs, iGo agrees to pay the expenses, or to permit the Surviving
Corporation to pay such expenses, not to exceed an aggregate of $50,000, of
ARI's legal, accounting and financial advisors and any parties to whom a finders
fee or other type of fee or payment is due as a direct result of the
transactions contemplated by this Agreement. The parties acknowledge that any
excess fees over and above such $50,000 amount will be borne directly by the ARI
Shareholders; PROVIDED that at the request of the ARI Shareholders any such
excess fees will be paid by iGo or the Surviving Corporation and deducted from
the Merger Cash wired to the ARI Shareholders at the Closing.
Section 6.3 PUBLIC ANNOUNCEMENTS. All parties hereto agree to
cooperate in good faith with to any press release or public statement with
respect to the existence of this Agreement or the transactions contemplated
hereby, and further agree not to issue any such press release or public
statement without the prior written consent of iGo (in the case of a publication
proposed by ARI and/or the ARI Shareholders) on the one hand, or the ARI
Shareholders (in the case of a publication proposed by iGo) on the other;
PROVIDED, HOWEVER, that in the case of announcements, statements,
acknowledgments or disclosures which any party is required by law to make, issue
or release, the making, issuing or releasing of any such announcement,
statement, acknowledgment or disclosure by the party so required to do so by law
shall not constitute a breach of this Agreement if such party shall have given,
to the extent reasonably possible, not less than one calendar day prior notice
to the other party, and shall have attempted, to the extent reasonably possible,
to clear such announcement, statement, acknowledgment or disclosure with the
other party. Each party hereto agrees that it will not unreasonably withhold any
such consent or clearance. If, based upon the advice of its outside legal
counsel, iGo believes it to be necessary to meet its public disclosure
obligations or otherwise desirable; the parties will issue a mutually agreed
upon joint press release announcing the execution and delivery of this
Agreement.
Section 6.4 AGREEMENTS TO COOPERATE. Each party hereto will fully
cooperate with the other parties, their counsel and accountants in connection
with any steps required to be taken as part of its obligations under this
Agreement. Each party will use its best efforts to cause all conditions to this
Agreement to be satisfied as promptly as possible and to obtain all consents and
approvals necessary for the due and punctual performance of this Agreement and
for the satisfaction of the conditions hereof. No party will undertake any
course of action inconsistent with this Agreement or which would make any
representations, warranties or agreements made by such party in this Agreement
untrue or any conditions precedent to this Agreement unable to be satisfied at
or prior to the Closing. In case at any time after the Effective Time of the
Merger any further action is reasonably necessary to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of ARI and Sub,
the proper officers and directors of each corporation party to this Agreement
shall take all such necessary action.
Section 6.5 TAXES. The parties hereto acknowledge and agree that (a)
the fair market value of the Merger Securities and other cash consideration
received by the ARI Shareholders will be approximately equal to the aggregate
fair market value of the ARI Capital Stock surrendered in the Merger, and (b)
none of the compensation received by any ARI Shareholder (that is also an
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employee of ARI) after the Merger will be separate consideration for, or
allocable to, any of his or her ARI shares; none of the Merger Securities
received by any ARI Shareholder (that is also an employee of ARI) in the Merger
will be separate consideration for, or allocable to, any employment agreement;
and the compensation paid to any ARI Shareholder (that is also an employee of
ARI) after the Merger pursuant to arrangements entered into after the Merger
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
IGO AND SUB
The obligations of iGo and Sub under this Agreement to consummate the
Merger will be subject to the satisfaction, or to the waiver by them in the
manner contemplated by Section 12.2, on or before the Closing, of the following
conditions:
Section 7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ARI contained in this Agreement will be true and correct on and as
of the Effective Time, except for changes contemplated by this Agreement and
except for statements which address items only as of a particular date, with the
same force and effect as if made on and as of the Effective Time, except, in all
such cases, for such breaches, inaccuracies or omissions which in the aggregate
do not have a material adverse effect on iGo's Business.
Section 7.2 PERFORMANCE OF COVENANTS. ARI shall have performed and
complied in all material respects with each and every covenant, agreement and
condition required by this Agreement to be performed or complied with by it
prior to or on the Closing.
Section 7.3 CERTIFICATE. iGo shall have received a certificate signed
by the Chief Executive Officer of ARI to the effect that the conditions set
forth in Section 7.1 and 7.2 have been met.
Section 7.4 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION. No order
of any court or administrative agency will be in effect which restrains or
prohibits any transaction con templated hereby or which would limit or otherwise
affect in a material respect iGo's ownership of ARI; no suit, action, or
proceeding by any Governmental Entity or other person or entity, or
investigation or inquiry by any Governmental Entity, will be pending or, in the
case of a Governmental Entity, threatened against iGo, Sub or ARI, which
challenges the validity or legality, or seeks to restrain the consummation, of
any transaction contemplated hereby, including the Subsequent Merger, or which
seeks to limit or otherwise affect iGo's ownership of ARI, and no written advice
shall have been received by iGo, Sub, ARI or their respective counsel from any
Governmental Entity, and remain in effect, stating that an action or proceeding
will, if the Merger is consummated or sought to be consummated, be filed seeking
to invalidate or restrain the Merger or limit or otherwise affect iGo's
ownership of ARI and there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which would (a) make the consummation of the Merger illegal, (b) render
iGo, Sub or ARI unable to consummate the Merger or (c) prohibit iGo's, Sub's or
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ARI's ownership or operation of all or any material portion of the business or
assets of ARI and its Subsidiaries, taken as a whole, as a result of the Merger,
or compel iGo, Sub or ARI to dispose of or hold separate all or any material
portion of the business or assets of ARI and its Subsidiaries, taken as a whole.
Section 7.5 APPROVALS AND CONSENTS. All approvals and authorizations of
the Merger set forth in Articles II or III hereof and in the ARI Disclosure
Schedule shall have been obtained.
Section 7.6 DISSENTING SHARES. There shall be no "dissenting shares"
under Section 1300 of the CCC among the ARI Capital Stock.
Section 7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in ARI's Business from the date hereof through the
Closing Date.
Section 7.8 RESIGNATION OF OFFICERS AND DIRECTORS. The officers and
directors of ARI in office immediately prior to the Effective Time shall have
resigned as officers and directors of the Surviving Corporation effective as of
the Effective Time.
Section 7.9 ARI OPTIONS AND WARRANTS. All warrants, options or other
rights to purchase shares of ARI Capital Stock shall have terminated by full
exercise, cancellation or other means.
Section 7.10 NON-COMPETITION AGREEMENTS. iGo shall have received at or
prior to the Closing from Rod Hosilyk and Kevin Prince a Non-Competition
Agreement in substantially the form attached hereto as EXHIBITS C-1 AND C-2
executed by such persons.
Section 7.11 EXCHANGE AND ESCROW AGREEMENT. iGo, the Indemnifying ARI
Shareholders (as defined in Section 10.1 (a) below) and U.S. Stock Transfer
Corporation shall have entered into an Exchange and Escrow Agreement
substantially in the form attached hereto as EXHIBIT D (the "EXCHANGE AND ESCROW
AGREEMENT").
Section 7.12 OPINION OF COUNSEL. iGo shall have received from Stradling
Yocca Carlson & Rauth, counsel to ARI, an opinion dated the date of the Closing
and addressed to iGo, substantially in the form attached hereto as EXHIBIT E.
Section 7.13 INTELLECTUAL PROPERTY. iGo's counsel shall be satisfied,
in its sole and absolute discretion, that all intellectual property sought by
iGo as part of the transactions contemplated by this Agreement (including,
without limitation, all rights to the "Road Warrior" trademark) shall be
properly vested in ARI immediately prior to the Effective Time.
ARTICLE VIII
CONDITIONS TO ARI'S OBLIGATIONS
The obligations of ARI under this Agreement to consummate the Merger
will be subject to the satisfaction, or to the waiver by ARI in the manner
contemplated by Section 12.2, on or before the Closing, of the following
conditions:
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Section 8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of iGo and Sub contained in this Agreement will be true and correct
on and as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time.
Section 8.2 PERFORMANCE OF COVENANTS. iGo and Sub shall have performed
and complied in all material respects with each and every covenant, agreement
and condition required by this Agreement to be performed or complied with by
each prior to or at the Closing.
Section 8.3 CERTIFICATE. ARI shall have received a certificate signed
by the Chief Financial Officer of each of iGo and Sub to the effect that the
conditions set forth in Sections 8.1 and 8.2 have been met.
Section 8.4 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION. No order
of any court or administrative agency will be in effect which restrains or
prohibits any transaction contemplated hereby or which would limit or otherwise
affect in a material respect iGo's ownership of ARI; no suit, action or
proceeding by any Governmental Entity or other person or entity or investigation
by any Governmental Entity, will be pending or, in the case of a Governmental
Entity, threatened against iGo, Sub or ARI, which challenges the validity or
legality, or seeks to restrain the consummation, of any transaction contemplated
hereby, including the Subsequent Merger, or which seeks to limit or otherwise
affect iGo's ownership of ARI; and no written advice shall have been received by
iGo, Sub, ARI or their respective counsel from any Governmental Entity, and
remain in effect, stating that an action or proceeding will, if the Merger is
consummated or sought to be consummated, be filed seeking to invalidate or
restrain the Merger or limit or otherwise affect iGo's ownership of ARI and
there shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger, which would (a)
make the consummation of the Merger illegal or (b) render iGo, Sub or ARI unable
to consummate the Merger.
Section 8.5 APPROVALS AND CONSENTS. All approvals and authorizations of
the Merger set forth in Articles II or III hereof and in the ARI Disclosure
Schedule shall have been obtained.
Section 8.6 OPINION OF COUNSEL. ARI shall have received from Hale Lane
Peek Dennison Howard and Anderson, Professional Corporation, counsel to iGo and
Sub, an opinion dated the date of the Closing and addressed to ARI,
substantially in the form attached hereto as EXHIBIT F.
Section 8.7 EMPLOYMENT AGREEMENTS. iGo shall have caused ARI to deliver
at or prior to the Closing duly executed Employment Agreements in the
substantially the forms attached hereto as EXHIBITS G-1, G-2 with Rod Hosilyk
and Kevin Prince.
Section 8.8 BANK LINE. iGo shall have paid or made binding arrangements
to pay in full ARI's Accounts Receivable loan and long term note dated August 8,
1997 between ARI and the Bank of Yorba Linda; PROVIDED that iGo shall not be
responsible for payment of any balance under such loan in excess of $531,142.15.
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ARTICLE IX
CLOSING
Unless this Agreement shall have been terminated and the Merger shall
have been abandoned pursuant to a provision of Article XI hereof, a closing (the
"CLOSING") will be held, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Articles VII and VIII, at the offices of Hale
Lane Peek Dennison Howard and Anderson, Professional Corporation, 100 West
Liberty Street, 10th Floor, Reno, Nevada 89501, or such other location as iGo
and ARI shall mutually agree upon. At the date of the Closing (the "CLOSING
DATE"), the documents referred to in Articles VII and VIII will be exchanged by
the parties and, immediately thereafter, the Merger Agreement will be filed by
ARI and Sub with the Secretary of State of the State of California.
ARTICLE X
INDEMNITY AND ESCROW
Section 10.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY ARI SHAREHOLDERS.
(i) Subject to the provisions of this Article X, from and
after the Effective Time, Rod Hosilyk and Kevin Prince (the "Indemnifying ARI
Shareholders") shall indemnify and hold harmless iGo, iGo's Subsidiaries
(including the Subsidiaries of ARI) and the Surviving Corporation and their
respective affiliates, officers, directors, employees, representatives and
agents (collectively, the "ARI INDEMNIFIED PARTIES") from and against any
claims, losses, liabilities, damages, arbitration or any legal actions
(including, without limitation, interest, penalties and reasonably incurred
costs, expenses and legal fees and expenses) (collectively, "LOSSES") arising
from or in connection with any breach of a representation, warranty, covenant or
agreement of ARI contained in this Agreement, including any Exhibits or
Schedules attached hereto, the Merger Agreement or the ARI Ancillary Agreements.
The aggregate amount of liability of the Indemnifying ARI Shareholders pursuant
to this Section 10.1(a) shall not exceed $3,075,000.00; no Indemnifying ARI
Shareholder shall be responsible for more than his or her pro rata portion of
such amount based upon the relative holdings of ARI Common Stock by the
Indemnifying ARI Shareholders immediately prior to the Closing.
(ii) The Indemnifying ARI Shareholders shall not be
obligated to indemnify the iGo Indemnified Parties pursuant to this Article X
with respect to any Losses pursuant to Section 10.1(a) until and solely to the
extent that the aggregate amount of such Losses exceeds forty-one thousand
dollars ($41,000) (the "BASKET AMOUNT"), whereupon the Indemnifying ARI
Shareholders shall be obligated to indemnify the iGo Indemnified Parties for all
of such Losses in excess of such Basket Amount.
(iii) Notwithstanding anything herein to the contrary, the
Indemnifying ARI Shareholders shall not be required to indemnify the iGo
Indemnified Parties for any Losses which are not the subject of a notice
delivered in accordance with Section 10.6 below within eighteen (18) months
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following the Closing Date, or, in the case of Section 2.14 (Environmental
Matters) within sixty (60) months following the Closing Date and in the case of
Section 2.12 (Taxes) within the applicable statutory period of limitations plus
sixty (60) days; PROVIDED that the foregoing time limitations shall not apply to
breaches of the representations set forth in Section 2.2 (Capital Structure) of
this Agreement, which shall not be subject to any time limitation on claims.
(b) INDEMNIFICATION BY IGO.
(i) Subject to the provisions of this Article X, from and
after the Effective Time, iGo shall indemnify and hold harmless the ARI
Shareholders from and against any claims, losses, liabilities, damages,
arbitration or any legal actions (including, without limitation, interest,
penalties and reasonably incurred costs, expenses and legal fees and expenses)
(collectively, "LOSSES") arising from or in connection with any breach of a
representation, warranty, covenant or agreement of iGo or Sub contained in this
Agreement, including any Exhibits or Schedules attached hereto, the Merger
Agreement or the iGo Ancillary Agreements. The aggregate amount of liability of
iGo pursuant to this Section 10.1(b) shall not exceed $3,075,000.00.
(ii) iGo shall not be obligated to indemnify the ARI
Shareholders pursuant to this Article X with respect to any Losses pursuant to
Section 10.1(b) until and solely to the extent that the aggregate amount of such
Losses exceeds the Basket Amount, whereupon iGo shall be obligated to indemnify
the ARI Shareholders for all of such Losses in excess of such Basket Amount.
(iii) Notwithstanding anything herein to the contrary, iGo
shall not be required to indemnify the ARI Shareholders for any losses arising
from or in connection with any breach of a representation, warranty, covenant or
agreement of iGo contained in this Agreement, including any Exhibits or
Schedules attached hereto, the Merger Agreement or the iGo Ancillary Agreements,
which are not the subject of a written notice delivered in accordance with
Section 10.6 below within eighteen (18) months following the Closing Date;
PROVIDED that the foregoing time limitations shall not apply to breaches of the
representations set forth in Section 3.2 (Capital Structure) of this Agreement,
which shall not be subject to any time limitation on claims.
Section 10.2 ESCROW OF SHARES. As of the Effective Time, iGo shall
deposit Twenty-Seven Thousand Nine Hundred Seventeen (27,917) shares of the
Merger Securities to which the Indemnifying ARI Shareholders are otherwise
entitled (the "ESCROW FUND") with U.S. Stock Transfer Corporation, as escrow
agent (the "ESCROW AGENT"), to be held and distributed in accordance with the
terms of this Agreement and the Exchange and Escrow Agreement. The Escrow Fund
will be registered in the name of a nominee and will be maintained at the
offices of the Escrow Agent. The Escrow Fund will be governed by the terms set
forth herein and in the Exchange and Escrow Agreement and maintained at iGo's
sole cost and expense. The shares of iGo Common Stock deposited in the Escrow
Fund shall be referred to as "ESCROW SHARES." The obligation of iGo to issue the
Escrow Shares otherwise issuable upon the Merger shall be subject to reduction
to satisfy the Indemnifying ARI Shareholders' obligations under this Article X.
Claims for Losses made by iGo or any other Indemnified Party that (a) are
accepted as valid by the Indemnifying ARI Shareholders, or (b) are determined to
be valid through court proceedings or which otherwise are allowed as described
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in this Article X, shall reduce the number of Escrow Shares issuable to the
Indemnifying ARI Shareholders by the number of Escrow Shares (rounded to the
closest whole number) equal to the amount of such Losses divided by the Merger
Price for purposes of Section 1.4(a) above. As to each Indemnifying ARI
Shareholder, any such reduction shall be made based upon the relative holdings
of ARI Common Stock by the Indemnifying ARI Shareholders immediately prior to
the Closing. The interest of each ARI Shareholder in the Escrow Shares shall not
be assignable or transferable in any manner except by operation of law, by will
or by the laws of descent until such Escrow Shares are issued to the ARI
Shareholders.
Section 10.3 REMEDIES. Other than with respect to fraud or intentional
misrepresentation or actions for injunctive or declaratory relief, the parties
agree that the potential remedies available to the parties for breaches of the
representations, warranties or covenants contained in this Agreement shall be
limited to the provisions of this Article X. ARI and the ARI Shareholders
acknowledge and agree that the remedies available to iGo and the Surviving
Corporation under this Article X shall not be limited (either by time or amount)
to proceeding against the Escrow Fund.
Section 10.4 TERM OF ESCROW.
(a) ESCROW SHARES. The Escrow Agent shall deliver the Escrow
Shares, after giving effect to the reductions in or holdbacks of the number of
Escrow Shares deliverable to iGo as described in Section 10.2 above or Section
10.4(b) below, to the Indemnifying ARI Shareholders promptly following the date
one (1) year following the Closing Date (the "ESCROW EXPIRATION DATE"). The
period commencing upon the Closing Date and ending upon the Escrow Expiration
Date shall be referred to as the "ESCROW HOLDBACK PERIOD" for the Escrow Fund.
(b) EXTENSION OF ESCROW. Notwithstanding Section 10.4(a), to
the extent iGo has made a claim which is being disputed by the Indemnifying ARI
Shareholders in accordance with Section 10.7 below on the Escrow Expiration
Date, the Escrow Agent shall withhold the issuance of and maintain in the Escrow
Fund such number of Escrow Shares as is reasonably necessary in the opinion of
the Escrow Agent to satisfy such claim and upon resolution of such claim such
withheld Escrow Shares, after giving effect to any appropriate further reduction
under Section 10.2, shall be transferred by the Escrow Agent into the respective
names of the Indemnifying ARI Shareholders. The period during which any escrow
of Escrow Shares existed under this Agreement is referred to herein as the
"ESCROW PERIOD." Upon expiration of the Escrow Period, the Escrow Fund shall
terminate and the Escrow Agent shall deliver to each Indemnifying ARI
Shareholder his pro rata portion of the Escrow Shares remaining in the Escrow
Fund based upon the relative holdings of ARI Common Stock by the Indemnifying
ARI Shareholders immediately prior to the Closing.
(c) PROTECTION OF ESCROW FUND. The Escrow Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and the Exchange and
Escrow Agreement and not as the property of iGo and shall hold and dispose of
the Escrow Fund only in accordance with the terms hereof and thereof.
(d) DISTRIBUTIONS; VOTING.
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(i) Any shares of iGo Common Stock or other equity
securities issued or distributed by iGo (including shares issued upon a stock
split) ("NEW SHARES") in respect of shares of iGo Common Stock in the Escrow
Fund which have not been released from such Escrow Fund shall be added to the
Escrow Fund and become a part thereof. New Shares issued in respect of shares of
iGo Common Stock which have been released from the Escrow Fund shall not be
added to the Escrow Fund, but shall be distributed to the holders thereof. When
and if cash dividends on shares of iGo Common Stock in the Escrow Fund shall be
declared and paid, they shall not be added to the Escrow Fund but shall be paid
to those on whose behalf such shares of iGo Common Stock are held who, prior to
the Merger, held ARI Capital Stock.
(ii) Each Indemnifying ARI Shareholder shall have
proportional voting rights with respect to the shares of iGo Common Stock
contributed to the Escrow Fund on behalf of such shareholder (and on any voting
securities added to the Escrow Fund in respect of such shares of iGo Common
Stock) so long as such shares of iGo Common Stock or other voting securities are
held in the Escrow Fund.
Section 10.5 [Intentionally Left Blank]
Section 10.6 MECHANICS OF MAKING CLAIMS.
(a) In the event that any written claim or demand for which
any Indemnified Party is entitled to indemnification is sought against iGo or
sought to be collected from iGo or any other Indemnified Party by a third party,
promptly after the assertion of any such claim or demand, or otherwise promptly
upon discovery of any other Loss for which iGo or any other Indemnified Party
seeks indemnification, iGo or such other Indemnified Party shall notify the
Escrow Agent (if during the Escrow Period) and the Indemnifying ARI Shareholders
of such claim, demand or Loss; PROVIDED, HOWEVER, that the failure promptly to
give such notice shall not affect the Indemnified Parties' rights hereunder
except to the extent that such failure shall adversely affect the Indemnifying
ARI Shareholders or their rights hereunder. Notices of indemnity claims made
following the Escrow Period need only be delivered to the Indemnifying ARI
Shareholders. The asserting Indemnified Party shall advise the Indemnifying ARI
Shareholders of all material facts relating to such assertion within the
knowledge of such Indemnified Party, and shall afford the Indemnifying ARI
Shareholders, in the event that they do not assume such defense pursuant to
Section 10.6(d) below, the opportunity to participate, at their own expense, in
the defense against such claims for liability, provided that iGo shall control
such defense.
(b) If such claim is made during the Escrow Period, on the
date 15 business days following the receipt by the Escrow Agent and the
Indemnifying ARI Shareholders of written notice from any Indemnified Party of a
claim of indemnification pursuant to this Article X, including a brief
description of the facts upon which such claim is based and the amount of the
losses with respect to such claim, the Escrow Agent shall, subject to the
provisions of Section 10.6(c), deliver to iGo or such other Indemnified Party
out of the Escrow Fund, as promptly as possible, that number of Escrow Shares
(rounded to the closest whole number) equal to the amount of such losses divided
by the Merger Price for purposes of Section 1.4(a) above.
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(c) During the Escrow Period, if the Indemnifying ARI
Shareholders shall, in good faith, notify iGo and the Escrow Agent in writing
within such 15 business day period of their objection to a claim of
indemnification, the Escrow Shares shall not be delivered to the Indemnified
Party until the rights of the Indemnifying ARI Shareholders and such Indemnified
Party with respect thereto have been agreed upon between the Indemnifying ARI
Shareholders and such Indemnified Party or until such rights are finally
determined by a court of competent jurisdiction (to whose personal jurisdiction
each party hereby consents). The Escrow Agent shall be entitled to act in
accordance with such determination and to make or withhold payments out of the
Escrow Fund in accordance therewith. The costs and expenses (including
reasonable counsel fees) of any such court proceeding shall be borne by the
party against whom the award is rendered or, in the case of an award of a
portion of the amount claimed, will be shared equally by the Indemnified Party
and the Indemnifying ARI Shareholders.
(d) iGo shall have the right (i) to defend, settle or
compromise any claim or liability subject to indemnification under this Article
X, and (ii) to be indemnified from and against all Losses resulting therefrom,
UNLESS the Indemnifying ARI Shareholders, within 30 business days after
receiving such notice of the claim or liability in accordance with Section
10.6(a) notify iGo in writing that they intend to assume the defense against
such claim or liability and in fact promptly do so. In the event that the
Indemnifying ARI Shareholders assume the defense of any such claim, the
Indemnified Party may retain separate counsel at its sole cost and expense
(except that the Indemnifying ARI Shareholders shall be responsible for the fees
and expenses of one separate co-counsel for the Indemnified Party to the extent
the Indemnified Party is advised in writing by its counsel that the counsel the
Indemnifying ARI Shareholders have selected has a conflict of interest) and
participate in the defense in a non-controlling manner.
(e) Except as otherwise provided in Section 10.6(d), the
Indemnifying ARI Shareholders shall not be liable under this Article X for any
settlement effected without the prior consent of the Indemnifying ARI
Shareholders (which consent may not be unreasonably withheld) of any claim,
liability or proceeding for which indemnity may be sought hereunder. In the
event that the Indemnifying ARI Shareholders assume the defense of any claim,
liability or proceeding pursuant to Section 10.6(d), the Indemnifying ARI
Shareholders may not settle any such claim liability or proceeding without the
prior consent of iGo (which consent may not be unreasonably withheld).
Section 10.7 ESCROW AGENT'S DUTIES.
(a) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of iGo
and by each of the Indemnifying ARI Shareholders, and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed to be genuine and to have been signed or presented by the proper party
or parties. The Escrow Agent shall not be liable for any act done or omitted
hereunder as Escrow Agent while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith.
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(b) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(d) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(e) The Escrow Agent may resign at any time upon giving at
least 30 days written notice to iGo and the Indemnifying ARI Shareholders
pursuant to the provisions of this Agreement; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: iGo and the Indemnifying ARI
Shareholders shall use their best efforts to mutually agree upon a successor
agent within 30 days after receiving such notice. If the parties fail to agree
upon a successor transfer agent within such time, iGo shall have the right to
appoint a successor escrow agent authorized to do business in California. The
successor escrow agent selected in the preceding manner shall execute and
deliver an instrument accepting such appointment and it shall thereupon be
deemed the Escrow Agent hereunder and it shall without further acts be vested
with all the estates, properties, rights, powers, and duties of the predecessor
Escrow Agent as if originally named as Escrow Agent. Thereafter, the predecessor
Escrow Agent shall be discharged for any further duties and liabilities under
this Agreement.
ARTICLE XI
TERMINATION
Section 11.1 TERMINATION AND ABANDONMENT. This Agreement may be
terminated and the Merger may be abandoned before the Effective Time,
notwithstanding any approval and adoption of this Agreement by the shareholders
of ARI or by iGo in its capacity as sole stockholder of Sub:
(a) by the mutual written consent of the Boards of Directors
of iGo and ARI;
(b) by iGo or by ARI at any time after February 28, 2000 (or
such later date as shall have been agreed to in writing by them, acting through
their respective Boards of Directors) if the Merger for any reason has not by
such date become effective; PROVIDED, HOWEVER, that this provision shall not be
available to any party whose willful failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
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(c) by either iGo or ARI if a permanent injunction or other
order by any federal or state court would make illegal or otherwise restrain or
prohibit the consummation of the Merger shall have been issued and shall have
become final and nonappealable; or
(d) by iGo if there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of ARI and such breach has not been cured within five business days
after written notice from iGo to ARI (PROVIDED, that iGo is not in material
breach of the terms of this Agreement; and PROVIDED FURTHER, that no cure period
shall be required for a breach which by its nature cannot be cured); or
(e) by ARI if there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of iGo or Sub and such breach has not been cured within five business
days after written notice from ARI to iGo or Sub (PROVIDED, that ARI is not in
material breach of the terms of this Agreement; and PROVIDED FURTHER, that no
cure period shall be required for a breach which by its nature cannot be cured).
If this Agreement is terminated in accordance with this Section 11.1, the Merger
will be abandoned without further action by iGo, Sub or ARI.
Section 11.2 EFFECT OF TERMINATION. In the event of termination and
abandonment of the Merger pursuant to Section 11.1, none of iGo, Sub, or ARI
shall have any liability or further obligation to any of the others except as
provided in Sections 6.1 and 6.2 and except for any breach of this Agreement.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between iGo and Surviving Corporation, and ARI
for certain tax matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The ARI
Shareholders shall prepare or cause to be prepared and file or cause to be filed
all Returns for ARI for all periods ending on or prior to the Closing Date that
are required to be filed by ARI on or after the Closing Date. iGo and Surviving
Corporation shall cooperate with the ARI Shareholders as necessary with respect
to the preparation and filing of such Returns. iGo shall be provided with a copy
of such final return of ARI prior to its filing and shall, upon receipt thereof,
have a period of no less than fifteen (15) days to inspect such final return and
provide comments, if any, to ARI regarding same.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. iGo shall prepare or cause to be prepared and file or cause to be filed
any ARI Returns for Tax periods that begin on or after the Closing Date and end
after the Closing Date that are required to be filed by ARI.
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(c) REFUNDS AND TAX BENEFITS. Any tax refunds that are
received by iGo or Surviving Corporation, and any amounts credited against Tax
to which iGo or Surviving Corporation, or ARI become entitled, that relate to
ARI Taxes for Tax periods or portions thereof ending on or before the Closing
Date shall be for the account of the ARI Shareholders, and iGo shall pay over to
the ARI Shareholders any such refund or the amount of any such credit within
fifteen (15) days after receipt. In addition, to the extent that a claim for
refund or a proceeding results in a payment or credit against an ARI Tax by a
taxing authority to iGo or Surviving Corporation of any amount accrued on the
ARI Financial Statements, iGo or Surviving Corporation shall pay such amount to
the ARI Shareholders within fifteen (15) days after receipt.
(d) COOPERATION ON TAX MATTERS.
(i) iGo, Surviving Corporation, ARI and the ARI
Shareholders shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. iGo and Surviving Corporation agree (A) to
retain all books and records with respect to Tax matters pertinent to ARI
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by iGo or
ARI, any extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing authority, and (B)
to provide the ARI Shareholders reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the ARI Shareholders
so request, iGo and Surviving Corporation, as the case may be, shall allow the
ARI Shareholders to make an inspection of such books and records at a time
agreeable to iGo.
(ii) iGo and Surviving Corporation further agree, upon
request, to use their commercially reasonable efforts to obtain any certificate
or other document from any governmental authority or any other person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed on ARI
or the ARI Shareholders (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) iGo and Surviving Corporation further agree, upon
request, to provide the ARI Shareholders with all information that either party
may be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
Section 12.2 KNOWLEDGE. References to a parties "knowledge" in Articles
II and III above shall be interpreted to refer to the actual collective
knowledge of such party and such party's officers, directors, managers and
supervisors, and in the case of ARI shall also be deemed to include the actual
knowledge of each ARI Shareholder.
Section 12.3 AMENDMENT AND MODIFICATION. To the fullest extent provided
by applicable law, this Agreement may be amended, modified and supplemented with
respect to any of the terms contained herein by mutual consent of the respective
Boards of Directors of iGo, Sub and ARI or by their respective officers duly
authorized by such Boards of Directors by an appropriate written instrument
executed at any time prior to the Effective Time.
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Section 12.4 WAIVER OF COMPLIANCE. To the fullest extent permitted by
law, each of iGo, Sub and ARI, pursuant to action by its respective Board of
Directors, or its respective officers duly authorized by its Board of Directors,
or the ARI Shareholders acting on behalf of the ARI Shareholders, may by an
instrument in writing extend the time for or waive the performance of any of the
obligations of the others or waive compliance by the others with any of the
covenants, or waive any of the conditions to its obligations, contained herein.
No such extension of time or waiver will operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
Section 12.5 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
respective representations and warranties of each party hereto contained herein
will not be deemed to be waived or otherwise affected by any investigation made
by the other party hereto. Such representations and warranties will be
extinguished by and will not survive the Effective Time, except with respect to
the remedies set forth in Article X and except for remedies that may be
available for fraud.
Section 12.6 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder will be in writing and will be
deemed to have been duly given when delivered by hand or when mailed by
registered or certified mail, postage prepaid, or when given by facsimile
transmission (promptly confirmed in writing), as follows:
(a) If to iGo or Sub:
iGo Corporation
9393 Gateway Drive
Reno, NV 89511-8910
Telephone No.: (775) 746-6140
Telecopy No.: (775) 746-6156
Attention: Chief Financial Officer
with a copy to:
Hale Lane Peek Dennison Howard and Anderson
100 W. Liberty Street, 10th Floor
Reno, NV 89501
Telephone No.: (775) 327-3000
Telecopy No.: (775) 786-6179
Attention: David A. Garcia, Esq.
or to such other person as iGo or Sub designates in writing delivered to ARI in
the manner provided in this Section 12.5;
(b) If to ARI or the ARI Shareholders:
AR Industries, Inc.
3201 South Shannon
Santa Ana, CA 92704
Telephone No.: (714) 434-8600
Telecopy No.: (714) 434-8601
Attention: Rod Hosilyk
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with copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Telephone No.: (949) 725-4040
Telecopy No.: (949) 725-4100
Attention: Nick Yocca, Esq.
or to such other person as ARI or the ARI Shareholders designate in writing,
delivered to iGo in the manner provided in this Section 12.5.
Section 12.7 ASSIGNMENT. This Agreement and all of the provisions
hereof will be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations here under may be assigned by
any of the parties hereto without the prior written consent of the other
parties.
Section 12.8 GOVERNING LAW. This Agreement and the legal relations
between the parties hereto will be governed by and construed in accordance with
the laws of the State of Nevada, without giving effect to the choice of law
principles thereof; PROVIDED, HOWEVER, that the law governing the fiduciary
duties of each party hereto and their respective boards of directors and the law
governing any other matters of internal corporate governance of any of iGo, Sub
or ARI shall be the law of their respective jurisdictions of incorporation.
Section 12.9 PARTIES IN INTEREST. Nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give to any person,
firm or corporation other than the parties hereto any rights or remedies under
or by reason of this Agreement or any transaction contemplated hereby, except as
specifically provided in this Agreement.
Section 12.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts and by the different parties hereto on separate counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.
Section 12.11 HEADINGS AND REFERENCES. The headings of the sections and
articles of this Agreement are inserted for convenience of reference only and
will not by themselves determine the interpretation of this Agreement. All
references herein to sections and articles are to sections and articles of this
Agreement, unless otherwise indicated.
Section 12.12 ENTIRE AGREEMENT. This Agreement, including the ARI
Disclosure Schedule and the iGo Disclosure Schedule, the schedules and exhibits
and other documents referred to herein which form a part hereof, contains the
entire understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, representations,
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warranties, covenants, or undertakings with respect to the subject matter
contained herein, other than those expressly set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
Section 12.13 SEVERABILITY. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
invalid or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of the invalid and unenforceable provision.
Section 12.14 OTHER REMEDIES. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
or equity on such party, and the exercise of any one remedy will not preclude
the exercise of any other.
Section 12.15 FURTHER ASSURANCES. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
Section 12.16 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision
of this Agreement is intended, nor will be interpreted, to provide to create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner or any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.
Section 12.17 MUTUAL DRAFTING. This Agreement is the joint product of
iGo and ARI, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of iGo and ARI, and shall not be
construed for or against any party hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Reorganization to be duly executed as of the date and year first written
above.
IGO CORPORATION AR INDUSTRIES, INC.
By: /S/ MICK DELARGY By: /S/ R.E. HOSILYK
------------------------------------- --------------------------
Mick Delargy, Chief Financial Officer Rod E. Hoslilyk, President
ARI ACQUISITION CORP.
By: /S/ MICK DELARGY
-------------------------------------
Mick Delargy, Chief Financial Officer
ARI SHAREHOLDERS:
/S/ KEVIN PRINCE /S/ JEFFREY S. HOSILYK
- -------------------------------- --------------------------------
Kevin Prince Jeffrey Hosilyk
/S/ DANILO CACCIAMATTA /S/ R.E. HOSILYK
- -------------------------------- --------------------------------
Danilo Cacciamatta Rod E. Hosilyk
/S/ GREG HOSILYK /S/ WAYNE GREGG
- -------------------------------- --------------------------------
Greg Hosilyk Wayne Gregg
/S/ SCOTT NELSON /S/ FRED M. HANEY
- -------------------------------- --------------------------------
Scott Nelson Fred Haney
/S/ JOHN REHFELD /S/ DAVID HOSILYK
- -------------------------------- --------------------------------
John Rehfeld David Hosilyk
42
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release (the "Agreement") is
entered into on January 12, 2000 by and between IGO CORPORATION (the "Company"),
and ROBERT BAUER ("Employee").
WHEREAS, Employee has been employed by the Company; and
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and to release each other from claims arising from or
related to the employment relationship to the extent set forth herein;
NOW, THEREFORE, the parties agree as follows:
1. TERMINATION. The Company and Employee acknowledge and agree that
Employee's employment with the Company terminated effective December 30, 1999
(the "Termination Date").
2. CONSIDERATION. In consideration for the release of claims set forth
below and other obligations under this Agreement, the Company shall pay Employee
on the Effective Date of this Agreement (as set forth in Section 17 below), a
one-time, lump-sum payment equal to six (6) months' base salary (a total of
$70,000) (less applicable tax withholding). Employee will not be entitled to
receive any other severance or bonus payments from the Company.
3. STOCK OPTION VESTING. During the course of Employee's employment
with the Company, Employee was granted a stock option to purchase shares of the
Company's Common Stock under the Company's 1996 Stock Option Plan, which option
is subject to repurchase rights in the Company's favor. The Company hereby
agrees to waive such repurchase rights with respect to 60,000 of the shares of
the Company's Common Stock subject to such stock option, and Employee shall have
the right to purchase the said 60,000 shares at the exercise price. The exercise
price on Employee's option is $0.20 per share. Employee must exercise such
option, if at all, within sixty (60) days of the Termination Date.
4. BENEFITS.
(a) Employee's right to receive the Company's standard insurance
benefits and to participate in other Company benefit programs shall terminate on
the six-month anniversary of the Termination Date. To the extent necessary to
extend coverage over such period, the Company will pay Employee's COBRA premiums
during such period.
(b) Following the six-month anniversary of the Termination Date,
Employee shall have only those rights to continued coverage that may be provided
by applicable law (i.e. rights to maintain coverage for the remainder of the
one-year period following termination under COBRA) or as may be otherwise
specifically provided for in the Company's existing insurance coverage.
(c) Promptly following execution of this Agreement, Employee shall
be paid for four (4) weeks of accrued vacation less any vacation time already
used by Employee through and including the Termination Date, along with any
accrued but unpaid salary through the Termination Date.
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(d) The Company shall reimburse Employee for a maximum real estate
sales commission of three percent (3%) which is directly related to the sale of
the unimproved real property owned by Employee in Reno, Nevada. The Company also
shall reimburse Employee for his actual moving and relocation expenses in an
amount not to exceed $1,000.
5. RELEASE OF CLAIMS. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
the Company. Employee and the Company, on behalf of themselves, and their
respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations and
assigns, hereby fully and forever release each other and their respective heirs,
executors, officers, directors, employees, investors, shareholders,
administrators, predecessor and successor corporations and assigns from any
claim, duty, obligation or cause of action relating to any matters of any kind,
whether known or unknown, suspected or unsuspected, that either of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the effective date of this Agreement including, without
limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and termination of that relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of the Company;
(c) any and all claims for wrongful discharge of employment; breach
of contract, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, and the Age Discrimination in
Employment Act of 1967;
(e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
(f) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. NOTWITHSTANDING THE FOREGOING, THIS RELEASE DOES NOT EXTEND TO
ANY OBLIGATIONS INCURRED UNDER THIS AGREEMENT OR TO BREACHES OF THIS AGREEMENT
OR THE EMPLOYEE'S SIGNED EMPLOYMENT, CONFIDENTIAL INFORMATION, INVENTION
ASSIGNMENT, AND ARBITRATION AGREEMENT ATTACHED AS EXHIBIT A HERETO, THAT MAY
ARISE AFTER THE TERMINATION DATE.
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6. CONFIDENTIALITY. The parties agree to use their best efforts to
maintain in confidence the existence of this Agreement, the contents and terms
of this Agreement, and the consideration for this Agreement. Notwithstanding the
foregoing, the Employee shall be permitted to discuss the provisions of this
Agreement in confidence with his attorneys, accountants, tax advisors and
spouse.
7. NONSOLICITATION; NONCOMPETITION. Employee agrees that until one year
after termination of Employee's employment with the Company, he will not
directly or indirectly solicit or attempt to solicit any person employed by the
Company to terminate or otherwise cease his or his employment with the Company
or interfere in any manner with the employment relationship between the Company
and any employee of the Company. Furthermore, Employee agrees that for a period
of one year following the termination of Employee's employment with the Company,
he will not, on his own behalf or on behalf of another entity or business,
directly or indirectly compete with the Company in the marketing or distribution
of model-specific accessories for mobile electronic devices.
8. NONDISCLOSURE OF CONFIDENTIAL AND PROPRIETARY INFORMATION. Employee
shall continue to maintain the confidentiality of all confidential and
proprietary information of the Company as provided by the separate Employment,
Confidential Information, Invention Assignment, and Arbitration Agreement
previously entered into between the Company and the Employee, a copy of which is
attached hereto as EXHIBIT A. Employee agrees that at all times hereafter,
Employee shall not intentionally divulge, furnish or make available to any party
any of the trade secrets, patents, patent applications, price decisions or
determinations, inventions, customers, proprietary information or other
intellectual property rights of the Company, until after such time as such
information has become publicly known otherwise than by act or collusion of
Employee. Employee further agrees that he will immediately return all the
Company's property and confidential and proprietary information in his
possession to the Company.
9. BREACH OF THIS AGREEMENT. Employee acknowledges that upon breach of
the non- solicitation and confidential and proprietary information provisions
contained in Sections 7 and 8 of this Agreement, the Company would sustain
irreparable harm from such breach, and, therefore, Employee agrees that in
addition to any other remedies which the Company may have under this Agreement
or otherwise, the Company shall be entitled to obtain equitable relief,
including specific performance and injunctions, restraining Employee from
committing or continuing any such violation of this Agreement.
10. NON-DISPARAGEMENT. Each party agrees to refrain from any
disparagement, criticism, defamation, slander of the other, or tortious
interference with the contracts and relationships of the other.
11. NO RELIANCE. Each party represents that it has carefully read and
understands the scope and effect of the provisions of this Agreement. Neither
party has relied upon any representations or statements made by the other party
which are not specifically set forth in this Agreement.
12. COSTS. The Parties shall each bear their own costs, attorneys' fees
and other fees incurred in connection with this Agreement.
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13. SEVERABILITY. In the event any provision of this Agreement is found
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of any of the remaining provisions shall not in any way be
affected or impaired thereby, and that provision shall be reformed, construed
and enforced to the maximum extent permissible, provided that this Agreement
shall not then substantially deprive either party of the initially bargained-for
performance of the other party. Any such invalidity, illegality or
unenforceability in any jurisdiction shall not invalidate or render illegal or
unenforceable such provision in any other jurisdiction.
14. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and his compensation by the Company, other than the Employment,
Confidential Information, Invention Assignment, and Arbitration Agreement
described in Section 8, a copy of which is attached hereto as Exhibit A.
15. NO ORAL MODIFICATION. This Agreement may only be amended in writing
signed by Employee and the President of the Company.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada.
17. EFFECTIVE DATE. THIS AGREEMENT SHALL BE EFFECTIVE ON THE LATER OF
THE DATE FIRST WRITTEN ABOVE OR SEVEN DAYS AFTER IT HAS BEEN EXECUTED BY BOTH
PARTIES.
18. COUNTERPARTS AND FACSIMILE SIGNATURE(S). This Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may be executed and delivered originally by
facsimile, with an original to follow.
19. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the parties hereto, with the full intent of releasing all claims. The parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement and
of the releases it contains; and
(d) They are fully aware of the legal and binding effect of this
Agreement.
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20. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Employee
acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 ("ADEA") as amended by the Older
Workers Benefit Protection Act, and that this waiver and release is knowing and
voluntary. Employee and the Company agree that this waiver and release does not
apply to any rights or claims that may arise under ADEA after the effective date
of this Agreement. Employee acknowledges that the consideration given for this
Agreement is in addition to anything of value to which Employee was already
entitled (except that the severance payment described herein shall replace any
other severance payment to which Employee was entitled). Employee further
acknowledges that he has been advised by this writing that (a) he should consult
with an attorney prior to executing this Agreement; (b) he has at least
twenty-one (21) days within which to consider this Agreement; (c) he has at
least seven (7) days following the execution of this Agreement by the parties to
revoke the Agreement; and (d) this Agreement shall not be effective until the
revocation period has expired.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.
IGO CORPORATION EMPLOYEE:
By: /s/ Mick Delargy /s/ Robert Bauer
------------------------------ -----------------------------------
Robert Bauer
Title: CFO Dated: January 12, 2000
------------------------------
Dated: January 12, 2000
5
RESIGNATION AGREEMENT
This Resignation Agreement (the "Agreement") is entered into on March
3, 2000 by and between IGO CORPORATION (the "Company"), and LOU BORREGO
("Employee").
WHEREAS, Employee has been employed by the Company and has been an
officer of the Company; and
WHEREAS, Employee has decided to resign for personal reasons and such
resignation by Employee is on the most amicable of terms; and
WHEREAS, the Company and Employee have mutually agreed to resolve all
matters between them in connection with Employee's termination of his employment
relationship with the Company and to release each other from claims arising from
or related to the employment relationship to the extent set forth herein;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. RESIGNATION. The Company and Employee acknowledge and agree that
Employee resigned as an employee and officer of the Company effective March 1,
2000 (the "Resignation Date"). Notwithstanding the foregoing, Employee agrees
that he will be available to assist the Company telephonically by answering
questions if needed through June 1, 2000, PROVIDED that such involvement by
Employee does not interfere with seeking other employment or his employment
elsewhere.
2. CONSIDERATION. In consideration for the release of claims set forth
below and Employee's other obligations under this Agreement, the Company shall
pay Employee one lump sum payment of $27,500.00 (less applicable tax
withholdings). The Company shall pay such amount to Employee on the effective
date of this Agreement. Employee will not be entitled to receive any other
severance or bonus payments from the Company.
3. STOCK VESTING. During the course of Employee's employment with the
Company, Employee exercised all of his vested and unvested options under the
Company's 1996 Stock Option Plan. The Company shall repurchase any unvested
shares as of August 1, 2000 from Employee. Such unvested shares shall consist of
31,258 shares at the repurchase price of $0.20 each (based on Employee's
original purchase price for such shares), and 15,001 shares at the repurchase
price of $0.0445 each, for total consideration of $6,919.14. The Company shall
pay such amount to Employee on the effective date of this Agreement. The Company
waives any right it has to repurchase any shares that Employee has exercised
other than the 46,259 shares to be repurchased pursuant to this Agreement. Share
certificate(s) representing all of Employee's shares, other than (a) shares
which are being repurchased hereunder and (b) shares previously certificated and
delivered to Employee or his stockbroker, shall be delivered to the Employee on
or before March 31, 2000.
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4. BENEFITS.
(a) Employee's right to receive the Company's standard
insurance benefits and to participate in other Company benefit programs shall
terminate on February 29, 2000 (the "Benefits Termination Date").
(b) Following the Benefits Termination Date, Employee shall
have only those rights to continued coverage that may be provided by applicable
law (i.e. rights to maintain coverage for the remainder of the one-year period
following termination under COBRA) or as may be otherwise specifically provided
for in the Company's existing insurance coverage.
(c) Resignation. The Company shall pay Employee for accrued
but unused vacation time through the Resignation Date. This time totals 69.58
hours and equates to $3,680.09. The Company shall pay such amount (less
applicable tax withholdings) to Employee on the effective date of this
Agreement.
5. RELEASE OF CLAIMS. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
the Company. Employee and the Company, on behalf of themselves, and their
respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations and
assigns, hereby fully and forever release each other and their respective heirs,
executors, officers, directors, employees, investors, shareholders,
administrators, predecessor and successor corporations and assigns from any
claim, duty, obligation or cause of action relating to any matters of any kind,
whether known or unknown, suspected or unsuspected, that either of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the effective date of this Agreement including, without
limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and termination of that relationship;
(b) any and all claims relating to, or arising from,
Employee's right to purchase, or actual purchase of shares of stock of the
Company, and any and all claims relating to, or arising from, the Company's
right to repurchase stock from the Employee;
(c) any and all claims for wrongful discharge of employment;
breach of contract, both express and implied; breach of a covenant of good faith
and fair dealing, both express and implied; negligent or intentional infliction
of emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
2
<PAGE>
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, and the Age Discrimination in
Employment Act of 1967;
(e) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(f) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. NOTWITHSTANDING THE FOREGOING, THIS RELEASE DOES NOT EXTEND TO
ANY OBLIGATIONS INCURRED UNDER THIS AGREEMENT OR TO BREACHES OF THIS AGREEMENT
OR OTHER AGREEMENTS BETWEEN THE COMPANY AND EMPLOYEE, INCLUDING, WITHOUT
LIMITATION, THE EMPLOYEE'S SIGNED EMPLOYMENT, CONFIDENTIAL INFORMATION,
INVENTION ASSIGNMENT, AND ARBITRATION AGREEMENT AND INDEMNIFICATION AGREEMENT
ATTACHED HERETO RESPECTIVELY AS EXHIBIT A AND EXHIBIT B, THAT MAY ARISE AFTER
THE RESIGNATION DATE.
6. CONFIDENTIALITY. The parties agree to use their best efforts to
maintain in confidence the existence of this Agreement, the contents and terms
of this Agreement, and the consideration for this Agreement. Notwithstanding the
foregoing, the Employee shall be permitted to discuss the provisions of this
Agreement in confidence with his attorneys, accountants, tax advisors and spouse
or when required to do so by court or government agency order or subpoena and
the Company shall be permitted to disclose the existence and contents of this
Agreement to the extent necessary, on the advice of counsel, to comply with its
obligations under applicable law, rules or regulations.
7. NON-SOLICITATION. Employee agrees that until one year after
termination of Employee's employment with the Company, he will not directly or
indirectly solicit or attempt to solicit any person employed by the Company to
terminate or otherwise cease his or his employment with the Company or interfere
in any manner with the contractual or employment relationship between the
Company and any customer, vendor or employee of the Company.
8. NONDISCLOSURE OF CONFIDENTIAL AND PROPRIETARY INFORMATION. Employee
shall continue to maintain the confidentiality of all confidential and
proprietary information of the Company as provided by the separate Employment,
Confidential Information, Invention Assignment, and Arbitration Agreement
previously entered into between the Company and the Employee, a copy of which is
attached hereto as EXHIBIT A. Employee agrees that at all times hereafter,
Employee shall not intentionally divulge, furnish or make available to any party
any of the trade secrets, patents, patent applications, price decisions or
determinations, inventions, customers, proprietary information or other
intellectual property rights of the Company, until after such time as such
information has become publicly known otherwise than by act or collusion of
Employee. Employee further agrees that he will immediately return all the
Company's property and confidential and proprietary information in his
possession to the Company.
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<PAGE>
9. BREACH OF THIS AGREEMENT. Employee acknowledges that upon breach of
the non-solicitation and confidential and proprietary information provisions
contained in Sections 7 and 8 of this Agreement, the Company would sustain
irreparable harm from such breach, and, therefore, Employee agrees that in
addition to any other remedies which the Company may have under this Agreement
or otherwise, the Company shall be entitled to obtain equitable relief,
including specific performance and injunctions, restraining Employee from
committing or continuing any such violation of this Agreement.
10. NON-DISPARAGEMENT. Each party agrees to refrain from any
disparagement, criticism, defamation, slander of the other, or tortious
interference with the contracts and relationships of the other. The Company
agrees not to represent the nature of Employee's departure from the Company as
any form of involuntary termination.
11. NO RELIANCE. Each party represents that it has carefully read and
understands the scope and effect of the provisions of this Agreement. Neither
party has relied upon any representations or statements made by the other party
which are not specifically set forth in this Agreement.
12. COSTS AND FEES. The Parties shall each bear their own costs,
attorneys' fees and other fees incurred in connection with the review,
negotiation and execution of this Agreement. However, in any action to enforce
the terms and conditions of this Agreement, the prevailing party shall be
entitled to recover from the other party his or its costs and reasonable
attorneys' fees and other expenses.
13. SEVERABILITY. In the event any provision of this Agreement is found
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of any of the remaining provisions shall not in any way be
affected or impaired thereby, and that provision shall be reformed, construed
and enforced to the maximum extent permissible, provided that this Agreement
shall not then substantially deprive either party of the initially bargained-for
performance of the other party. Any such invalidity, illegality or
unenforceability in any jurisdiction shall not invalidate or render illegal or
unenforceable such provision in any other jurisdiction.
14. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and his compensation by the Company.
15. NO ORAL MODIFICATION. This Agreement may only be amended in writing
signed by Employee and the President of the Company.
16. GOVERNING LAW AND VENUE. This Agreement shall be governed by the
laws of the State of Nevada and any action brought to enforce the terms and
conditions of this Agreement shall be brought in the appropriate state or
federal court in Reno, Nevada.
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<PAGE>
17. EFFECTIVE DATE. THIS AGREEMENT SHALL BE EFFECTIVE ON THE DATE FIRST
WRITTEN ABOVE.
18. COUNTERPARTS AND FACSIMILE SIGNATURE(S). This Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may be executed and delivered originally by
facsimile, with an original to follow.
19. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the parties hereto, with the full intent of releasing all claims. The parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation
and execution of this Agreement by legal counsel of their own choice or that
they have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this
Agreement and of the releases it contains; and
(d) They are fully aware of the legal and binding effect of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.
IGO CORPORATION EMPLOYEE:
By: /S/ MICK DELARGY /S/ LOU BORREGO
-------------------- -----------------------
Lou Borrego
Title: CFO Dated: March 3, 2000
--------------------
Dated: March 3, 2000
5
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release (the "Agreement") is
entered into on February 24, 2000 by and between IGO CORPORATION (the
"Company"), and JOE BERGEON ("Employee").
WHEREAS, Employee has been employed by the Company; and
WHEREAS, Employee submitted his resignation and as a result thereof,
the Company and Employee have mutually agreed to terminate the employment
relationship and to release each other from claims arising from or related to
the employment relationship to the extent set forth herein;
NOW, THEREFORE, the parties agree as follows:
1. TERMINATION. The Company and Employee acknowledge and agree that
Employee's employment with the Company will be voluntarily terminated by
Employee effective February 29, 2000 (the "Resignation Date"). Notwithstanding
the foregoing, Employee agrees that he will be available to assist the Company
telephonically by answering questions if needed, PROVIDED that such involvement
by Employee does not interfere with seeking other employment or his employment
elsewhere.
2. CONSIDERATION. In consideration for the release of claims set forth
below and Employee's other obligations under this Agreement, the Company shall
continue paying the Employee's current salary (less applicable tax withholding)
through and including June 10, 2000, such salary continuation to be payable in
accordance with the Company's normal payroll practices. Employee will not be
entitled to receive any other severance or bonus payments from the Company.
3. STOCK OPTION VESTING. During the course of Employee's employment
with the Company, Employee was granted a stock option to purchase shares of the
Company's Common Stock under the Company's 1996 Stock Option Plan, which option
is subject to repurchase rights in the Company's favor. The Company hereby
agrees to waive such repurchase rights with respect to twenty-five percent (25%)
of the shares of the Company's Common Stock subject to such stock option, for a
total of 13,125 shares. Employee must exercise such option, if at all, within
sixty (60) days of the Resignation Date.
4. BENEFITS.
(a) Employee's right to receive the Company's standard insurance
benefits and to participate in other Company benefit programs shall terminate on
June 10, 2000 (the "Benefits Termination Date"). To the extent necessary to
extend coverage over such period, the Company will pay Employee's COBRA premiums
during such period.
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<PAGE>
(b) Following the Benefits Termination Date, Employee shall have
only those rights to continued coverage that may be provided by applicable law
(i.e. rights to maintain coverage for the remainder of the one-year period
following resignation under COBRA) or as may be otherwise specifically provided
for in the Company's existing insurance coverage.
(c) The Company shall pay Employee for accrued but unused vacation
time through the Resignation Date.
5. RELEASE OF CLAIMS. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
the Company. Employee and the Company, on behalf of themselves, and their
respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations and
assigns, hereby fully and forever release each other and their respective heirs,
executors, officers, directors, employees, investors, shareholders,
administrators, predecessor and successor corporations and assigns from any
claim, duty, obligation or cause of action relating to any matters of any kind,
whether known or unknown, suspected or unsuspected, that either of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the effective date of this Agreement including, without
limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and termination of that relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of the Company;
(c) any and all claims for wrongful discharge of employment; breach
of contract, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, and the Age Discrimination in
Employment Act of 1967;
(e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
(f) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. NOTWITHSTANDING THE FOREGOING, THIS RELEASE DOES NOT EXTEND TO
ANY OBLIGATIONS INCURRED UNDER THIS AGREEMENT OR TO BREACHES OF THIS AGREEMENT
OR THE EMPLOYEE'S SIGNED EMPLOYMENT, CONFIDENTIAL INFORMATION, INVENTION
ASSIGNMENT, AND ARBITRATION AGREEMENT ATTACHED AS EXHIBIT A HERETO, THAT MAY
ARISE AFTER THE RESIGNATION DATE.
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<PAGE>
6. CONFIDENTIALITY. The parties agree to use their best efforts to
maintain in confidence the existence of this Agreement, the contents and terms
of this Agreement, and the consideration for this Agreement. Notwithstanding the
foregoing, the Employee shall be permitted to discuss the provisions of this
Agreement in confidence with his attorneys, accountants, tax advisors and spouse
and the Company shall be permitted to disclose the existence and contents of
this Agreement to the extent necessary, on the advice of counsel, to comply with
its obligations under applicable law, rules or regulations.
7. NON-SOLICITATION. Employee agrees that until one year after the
Resignation Date, he will not directly or indirectly solicit or attempt to
solicit any person employed by the Company to terminate or otherwise cease his
or his employment with the Company or interfere in any manner with the
contractual or employment relationship between the Company and any customer,
vendor or employee of the Company.
8. NONDISCLOSURE OF CONFIDENTIAL AND PROPRIETARY INFORMATION. Employee
shall continue to maintain the confidentiality of all confidential and
proprietary information of the Company as provided by the separate Employment,
Confidential Information, Invention Assignment, and Arbitration Agreement
previously entered into between the Company and the Employee, a copy of which is
attached hereto as EXHIBIT A. Employee agrees that at all times hereafter,
Employee shall not intentionally divulge, furnish or make available to any party
any of the trade secrets, patents, patent applications, price decisions or
determinations, inventions, customers, proprietary information or other
intellectual property rights of the Company, until after such time as such
information has become publicly known otherwise than by act or collusion of
Employee. Employee further agrees that he will immediately return all the
Company's property and confidential and proprietary information in his
possession to the Company.
9. BREACH OF THIS AGREEMENT. The Company and Employee acknowledge that
upon breach of the non-solicitation and confidential and proprietary information
provisions contained in Sections 7 and 8 of this Agreement, or the
Non-Disparagement provisions set forth in Section 10 of this Agreement, the
Company or Employee would sustain irreparable harm from such breach, and,
therefore, the Company and Employee agree that in addition to any other remedies
which the Company and Employee may have under this Agreement or otherwise, the
Company or Employee shall be entitled to obtain equitable relief, including
specific performance and injunctions, restraining the Company or Employee from
committing or continuing any such violation of this Agreement.
10. NON-DISPARAGEMENT. Each party agrees to refrain from any
disparagement, criticism, defamation, slander of the other, or tortious
interference with the contracts and relationships of the other. The Company
agrees not to represent the nature of Employee's departure from the Company as
any form of involuntary termination.
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<PAGE>
11. NO RELIANCE. Each party represents that it has carefully read and
understands the scope and effect of the provisions of this Agreement. Neither
party has relied upon any representations or statements made by the other party
which are not specifically set forth in this Agreement.
12. COSTS. The Parties shall each bear their own costs, attorneys' fees
and other fees incurred in connection with this Agreement.
13. SEVERABILITY. In the event any provision of this Agreement is found
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of any of the remaining provisions shall not in any way be
affected or impaired thereby, and that provision shall be reformed, construed
and enforced to the maximum extent permissible, provided that this Agreement
shall not then substantially deprive either party of the initially bargained-for
performance of the other party. Any such invalidity, illegality or
unenforceability in any jurisdiction shall not invalidate or render illegal or
unenforceable such provision in any other jurisdiction.
14. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and his compensation by the Company.
15. NO ORAL MODIFICATION. This Agreement may only be amended in writing
signed by Employee and the President of the Company.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada.
17. EFFECTIVE DATE. THIS AGREEMENT SHALL BE EFFECTIVE ON THE LATER OF
THE DATE FIRST WRITTEN ABOVE OR SEVEN DAYS AFTER IT HAS BEEN EXECUTED BY BOTH
PARTIES.
18. COUNTERPARTS AND FACSIMILE SIGNATURE(S). This Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may be executed and delivered originally by
facsimile, with an original to follow.
19. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the parties hereto, with the full intent of releasing all claims. The parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
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<PAGE>
(c) They understand the terms and consequences of this Agreement and
of the releases it contains; and
(d) They are fully aware of the legal and binding effect of this
Agreement.
20. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Employee
acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 ("ADEA") as amended by the Older
Workers Benefit Protection Act, and that this waiver and release is knowing and
voluntary. Employee and the Company agree that this waiver and release does not
apply to any rights or claims that may arise under ADEA after the effective date
of this Agreement. Employee acknowledges that the consideration given for this
Agreement is in addition to anything of value to which Employee was already
entitled (except that the severance payment described herein shall replace any
other severance payment to which Employee was entitled). Employee further
acknowledges that he has been advised by this writing that (a) he should consult
with an attorney prior to executing this Agreement; (b) he has at least
twenty-one (21) days within which to consider this Agreement; (c) he has at
least seven (7) days following the execution of this Agreement by the parties to
revoke the Agreement; and (d) this Agreement shall not be effective until the
revocation period has expired.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.
IGO CORPORATION EMPLOYEE:
By: /s/ Mick Delargy /s/ Joe Bergeon
------------------------------ -----------------------------------
Joe Bergeon
Title: CFO Dated: February 24, 2000
------------------------------
Dated: February 24, 2000
5
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Tom deJong
("EMPLOYEE") and CAW Products, Inc. (the "COMPANY") effective as of January 4,
2000, which date also represents the closing of the Company's acquisition by iGo
Corporation, a Delaware corporation ("PARENT") by way of a merger of CAW
Acquisition Corp., a wholly-owned subsidiary of Parent, with and into the
Company (the "MERGER"), such date being hereafter referred to as the "EFFECTIVE
DATE" of this Agreement.
WHEREAS, the Employee is and intends to remain an employee of the
Company or Parent for the foreseeable future and as such possesses confidential
business and technical information regarding the business of the Company and
Parent; and
WHEREAS, the Company and Parent are willing to enter into this
Agreement as a condition to the closing of the Merger;
NOW, THEREFORE, in consideration of the mutual agreements and
obligations contained in this Agreement, the parties agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence on the Effective
Date and shall have a term of two (2) years. Subject to the provisions of
Section 5 below, this Agreement may be terminated prior to the end of its terms
by either party, with or without cause, on thirty (30) days written notice to
the other party. The term of this Agreement shall be automatically extended by
one (1) year in the event that the Company's gross sale revenues for the years
ending September 30, 2000 and September 30, 2001 each exceed the similar figure
for the year ending September 30, 1999 and Employee has complied with the
provisions of this Agreement in all material respects prior to such extension;
PROVIDED, HOWEVER, that if the foregoing gross sale revenue figures are not
obtained for any reason whatsoever, the Company shall have the right, but the
obligation, to extend the term of this Agreement by one (1) year upon delivery
of written notice to Employee.
2. DUTIES. Employee shall be employed as Vice President and shall
perform for the Company such duties as may be designated by the Company from
time to time in a mutually acceptable position to both Employee and the Company.
Employee shall devote his or her full time, effort and attention during regular
business hours to the business and affairs of the Company. Notwithstanding the
foregoing sentence, Employee shall be permitted to attend classes for his
Masters in Business Administration program on the days set forth on SCHEDULE 2
attached hereto without the need to use vacation time granted to him by the
Company. The parties acknowledge and agree that it is Parent's current intention
(without further obligation) to move the Company's operations to Parent's
headquarters in Reno, Nevada, at some time following the Effective Date. Such
move and any requirement that Employee relocate in connection with such move
shall not constitute a breach of any terms of this Agreement by the Company (or
Parent) nor shall it give rise to any claim of constructive termination of
Employee's employment without cause.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is for an unspecified period of time and shall continue to
be at-will, as defined under applicable law. Any representation to the contrary
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is unauthorized and not valid unless obtained in writing and signed by the Chief
Executive Officer of the Company. If Employee's employment terminates for any
reason, the Employee shall not be entitled to any payments, benefits, damages,
award or compensation other than as provided in this Agreement, or as may
otherwise be available in accordance with the Company's established written
plans and written policies at the time of termination.
4. COMPENSATION. For the duties and services to be performed by
Employee hereunder, the Company shall pay Employee, and Employee agrees to
accept, the salary, stock options, bonuses and other benefits described below in
this Section 4.
(a) SALARY. Employee shall receive a base salary of $138,000
per annum, payable in accordance with the Company's normal payroll practices.
(b) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall
be eligible to participate in the stock option or other incentive programs
available to employees of the Company. Employee will receive a stock option to
purchase up to 60,000 shares of Parent's Common Stock that will vest over the
customary vesting schedule for employees of Parent and its subsidiaries. These
options will be priced at the close of the business day of the next Parent Board
of Directors or Compensation Committee meeting following the Effective Date.
(c) BONUSES. Employee will be eligible to receive quarterly
bonuses as determined pursuant to the Bonus Program attached hereto as EXHIBIT
A. In addition, Employee shall be paid a quarterly bonus of $5,000.00 for each
of the first eight (8) quarters during the term of this Agreement, which shall
be completely unrelated to and separate from the Bonus Program attached hereto
as EXHIBIT A.
(d) ADDITIONAL BENEFITS. Employee will be eligible to
participate in the Company's employee benefit plans of general application,
including without limitation, those plans covering medical, disability and life
insurance in accordance with the rules established for individual participation
in any such plan and under applicable law. Employee will be eligible for
vacation and sick leave in accordance with the policies in effect during the
term of this Agreement and will receive such other benefits as the Company
generally provides to its employees of similar rank and grade.
(e) REIMBURSEMENT OF RELOCATION EXPENSES. The Company shall
reimburse Employee for relocation expenses as follows: (i) three percent (3%) of
the greater of the selling price of Employee's current primary residence or the
purchase price of Employee's primary residence in the Reno, Nevada metropolitan
area; (ii) the actual moving expenses, not to exceed $5,000.00, associated with
a single relocation of Employee's household goods and personal property from the
location of Employee's current primary residence to Employee's primary residence
in the Reno, Nevada metropolitan area; and (iii) the amount of $1,000.00 for
expenses associated with Employee's visit to the Reno, Nevada metropolitan area
to look for a residence.
5. SALARY CONTINUATION.
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(a) TERMINATION OF EMPLOYMENT. In the event Employee's
employment terminates for any reason during the original term of this Agreement,
then Employee shall be entitled to receive salary continuation as follows:
(i) VOLUNTARY RESIGNATION. If Employee's employment
terminates by reason of Employee's voluntary resignation (and is not an
Involuntary Termination or a Termination for Cause), then Employee shall not be
entitled to receive salary continuation. Employee's benefits will be continued
under the Company's then existing benefit plans and policies solely in
accordance with such plans and policies in effect on the date of termination.
(ii) INVOLUNTARY TERMINATION. If Employee's
employment is terminated as a result of Involuntary Termination other than for
Cause, Employee will be entitled to receive salary continuation equal to
Employee's regular monthly salary for the number of months remaining in the
original term of this Agreement (the "Salary Continuation Period") and the pro
rata portion of any bonuses earned by or owed to Employee pursuant to Section
4(c) above, through and including the date employment is terminated. Such
payments shall be made ratably over the Salary Continuation Period according to
the Company's standard payroll schedule. Employee's benefits will be continued
under the Company's then existing benefit plans and policies solely in
accordance with such plans and policies in effect on the date of termination.
(iii) INVOLUNTARY TERMINATION FOR CAUSE. If
Employee's employment is terminated for Cause, then Employee shall not be
entitled to receive salary continuation. Employee's benefits will be continued
under the Company's then existing benefit plans and policies solely in
accordance with such plans and policies in effect on the date of termination.
(iv) FOR GOOD REASON. Employee shall have the right
to terminate his employment hereunder for Good Reason. For purposes of this
Agreement "Good Reason" means:
(a) A material breach by the Company of its
obligations hereunder;
(b) A substantial alteration of the
Employee's responsibilities hereunder;
(c) Employee incurs a reduction in his base
salary from the level specified in Section 4(a) above; or
(d) Subsequent to relocating to Reno,
Nevada, Employee is notified by the Company that his principal place of work
will be relocated by a distance of twenty- five (25) miles or more from 9393
Gateway Drive, Reno, Nevada.
If Employee's employment terminates for Good Reason,
Employee will be entitled to salary continuation as set forth in Section
5(a)(ii) above.
b. OTHER EMPLOYMENT. In the event Employee commences new
employment with a company whose business or proposed business in any way
involves products or services which would be competitive with the services or
proposed products or services of the Company, then any salary continuation
pursuant to this Section 5 shall cease.
-3-
<PAGE>
6. DEFINITION OF CAUSE. For purposes of this Agreement, "cause" shall
mean (i) any material breach of this Agreement by Employee, which breach, if
curable, is not cured within thirty (30) days of written notice thereof, (ii)
any act or acts of gross misconduct by Employee, (iii) conduct grossly
insubordinate or disloyal to the Company or Parent, (iv) the conviction of or
pleading guilty or no contest to a felony, or (v) the continued use of illegal
drugs or alcohol by Employee such that Employee becomes impaired in the
performance of his duties hereunder, in each case (i)-(v), as determined by the
Company's Board of Directors in good faith. Employee expressly acknowledges and
agrees that any breach by Employee of his obligations pursuant to Section 7 or
Section 8 below shall be deemed "uncurable" for purposes of clause (i) above.
7. CONFIDENTIALITY AGREEMENT. Employee shall sign Parent's standard
employee agreement regarding confidentiality and assignment of inventions
Agreement, the general form of which is attached hereto as EXHIBIT B.
8. NON-SOLICITATION. Employee agrees that during and for one year after
the period of providing services to the Company or Parent, Employee will not
directly or indirectly induce, encourage or solicit any employee or consultant
of Parent, the Company or any other affiliate of Parent or the Company to
terminate their employment or consulting relationship with such entity for any
reason.
9. SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address from which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to it care of Parent's headquarters in Reno, Nevada,
and all notices shall be directed to the attention of Parent's Chief Financial
Officer.
11. MISCELLANEOUS PROVISIONS.
(a) WAIVERS, ETC. No amendment of this Agreement and no waiver
of any one or more of the provisions hereof shall be effective unless set forth
in writing by such person against whom enforcement is sought.
-4-
<PAGE>
(b) SOLE AGREEMENT. This Agreement, including the Exhibit
hereto, constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(c) AMENDMENT. This Agreement may be amended, modified,
suppressed or canceled only by an agreement in writing executed by both parties
hereto.
(d) CHOICE OF LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(e) SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.
(f) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
CAW PRODUCTS, INC. EMPLOYEE
By: /S/ MICK DELARGY By: /S/ TOM DEJONG
------------------------------------ -------------------
Mick Delargy Tom deJong
Chief Financial Officer
-5-
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Rod Hosilyk
("EMPLOYEE") and AR Industries, Inc. (the "COMPANY") effective as of January 11,
2000, which date also represents the closing of the Company's acquisition by iGo
Corporation, a Delaware corporation ("PARENT") by way of a merger of ARI
Acquisition Corp., a wholly-owned subsidiary of Parent, with and into the
Company (the "MERGER"), such date being hereafter referred to as the "EFFECTIVE
DATE" of this Agreement.
WHEREAS, the Employee is and intends to remain an employee of the
Company or Parent for the foreseeable future and as such possesses confidential
business and technical information regarding the business of the Company and
Parent; and
WHEREAS, the Company and Parent are willing to enter into this
Agreement as a condition to the closing of the Merger;
NOW, THEREFORE, in consideration of the mutual agreements and
obligations contained in this Agreement, the parties agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence on the Effective
Date and shall have a term of two (2) years. This Agreement may be terminated
prior to the end of its terms by either party, with or without cause, on thirty
(30) days written notice to the other party. The Company shall have the right,
but not the obligation, to extend the term of this Agreement by one (1) year
upon delivery of written notice to Employee.
2. DUTIES. Employee shall be employed as Vice President-Special
Opportunities, and shall perform for the Company such duties as may be
designated by the Company from time to time in a mutually acceptable position to
both Employee and the Company. Employee shall devote his or her full time,
effort and attention during regular business hours to the business and affairs
of the Company; PROVIDED, HOWEVER, that the Employee shall be entitled to serve
as a member of the board of directors of other companies so long as: (i) such
service does not impact the Employee's ability to perform his obligations
hereunder or result in a violation of the terms or conditions of any other
agreement or contract between the Employee and the Company or between the
Employee and Parent, and (ii) prior to so serving, the Employee obtains the
written consent of the Company, which shall not be unreasonably withheld or
delayed. The Company hereby consents to Employee's service as a member of the
board of directors of the company or companies listed on EXHIBIT A attached
hereto and incorporated herein by this reference. The parties acknowledge and
agree that it is Parent's current intention (without further obligation) to move
the Company's operations to Parent's headquarters in Reno, Nevada, at some time
following the Effective Date. Such move and any requirement that Employee
relocate in connection with such move shall not constitute a breach of any terms
of this Agreement by the Company (or Parent) nor shall it give rise to any claim
of constructive termination of Employee's employment without cause.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is for an unspecified period of time and shall continue to
be at-will, as defined under applicable law. Any representation to the contrary
-1-
<PAGE>
is unauthorized and not valid unless obtained in writing and signed by the Chief
Executive Officer of the Company. If Employee's employment terminates for any
reason, the Employee shall not be entitled to any payments, benefits, damages,
award or compensation other than as provided in this Agreement, or as may
otherwise be available in accordance with the Company's established written
plans and written policies at the time of termination.
4. COMPENSATION. For the duties and services to be performed by
Employee hereunder, the Company shall pay Employee, and Employee agrees to
accept, the salary, stock options, bonuses and other benefits described below in
this Section 4.
(a) SALARY. Employee shall receive a base salary of
$150,000.00 per annum, payable in accordance with the Company's normal payroll
practices.
(b) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall
be eligible to participate in the stock option or other incentive programs
available to employees of the Company. Employee will receive a stock option to
purchase up to 75,000 shares of Parent's Common Stock that will vest over the
customary vesting schedule for employees of Parent and its subsidiaries. These
options will be priced on the Effective Date.
(c) BONUSES. Employee will participate in the Company's
employee bonus program and be eligible to receive an annual cash bonus not to
exceed twenty percent (20%) of the base salary figure set forth in Section 4(a)
above. Employee's entitlement to incentive bonuses from the Company is
discretionary and shall be determined by the Board, its Compensation Committee
or the Chief Executive Officer of the Company in good faith based Employee's
individual performance and the Company's financial and nonfinancial performance
during the applicable bonus period.
(d) ADDITIONAL BENEFITS. Employee will be eligible to
participate in the Company's employee benefit plans of general application,
including without limitation, those plans covering medical, disability and life
insurance in accordance with the rules established for individual participation
in any such plan and under applicable law. Employee will be eligible for
vacation and sick leave in accordance with the policies in effect during the
term of this Agreement and will receive such other benefits as the Company
generally provides to its employees of similar rank and grade.
(e) REIMBURSEMENT OF RELOCATION EXPENSES. The Company shall
reimburse Employee for relocation expenses as follows: (i) three percent (3%) of
the greater of the selling price of Employee's current primary residence or the
purchase price of Employee's primary residence in the Reno, Nevada metropolitan
area; (ii) the actual moving expenses, not to exceed $7,000.00, associated with
a single relocation of Employee's household goods and personal property from the
location of Employee's current primary residence to Employee's primary residence
in the Reno, Nevada metropolitan area; and (iii) the amount of $1,000.00 for
expenses associated with Employee's visit to the Reno, Nevada metropolitan area
to look for a residence.
-2-
<PAGE>
5. SALARY CONTINUATION.
(a) TERMINATION OF EMPLOYMENT. In the event Employee's
employment terminates for any reason during the original term of this Agreement,
then Employee shall be entitled to receive salary continuation as follows:
(i) VOLUNTARY RESIGNATION. If Employee's employment
terminates by reason of Employee's voluntary resignation (and is not an
Involuntary Termination or a Termination for Cause), then Employee shall not be
entitled to receive salary continuation. Employee's benefits will be continued
under the Company's then existing benefit plans and policies solely in
accordance with such plans and policies in effect on the date of termination.
(ii) INVOLUNTARY TERMINATION. If Employee's
employment is terminated as a result of Involuntary Termination other than for
Cause, Employee will be entitled to receive salary continuation equal to
Employee's regular monthly salary for the number of months remaining in the
original term of this Agreement (the "Salary Continuation Period"). Such
payments shall be made ratably over the Salary Continuation Period according to
the Company's standard payroll schedule. Employee's benefits will be continued
under the Company's then existing benefit plans and policies solely in
accordance with such plans and policies in effect on the date of termination.
(iii) INVOLUNTARY TERMINATION FOR CAUSE. If
Employee's employment is terminated for Cause, then Employee shall not be
entitled to receive salary continuation. Employee's benefits will be continued
under the Company's then existing benefit plans and policies solely in
accordance with such plans and policies in effect on the date of termination.
b. OTHER EMPLOYMENT. In the event Employee commences new
employment with a company whose business or proposed business constitutes a
"Competing Business" within the "Restricted Territory" as such terms are defined
in the Non-Competition Agreement of even date herewith between the Company,
Employee and Parent, then any salary continuation pursuant to this Section 5
shall cease.
6. DEFINITION OF CAUSE. For purposes of this Agreement, "cause" shall
mean (i) any material breach of this Agreement by Employee, which breach, if
curable, is not cured within thirty (30) days of written notice thereof, (ii)
any act or acts of gross misconduct by Employee, (iii) conduct grossly
insubordinate or disloyal to the Company or Parent, (iv) the conviction of or
pleading guilty or no contest to a felony, or (v) the continued use of illegal
drugs or alcohol by Employee such that Employee becomes impaired in the
performance of his duties hereunder, in each case (i)-(v), as determined by the
Company's Board of Directors in good faith. Employee expressly acknowledges and
agrees that any breach by Employee of his obligations pursuant to Section 7 or
Section 8 below shall be deemed "uncurable" for purposes of clause (i) above.
7. CONFIDENTIALITY AGREEMENT. Employee shall sign Parent's standard
employee agreement regarding confidentiality and assignment of inventions
Agreement, the general form of which is attached hereto as EXHIBIT B.
-3-
<PAGE>
8. NON-SOLICITATION. Employee agrees that during and for one year after
the period of providing services to the Company or Parent, Employee will not
directly or indirectly induce, encourage or solicit any employee or consultant
of Parent, the Company or any other affiliate of Parent or the Company to
terminate their employment or consulting relationship with such entity for any
reason; provided that the foregoing shall not preclude the Employee from
engaging in general employment advertising.
9. SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address from which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to it care of Parent's headquarters in Reno, Nevada,
and all notices shall be directed to the attention of Parent's Chief Financial
Officer.
11. MISCELLANEOUS PROVISIONS.
(a) WAIVERS, ETC. No amendment of this Agreement and no waiver
of any one or more of the provisions hereof shall be effective unless set forth
in writing by such person against whom enforcement is sought.
(b) SOLE AGREEMENT. This Agreement, including the Exhibit
hereto, constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(c) AMENDMENT. This Agreement may be amended, modified,
suppressed or canceled only by an agreement in writing executed by both parties
hereto.
(d) CHOICE OF LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(e) SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.
-4-
<PAGE>
(f) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
AR INDUSTRIES, INC. EMPLOYEE
By: /S/ MICK DELARGY By: /S/ ROD HOSILYK
------------------------------------- --------------------
Mick Delargy, Chief Financial Officer Rod Hosilyk
-5-
Subsidiaries of iGo
1. iGo Development, Inc., a California corporation
2. CAW Products, Inc., a California corporation
3. AR Industries, Inc., a California corporation
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333.31900 of iGo Corporation on Form S-8 of our report dated January 25, 2000,
appearing in this Annual Report on Form 10-K of iGo Corporation for the year
ended December 31, 1999.
DELOITTE & TOUCHE LLP
Reno, Nevada
March 29, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<CURRENT-ASSETS> 63,510,620
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<COMMON> 20,119
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