As filed with the Securities and Exchange Commission on March 28, 2000
Registration No. 333-
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
n-GEN SOLUTIONS.COM, INC.
(Exact name of registrant as specified in charter)
Delaware 84-1469564 7379
- ---------------------------- ------------- ----------------------------
(State or other jurisdiction (IRS Employer (Primary Standard Industrial
of Incorporation Identification No.) Classification Code Number)
or organization)
Robert D. Arnold, Chairman and Chief Executive Officer
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, Colorado 80202
(303) 628-0747
(Address including zip code, and telephone number, including
area code, of registrant's principal executive offices)
________________________________________________
Robert D. Arnold, Chairman and Chief Executive Officer
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, Colorado 80202
(303) 628-0747
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
________________________________________________
COPIES OF ALL COMMUNICATIONS TO:
--------------------------------
John B. Wills, Esq. David A Carter, P.A.
Diana L. Powell, Esq. 2300 Glades Road,
Berenbaum, Weinshienk & Eason, P.C. Suite 210 West Tower
370 Seventeenth Street, Suite 2600 Boca Raton, Florida 33431
Denver, Colorado 80202-5626 (561) 750-6999
(303) 825-0800 (561) 367-0960 FAX
(303) 629-7610 FAX Counsel to Underwriter
Counsel to Issuer
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
__________________________________________________________________________________
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Offering Registration
to be Registered Registered Per Share Price Fee
- ---------------- ---------- --------- ----- ---
<S> <C> <C> <C> <C>
Common Stock, 1,840,000
$.0001 Par Value(1) Shares $5.00 $ 9,200,000 $2,428.80
Warrants(2) 1,840,000 $0.125 $ 230,000 $ 60.72
Common Stock,
Underlying Warrants(3) 1,840,000 $5.50 $10,120,000 $2,671.68
Underwriter's Common
Stock Option(4) 160,000 nil $ 0 $ 0.00
Common Stock Underlying
Underwriter's Common
Stock Option(5) 160,000 $8.00 $ 1,280,000 $ 337.92
Underwriter's Warrant
Option(6) 160,000 nil $ 0 $ 0.00
Warrants Underlying
Underwriter's Warrant
Option(7) 160,000 $0.20 $ 32,000 $ 8.45
Common Stock Underlying
Underwriter's Warrant
Option(8) 160,000 $8.00 $ 1,280,000 $ 337.92
---------
Total Registration and Fee(9) $22,142,000 $5,845.49
=========== =========
__________________________________________________________________________________
</TABLE>
(1) Includes 240,000 shares reserved for the option, exercisable within 45
days after the date on which the Securities and Exchange Commission
(the "Commission") declares this Registration Statement effective, to
cover over-allotments, if any (the "Over-Allotment Option"), granted
by the Company to Barron Chase Securities, Inc. (Underwriter"). See
"Underwriting."
(2) Includes 240,000 Redeemable Common Stock Purchase Warrants ("Purchase
Warrants" of the "Warrants") reserved for issuance upon exercise of
the Over-Allotment Option. The Warrants (a) may be purchased
separately from the Common Stock in the offering, (b) are exercisable
during a five-year period commencing on the effective date of this
Registration Statement, and (c) shall be redeemable, at the option of
the Company, at $.05 per Warrant upon 30 days' prior written notice,
(i) if the closing bid price, as reported on the Nasdaq SmallCap
Market(SM), or the closing sale price, as reported on a national or
regional securities exchange, as applicable, of the shares of the
Registrant's Common Stock for 30 consecutive trading days ending
within ten days of the notice of redemption of the Warrants averages
in excess of $10.00 per share, subject to adjustment, and (ii) after
a then current registration statement has been declared effective by
the Commission with regard to the shares of Common Stock to be
received by the holder upon exercise, but (iii) during the one-year
period after the effective date of this Registration statement, only
with the written consent of the Underwriter. Pursuant to Rule 416
under the Securities Act of 1933, as amended ("Securities Act"), such
additional number of these securities are also being registered to
cover any adjustment resulting from the operation of the anti-dilution
provisions relating to the Warrants. The indeterminate number of
additional shares shall be issuable pursuant to Rule 416 to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.
<PAGE>
(3) Reserved for issuance upon exercise of the Warrants. Pursuant to
Rule 416 under the Securities Act, such additional number of
shares of Common Stock subject to the Warrants are also being
registered to cover any adjustment resulting from the operation
of the anti-dilution provisions relating to the Warrants. The
indeterminate number of additional shares shall be issuable
pursuant to rule 416 to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(4) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number
of Underwriter stock options ("Common Stock Underwriter Warrants") are
also being registered to cover any adjustment resulting from the
operation of the anti-dilution provisions relating to the Common Stock
Underwriter Warrants. The indeterminate number of additional Common
Stock Underwriter Warrants shall be issuable pursuant to Rule 416 to
prevent dilution resulting from stock splits, stock dividends or
similar transactions.
(5) Reserved for issuance upon exercise of the Common Stock Underwriter
Warrants. Pursuant to Rule 416 under the Securities Act, such
additional number of shares of Common Stock subject to the Common
Stock Underwriter Warrants are also being registered to cover any
adjustment resulting from the operation of the anti-dilution
provisions relating to the Common Stock Underwriter Warrants. The
indeterminate number of additional shares shall be issuable pursuant
to Rule 416 to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(6) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number
of Underwriter warrant options ("Underwriter Warrant Options") are
also being registered to cover any adjustment resulting from the
operation of the anti-dilution provisions relating to the Underwriter
Warrant Options. The indeterminate number of additional shares shall
be issuable pursuant to Rule 416 to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
(7) Reserved for issuance upon exercise of the Underwriter Warrant
Options. Pursuant to Rule 416 under the Securities Act, such
additional number of warrants to purchase shares of Common Stock
subject to the Underwriter Warrant Options are also being registered
to cover any adjustment resulting from stock splits, stock dividends
or similar transactions.
(8) Reserved for issuance upon exercise of the Underwriter Underlying
Warrants. Pursuant to Rule 416 under the Securities Act, such
additional number of shares of Common Stock subject to the Underwriter
Underlying Warrants are also being registered to cover any adjustment
resulting stock splits, stock dividends or similar transactions. The
indeterminate number of additional shares shall be issuable pursuant
to Rule 416 to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(9) The requisite fee has been paid in connection with this Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The Exhibit Index appears on page II-3 of the sequentially numbered
pages of this Registration Statement. This Registration Statement,
including exhibits contains 365 pages.
<PAGE>
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B)
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2
ITEM NO. SECTIONS IN PROSPECTUS
- --------- ----------------------
<S> <C> <C>
1 Front of Registration Statement and
Outside Front Cover of Prospectus . . . . . Facing Page; Cross Reference
Sheet; Prospectus Cover Page
2 Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . Prospectus Cover Page; Prospectus
Back Cover Page
3 Summary Information and Risk Factors. . . . Prospectus Summary; The Company;
Risk Factors
4 Use of Proceeds . . . . . . . . . . . . . . Use of Proceeds
5 Determination of Offering Price . . . . . . Risk Factors; Underwriting
6 Dilution. . . . . . . . . . . . . . . . . . Dilution and Other Comparative
Data
7 Selling Security Holders. . . . . . . . . . Description of Securities
8 Plan of Distribution. . . . . . . . . . . . Prospectus Cover Page; Underwriting
9 Legal Proceedings . . . . . . . . . . . . . Legal Proceedings
10 Directors, Executive Officers, Promoters
and Control Persons . . . . . . . Management; Principal Shareholders
11 Security Ownership of Certain
Beneficial Owners and Management. . . . . . Principal Shareholders
12 Description of Securities . . . . . . . . . Description of Securities
13 Interest of Named Experts and Counsel . . . Legal Matters; Experts
14 Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities . . . . . . . . . . . . . . Certain Relationships and Related
Transactions
15 Organization within Last Five Years . . . . Prospectus Summary; Business
16 Description of Business . . . . . . . . . . Business
17 Management's Discussion and
Analysis or Plan of Operation . . . . . . . Management's Discussion
and Analysis or Plan of Operation
18 Description of Property . . . . . . . . . . Business
19 Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . Certain Relationships and
Related Transactions
<PAGE>
20 Market for Common Equity and
Related Stockholder Matters . . . . . . . . Description of Securities
21 Executive Compensation. . . . . . . . . . . Management
22 Financial Statements. . . . . . . . . . . . Financial Statements
23 Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . Not applicable
</TABLE>
-2-
<PAGE>
SUBJECT TO COMPLETION MARCH 28, 2000
PROSPECTUS
1,600,000 SHARES
1,600,000 WARRANTS
n-GEN SOLUTIONS.COM, INC.
COMMON STOCK
WARRANTS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Prior to this offering, there has been no public market for our common
stock and warrants. The initial public offering price of our common stock
is $5.00 per share and the initial public offering price of our warrant is
$.125 per warrant. We have recently applied for the inclusion of our
common stock and warrants on the Nasdaq SmallCap Market ("Nasdaq") under
the symbols "LERN" and "LERNW."
The underwriter has an option to purchase a maximum of 240,000
additional shares of our common stock and 240,000 additional warrants, to
cover over-allotments of our shares and warrants.
INVESTING IN OUR COMMON STOCK AND WARRANTS INVOLVES RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS
------ -----------
Per Share . . . . . . . . . . . . . . $5.00 $.50
Per Warrant . . . . . . . . . . . . . $.125 $.0125
Per Share Total . . . . . . . . . . .$8,000,000 $800,000
Per Warrant Total . . . . . . . . . . $200,000 $20,000
Neither the Securities and Exchange Commission nor any other state
securities commission has approved these securities or determined that this
Prospectus is accurate or complete. Any representation to the contrary is
illegal.
DELIVERY OF THE SHARES OF COMMON STOCK WILL BE MADE ON OR ABOUT
__________, 2000 AGAINST PAYMENT IN IMMEDIATELY AVAILABLE FUNDS.
[LOGO] BARRON CHASE SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS _____________, 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . .4
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . .8
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . 26
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING. . . . . . . . . . 27
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS . . . . . . 31
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 56
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS . . . . . . . . . 57
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 57
SHARES ELIGIBLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . . . 61
TRANSFER AGENT AND REGISTRAR . . . . . . . . . . . . . . . . . . . . . 62
REPORTS TO SECURITY-HOLDERS. . . . . . . . . . . . . . . . . . . . . . 62
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . 66
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 67
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT
IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY BE
ACCURATE ONLY ON THE DATE OF THIS DOCUMENT.
-2-
<PAGE>
We were incorporated in Delaware in July 1998 under the name AAE
Education Corporation and changed our name to n-Gen Solutions.Com, Inc. in
January 2000. Our principal executive offices are located at 410 17th
Street, Suite 1940, Denver, Colorado 80202, and our telephone number is
(303) 628-0747. Our Website address is www.ngensolutions.com. The
information on our Website is not incorporated by reference into this
Prospectus. We are in the process of applying for trademarks for the names
"n-Gen Solutions" and "Learningwire." This Prospectus also contains
trademarks of other companies.
Your should rely only on the information contained in this Prospectus.
We have not authorized anyone to provide you with information different
from that contained in this Prospectus. We are offering to sell shares of
common stock and seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The information
contained in this Prospectus is accurate only as of the date of this
Prospectus, regardless of the time of delivery of this Prospectus or of any
sale of the common stock.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or
possession or distribution of this Prospectus in any jurisdiction where
action for that purpose is required, other than in the United States. You
are required to inform yourselves about and to observe any restrictions
relating to his offering and the distribution of this Prospectus.
-3-
<PAGE>
PROSPECTUS SUMMARY
n-GEN SOLUTIONS.COM, INC.
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE
INFORMATION YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK AND
WARRANTS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING IN THE CONSOLIDATED FINANCIAL STATEMENTS
BEFORE MAKING AN INVESTMENT DECISION.
CONTROL OF OUR COMPANY BY INSIDERS
After the offering, seven of our Company's Directors, one of whom is
Robert D. Arnold, our Chairman and Chief Executive Officer, will
beneficially own approximately 64.8% of our outstanding Common Stock. As a
result, these Directors will have, among other rights, the ability to
control the election of directors and approve any corporate actions that
must be submitted for a vote of shareholders.
OUR BUSINESS
We develop, design, deliver and provide interactive, computerized
learning environments to public, private and charter educational
institutions, government agencies, corporations and individuals. Our
digital classrooms combine the dynamics of the Internet and utilize the
latest technology including audio, video and multi-media capabilities
suitable for teaching on a one-on-one basis or in the context of a long
distance learning solution. We facilitate the educational experience of
each student by providing relevant meaningful subject matter content
personalized by school administrators to meet each student's educational
needs and developmental goals.
We believe our learning solution gives students the ability to:
* Access meaningful content from specially-designed data bases;
* Provide the platform for distance learning and making available
on-line course supplements;
* Learn and interact with instructors who personalize the
curriculum to each student's needs;
* Utilize state-of-the-art technology and software to enhance the
learning experience; and
* Collaborate and communicate with classmates in completing
coursework or developing multi-media presentations.
-4-
<PAGE>
We are also developing an on-line e-commerce site to provide our
customers the opportunity to purchase a broad assortment of educational
products, software and office and school supplies. Our hope is that we can
provide an easy-to-use, single, centralized source for purchasing products
designed to meet the immediate needs of school purchasing agents, school
administrators and individuals in the educational community. We anticipate
the launch of our Website in Spring of 2000.
Key elements of our on-line strategy include:
* continued development of our Website,
* aggressive marketing and sales efforts to familiarize our
existing customer base with the convenience of on-line
purchasing,
* building brand awareness and product diversity, and
* insure competitive pricing of products.
We may be unable to achieve these goals, as we have not yet launched
our Website and to date have not sold any products on-line. We are also
dependent on the August Group to develop and maintain our Website and
dependent on contractual relationships with three major suppliers of our
products.
OFFICES
Our principal executive offices are located at 410 17th Street, Suite
1940, Denver, Colorado 80202, and our telephone number is (303) 628-0747.
The Company's operations office is located at 8245 West I-25, Frontage
Road, Erie, Colorado 80516.
Unless the context otherwise indicates, the terms "Company," "N-Gen,"
"we," "us," and "our" as used in the Prospectus, refer to n-Gen
Solutions.Com, Inc., a Delaware corporation (formerly known as AAE
Education Corporation).
RISK FACTORS
Investing in our Common Stock and Warrants involves a very high degree
of risk. Before investing, you should consider the following risks and the
risks set forth and information included in this Prospectus. Risk Factors
of this offering include:
* limited operating history
* control by insiders
* history of losses
* changing business model
-5-
<PAGE>
* highly competitive market
* changing technology
* governmental regulation
* e-commerce model difficult to evaluate
-6-
<PAGE>
THE OFFERING
Common Stock Offered . . . . . . . . . . 1,600,000 Shares(1)
Warrants Offered . . . . . . . . . . . . 1,600,000 Warrants(1)
Common Stock Outstanding:
Before the Offering . . . . . . . . . . 5,940,000 Shares(2)
After the Offering. . . . . . . . . . . 7,540 000 Shares(2)
Warrants Outstanding:
Before the Offering . . . . . . . . . . None
After the Offering. . . . . . . . . . . 1,600,000
Estimated Net Proceeds . . . . . . . . . $6,884,000
Use of Proceeds. . . . . . . . . . . . . We expect that the net proceeds will
be approximately $6,884,000. We
expect to use these net proceeds
principally for operational needs, the
purchase of capital equipment,
expansion of our marketing and sales
capabilities, mergers and acquisitions
and working capital and general
corporate needs.
Dividend Policy. . . . . . . . . . . . . We currently intended to retain any
future earnings to fund development
and growth of our business.
Therefore, we do not currently
anticipate paying dividends on our
Common Stock.
Proposed Nasdaq Symbols:
Common Stock. . . . . . . . . . . . . . "LERN"
Warrants. . . . . . . . . . . . . . . . "LERNW"
Internet Website Address . . . . . . . . www.ngensolutions.com
________________________
(1) Our Underwriter has an over-allotment option to purchase an additional
240,000 shares and 240,000 warrants solely to cover over-allotments.
Our Underwriter will have 45 days from the effective date of this
Prospectus to exercise this option.
(2) At this time, we have no outstanding options or warrants, however, the
1,600,000 Warrants being offered hereby when and if exercised will
increase our outstanding shares by 1,600,000, in addition to the
amount stated. The Underwriter is also entitled to warrants to
purchase additional shares as more fully described herein.
-7-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
STATEMENT OF EARNINGS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS JULY 13, 1998
------------------ ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . $1,498,815 $ 0 $3,927,353 $ 0
Operating (loss) . . . . . . . . $ (134,447) $ (148,002) $ (767,408) $ (244,254)
(Loss) before Income taxes. . . $ (187,582) $ (148,002) $ (850,954) $ (238,124)
Net (loss) . . . . . . . . . . . $ (187,582) $ (148,002) $ (850,954) $ (238,124)
(Loss) per share . . . . . . . . $ (0.04) $ (0.04) $ (0.18) $ (0.06)
Basic and dilutive weighted
average shares Outstanding . . . 5,011,882 3,994,561 4,690,515 3,994,561
</TABLE>
The following table indicates a summary of our balance sheet at our
year end September 30, 1999 and at the three months ended December 31, 1999
as described below:
BALANCE SHEET DATA:
AT
DECEMBER 31, AT
1999 SEPTEMBER 30,
(UNAUDITED) 1999
----------- ----
Working (deficit) . . . . . . . . . . $ (609,927) $ (562,876)
Total assets. . . . . . . . . . . . . $2,389,654 $2,570,539
Total liabilities . . . . . . . . . . $2,891,279 $3,044,786
Stockholders' (deficit) . . . . . . . $ (501,625) $ (474,247)
-8-
<PAGE>
RISK FACTORS
Investing in our Common Stock and Warrants involves risk. You should
carefully consider the risks and uncertainties described below before
making an investment decision. These risks and uncertainties are all
material risks and uncertainties which may adversely affect our business.
We have included every material risk and uncertainty of which we are aware.
Additional risks and uncertainties that we do not presently know about or
that we currently believe are not material may also adversely impact our
business operations. If any of the following risks or uncertainties
actually occur, our business, financial condition or results of operations
may be materially adversely affected. In this event, the trading price of
our Common Stock may decline, and you may lose all or part of your
investment. This Prospectus also contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ from those
described in the forward-looking statements. This may occur because of the
risks described below and elsewhere in this Prospectus.
RISKS RELATING TO OUR DIGITAL CLASSROOM BUSINESS
WE HAVE A LIMITED OPERATING HISTORY. Our limited operating history in
the digital classroom industry hinders our ability to evaluate its business
and prospects. Our revenues to date for this line of business may not be
indicative of the Company's future operating results. As a relatively
young company in the new and rapidly changing market for education
services, the Company faces numerous risks and uncertainties. Some of these
risks relate difficulties we may experience in our efforts to:
* maintain and increase our school customer base;
* implement an evolving and unproven business model;
* compete favorably in a highly competitive market;
* expand our service offerings;
* attract, motivate and retain qualified employees;
* access sufficient capital to support our growth;
* build an infrastructure to effectively handle our growth; and
* upgrade and enhance our technologies.
We may not be successful in addressing these risks. Our failure to do
so would have a material adverse effect on our business and financial results.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY. Because
of our limited operating history and the emerging nature of the digital
classroom environment, we may be unable to accurately forecast our
revenues. The sales cycle for our market varies widely.
-9-
<PAGE>
Accordingly, it is difficult to predict the timing of particular sales, the
rate at which technological classrooms will be implemented and/or the
number of students who will utilize our technology. The cancellation or
delay of even a small number of implementations could cause our revenues to
fall short of projections. Since most of our costs are fixed and are based
on anticipated revenue levels, small variations in the timing of revenue
recognition could cause significant variations in operating results from
quarter to quarter. Sales and operating results may fluctuate from quarter
to quarter depending on:
* our ability to successfully install classrooms;
* the amount and timing of operating costs and capital expenditures
relating to expansion of our business;
* our introduction of new or enhanced services and products and
similar introductions by the Company's competitors;
* the budgetary cycles of educational institutions;
* the seasonality inherent in the academic calendar;
* our ability to upgrade and develop our systems and
infrastructure;
* our ability to attract, motivate, and retain personnel in a
timely and effective manner;
* technical difficulties in delivering our services;
* governmental regulation; and
* general economic conditions.
OUR SALES CYCLE IS LENGTHY. The sales cycle between initial customer
contact and signing of a contract varies widely, reflecting differences in
our customers' decision-making processes and budget cycles. Typically our
customers are large institutions, where a decision to implement our
technological concept may involve a cumbersome process, with multiple
individuals and groups participating in the decision. Our customers
typically conduct extensive and lengthy evaluations before committing to
our system. Delays in the sales cycle can result from, among other things,
changes in an institution's budget, the need for approval from both the
customer's administration and faculty and the need to educate the customer
as to the potential applications of and cost savings associated with our
services. Generally, we have little or no control over these factors,
which may cause a potential customer to favor a competitor's solution or to
delay or forgo purchases altogether. As a result, we may not be able to
forecast the timing and amount of specific sales and resulting revenue. The
delay in, or failure to complete planned transactions could cause our
financial results to vary significantly from period to period.
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WE MAY FAIL TO MEET OUR CUSTOMERS' NEEDS. We must accurately
determine the features and functionality required by educational
institutions and students and design and implement technological learning
solutions that meet those requirements in a timely and efficient manner.
We may not be able to accurately determine customer requirements or deliver
features and functions that will completely satisfy out customers' demands.
Our failure to determine and address customer needs in a timely and
efficient manner would have a materially adverse effect on our business and
financial results.
OUR MODEL OF TECHNOLOGICAL LEARNING MAY NOT BE BROADLY ACCEPTED. Some
academics and educators are opposed to our digital classrooms and software
and their use in education in principle. They have expressed concerns
regarding the perceived loss of control over the education process that can
result from a digital environment. Some of these critics have the capacity
to influence the market for our services. Their opposition could have a
materially adverse impact on our business and financial results. Further,
the growth and development of the market for digital classrooms and their
use in long distance learning may prompt calls from some within the
academic community for more stringent protection of intellectual property
associated with course content. This may impose additional burdens on
companies offering on-line learning. The adoption of any additional laws
or regulations may impair our growth; which could have a materially adverse
effect on our business and financial results.
OUR MARKET TO PROVIDE TECHNOLOGICAL LEARNING SOLUTIONS AND ITS
TECHNOLOGY IS HIGHLY COMPETITIVE. Our most intense competition is with the
information technology departments in certain schools themselves. Such in-
house information technology departments may seek to develop digital
learning capabilities internally rather than using an outsourced provider.
In addition, we face significant competition from a variety of companies
including: (1) other companies which seek to offer a complete solution
including software and services, (2) software companies with specific
products for the education market, (3) systems integrators and (4) hardware
vendors. Many such competitors are better capitalized and more well
recognized firms. The competitive pressures we face could have a material
adverse effect on our business and financial results.
WE DEPEND ON KEY SUPPLIERS AND SERVICE PROVIDERS. We depend upon a
limited number of suppliers for some of our products. We also depend upon
a limited number of service providers for delivery of our products. If
these suppliers or service providers are unable to provide the products or
services that we require or significantly increase their costs, this could
impair our ability to deliver our products on a timely and profitable basis
and could have a material adverse effect on our business, financial
condition and results of operations.
OUR MARKET FOR LEARNING SOFTWARE AND SERVICES IS CHARACTERIZED BY
RAPID TECHNOLOGICAL CHANGE. The market for our software and services is
characterized by rapid technological change, changes in customer demands
and evolving industry standards. The introduction of services embodying
new technologies and the emergence of new industry standards can render
existing services obsolete and unmarketable. To succeed, we must address
the increasingly sophisticated needs of higher education by improving our
software and services to keep pace with requirements. We may not be able
to do so successfully. Our future success may depend on our ability to do
the following:
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* Both license and internally develop leading technologies useful
in our business;
* Enhance our existing services;
* Develop new services and technologies that address the
increasingly sophisticated and varied needs of our prospective
customers; and
* Respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
GROWTH IN OUR DISTANCE LEARNING BUSINESS DEPENDS UPON GROWTH OF
STUDENT POPULATIONS AND INCREASES IN PER-STUDENT SCHOOL EXPENDITURES. Our
growth strategy and profitability depend upon growth in the student
population and expenditures per student in public and private education.
The level of student enrollment is largely a function of demographics,
while expenditures per student are also affected by government budgets and
the prevailing political and social attitudes towards education. A
significant and sustained decline in student enrollment and/or expenditures
per student could have a material adverse effect on our business, financial
condition and results of operation.
OUR LEARNING CLASSROOMS MAY BE VULNERABLE TO SECURITY RISKS. Our
success depends on our ability to provide superior internal and external
network security protection. Security risks of improper access may include
pirating of course content, unauthorized disclosure of confidential
information, and insertion of improper material into the content we provide
to users. Further, we may not be able to prevent unauthorized disruptions
whether caused unintentionally or caused by computer "hackers." These
disruptions may harm our customers and result in liability to us. Our
failure to prevent such disruptions would have a material adverse effect on
our business, our reputation and financial results.
RISKS RELATING TO OUR E-COMMERCE BUSINESS
OUR E-COMMERCE BUSINESS IS DIFFICULT TO EVALUATE, BECAUSE WE HAVE BEEN
OPERATING UNDER OUR REVISED BUSINESS MODEL FOR LESS THAN SIX MONTHS. We
have a very limited operating history upon which you can evaluate our
e-commerce business. We have not launched our Website, nor have we begun
selling educational products on-line. In November 1999, we began diverging
our business model to on-line sales of educational products. From that
period to the present, we have invested substantial resources to achieve a
launch of our e-commerce Website in the second quarter of 2000.
You must consider the challenges, risks and difficulties frequently
encountered by early stage companies using new and unproven business models
in new and rapidly evolving markets. Some of these challenges, which are
even of greater magnitude in e-commerce markets, include:
* Challenges relating to our ability to manage our
supplier/distributor relationships;
* Challenges relating to our ability to expand our customer base;
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* Challenges relating to our ability to continually upgrade the
functionality and ease of use of our Website, while remaining
"on-line;"
* Challenges relating to our ability to develop and augment
transaction-processing systems capable of managing a widely
fluctuating and possibly quite large volume of transactions; and
* Challenges relating to interaction of our Website functionality
with the requirements of our fulfillment infrastructure and
inventory management systems.
WE DEPEND UPON THIRD PARTIES TO MANAGE EACH OF THE CRITICAL ISSUES
RELEVANT TO OUR SUCCESS IN OUR E-COMMERCE STRATEGY. Management of each of
the challenges listed above, upon which we depend for success in our
e-commerce strategy depends on performance by third party service providers,
third party software providers, and third party fulfillment infrastructure
providers. Each of our third party service providers is itself in the
process of evolving to develop greater capability to address our e-commerce
initiatives and those of other businesses. Innovation in the Internet
based e-commerce business is crucial to the success of our strategy. We
have elected to enter into critical business relationships with providers
whom we believe to be capable and inventive, regardless of their
inexperience or lack of long-term business success. While we depend upon
such third parties to handle critical issues in our e-commerce business, we
would have little recourse and few alternatives were any such third party
to fail to perform in a timely or effective manner.
WE EXPECT TO EXPERIENCE CONTINUING AND INCREASING OPERATING LOSSES IN
OUR E-COMMERCE BUSINESS, AND WE CANNOT BE CERTAIN THAT OUR BUSINESS
STRATEGY WILL BE SUCCESSFUL OR THAT WE WILL SUCCESSFULLY ADDRESS THESE AND
OTHER CHALLENGES, RISKS AND UNCERTAINTIES. We expect operating losses and
negative cash flow to continue for the foreseeable future. We anticipate
our losses will increase significantly from current levels, because we
expect to incur significant additional costs and expenses related to:
* brand development, advertising, marketing and promotional
activities, including product discounts;
* expansion of our supplier/distributor relationships;
* continued development of our Website, transaction-processing
systems, fulfillment capabilities and network infrastructure;
* expansion of our product offerings and Website content; and
* employment of additional personnel as our business expands.
MARKETING COSTS REQUIRED TO ATTRACT ON-LINE CUSTOMERS MAY EXCEED
LEVELS WHICH PERMIT US TO BECOME PROFITABLE. Our ability to become
profitable depends on our ability to generate and sustain substantially
higher revenue, while maintaining reasonable expense levels. To achieve
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higher revenues, we intend to increase significantly our spending on
marketing and promotional activities. These advertising and marketing
efforts may not be effective in converting a large number of customers from
traditional shopping methods to on-line shopping for educational products
and services or effective in attracting on-line customers to our Website.
In addition, we are obligated to pay commissions, based on a percentage of
revenue achieved as a result of click-throughs, to companies with which we
have on-line marketing relationships. Our on-line marketing relationships
will initially be at a higher per-unit cost while our volumes are small,
but will be at a lower per unit cost when volumes increase. As is
ordinarily the case with on-line marketing relationships, our
advertisements and marketing opportunities may be cut, or even eliminated,
if our marketing relationship partner does not achieve revenue goals out of
the relationship.
WE MAY SELECT ON-LINE MARKETING RELATIONSHIPS WITH PARTIES FROM WHICH
OUR SITE DERIVES INSIGNIFICANT TRAFFIC. Our strategy to establish on-line
marketing relationships is to focus on sites and opportunities where we are
likely to be noticed by parents and educators. Many of these sites are
themselves in the development stage or may currently have only limited
functionality and relatively low numbers of site visits. Accordingly, our
click-throughs from such sites may be limited, and may not justify the cost
of our continued presence in the site, either from the host's standpoint,
or ours.
OUR MARKETING STRATEGY TO OFFER VOLUME-BASED PREMIUMS AND BENEFITS TO
SCHOOLS AND SCHOOL-BASED ORGANIZATIONS MAY NOT SUCCEED. We intend to
permit schools and school-based organizations to earn credits for future
purchases, based upon the volume of transactions resulting from their
referrals. After expending substantial effort to develop the software
protocols to implement this program, we recently learned that several other
on-line retailers have begun implementing marketing strategies which seek
referral based customers through school based organizations, and offer
products and cash to school based organizations based upon the volume of
referral business. At least one of these programs has been announced
through parent mailers sponsored by parent organizations in technologically
proficient neighborhoods. Although we are not aware of any other
educational products enterprise currently using such a marketing strategy,
there can be no assurance that our competitors will not employ such a
strategy, or even achieve first mover status in this marketing category.
WE MAY NOT BE ABLE TO RAPIDLY ATTRACT A HIGH VOLUME OF CUSTOMER
BUSINESS TO OUR E-COMMERCE SITE, WHICH WOULD INHIBIT OUR REVENUE GROWTH.
If we do not attract, service and retain a high volume of on-line customers
at a reasonable cost, we will not be able to generate our revenues or
achieve profitability. Although we intend to increase significantly our
expenditures for marketing and promotional activities, these efforts may
not be effective in converting a large number of customers from traditional
shopping methods to on-line shopping for educational products and services
or attracting on-line customers to our Website. We do not know if the
forms of marketing and promotional activities that we intend to implement
will have the desired result. Even if we are successful at attracting
additional on-line customers to our Website, we cannot predict whether
their per visit expenditures will be sufficient to meet our costs. Even if
we attract sufficient numbers of customers, and their order volume becomes
substantial, we expect it will take several years to adequately build our
customer base for long-term success. Factors that could prevent us from
attracting and retaining customers include:
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* Lack of customer awareness of our Website;
* Customer concern about the security of on-line transactions and
privacy of information customers supply;
* Shipping charges which are invisible to the consumer, when
shopping at traditional stores;
* Longer delivery times associated with Internet orders, as
compared to the immediate receipt of products at a traditional store;
* Pricing that does not meet customer expectations or prices
offered by our competitors;
* Product damage from shipping and improper shipments arising from
incorrectly filled orders;
* Delayed response to customer service requests; and
* Difficulty in returning or exchanging orders.
OUR MARKET IS SEASONAL, AND MAY CAUSE OUR OPERATING RESULTS TO
FLUCTUATE, FROM QUARTER TO QUARTER. The market for educational books, and
technology products, and software is highly seasonal due to the academic
calendar and holiday season. In addition, Internet usage generally
declines in the summer. Accordingly, we expect to experience significant
seasonal fluctuations in our revenue. Excessive costs per unit sold by our
suppliers may result from excess capacity, but lost sales and reputation
may result from insufficient capacity. If for any reason our revenue is
below expectations during the fourth quarter, our annual operating results
would be adversely affected.
Our limited operations during last year's holiday season provide us
with no meaningful comparative data indicating the volume or timing of
holiday orders. We may not accurately predict appropriate inventory levels
or staffing needs. In the future, our seasonal sales patterns may become
more pronounced, may strain our personnel and fulfillment relationships and
may cause a shortfall in revenue as compared to expenses in a given period.
These seasonal patterns will cause quarterly fluctuations in our operating
results and could adversely affect our financial performance.
OUR ON-LINE ADVERTISING OPPORTUNITIES MAY BE ADVERSELY AFFECTED BY THE
SEASONALITY OF OUR BUSINESS. The seasonality of our business may cause our
on-line advertising opportunities to be severely limited as a result of the
decreased volume of click-through activity during our off-season.
Typically, Internet portals and sites with substantial site-visit volume
sell advertising to on-line merchants on the basis of a fee per click-through,
plus a percentage of participation in the resulting sales revenue. During
our off-season, such click-throughs and sales-based revenue will be diminished.
Successful advertising sites ordinarily re-shuffle their advertising openings
every
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month, or every quarter, to seek increasing revenues from the finite number
of click-through buttons and banners reasonably available on the site. Any
business, such as ours, which is markedly seasonal is at a serious
disadvantage, not only during the off-season, but even during its busy
periods, in its competition to obtain valuable advertising slots. We also
face serious problems in accessing advertising opportunities as a result of
the coincidence of our busy period with that of many other businesses which
experience a high proportion of their revenue in the fourth calendar
quarter, and accordingly seek on-line advertising slots on a seasonal basis.
OUR BUSINESS RELIES UPON OUR ABILITY TO OBTAIN SUFFICIENT QUANTITIES
OF QUALITY MERCHANDISE ON ACCEPTABLE COMMERCIAL TERMS. Vendors may stop
selling merchandise to us and we may not be able to secure identical or
comparable merchandise from alternative vendors in a timely manner or on
acceptable terms. From time to time, we expect to experience difficulty in
obtaining sufficient quantities of certain products. If we cannot supply
our products to consumers at acceptable prices, we may lose sales and
market share as consumers make purchases elsewhere. Further, an increase in
supply costs could increase operating losses beyond current expectations.
MANUFACTURERS MAY MARKET DIRECTLY TO OUR CUSTOMERS ON THE INTERNET.
Our Internet based e-commerce business strategy involves on-line re-
intermediation, in the sense that we are offering our on-line market as an
alternative to the retail marketplaces where our customers have
traditionally purchased educational products. Accordingly, to a certain
extent, we depend upon alteration of traditional habits regarding
acquisition of educational products. However, some analysts suggest that
the Internet will result in a complete dis-intermediation, whereby
customers directly access manufactured goods from the manufacturer, without
use of any intermediary. Although most manufacturers, including those
which manufacture the educational products which we market, do not offer
their goods for sale in sufficiently small quantities to directly market to
the consumer, some manufacturers have begun to engage in direct marketing,
using the Internet to attract customers. Should educational products
manufacturers directly compete with us in offering consumer quantities of
their products on the Internet, their pricing structure may eliminate our
ability to compete effectively in this market, and have a material adverse
effect upon our business and revenues.
IF WE ARE UNABLE TO RETAIN OR ACQUIRE THE NECESSARY DOMAIN NAMES, OUR
BRAND AND REPUTATION COULD BE DAMAGED AND WE COULD LOSE CUSTOMERS. We
currently hold the Web domain name Learningwire.com(TM) as well as several
other variations of this domain name. The acquisition and maintenance of
domain names generally is regulated by governmental agencies and their
designees. In the United States, the National Science Foundation has
appointed Network Solutions, Inc., and recently several others, as the
current registrars for the ".com," ".net," and ".org" generic top-level
domains. The regulation of domain names in the United States and in
foreign countries is subject to change in the near future. 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 is unclear. 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. In addition, other parties hold
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domain names that are similar to ours and any confusion of our Website with
another party's could diminish our brand.
WE MAY FAIL TO COMPETE EFFECTIVELY IN OUR MARKET. The on-line market
for educational products is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future. Barriers
to entry are minimal, and current and new competitors can launch new
Websites at a relatively low cost. In addition, the markets for books, and
software in general, including those for educational products, are very
competitive and highly fragmented, with no clear dominant leader and
increasing public and commercial attention.
Our competitors can be divided into several groups, including:
* mass market retail chains;
* mass market book sellers, toy stores and computer hardware and
software stores;
* traditional regional or local bookstores, toy stores and computer
and software stores;
* on-line book sellers, toy sellers and computer software sellers;
and
* educational catalog distributors.
Many of our current and potential competitors have or may have, longer
operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other
resources than we do. Many of these current and potential competitors can
devote substantially greater resources to marketing and promotional
campaigns and Website and systems development than are available to us.
Their financial strength could prevent us from increasing market share. In
addition, larger, more well-established and more well-financed entities are
acquiring, investing in and forming joint ventures with on-line competitors
and publishers or suppliers of educational books, toys and games, and
software, as the use of the Internet increases.
Our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than are available to
us. Traditional store-based retailers also enable customers to see, feel
and return products in a manner that is not possible over the Internet.
Some of our competitors have significantly greater experience in selling
educational products.
Our strategy to achieve market share is based in part upon our
reputation with educational institutions, but our reputation may not be
easily transferable to the on-line educational product marketplace. Many
of the institutions with which we have worked have little influence upon
the on-line market choices of their participants whom we seek as customers.
Additionally, within the institutions we have served there may be little
awareness of our identity outside the information technology department,
facilities department or purchasing department.
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WE MAY NOT ACHIEVE "FIRST MOVER" STATUS. Analysts of Internet based
e-commerce businesses have told us that "first mover" status is critical to
achieve the high volume of traffic and brand identification which marks
successful Internet based businesses. First mover status results from
being the first business in a specific on-line market, which provides the
functionality, ease of use and product access required by customers. We
are not aware of any other on-line business which has achieved "first
mover" status or market dominance in the on-line market we seek to enter.
However, several competitors in the educational product market are
currently seeking entry to the on-line market, and more may attempt to go
on-line prior to our launch. Should any of these alternatives achieve
first mover dominance before we launch our on-line service or before our
on-line service establishes a reputation as first mover, an important
market advantage will have been forfeited, with potential material adverse
effects on our business and future results.
WE MAY NOT ACHIEVE THE NECESSARY OPERATIONAL CAPABILITIES TO GO ON-LINE
WITH A CAPABILITY TO EFFECT INTERNET BASED E-COMMERCE TRANSACTIONS. We have
expended substantial resources to achieve an Internet based business capable
of effecting on-line transactions to sell educational products. However, an
element of uncertainty remains regarding our ability to actually go on-line
with this business. There are many anecdotes regarding businesses which
were either unable to "go live," or which were required to expend substantial
additional sums to achieve on-line operational protocols which actually
permitted effective commercial use of their sites. Until we "go live," in
early 2000, significant uncertainty will remain regarding the operational
capabilities which we are building into our site.
WE MAY BE UNABLE TO STRIKE AN ATTRACTIVE BALANCE BETWEEN INNOVATION
AND PREDICTABILITY, TO ATTRACT CUSTOMERS AND REPEAT VISITS TO OUR SITE.
Our success as an Internet-based e-commerce business will depend upon our
having what is referred to as a "sticky site," which is a site to which
customers will return to make purchases again and again. The "stickiness"
of our site may depend upon ease of use, availability of significant
breadth of inventory, advantageous pricing, and useful non-commercial
content. The "stickiness" of our site will also depend upon whether we
strike the right balance between innovation and predictability which will
keep our site "fresh" to repeat customers, and yet permit them to conduct
transactions in a predictable fashion.
HIGH QUALITY INTERNET SITE CONTENT MAY BE UNAVAILABLE OR VERY COSTLY.
The "stickiness" of our Website may depend, in part, on our ability to make
high quality education content available on our site. Use of site content,
as a means to attract repeat customers to a Website and to build on-line
purchasing communities, is a strategy which has been employed by medical
product sites, with varying degrees of success. The experience of medical
product sites suggests that content may become progressively more
expensive, as the consumers using a site require ever-increasing
professional credentials for site content providers. Many medical product
sites have entered into site content agreements with well-known
professionals, universities and research centers, all of which require
substantial payments, including cash and securities of the Internet-based
business. In addition, many of the content provider relationships require
that the product sales site offer below market advertisement opportunities
for the other businesses, for-profit Websites and not-for-profit Websites
of the content providers. These developments have not occurred in our
educational product business. However, both medicine and education are
areas where professional credentials of information providers are of great
significance to
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consumers. Accordingly, content providers for our educational product site
may demand increasing financial benefits from the relationship, as we
develop our business. Any inability to meet the demands of content
providers may diminish our brand, and adversely affect our relative ability
to compete effectively in our market.
WE WILL BE REQUIRED TO UNDERGO RISKY AND COSTLY INNOVATIONS TO
ACCOMMODATE ONGOING CHANGES IN THE MANNER IN WHICH INTERNET BASED BUSINESS
TRANSACTIONS ARE CONDUCTED. Fast-paced, ongoing development of the Web
infrastructure, and rapid change in the manner in which on-line
transactions are effected, will result in ever evolving requirements to
introduce new elements and functionalities to our site protocols. These
developments, in conjunction with our use of third party service providers,
will involve substantial financial investment, intellectual capital and
Internet business management skills. Such financial investment,
intellectual capital and Internet business management skills may be
unavailable to us, unless we have achieved a degree of success in our
business model, which cannot currently be predicted. In addition, assuming
that we have established effective on-line operational protocols, each
innovation which we adopt will involve a degree of risk that a portion or
all of our then existing Web capability will not satisfactorily interact
with the innovation. To maintain our Web presence, once we "go live," we
will be required to effect such innovations without "going dark." In
short, we must become able to make substantial and wide-ranging changes in
the hardware, software, internal protocol and external environment of our
Internet-based e-commerce business, while remaining available for on-line
purchases by our customers.
WE MAY BE UNABLE TO MEET THE SECURITY REQUIREMENTS OF OUR MARKET.
While every Internet-based e-commerce business must satisfy its customers
that their credit, invoicing, delivery address and similar information is
secure, our business is anticipated to be subject to especially high
security requirements, associated with the orientation of our site toward
youth consumer educational products and educational institutions. Our
market involves persons who are in a protected class. Our market also
involves persons and institutions that have been particular targets of
focused activities of hackers and on-line criminals. Accordingly, our
security needs should be considered substantial. Unfortunately, we are
aware that site content has been altered and secure information compromised
on many high security government Websites, weapons procurement sites, and
law enforcement sites. Accordingly, we can offer no assurance that a
hacker or criminal will not compromise the security of our site, or that
neither we nor a third party service or content provider will employ an
unsuitable individual who may compromise our security. We have acquired
the use of a secure server farm, and have insured against losses resulting
from compromise of security, but we cannot prevent a breach of our
security. Any loss of confidence in the security of our site on the part
of our customers may cause a material adverse effect on our business and
operations.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR SUCCESS DEPENDS UPON THE CONTINUED DEVELOPMENT AND MAINTENANCE OF
THE WEB INFRASTRUCTURE. Our success depends, in large part, upon the
maintenance of the Web infrastructure as a reliable network with the speed,
data capacity, and security demanded by consumers. We depend as well on
timely development of enabling products such as high speed modems, to
provide reliable Web access and services. In addition, our Internet based
business
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will depend upon improved content generally available on the Web, as well
as on our site. Currently, Internet access is exciting, but involves
significant frustration for most consumers. Unless there are substantial
improvements in reliability and ease of access, Internet based business
generally, and our business in particular, will not achieve our goals.
OUR BUSINESS MAY EXPERIENCE RISKS ASSOCIATED WITH INCREASED VOLUME OF
WEB-BASED OPERATIONS AND THE CHANGES IN THE STRUCTURE OF THE WEB RESULTING
FROM INCREASED VOLUME. We depend on a single company to maintain the
operational integrity of our network backbone. Increases in the number of
users, frequency of use or bandwidth requirements may strain the Web
infrastructure and degrade the performance and reliability of the Web.
Furthermore, the Web has experienced a variety of outages and delays as a
result of damage to portions of its infrastructure. Future outages or
delays could adversely affect our on-line campuses, as well as our e-commerce
business.
RESOLUTION OF LEGAL ISSUES INVOLVING REGULATION OF E-COMMERCE AND
INTERNET BASED BUSINESS ACTIVITIES MAY ADVERSELY AFFECT OUR BUSINESS.
Critical issues concerning the commercial use and government regulation of
the Internet (including security, cost, ease of use, access, intellectual
property ownership and other legal liability issues) remain unresolved and
could materially and adversely impact the growth of the Internet and our
business and financial results. A continued atmosphere of uncertainty
regarding intellectual property rights on the Web may inhibit the
willingness of participants to make the substantial investments required to
enhance reliability, security and ease of use of both the Web generally,
and e-commerce sites such as ours in particular. On the other hand,
further development of Web infrastructure and intellectual property law
governing Internet access may result in further requirements to obtain
intellectual property rights to operate a viable Internet based business.
The costs to obtain such rights may adversely affect our ability to become
profitable.
COSTS AND COMPETITIVE DISADVANTAGES ASSOCIATED WITH CONNECTIVITY WITH
MAJOR INTERNET SERVICE PROVIDERS MAY IMPAIR OUR DEVELOPMENT. Popular and
powerful Internet service providers, web-browsers, network access companies
and portal operations, such as America Online, Yahoo, Lycos and Microsoft,
may promote our competitors or charge us a substantial fee for promotion
and for connection to our Website. Either of these developments could
adversely affect our business.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION OF THE INTERNET AND
OTHER LEGAL UNCERTAINTIES WHICH COULD NEGATIVELY IMPACT OUR OPERATIONS.
Law and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The United States Congress
recently enacted Internet laws, including laws relating to children's
privacy, the transmission of sexually explicit material and taxation of
Internet-based enterprises. As directed by Congress in the Children's
Online Privacy Protection Act, also know as COPPA, the Federal Trade
Commission recently adopted regulations, effective April 21, 2000,
prohibiting unfair and deceptive acts and practices in connection with the
collection and use of personal information from children under 13 years old
on the Internet.
In addition, the European Union ("EU") recently enacted its own
privacy regulations. The European Union Directive on the Protection of
Personal Data, which became effective in
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October 1998, fosters electronic commerce by establishing a stable
framework to ensure both a high level of protection for private individuals
and the free movement of personal data within the European Union. The EU
and the U.S. Department of Commerce are currently negotiating an agreement
under which the privacy policies of American businesses may be deemed to be
adequate under the EU Directive. Until such time as an agreement is
reached, the EU has voluntarily agreed to a moratorium on enforcement of
the EU Directive against U.S. businesses. Although the Company received
less than 1% of revenues from outside of the United States in the nine
months ended September 30, 1999, the European legislation and its adoption
via any agreement could adversely affect our ability to expand our sales
efforts to Europe by limiting how information about us can be sent over the
Internet in the EU and limiting our efforts to collect information from
European users.
The U.S. Omnibus Appropriations Act of 1998 places a moratorium on
taxes levied on Internet access from October 1, 1998 to October 21, 2001.
However, states may place taxes on Internet access, if taxes had already
been generally imposed and actually enforced prior to October 1, 1998.
States which can show they enforced Internet access taxes prior to October
1, 1998 and states after October 21, 2001 may be able to levy taxes on
Internet access resulting in increased cost to access to the Internet,
resulting in a material adverse effect on our business.
The laws governing the use of the Internet, in general, remain largely
unsettled, even in areas where there has been some legislative action. It
may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of the market for on-line
commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad. This occurrence may impose
additional burdens on companies conducting business on-line by limiting how
information can flow over the Internet and the type of information that can
flow over the Internet. The adoption or modification of laws or
regulations relating to the Internet could adversely affect our business.
Because we receive a significant amount of orders as a result of e-mail
advertising, new regulations affecting the use of unsolicited e-mail
advertising would impair our marketing efforts.
OUR REVENUES COULD DECREASE IF WE BECOME SUBJECT TO SALES AND OTHER
TAXES. We do not currently collect sales or other similar taxes for
physical shipments of goods into states. However, one or more local, state,
federal or foreign jurisdictions may seek to impose sales tax collection
obligations on us. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet
and certain states have taken measures to tax Internet-related activities.
Although Congress recently placed a three-year moratorium on new state and
local taxes on Internet access or on discriminatory taxes on electronic
commerce, existing state or local laws were expressly excepted from this
moratorium. Further, once this moratorium expires, some type of federal
and/or state taxes may be imposed upon Internet commerce. The moratorium
is presently scheduled to expire on October 20, 2001. Such legislation or
other attempts at regulating commerce over the Internet may substantially
impair the growth of commerce on the Internet and, as a result, adversely
affect our opportunity to derive financial benefit from such activities.
If one or more states or any foreign country successfully asserts that
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we should collect sales or other taxes on a sale of products or services,
our business and results of operations may suffer a material adverse effect.
RISKS RELATING TO OUR COMPANY
WE DEPEND UPON OUR KEY PERSONNEL AND MAY EXPERIENCE DIFFICULTY
ATTRACTING AND RETAINING KEY EMPLOYEES. Our success depends on the
continued service of our key management personnel. At this time, we do not
carry life insurance policies on any of our key management personnel. The
loss of services from one or more of these persons would have a material
adverse effect on our business, operations and financial results. Our
success also depends on our ability to attract, motivate and retain highly-
skilled managerial, sales, marketing, customer service and support and
technology development personnel. Competition for such personnel in our
business is intense. Any significant success which we achieve as an
Internet-based e-commerce business will only enhance the reputation of and
alternatives available to our key personnel in that segment of our
business. Currently, e-commerce personnel are in very high demand, and
receive frequent offers of alternative employment, with salaries, stock
options and other benefits, which we may not be able to match. We may not
be able to retain our key employees or attract, motivate and retain
additional key employees in the future. Our failure to retain these key
employees, or failure to attract new technically proficient managers as our
needs arise, would have a material adverse effect on our business and
financial results.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE. We may need to
raise additional funds in the future, to fund our operations, to finance
the investments in equipment and corporate infrastructure we will need for
our expansion, to enhance or expand the range of services we offer or to
respond to competitive pressures or perceived opportunities, such as
investment, acquisition and expansion activities. Additional financing may
not be available on terms favorable to us, or at all. Moreover, we may
only be able to obtain adequate funds in the future by offering securities
with rights senior to or more favorable than the Securities offered in this
offering. If adequate funds are not available when required or adequate
funds are not available on acceptable terms, our business and financial
results could suffer.
OUR OFFICERS AND DIRECTORS ARE PROTECTED BY LIMITATION OF THEIR
LIABILITY TO US AND TO YOU, AND BY THEIR INDEMNIFICATION, UNDER OUR
CERTIFICATE OF INCORPORATION. Our officers and Directors are required to
exercise good faith and high integrity in the management of our affairs.
The Certificate of Incorporation and By-Laws provide, however, that the
officers and Directors have no liability to the shareholders for losses
sustained or liabilities incurred arising from any transactions entered
into in their managerial capacities, unless they violate their duty of
loyalty, do not act in good faith, engage in intentional misconduct, engage
in a knowing violation of the law, approve an improper dividend or stock
repurchase or derive an improper benefit from the transaction. As a
result, we and you have a more limited right to action than would have been
available, if such provisions were not present. The Certificate of
Incorporation and By-Laws also provide for the indemnification by us of the
officers and Directors, against any losses or liabilities they may incur as
a result of the manner in which they operated our business or conducted our
internal affairs, provided that in connection with these activities they
acted in good faith and in a manner which they reasonably believed to be
consistent with (or at least, not
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against) our best interest, and their conduct did not constitute gross
negligence, misconduct or a breach of their fiduciary obligations to us or you.
WE DO NOT ANTICIPATE PAYMENT OF DIVIDENDS. As holders of the
Securities, you will only be entitled to receive those dividends that are
declared by our Board of Directors out of surplus. We do not expect to
have surplus available for declaration of dividends in the foreseeable
future. Indeed, there is no assurance that such a surplus will ever
materialize to permit payment of dividends to you as holders of the
Securities. The Board of Directors will determine future dividend policy
based upon our results of operations, financial condition, capital
requirements, reserve needs and other circumstances.
OUR BUSINESS AND OPERATIONS MAY SUBJECT US TO LIABILITY, FOR WHICH OUR
INSURANCE MAY BE INSUFFICIENT. We provide training and related services to
our customers in connection with our technology, products and systems. We
also provide educational products to be used by children, a class of
potential plaintiffs accorded greater than usual solicitude by the courts.
We therefore may be exposed to the substantial risk of significant
liability for injury. We maintain quality control programs in an attempt to
reduce the risk of potential injuries, damage to individual interests, and
any associated potential liability. We also maintain liability insurance,
with the limits of $1,000,000 per loss event and $6,000,000 for the policy
aggregate, covering damages resulting from negligent acts, errors, mistakes
or omissions in rendering or failing to render our services or liability
arising from use or misuse of our products. As with any insurance policy,
we may suffer a loss which is not a covered loss under the policy, or which
exceeds the policy limits. We are not a party to any legal proceedings and,
to the best of our information, knowledge and belief, none is contemplated
or has been threatened.
AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR
GREATER STOCKHOLDERS WILL STILL CONTROL ALL MATTERS REQUIRING A STOCKHOLDER
VOTE. Currently, our existing officers, directors and 5% or greater
stockholders (and their affiliates) in the aggregate, beneficially own
approximately 82.3% of our outstanding stock. Upon consummation of this
offering, this group will continue to own approximately 64.8% of our
outstanding stock. As a result, such persons, acting together, will have
the ability to control the vote on all matters requiring approval of our
stockholders, including the election of directors and approval of
significant corporate transactions. This concentration of ownership among
a small number of our stockholders may have the effect of delaying,
deferring or preventing a change in control.
RISKS RELATING TO OUR OFFERING
THE WARRANTS OFFERED FOR SALE IN THIS OFFERING ARE SUBJECT TO
REDEMPTION AT $.05 PER WARRANT UNDER CERTAIN CONDITIONS, WHICH MAY
MATERIALLY ADVERSELY AFFECT YOUR INVESTMENT IN N-GEN. We are offering
1,600,000 shares of Common Stock, $.0001 par value per share, and 1,600,000
Warrants. The Common Stock and the Warrants (collectively, "Securities")
are being offered separately and not as units, and each is separately
transferable. Each Warrant entitles the holder to purchase one share of
Common Stock at $5.50 per share (subject to adjustment) during the five-year
period commencing on the date of this Prospectus. The Warrants are
redeemable by n-Gen for $.05 per Warrant, on not less than thirty (30) days
nor more than sixty (60) days written notice, if the closing bid price for
our Common Stock equals or exceeds $10.00 per share
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during any thirty (30) consecutive trading day period ending not more than
fifteen (15) days prior to the date that the notice of redemption is
mailed, provided there is then a current effective registration statement
under the Securities Act of 1933, as amended ("Act") with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. Any
redemption of the Warrants during the one-year period commencing on the
date of this Prospectus requires the written consent of the Underwriter. We
intend to qualify the sale of the Securities in a limited number of states,
although certain exemptions under certain state securities ("Blue Sky")
laws may permit the Warrants to be transferred to purchasers in states
other than those in which the Warrants were initially qualified. We will be
prevented, however, from issuing Common Stock upon exercise of the Warrants
in those states where exemptions are unavailable and we have failed to
qualify the Common Stock issuable upon exercise of the Warrants. We may
decide not to seek, or may not be able to obtain, qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such case, the Warrants of those
purchasers will expire and have no value if such Warrants cannot be
exercised or sold. Accordingly, the market for the Warrants may be limited
because of our obligation to fulfill these requirements.
NASDAQ HAS CERTAIN MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS TO
MAINTAIN OUR ELIGIBILITY FOR INCLUSION ON THE NASDAQ SMALLCAP MARKET(SM),
WHICH WE MAY NOT BE ABLE TO SUSTAIN. Under the current rules relating to
the listing of securities on the Nasdaq SmallCap Market(SM), we must have
(a) at least $4,000,000 in net tangible assets, or $750,000 in net income
in two of the last three years, or a market capitalization of at least
$50,000,000, (b) public float of at least 1,000,000 shares, (c) market
value of public float of at least $5,000,000, and (d) a minimum bid price
of $4.00 per share, among other requirements. For a continued listing, a
company must maintain (a) at least $2,000,000 in net tangible assets, or
$500,000 in net income in two of the last three years, or a market
capitalization of at least$35,000,000, (b) public float of at least 500,000
shares, (c) market value of public float of at least $1,000,000, and (d) a
minimum bid price of $1.00 per share among other requirements.
Our Common Stock and the Warrants are expected to be eligible for
initial listing on the Nasdaq SmallCap Market(SM), under the current rules
upon the closing of this offering. If at any time after issuance the
Common Stock and Warrants are not listed on the Nasdaq SmallCap Market(SM),
and no other exclusion from the definition of a "penny stock" under the
Exchange Act were available, transactions in the securities would become
subject to the penny stock regulations which impose additional sales
practice requirements on broker-dealers who offer and sell penny stocks.
If we should experience losses from operations, we may be unable to
maintain the standards for a continued listing and the securities may be
subject to delisting from the Nasdaq SmallCap Market(SM). Trading, if any,
in the securities would thereafter be conducted in the over-the-counter
market on an electronic bulletin board established for securities that do
not meet the Nasdaq SmallCap Market(SM) listing requirements or in what are
commonly referred to as the "pink sheets." As a result, an investor may
find it more difficult to dispose of or to obtain accurate quotations as to
the price of our securities.
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THE SECURITIES AND EXCHANGE COMMISSION MAY IMPOSE CERTAIN RESTRICTIONS
ON THE MARKETABILITY OF LOW-PRICED SECURITIES, WHICH MAY MATERIALLY
ADVERSELY AFFECT THE TRADING IN OUR SECURITIES. The Securities and
Exchange Commission has adopted regulations which generally define "penny
stock" to be any equity security which has a market price less than $5.00
per share, subject to certain exceptions. Upon authorization of the Common
Stock offered hereby for quotation, such securities will initially be
exempt from the definition of "penny stock." If the Common Stock falls
within the definition of a "penny stock" following the effective date, our
securities may become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those
with assets in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse). For transactions covered by these
rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated
by the Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and
the registered representative, current quotations for the securities and,
if the broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities and may
affect the ability of purchasers in this offering to sell our securities in
the secondary market.
THE OFFERING PRICE FOR OUR SECURITIES HAS BEEN DETERMINED ARBITRARILY.
There has been no prior public market for our securities. The price to the
public of the Securities offered hereby has been arbitrarily determined by
negotiations between us and the underwriter, and bears no relationship to
our earnings, book value or any other recognized criteria of value. The
offering price of $5.00 per share is substantially in excess of our pro
forma net tangible book value of $(.09) per share, and in excess of the
price received by n-GEN for shares sold in prior recent securities transactions.
WE ARE REQUIRED TO KEEP OUR PROSPECTUS AND STATE BLUE SKY
REGISTRATIONS CURRENT, AND ANY FAILURE BY US TO DO SO MAY LIMIT YOUR
ABILITY TO TRADE OUR SECURITIES. We will be able to issue shares of our
Common Stock upon the exercise of the Warrants and the Common Stock
Underwriter's Warrants, only if (i) there is a current prospectus relating
to the securities offered hereby under an effective registration statement
filed with the Securities and Exchange Commission, and (ii) such Common
Stock is then qualified for sale or exempt from the requirement to be so
qualified, under applicable state securities laws of the jurisdictions in
which the various holders of Warrants reside. Although we intend to
maintain a current registration statement, there can be no assurance that
we will be successful in maintaining a current registration statement.
After our registration statement becomes effective, we will be
required to file a post-effective amendment, if facts or events occur which
represent a material change in the information contained in the
registration statement. We intend to qualify the sale of the Warrants
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in a limited number of states, although certain exemptions under certain
state securities ("Blue Sky") laws may permit the warrants to be
transferred to purchasers in states other than those in which the Warrants
were initially qualified. Qualification for the exercise of the Warrants in
the states is essential for the establishment of a trading market in the
Securities. We can make no assurances that we will be able to qualify our
Securities in any state. We will be prevented, however, from issuing Common
Stock upon exercise of the Warrants in those states where exemptions are
unavailable and we have failed to qualify, or maintain qualification of,
the Common Stock issuable upon exercise of the Warrants. We may decide not
to seek, or may not be able to obtain or maintain qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such a case, the Warrants of those
purchasers will expire and have no value if such Warrants cannot be
exercised or sold.
NO MARKET CURRENTLY EXISTS FOR OUR SECURITIES, AND NONE MAY DEVELOP
FOLLOWING THIS OFFERING. No prior market exists for the Securities being
offered in this Prospectus and no assurance can be given that a market will
develop subsequent to this offering. The Underwriter may make a market in
our securities upon the closing of this offering, but there is no assurance
that it will do so. Nor is there any assurance that a market will be
sustained, if a market develops.
OUR PUBLIC FLOAT SUBSEQUENT TO THIS OFFERING MAY NOT BE SUFFICIENT TO
SUPPORT A STABLE MARKET. Approximately 64.8% of the shares outstanding
after the closing of this offering will remain in the hands of Officers,
Directors and holders of greater than 5 percent of our shares. An active
market in our Securities will result in a stable market into which you can
sell the Securities, only if there are several active market-makers and a
consistent, substantial volume of trading activity. Given the
concentration of securities ownership, we can offer no assurance that such
a market will develop, that there will be several active market makers or
that there will be a consistent, substantial volume of trading activity.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this Prospectus and in our
periodic filings with the Commission constitute forward-looking statements.
These statements involve known and unknown risks, significant uncertainties
and other factors what may cause our actual results, levels of activity,
performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things those listed under "Risk Factors" and elsewhere in this Prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "intends," "potential"
or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined above. These factors may cause our actual results to differ
materially from any forward-looking statement.
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Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor
any other person assume responsibility for the accuracy and completeness of
such statements. We are under no duty to update any of the forward-looking
statements after the date of this Prospectus.
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We will receive estimated net proceeds of $6,884,000 from the sale in
this offering of 1,600,000 shares of Common Stock and Warrants at an
initial public offering price of $5.00 per share and $.125 per Warrant
after deducting expenses of the offering of $250,000 and estimated
underwriting non-accountable expenses and commissions of $1,066,000. If
the Underwriters' over-allotment option is exercised in full, we will
receive net proceeds of $7,954,000.
The primary purposes of this offering are to increase our
capitalization and financial flexibility, create a public market for our
common stock and facilitate future access to public market for our Common
Stock and facilitate future access to public markets. We intend to use the
proceeds as follows:
* working capital and general corporation purposes;
* expansion of our sales and marketing capabilities;
* development of our Website and e-commerce business; and
* potential acquisitions.
Although we may use a portion of the net proceeds to acquire
technology or businesses that are complementary to our business, we
currently have no commitments or agreements for such acquisitions and are
not involved in negotiations regarding any acquisitions. Pending use of
the net proceeds for the above purposes, we intend to invest the net
proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We currently intend to retain all future earnings, if any, for funding
our growth and, therefore, do not expect to pay any dividends in the
foreseeable future. The declaration and payment of dividends are subject
to the discretion of our Board of Directors.
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DILUTION
As of December 31, 1999, we had a pro forma net tangible book value of
$(528,390) or $(.09) per share after completion of a private placement of
stock in 2000. Our net tangible book value per share means our tangible
assets, less all liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the sale of the common stock in
this offering at an assumed price of $5.00 per share after deducting
underwriting discounts and estimated offering expenses, adjusted pro forma
net tangible book value would be $6,410,858 or $.85 per share. The result
will be an immediate increase in net tangible book value per share of $.94
to existing shareholders and an immediate dilution to new investors of
$4.15 per share. As a result, investors in this offering will bear most of
the risk of loss since their shares are being purchased at a cost
substantially above the price that existing shareholders acquired their
shares. "Dilution" is determined by subtracting net tangible book value
per share after the offering from the offering price to investors. The
following table illustrates this dilution assuming no exercise of the
Warrants, the Underwriter's over-allotment option, the Underwriter's Common
Stock Option on the Underwriter's Warrant Option:
Public offering price per share of the common stock
offered hereby . . . . . . . . . . . . . . . . . . . . . $5.00
Net tangible book value per share before pro forma
adjustments. . . . . . . . . . . . . . . . . . . . . . . $ (.17)
Increase per share attributable to pro forma adjustments. $ .08
Pro forma net tangible book value per share, before
the offering . . . . . . . . . . . . . . . . . . . . . . $ (.09)
Increase per share attributable to the sale by n-GEN of
the shares offered hereby. . . . . . . . . . . . . . . . $ .94
Pro forma net tangible book value per share, after
the offering . . . . . . . . . . . . . . . . . . . . . . $ .85
-----
Dilution per share to new investors . . . . . . . . . . . $4.15
=====
The above table assumes no exercise of the Warrants, the Underwriter's
over-allotment option or the Underwriter's Common Stock Option on the
Underwriter's Warrant Option purchase option. The following table
summarizes the investments of all existing stockholders and new investors
after giving effect to the sale of the shares in this offering assuming no
exercise of the Underwriter's over-allotment option:
PERCENTAGE
SHARES OF TOTAL AGGREGATE
PURCHASED SHARES CONSIDERATION
--------- ------ -------------
Present Stockholders . . . . . . . . 5,940,000 78.8% $1,045,735
Public Stockholders. . . . . . . . . 1,600,000 21.2% $8,000,000
---------- ----- ----------
Total . . . . . . . . . . . . . 7,540,000 100% $9,045,735
========== ==== ==========
If the over-allotment option is exercised in full, the investors in
this offering will have paid $9,200,000 and will hold 1,840,000 shares of
Common Stock, representing 89.8% percent
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of the total consideration and 23.7% percent of the total number of
outstanding shares of Common Stock.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
* on an actual basis, giving effect to our acquisition of our
wholly-owned subsidiary, n-Gen Solutions.Com, Inc. (formerly
known as Lab Technologies, Inc., a Colorado corporation) in July
1998 and our subsequent name change to n-Gen Solutions. Com, Inc.
(formerly known as AAE Education Corporation) in January 2000,
* on a pro forma basis to reflect the conversion of the outstanding
promissory notes into 105,250 shares of Common Stock on
completion of this offering and receipt of $333,500 in net
proceeds from the sale of an additional 755,000 shares of Common
Stock, and
* on a pro forma as adjusted to give effect to the receipt of the
estimated net proceeds from the sale of 1,600,000 shares of
Common Stock and 1,600,000 Warrants offered by us in this
offering at the assumed public offering price of $5.00 per share
and $.125 per Warrant, after deducting underwriting discounts and
commissions and estimated offering expenses.
The number of shares of Common Stock to be outstanding after this
offering is based on the number of shares outstanding as of September 30,
1999 and does not include the following:
* 240,000 shares of Common Stock and Warrants that the underwriters
may purchase within 30 days after the date of this Prospectus
solely to cover over-allotments, if any;
* 1,600,000 shares of Common Stock which may be issued upon the
exercise of the 1,600,000 Warrants to purchase up to 1,600,000
shares of Common Stock;
* 930,000 shares of Common Stock issued in December 1999 through
February 2000 in a private transaction to twelve investors; or
* Additional Underwriter's Warrants to purchase additional shares
of Common Stock.
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The information below is qualified by, and should be read in
conjunction with, our "Management's Discussion and Analysis or Plan of
Operations" and the financial statements and the notes to those statements
appearing at the end of this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------ ------------ -----------
<S> <C> <C> <C>
Capital lease obligations, long-term portion . . . . $ 89,672 $ 89,672 $ 89,672
----------- ----------- -----------
Shareholders' equity:
Common Stock, $.0001 par value; 25,000,000 shares
authorized; 5,185,000 shares issued and outstanding,
actual; 6,045,250 shares issued and outstanding, pro
forma 7,645,250 shares issued and outstanding, pro
forma as adjusted . . . . . . . . . . . . . . . . 519 605 765
Additional paid-in capital. . . . . . . . . . . . . 774,516 1,107,930 7,991,770
Accumulated deficit . . . . . . . . . . . . . . . . (1,276,660) (1,276,660) (1,276,660)
---------- ---------- ----------
Total shareholders' equity (deficit). . . . . . . . $ (501,625) $ (168,125) $6,715,875
---------- ---------- ----------
Total capitalization (deficit). . . . . . . . . . . $ (411,953) $ (78,453) $6,805,547
========== ========== ==========
</TABLE>
____________________
(1) Includes the conversion of certain promissory notes into 105,250
shares of Common Stock on completion of this offering and includes the
sale of an additional 930,000 shares of the Company's Common Stock for
total proceeds of $465,000 during December through February 2000 in a
private transaction.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES OF N-GEN INCLUDED IN THIS
PROSPECTUS, BEGINNING ON PAGE F-1. THE DISCUSSION IN THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES,
SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.
THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS APPLY TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. OUR
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO
DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We were initially incorporated in Delaware in March 1998 under the
name AAE Education Corporation and in March 1999, we began operations in
our present form when we acquired all of its issued and outstanding shares
of Technology Learning Systems, Inc. d.b.a. Lab Technologies, Inc. from
Gary D. Nelson, our current President and a Director. After the
acquisition and reorganization, we changed Lab Technologies name to n-Gen
Solutions.Com, Inc. (Colorado) and also subsequently changed our name in
Delaware to n-Gen Solutions.Com, Inc. in January 2000. To consolidate
operations, we merged our wholly owned Colorado subsidiary into n-Gen
Solutions.Com, Inc. (Delaware), which remains as the surviving corporation.
All of our business is now conducted under n-Gen Solutions. Com, a Delaware
corporation.
We currently specialize in providing interactive, computerized
learning environments which combine the dynamics of the Internet, digital
context delivery and computerized technologies tailored to public, private
and charter educational institutions, government, corporations and
individuals. We believe our solution provides our students the ability to:
* access meaningful content from specially-designed data bases;
* provide the platform for distance learning and make available
on-line course supplements;
* learn and interact with instructors who personalize the
curriculum to each student's needs; and
* utilize state-of-the-art technology and software to enhance the
learning experience.
We have designed web-enabled software programs which have the ability
to store, manage and deliver digital media across specially designed
internal networks or over the Internet when used in conjunction with our
distance learning applications. Our students and instructors can use these
applications to instantly locate, access and play on demand media resources
ranging from digital video, digital images, Websites and web audio, to
software applications and
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CD-ROMs. Our software applications allow our users to pre-index hundreds
of lesson plans, Websites and media resources, by grade levels and content
areas.
In addition, we currently are developing an e-commerce purchasing
solution to complement our current business model which is expected to
allow us to offer a centralized source on a specially designed Website for
purchasing a wide range of educational products, software titles,
office/school supplies and hardware. We have selected a wide range of
products which we feel will be a particular interest to our target
customers, primarily school and district administrators.
Investors are cautioned that our business involves a high degree of
risk as a result of the following factors and other factors discussed
throughout this Prospectus:
* our business model recently changed to include an e-commerce
solution;
* we have a history of losses;
* our past revenues have been derived from product sales; and
* the change in our business model makes past revenue comparisons
less meaningful.
We expect to incur significant losses for the foreseeable future. We
also expect that the rate we incur losses will increase significantly from
current levels, as we continue to incur additional expenses to advertise
and promote our Website, expand our product offerings and increase our
in-house sales staff, over the next twelve months.
We intend to target those customers who currently purchase our
learning environments or who are potential users such as school districts,
governmental agencies and corporations. By using a business to business
approach for the educational industry, we will attempt to combine our
business segments by enhancing our ability to offer product and learning
solutions into a viable market niche.
In that we only recently commenced operations in our present form when
we acquired our former subsidiary and as a result comparisons are not
meaningful.
RESULTS OF OPERATIONS
Because we acquired Lab Technologies (renamed n-Gen Solutions.Com,
Inc, (Colorado)) in January 1999, we believe our results of operations for
the periods prior to that time are not meaningful, as we were a development
stage company. Our results of operations for these periods primarily
reflect the costs of acquiring Lab Technologies and raising capital.
In the accompanying financial statements, the statements for periods
in 1999 are consolidated and include the accounts of the Company and its
wholly owned subsidiary. The statements for periods in 1998 are not
consolidated since they are prior to the acquisition of Lab
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Technologies. To compare the results of operations of our subsidiary with
the prior year, the reader should refer to the financial statements of n-Gen
Solutions.Com, Inc. (a Colorado corporation) beginning on page F29 and
compare them with the amounts for the three months ended December 31, 1999
plus the amounts for the nine months ended September 30, 1999.
REVENUE
Total revenues in 1999 decreased by $162,395 to $5,426,168 from
$5,588,563 in 1998. We sell a variety of educational software and hardware
products and systems. In the majority of our transactions we act as a
distributor and invoice the customer directly; these transactions appear as
"Sales" on our Statement of Operations. Our profits come from the
difference between the sales price and the cost of goods sold. For other
sales, we act as agent and receive a commission from the manufacturer.
Those sales are reported as "Commissions." While our distributor sales
declined by $360,456, our sales from commissions increased by $168,854 for
a net decline of $191,602, or about 3.5%. We don't feel this decline to be
significant.
Our training revenues increased by $29,207 from $129,999 in 1998 to
$159,206 in 1999 an increase of approximately 82% due to an expansion of
the number and types of training classes made available. Since the profit
margins in this segment are significantly higher than our educational and
commercial sales, we intend to expand this business in 2000 by offering
more courses, hiring additional instructors and increasing the advertising
expenditures.
COST OF REVENUES
Cost of goods declined accordingly from $3,965,661 in 1998 (78% of
sales) to $3,640,658 in 1999 (77% of sales).
The net result was a 10% increase in gross profit of $162,608 from
$1,622,902 in 1998 to $1,785,510 in 1999.
SELLING EXPENSES
Selling expenses increased $24,158 from, $649,330 in 1998 to $673,488
in 1999. As a percentage of total revenues, the increase is less than 1%
and we don't consider it to be significant.
Since we sell the majority of our products to school districts,
collection of receivables is assured in a reasonable time period after we
invoice our customer. Bad debts are approximately 1% of total sales and do
not contribute significantly to our operating expenses and are a positive
aspect of our business sector.
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GENERAL AND ADMINISTRATIVE
General and administrative costs increased from $626,702 for the
twelve months ended December 31, 1998 to $1,592,041 for the twelve months
ended December 31, 1999. This was a result of several key items. The
Company was formed in July 1998 to investigate and acquire businesses in
the for-profit education sector utilizing and/or delivering high
technology. Substantial expenses were incurred in late calendar 1998 and
early 1999 in the due diligence review and acquisition of Lab Technologies,
renamed n-Gen Solutions.Com, Inc. (Colorado). All of the costs of
acquisition were expensed. Additionally, significant costs were necessary
in the raising of capital from the private placement of debt and equity and
in preparation of the Company for the proposed public offering, to
investigate other acquisitions and in development of our e-commerce
Website. A majority of these costs were incurred at the corporate level;
the costs at the sales support level remained relatively constant. With
future growth in projected sales, total general and administrative costs
will be reduced substantially as a percentage of total revenue.
WEBSITE AND TECHNOLOGY DEVELOPMENT COSTS
e-commerce development costs for the nine months ended September 30,
1999 were $41,390 and for the three months ended December 31, 1999 were
$89,368.
Development expenses consist primarily of consulting fees associated
with developing, maintaining, and improving our e-commerce Website.
Competition for user traffic among business-to-business related
Websites is intense. Websites can differentiate themselves from others by
providing users with an on-line experience that is easy, efficient and
useful. By providing an on-line experience that is also informative and
entertaining and visually pleasing, Websites can increase the percentage of
first time users that return to the Website again. The quality of the on-line
experience is directly related to the underlying technologies utilized
by the Website. This technology includes:
* Website content,
* design,
* operational software,
* transaction processing systems, and
* telecommunications infrastructure.
We will be required to consistently update our hardware and software
systems in order to deliver leading-edge technical solutions on our Website
and provide users with an on-line experience superior to that provided by
competitors. Accordingly, we will incur significant ongoing expense with
respect to our technology.
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Currently, we rely on The August Group, Inc. ("August Group") for our
technical infrastructure and to host and deliver our Websites and e-commerce
solution. For these services, we paid August Group an up-front fee of
$64,300. We have negotiated an agreement with August Group, whereby
August Group will perform and deliver certain services in the development
of our Website(s). The agreement contemplates that we will engage August
Group for specific projects at fixed prices as we continue to construct and
develop our Website(s).
We believe that by initially outsourcing a large portion of our
technology infrastructure, we will be able to reduce the up-front costs
associated with constructing and expanding a complex e-commerce and
business information community, pay for a large portion of the services
provided by third-party technology providers only as we generate revenues
from our Website, and harness the proven experience of these technology
providers. Over time, as our Website and operations mature, we intend to
internally develop or otherwise internalize a significant portion of the
technology used to operate our business.
RESULTS OF CONTINUING OPERATIONS
As discussed above most of our increased costs were in general and
administrative expenses due to corporate and financing costs and not in
areas directly attributable to the continuing operations of the business we
acquired. Although revenues decreased slightly (about 3%), there was a 10%
increase in gross profit of $162,608, from $1,622,902 in 1998 to $1,785,510
in 1999.
SEASONALITY
Due to the seasonality inherent in the academic calendar, as well as
our customers' plans for on-line learning centers and course development,
we experience seasonal fluctuations in our quarterly results. Many orders,
especially for large installations such as our digital classrooms are
received in the spring or early summer for installation in late summer,
prior to the academic year. Therefore, higher revenues are booked in the
fourth quarter of our fiscal year (third calendar quarter) resulting in
higher than average accounts receivable and accounts payable. This in turn
results in higher cash balances for the quarter ended December 31 and lower
accounts receivable and payable. Our operating expenses are relatively
fixed in nature and seasonal fluctuations in revenue will result in
seasonal fluctuations in our operating results. As a result, quarter-to-
quarter financial results are not directly comparable.
In view of the rapidly evolving nature of our e-commerce business and
our limited operating history in this regard, we believe that our historic
revenue and other operating results should not be relied upon as
indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed the majority of our operations
through capital contributions made by management and through private
placements of promissory notes and shares of our Common Stock for total
proceeds of $1,441,250.
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As of September 30, 1999 we had $210,196 in cash and cash equivalents
and as of December 31, 1999 it was $453,528.
For the nine months ended September 30, 1999 our operating activities
used $170,321 of cash and for the three months ended December 31, 1999 used
$155,301 of cash.
Our future capital requirements will depend on numerous factors,
including:
* Market acceptance of our services;
* Marketing promotions;
* The amount of resources we devote to the development of our
current and future products; and
* The expansion of our in-house sales force and marketing our
services.
At December 31, 1999 and for the nine months ending September 30,
1999, we had no material commitments for capital expenditures. Our
investment in Website development and infrastructure for our Internet-based
e-commerce business is not treated as a capital expenditure, but is
expensed for accounting purposes.
In June 1999, we entered into a letter of intent with the Underwriter
in connection with this public offering. The net proceeds of this
offering, totaling approximately $6,884,000, should provide adequate
working capital for us to enhance and otherwise stabilize cash flow during
at least the 12 months of operations following the closing of this
offering, such that any shortfalls between cash generated by operating
revenues and costs will be covered by working capital. Although we prefer
to retain our working capital in reserve, we may be required to expend part
or all of these offering proceeds as our financial demands dictate.
Although it is uncertain that the market price of our shares of common
stock will rise to a level at which the Warrants may be exercised, in the
event investors in this offering elect to exercise the Warrants (not
including the Underwriter's over-allotment option or the Underwriter's
purchase option), we will receive gross proceeds of up to $8,800,000. We
anticipate that the proceeds from the exercise of the Warrants would be
contributed to working capital. Nonetheless, we may at the time of exercise
allocate a portion of the proceeds to any other corporate purposes.
We are unable to predict the precise period for which this offering
will provide financing, although we believe that we should have sufficient
working capital to meet our cash requirements for the 12 month period
following the date of this offering. Accordingly, we may need to seek
additional funds through loans or other financing arrangements during this
period of time. No such arrangements exist or are currently contemplated
and we cannot be sure that they may be obtained in the future should the
need arise.
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Pending utilization, we intend to invest the net proceeds of this
offering in insured, short-term, investment-grade, interest-bearing
securities.
IMPACT OF INFLATION
We do not believe that inflation has had a material adverse effect on
our income since our inception. Increases in supplies or other operating
costs may adversely affect our operations in our future. However, we
believe we will be able to increase the prices of our products, systems and
services to offset increases in operating costs.
RECENTLY ISSUED ACCOUNTING PRINCIPLES
See Note One of Notes to Financial Statements for recently issued
accounting standards.
YEAR 2000 READINESS
Year 2000 computer problems may arise after the date of this
Prospectus. Our business could be interrupted by any material year 2000-
related failure of our internal systems, the systems that carry Internet
traffic to our online loan marketplace, the systems of our lenders or
online partners, or the systems used by consumers to access our marketplace.
During 1999 we conducted a review of the year 2000 readiness of our
information technology systems. These systems include software that we
have internally developed and software and hardware that we have obtained
from third-party vendors and licensors. Our review identified a limited
number of remedial steps that we completed prior to January 1, 2000. In
1999, we performed full end-to-end testing of all key business functions in
a simulated operating environment to assure that our systems previously
verified to be year 2000 compliant remained compliant as changes were made
to them.
The aggregate costs associated with our year 2000 review and
remediation were approximately $500 in 1999. We estimate that any costs
related to year 2000 issues in 2000 will also be immaterial. As of the
date of this Prospectus, we have not experienced any year 2000-related
systems failures. We intend to continue to monitor our own systems for
ongoing year 2000 compliance and conduct testing to confirm the compliance
of our system, as well as to confer with our vendors about their ongoing
year 2000 compliance.
Based on our efforts to date, we believe that we will not experience
any material year 2000 problems. There are, however, possible scenarios
under which year 2000 problems, if they occur, could materially affect us.
The most reasonably likely worst cases among these scenarios, include: the
temporary inability of one or more of our key lenders to receive consumer
Qualification Forms from us or to reply to consumers with loan offers; the
temporary inability of our online partners to direct consumer traffic to
our marketplace; and a failure of, or a degradation in, the Internet
infrastructure that reduces traffic to, or the performance of, our Website.
We do not intend to develop contingency plans to address these or other
potential worst-case scenarios.
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BUSINESS
COMPANY OVERVIEW
N-Gen Solutions.Com develops, delivers and provides e-learning
solutions to public, private, and charter educational institutions,
government agencies, corporations and individuals. Our business model
consists of a learning solution and an integrated purchasing solution, both
tailored to meet the needs of our customers. We focus our learning
solution on providing schools and businesses with:
* high technology, interactive, digital classrooms;
* audio, video and multi-media capabilities; and
* distance learning technology and features.
Our purchasing solution will compliment our digital classrooms by offering
our customers on-line shopping for:
* computer hardware;
* computer software;
* educational materials;
* school and office supplies;
* school and office furniture; and
* entertainment products.
Through our learning and purchasing solutions, we believe that we can build
technological infrastructures for our customers that can enhance,
streamline and compliment the traditional educational system.
The goal of our electronic classrooms is to combine interactive,
educationally-sound learning environments and curriculum with the dynamics
of the Internet, digital video, audio and multimedia applications. We
believe our learning solution gives students the ability to:
* Access meaningful content from specially-designed data bases;
* Provide the platform for distance learning and make available
on-line course supplements;
* Learn and interact with instructors who personalize the
curriculum to each student's needs;
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* Utilize state-of-the-art technology and software to enhance the
learning experience; and
* Collaborate and communicate with classmates in completing
coursework or developing multi-media presentations.
Our learning solution classrooms have the ability to deliver relevant,
meaningful content to students using the latest technology. We believe
that our learning classrooms will assist and enhance every student's
learning experience and will become a standard in all educational environments.
In addition, we have designed web-enabled software programs which have
the ability to store, manage and deliver digital media across internal
networks or the Internet when used in conjunction with our distance
learning applications. Students and instructors can use this application
to instantly locate, access and play on demand media resources ranging from
digital video, digital images, Websites and web audio, to software
applications and CD-ROMS. Our software allows the user to pre-index
thousands of lesson plans, Websites and media resources, by grade levels
and content areas.
We have recently developed an e-commerce purchasing solution which
will allow us via our Website to offer a centralized source for purchasing
of a wide range of educational products, software titles, office and school
supplies and hardware. We have selected a wide range of products which we
feel will be a particular interest to the educational market. We have
entered into a web development agreement with The August Group to assist
our developers in implementing this strategy and in constructing a high
quality e-commerce Website. We expect our e-commerce Website to launch
on-line operations in early 2000.
EDUCATION INDUSTRY
BACKGROUND
There are three major educational markets:
* THE K-12 MARKET has 108,520 schools with 50.7 million students
and spends over $7 billion a year on instructional technology.
* THE POST-SECONDARY MARKET consists of over 10,000 schools
including 6,456 vocational/technical schools, 1,716 two-year
colleges and 2,597 four-year colleges. In excess of $215 billion
a year is spent in post-secondary education.
* THE FOR-PROFIT MARKET, consisting of corporate America, is the
third largest market. Over one-fifth of the adult population,
which represents over 40 million people, pursues work-related
continuing education. Corporate America is investing over $60
billion a year to enable its employees to maintain, enhance and
upgrade their skill level to effectively compete in today's
technologically advanced workplace.
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Congress has taken a strong position to ensure the workforce of
tomorrow is prepared and well educated. New or revisited Federally funded
educational programs totaled over $36 billion in 1998. Increased spending
on education has translated into increased spending on education related
technology. For example, the proportion of public elementary and secondary
schools with Internet access increased from 35 percent in 1994 to 65
percent in 1996, according to Market Data Retrieval (MDR), a private
marketing company.
LEARNING TECHNOLOGY
Technology and the Internet are allowing for changes in how we
educate. Educators are striving to incorporate technology into the
classroom in an effort to graduate a student body that is well prepared to
compete for jobs in our technology driven society. As a result, the
national annual expenditures for technology in schools are $7 billion.
SCHOOL SUPPLIES
The demand for school supplies is driven primarily by the level of the
student population and, to a lesser extent, expenditures per student.
Student population is a function of demographics, while expenditures per
student are also affected by government budgets and the prevailing
political and social attitudes toward education. According to U.S.
Department of Education estimates, student enrollment in kindergarten
through twelfth grade public and private schools began growing in 1986,
reaching a record level of 52.7 million students in 1998. Current
projections by the U.S. Department of Education indicate that student
enrollment will continue to grow to 54.5 million by the year 2006. The
U.S. Department of Education also projects that expenditures per student in
public elementary and secondary schools will continue to rise through the
year 2006. Expenditures of $272.4 billion in 1997 are projected to
increase to $340.7 billion by the year 2001. These projected increases in
expenditures include a projected increase in total per student spending
from $5,961 per student in 1997 to $7,179 by the year 2001. We believe
that the current political and social environment is currently favorable
for education spending.
E-COMMERCE
Because of the inherent limitations of traditional channels of
distribution, the Internet is dramatically affecting the way businesses and
consumers buy and sell products and services. International Data
Corporation ("IDC") estimates that there were 142 million Internet users
worldwide at the end of 1998 and anticipates that this number will grow to
over 500 million users by the end of 2003. IDC also estimates that the
worldwide consumer e-commerce market will grow from approximately $15
billion in 1998 to approximately $171 billion in 2003. The Internet is
well-suited for consumer commerce for a number of reasons:
* Increased convenience due to the ability to access the Internet
at any time from almost any location;
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* Virtually unlimited "shelf" space to allow merchants to offer a
wide selection of products and services;
* Low facilities and staffing costs;
* Merchandising flexibility due to merchant's ability to quickly
update and customize product selection and presentation,
editorial content and prices; and
* Enhanced knowledge of customers' needs from the merchant's
ability to gather, process and store large amounts of customer
information.
OUR SOLUTION
We specialize in building technological infrastructures that can
enhance, streamline and complement traditional educational systems. Our
technological infrastructures include a learning solution and a purchasing
solution.
LEARNING SOLUTION:
We provide interactive, computerized learning environments, which
combine the dynamics of the Internet, digital content delivery and
computerized technologies. We provide schools and business with the
resources and technology necessary to transform ordinary classrooms into
electronically enhanced and fully interactive classrooms. Starting with an
empty classroom, we customize the environment to fit our customer's needs.
Examples of the types of classrooms that we can create include Digital
Language Labs, Interactive Distance Learning Centers, Multimedia Design
Labs, Visual Mathematics Classrooms, Certification Training Centers,
Community Learning Centers, Staff Development Classrooms, Computer-aided
design ("CAD") labs and Science Labs.
The classroom we create is designed to be more interactive than a
traditional classroom. Students have the power to access almost any
curriculum, resource and instructional material, on demand and in whatever
media format is most likely to be effective for each individual student.
In addition, the classroom technology gives the instructor or the student
the ability to make presentations to the class as a whole, to select groups
or to individual students. The delivery of the curriculum may be made
through On-line Content, DVD, Laserdiscs, Satellite and Cable TV, Digital
Video, Websites, Streaming Audio, Electronic Textbooks, Computer
Applications and CD-Roms. Our system can also provide for interactive
distance learning to link together students and facilities from across the
city, nation and around the world.
In our digital classroom, the instructor can personalize the
instruction for each student, or can teach in a more traditional group
format. The instructor can also use the technology to gather feedback from
the students, so the teaching can be adjusted to more efficiently meet each
student's needs.
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DISTANCE LEARNING:
Our learning solution classrooms also provide distance learning
capabilities, which we believe will become an increasingly popular means of
instruction. Due to the high costs of education and the limited supply of
qualified teachers, experts in all fields are in high demand. We believe
that the benefits of using distance learning technology include:
* Increased student comprehension & performance;
* Increased interaction between students and teachers and between
students;
* Increased student/instructor ratio;
* Decreased travel costs;
* Decreased training cost per student;
* Increased content coverage;
* Increased instructor satisfaction; and
* Increased track of student performance.
Our distance learning systems integrate the latest computer-based
interactive teaching tools with the traditional instructor-led classroom to
create virtual classrooms. A virtual class is comprised of one or more
physical classroom sites, with an instructor who is physically distant from
at least one of the classrooms. The virtual classroom integrates multi-site
interactive videoconferencing, computerized classroom management tools
and computer based instructional resources.
HARDWARE AND SOFTWARE USED IN OUR LEARNING SOLUTION:
Our multi-media learning environment uses a custom designed digital
video server in conjunction with our web-enabled software programs. The
server can be custom designed to fit each customer's specific needs and
budget. Our digital server and web-enabled software programs have the
ability to store, manage and deliver digital media across internal networks
or the Internet. Our server and software allow users to:
* Locate, access and play on demand media resources ranging from
digital video, digital images, Websites and web audio, to
software applications and CD-ROMs;
* Pre-index lesson plans, Websites and media resources by grade
levels and content areas;
* Archive the location of print materials and analog based media;
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* Retrieve and review assignments, leave comments for teachers, and
examine attendance records;
* Teachers can give students on-line feedback about their work and
general performance; and
* Parents can review their child's lessons and performance from
their home computer and see how their child compares to other
students in the class, in the school or around the country.
DESIGN OF OUR LEARNING SOLUTION:
Our staff works side by side with school technology directors,
curriculum directors, superintendents, principals and teachers to design
and implement technology plans focused on budget requirements and goals.
We assist in the planning and design of network architecture, Internet
access, information and instructional management, facilities planning,
curriculum design, multimedia utilization, media delivery systems,
technology education and staff development.
We build 3-D computer drawings and walk-through visuals for our
customers, in an effort to present concepts and ensure accurate planning
and successful implementation of our learning environments. We are capable
of creating corporate training classrooms, educational computer classrooms,
science labs, CAD classrooms, lecture halls, technology education labs,
teacher and staff development centers and many other technology-enriched
facilities.
COST OF OUR LEARNING SOLUTION:
A digital classroom may cost between $140,000 and $250,000. This cost
includes a custom designed classroom to meet the specifications of each
school's particular space, computer hardware and software, installation and
training. We are often able to use a customer's existing computer hardware
to provide a lower-cost alternative. A full classroom can usually be
operational within six to eight weeks from the order date. Once an order
is placed, we notify our vendors and the equipment is shipped directly to
our customer's site. We then inventory and install the classroom on site,
and provide technical training and instructional staff development.
PURCHASING SOLUTION:
Our soon to be launched e-commerce Website, LearningWire.com, will
provide a business-to-business solution for the educational product market.
Our site will be targeted at school purchasing agents, administrators,
businesses and individuals.
It is our hope that our e-commerce site will provide a single
centralized source for purchasing a wide range of products, including
software, office and school supplies, education related hardware,
furniture, books, and entertainment products.
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INCENTIVE PROGRAM:
An additional feature of our e-commerce site will be the incentive
program. Under this program, schools earn credits toward future purchases
and districts simultaneously earn cash rebates. When a purchase is made,
the customer will be asked to designate a school as the recipient of reward
points. The school will earn points every time that customer makes a
purchase through our Website. These reward points then transfer into
credits for that school on future purchases made by the school on the
Website. Additionally, the district in which that school is a member will
automatically receive points that transfer into cash rebates paid by us
directly to the district. We believe that this cash back incentive will
encourage districts, schools, businesses and individuals to make purchases
on our e-commerce site.
MARKETING AND PROMOTION
We will be aggressively targeting regional and national education
markets. We believe that our electronically enhanced learning
environments, coupled with our e-commerce presence, will provide a one-stop
solution for our customer's education and technology needs. Our goal is to
reach school association and governing boards through our Website and
direct sales. Currently, we have 8 sales representatives stationed
throughout the Rocky Mountain region. We also have 5 reseller
organizations. Our goal is to develop a strong electronic Web presence
while supporting the sales and marketing strategy through strong customer-
oriented marketing, advertising and printed media support. Our soon to be
launched e-commerce site, LearningWire.com, will use our already
established sales force to promote the sites use to schools, districts,
businesses and individuals. Through this strategy, we hope to build a
membership base and establish a customer base that views LearningWire.com
as a trusted source for purchasing. Our sales and marketing strategy is
based on two complimentary models:
* TOP DOWN MODEL: We will aggressively market our products and
services to school administrators at the state, regional and
local levels using our regional sales force and our e-commerce
presence. Strategic press releases and publication campaigns
will promote customer awareness and enhance name recognition.
This support will enhance the direct sales efforts and the
e-commerce sales opportunities. Marketing will be directed to
specific educational trade magazines, educational conferences,
seminars and school site decision makers.;
* BOTTOM UP MODEL: We will also target our products and services
to community associations, parent associations, parents and
individual teachers through direct mailings and selected
advertising. Parents and community alliances will be targeted in
the Company's marketing campaigns for the support of implementing
new teaching strategies and improving the learning process for
all students.
* DIRECT CONTACT MODEL: New technology and educational teaching
methods have to be seen, touched, manipulated and experienced by
customers in order to understand the full utility of the learning
that takes place in a highly technical environment. The
expansion into new geographic markets will require a strategic
increase in the operational activities of the sales and marketing
programs. These
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activities will include our e-commerce presence, developing
distribution channels and expanding the technical and customer
support teams.
GROWTH STRATEGY
Our objective is to become the leading provider of innovative learning
environments, instructional technology products and technology-based,
performance-driven consultative services for educational institutions and
corporate training centers worldwide.
We hope to accomplish our growth strategy as follows:
* AGGRESSIVE MARKETING OF OUR NEWLY ENGINEERED, DESIGNED AND
DEVELOPED LEARNING SOLUTION. We will target learning
organizations, including public and private schools, colleges,
universities, technical training centers and corporations.
Worldwide corporations, research centers, global learning
foundations, educational leaders in foreign countries, and
parents will be targeted in our marketing campaigns for universal
acceptance and implementation;
* POSITIONING LEARNINGWIRE.COM AS THE WEB PORTAL FOR ON-LINE
ELECTRONIC EDUCATIONAL BUSINESS TRANSACTIONS WORLDWIDE. We will
market our e-commerce site to school purchasing agents,
administrators, businesses and individuals. The site will be
marketed as a complimentary component to our learning solution
classrooms and as a separate solution for online shoppers. Our
existing sales representatives will help market our site and will
be available to personally assist our customers with their online
purchases. This type of personalized service, combined with the
incentive/rebate program and the variety of products offered on
the site should help establish our site as a centralized source
for online educational and entertainment purchasing. The site
will also help promote our learning solution offerings, including
our classroom technology, and increase brand recognition;
* AGGRESSIVE ACQUISITION PROGRAM. We feel we can achieve growth
through acquisitions without creating distractions from the focus
of our other growth opportunities along the way. Acquisitions
will allow the Company to consolidate and open new territories
faster, secure and integrate new learning technologies, grow
globally, create higher profit margins by becoming a more
powerful seller and provide the educational community highly
integrated and simplified technological solutions.
N-GEN SOLUTIONS.COM CUSTOMERS
We build long-term relationships with our customers and their
respective facilities to ensure that the educational learning environments,
on-line classrooms, and technology rich solutions become an important and
successful extension of the schools' and businesses' learning processes.
This includes developing easy-to-implement high quality courseware,
professional
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development programs, and support structures customized to fit each
individual client's goals and objectives.
We have an established customer base in Secondary Education (K through
12 public, private and charter educational institutions), Community
Colleges and Universities, Vocational & Technical Education Centers
(Secondary & Post-Secondary), Private Technical & Vocational Schools,
Corporate Training Centers, Information Technology Training Centers as well
as Government Agencies and Engineering Firms.
TECHNOLOGY
The technology used in our learning solution classrooms consists of
off-the-shelf components organized by us to create a proprietary
architecture. The hardware and software we develop, design or select
supports industry-standard technology. The technology used in our
classrooms include digital video delivered through Ethernet and ATM
networks; a video server that provides varying bandwidth for video delivery
and storage of thousands of hours of high quality audio and video; distance
learning capabilities that utilize desktop videoconferencing protocols;
classroom instructional control systems with touch screen, icon-based
interfaces; interactive student response and monitoring systems; computer
monitor video signals up to 2000 resolution to allow for delivery of high-end
software applications; audio network systems connecting students and
instructors with each other and with the audio devices employed in the
classroom; large electronic, touch-sensitive white boards and multimedia
projection systems to provide presentation capabilities; and Internet
access through the use of satellite based systems and phone lines.
We have implemented an advanced Internet electronic data exchange
systems in conjunction with our education portal and e-commerce Website.
These systems result in improved speed and efficiency. Our information
systems include:
* Electronic Data Interchange (EDI) to ensure fulfillment from
suppliers, distributors and manufacturers;
* Virtual Private Networks (VPN) solutions for secure transactions;
* Web-based e-mail, order approval and processing, payment
processing and merchant account processing;
* Office administration, electronic accounting and reporting; and
* Real time pricing, auto-generated proposal templates and on-demand
customer profiles.
Our on-line information systems infrastructure, including our e-commerce
Website, are hosted by The August Group, Inc. (August Group) in
Frederick, Maryland. August Group provides redundant communication lines
on honed T3 backbones from multiple stand-by providers, 24-hour monitoring
and engineering support, its own independent generators and
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multiple data back-up systems. Our operations offices utilize T1 landlines
for voice and data, Satellite communications and Fast-Ethernet networking,
providing high-speed access to our information systems for all staff. The
Satellite communications system provides each and every user with 400kbs
bandwidth, providing the optimal customer support response times and
efficiency of business operations.
Our systems are based on industry-standard architectures, which have
been designed to minimize downtime in case of outages or catastrophes. Our
systems ensure 24-hours-a-day, 7-days-a-week availability. Our transaction
processing methods and databases are designed without arbitrary capacity
constraints and are scalable to handle increased volume demands that are
both expected and unexpected. We have implemented load balancing systems
and redundant servers to provide for fault tolerance and secure systems, to
promote maximum uptime.
COMPETITION
The education market is diverse and new technological teaching
strategies are becoming a requirement. The Company believes that the
principal competitive factors in our market include:
* Teacher and trainer staff development and skill sets;
* Service features such as adaptability, scalability and the
ability to integrate customer curriculum requirements;
* Quality control of implementation and service teams;
* Ever-greening of technology (keeping all aspects of the
technology up to date); and
* Pricing and budgets.
Our competitors vary in size and in the scope and breadth of the
products and services they offer. Schools' and businesses' in-house
technical personnel, systems integrators and hardware vendors are
competition for our solutions. Large computer manufacturers, such as
Gateway and Dell, are installing computer classrooms in schools and
businesses. There are several small regional education resellers in the
United States that are also competitors with us in their respective
territories.
Competition in the e-commerce sector is similarly varied and diverse.
Our competitors with substantial market share in e-commerce include:
* CLASSROOMDIRECT.COM(TM) sells a variety of educational products
and services on the Internet. Formerly known as Re-Print,
ClassroomDirect.com began selling direct to classroom teachers in
1992 and has grown into one of the largest distributors of
educational goods and services. Technology solutions for
education were added in 1998 with the acquisition and integration
of Education Access.
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<PAGE>
* KICKSTART.COM(TM) is an on-line fundraising service for non-profit
organizations that allows non-profit organizations to
build a portal site with a search engine, links to other sites,
and information about the organization. The non-profit
organization raises funds by promoting links to other sites that
sell items and the non-profit is given a specified percentage of
the revenue. KickStart.com(TM) is actively marketing through
parent organizations in technologically-advanced neighborhoods.
* AMAZON.COM(TM) is one of the most widely recognized e-commerce
portals. The company offers a wide range of books, videos, CDs,
DVDs, and other published products to adult and youth on-line buyers.
We believe that the growth of competitors in the educational market
demonstrates the viability of the market for businesses that understand the
market. We do not believe that all the needs of the market are being
addressed. We believe the educational market demands:
* Capacity to purchase products on-line securely;
* A large and diverse product base;
* Educational products or services; and
* A rewards or incentives program for on-line purchasing.
CUSTOMER SERVICE
We are dedicated to providing exceptional customer and technical
support services. We currently have 4 employees dedicated to customer
service and plan to add additional technical and customer service employees
in the near future. Our customer service personnel are trained and
proficient in a wide range of technologies including the full scope of our
products. The staff has a broad knowledge base that allows them to assist
with and solve technical issues. Our various methods of technical and
customer support include toll-free technical telephone support, Website
"on-line" technical assistance, and email correspondence. It is our intent
that by utilizing many different styles and methods of support protocol, we
can provide services that result in superior results and a high degree of
customer satisfaction.
Customer service and support is also critical to the success of any
business that involves the Internet. We believe that our sales approach
will be crucial to providing the support that schools and businesses need
for on-line purchasing. In addition to providing personal support, we are
building a customer support and call center that focuses on providing
useful product knowledge through friendly, courteous customer
representatives. A third party will operate this call center under an
agreement with us. Customer representatives will be trained within
specific content areas such as office supplies, computers and networking,
software, and entertainment products.
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INTELLECTUAL PROPERTY
Although our business model and the services we provide define our
business, our software and copyrights, service marks, trademarks, trade
dress, trade secrets, proprietary technology and similar intellectual
property are also very important to our success. We intend to rely on a
combination of trademark and copyright laws, trade secret protection,
confidentiality and/or license agreements with our employees, customers,
suppliers, consultants and others to protect our proprietary rights. We
have applied for the registration of certain trademarks and service marks
in the United States and may seek international protection where
appropriate and feasible. We have applied for trademark protection for our
proprietary software and related products. In the future, we may license
certain proprietary rights such as trademarks, technology and copyrighted
material to third parties. Currently, protection of our intellectual
property has been limited due to a lack of funds. Our current financial
circumstances reduce our ability to prosecute any potential infringement.
EMPLOYEES
As of February 1, 2000, we had 27 full-time employees, including 14 in
marketing and sales development, 4 in customer service, 2 in development
and 7 with management and administrative responsibilities. We also use
both individual and corporate independent contractors to support in house
capabilities of marketing and professional relations, graphics design,
software development and programming. No union represents our employees,
and we believe our employee relations are good.
FACILITIES
Our corporate headquarters is located in Denver, Colorado, which we
sublease on a month to month sublease from an affiliated company for
$3,200. The headquarters leasehold consists of 2,500 square feet. Our
operations office, located in Longmont, Colorado, encompasses approximately
6,300 square feet and is leased at $5,900 per month, for five years with
the lease expiring in 2003. Our operations office includes one seven
station and one twelve station state-of-the-art computerized training
classroom. The facilities also include a thirteen-station learning
solution classroom, showcasing the latest in technology from on-demand
video delivery to interactive desktop distance learning. We believe our
existing facilities are adequate for current requirements and that
additional space can be obtained on commercially reasonable terms to meet
future requirements.
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MANAGEMENT
DIRECTORS, OFFICERS AND KEY PERSONNEL
The Officers and Directors of the Company are as follows:
Name Title
- ----------------- ----------------------------------------
Robert D. Arnold Chairman of the Board of Directors, Chief
Executive Officer, Director
Michael V. Schranz Treasurer, Secretary, Chief Financial Officer,
Director
D. Gary Nelson President, Director
Dean C. Myers Vice President of Operations, Director
Robert C. Vaughan Vice President, Director
David Clem(1)(2) Director
Allan R. Short Director
____________________
(1) Messrs. Clem and Short serve as the members of the Company's
Audit Committee. Mr. Schranz attends meetings of the Audit Committee
in an advisory capacity.
(2) Messrs. Clem and Short serve as the members of the Company's
Compensation Committee. Mr. Nelson attends meetings of the
Compensation Committee in an advisory capacity.
Each of the Directors of the Company hold office for a one-year period
expiring August 16, 2000. At present, the Company's By-laws provide for
not less than five Directors nor more than eleven Directors. Currently,
there are seven Directors in the Company. The By-laws permit the Board of
Directors to fill any vacancy and such Director may serve until the next
annual meeting of shareholders or until his successor is elected and
qualified. Officers serve at the discretion of the Board of Directors.
There are no family relationships among any officers or Directors of the
Company. The officers of the Company devote full time to the business of
the Company.
The principal occupations and business experience for each officer and
Director of the Company for at least the last five years are as follows:
ROBERT D. ARNOLD, age 61, became Chairman of the Board of Directors,
Chief Executive Officer and Director of the Company in March 1998. In
addition, he served as a Director, Chairman and Chief Executive Officer of
our former subsidiary. Mr. Arnold has 33 years of investment banking,
entrepreneurial management, and sales experience with companies in the
technology, proprietary education, finance, and energy sectors, including
extensive private placement financing in the USA and Europe. Prior to
entering the investment business, Mr.
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Arnold spent 12 years as a teacher and supervisor in secondary education.
From August 1973 to July 1978, Mr. Arnold was in sales management with
Aegon USA, a life insurance and financial company; from July 1978 to August
1979, Mr. Arnold was an institutional sales manager with NYSE member
Newhard, Cook, and Co. an NASD member broker-dealer and institutional
investment advisor; from September 1979 to June 1992, Mr. Arnold was an
independent consultant; and from August 1992 to March 1999, Mr. Arnold is
the Managing Director of One Capital Corporation, a financial consulting
firm in Denver and New York City. Mr. Arnold holds a Masters in Educational
Administration and Supervision from the University of Illinois earned in
1968 and a Bachelor of Arts from Wheaton College awarded in 1961.
MICHAEL V. SCHRANZ, age 56, became Treasurer, Secretary, Chief
Financial Officer and Director of the Company in March 1998. In addition,
he served as Secretary, Treasurer, Chief Financial Officer and a Director
of our former subsidiary. Mr. Schranz has 29 years advising public
companies on financial and regulator issues, including management
experience in the energy industry. From June 1975 to January 1977, Mr.
Schranz worked as an audit and tax manager of Laventhol & Horwath, a public
accounting firm in Denver, Colorado. From February 1977 to January 1980,
he was the chief financial officer of CleveRock Energy, Inc. of Denver,
Colorado, which was subsequently purchased by Lexicon Resources, Inc. From
January 1980 to August 1990, Mr. Schranz was an officer and director of
Overthrust Resources, Inc. of Denver, Colorado. From August 1990 to March
1998, he was a managing partner of One Capital Corporation, a financial
consulting firm in Denver, Colorado. Mr. Schranz holds a Masters of
Business Administration from the University of Denver earned in 1975, a
Bachelors of Science in Civil Engineering/Industrial Management from Purdue
University earned in 1965, a CPA license awarded in 1977, and is a member
of the Colorado and American Societies of Certified Public Accountants.
D. GARY NELSON, age 47, is the founder of Lab Technologies, Inc. the
predecessor company to N-Gen. In January 2000, he became our President and
a Director. Since 1984, he served as a Director and President of our
former subsidiary. From 1976-1977, Mr. Nelson taught Industrial Arts in
the Dallas Independent School District. From 1977-1984, he served as an
educational consultant for Brodhead-Garrett, a technical education and
supply company. In 1984, Mr. Nelson founded Lab Technologies, Inc. to
assist educators in integrating academic and technological skills into the
classroom. Mr. Nelson received his Bachelor of Science Degree in
Industrial Arts from North Texas State University in 1976.
DEAN C. MYERS, age 29, joined Lab Technologies, Inc., the predecessor
company to N-Gen, in 1992 providing technical as well as sales support. In
January 2000 he became our Vice President of Operations, Chief Technical
Officer and a Director. As Chief Technical Officer, Mr. Myers works with
our customers in designing and implementing the technology used in our
learning solution classrooms. Mr. Myers graduated from Colorado State
University in 1992, with a Bachelor of Science Degree in Electrical
Engineering.
ROBERT C. VAUGHAN, age 64, has served as Vice President and Director
of the Company since January 2000 and has served as a chief executive
officer and chief operating officer with numerous other firms over the past
twenty years. From August 1981 to December 1999, Mr. Vaughan managed the
Orbis Group, a business-consulting firm in Phoenix, Arizona providing
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merger and acquisition, marketing, finance and other services. In
addition, from 1994 to 1997, Mr. Vaughan was a mergers and acquisitions
consultant to long distance telecommunication firms in Phoenix, Arizona and
elsewhere. Mr. Vaughan attended the University of Wisconsin in 1954.
DAVID CLEM, age 45, has served as a Director of the Company since
March 1998. He has 15 years experience in the telecommunications industry.
After spending many years as a real estate developer/broker in southern
California, he cofounded and directed the development of Call America,
Inc., a long distance telecommunications company, beginning in 1983. After
11 years, Mr. Clem sold his business to US Long Distance, a Texas-based
major, publicly traded telecommunications firm, joining them as vice
president to develop new markets and evaluate acquisition candidates.
Currently, Mr. Clem manages an investment portfolio and is active in the
Company's acquisition selections. He received a Bachelor's degree in
Business Administration from California Polytechnic State University - San
Louis Obispo in 1977.
ALLAN R. SHORT, age 46, became a Director of the Company in January
2000. In addition, he served as Chief Operating Officer and Director of
our former subsidiary since 1998. Mr. Short has over 20 years of
experience in higher education. From 1979 to 1982, he was the Director of
Administrative Services for Denver Automotive & Diesel College in Denver,
Colorado. From 1982-1986, Mr. Short served as the Director of
Administration for American Diesel & Automotive College in Denver,
Colorado. Mr. Short was a Director and Chief Executive Officer of Wooster
Business College in Cleveland, Ohio from 1986 to 1989. From 1989 to 1998,
he was the President and Chief Executive Officer of AccuTech Business
Institute in Frederick, Maryland. Mr. Short has extensive experience in
higher education financial aid regulations, school administrative and
business plan development, new program approvals and curriculum
development, accreditation procedures and requirements, and marketing and
sales staff training. He received a Bachelor of Science in Theology and
Economics from Edgewood Dominican College in Madison, Wisconsin in 1979 and
completed graduate courses in Education at University of Denver, in Denver,
Colorado from 1984 to 1985.
KEY EMPLOYEES
JOSEPH FORD, age 28, joined the Company in October 1999, as our
E-Commerce Director. He is in charge of developing our e-commerce initiative
and integrating this concept into our existing business model. From 1997
to 1998 he was a program analyst in the Office of the Secretary of the
United States Department of Health and Human Services. From 1998 to 1999
he was in charge of sales and marketing for The August Group, Inc., an
e-commerce design, development and implementation company, in Frederick,
Maryland. Mr. Ford received his Masters Degree in social work from the
University of Maryland at Baltimore in 1998 and received his Bachelor of
Arts Degree from Mt. St. Mary's College in Emmitsburg, Maryland in 1995.
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EXECUTIVE COMPENSATION
The following table sets forth remuneration in excess of $100,000
proposed to be paid by the Company to certain Officers and Directors of the
Company whose total compensation will or currently exceeds $100,000 and to
all Officers and Directors as a group:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
---------------------------------------------------------------------------------
Other All
Name Annual Restricted LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus(1) sation Award(s) SARs outs sation(2)(3)
Position Year ($) ($) ($) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert D. Arnold 1999 $156,000 $ 0 $ 0 N/A -0- N/A $10,000
Chairman of the 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
Board, CEO, 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
Director
Michael V. Schranz 1999 $125,000 $ 0 $ 0 N/A -0- N/A $10,000
Treasurer, 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
Secretary, CFO, 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
Director
D. Gary Nelson 1999 $108,000 $ 0 $ 0 N/A -0- N/A $10,000
President, 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
Director 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
Dean C. Meyers 1999 $ 92,000 $ 0 $ 0 -- -0- -- $10,000
Vice President 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
And Director 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
____________________
</TABLE>
(1) The Company has entered into employment agreements with D. Gary Nelson
and Dean C. Meyers, which include certain incentive bonuses, not to
exceed 50% of their annual income.
(2) The Officers of the Company may receive remuneration as part of an
overall group insurance plan providing health, life and disability
insurance benefits for employees of the Company. The amount allocable
to each individual Officer cannot be specifically ascertained, but, in
any event, will not exceed $10,000 as to each individual.
(3) Each Director of the Company is entitled to receive reasonable
expenses incurred in attending meetings of the Board of Directors of
the Company. The members of the Board of Directors intend to meet at
least quarterly during the Company's fiscal year, and at such other
times duly called. The Company presently has seven Directors.
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STOCK OPTIONS
We have no currently outstanding options issued to any person,
including our Officers and Directors. We may issue options in the future.
At the conclusion of the public offering, we may adopt an employee stock
option plan. If any such plan were to receive favorable tax treatment as
are incentive stock option plans, affirmative vote of the shareholders to
adopt the plan would be required.
EMPLOYMENT AGREEMENTS
In February 2000, n-Gen entered into an employment agreement with Dean
C. Meyers, our Vice President of Operations for a three-year period at an
annual salary of $92,000 per year. In addition, Mr. Meyers is eligible for
annual bonuses based on revenue targets to be established by the Board of
Directors. The bonuses payable in any year are not permitted to exceed 50%
of Mr. Meyers' annual salary. Mr. Meyers received 100,000 shares of the
Company's Common Stock in connection with his employment, subject to future
adjustment in the event the Company does not complete a public offering.
Such grant of shares to Mr. Meyers was not made subject to any vesting
requirement.
In March 1999, n-Gen entered into an employment agreement with Gary D.
Nelson, our President, for a three-year period at an annual salary of
$108,000. In addition, Mr. Nelson may receive incentive bonuses as may be
determined by the Board of Directors. Bonuses payable in any year may not
exceed 50% of Mr. Nelson's annual salary. Mr. Nelson also receives
customary health ad life insurance benefits.
LIMITATION ON LIABILITY OF DIRECTORS
Our Certificate of Incorporation includes provisions which eliminate
the personal liability of officers and Directors for monetary damages
resulting from breaches of their fiduciary duty (except for liability for
breaches of the duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the Delaware General Corporation Law
("DGCL") or for any transaction from which the Director derived an improper
personal benefit). We believe that these provisions are necessary to
attract and retain qualified persons as Directors and officers.
Section 145 of the DGCL permits indemnification by a corporation of
certain officers, Directors, employees and agents. Our Certificate of
Incorporation provides that we will indemnify, to the fullest extent
permitted under law, each of our Directors and officers with respect to all
liability and loss suffered and expenses incurred by such person in any
action, suit or proceeding in which such person was or is made or
threatened to be made a party or is otherwise involved by reason of the
fact that such person is or was one of our Directors or officers. We are
also obligated to pay the expenses of the Directors and officers incurred
in defending such proceedings, subject to their obligation to reimburse the
Company, if it is subsequently determined that such person is not entitled
to indemnification.
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We intend to obtain a policy of insurance under which our Directors
and officers will be insured, subject to the limits of the policy, against
certain losses arising from claims made against such Directors and officers
by reason of any acts or omissions covered under such policy in their
respective capacities as Directors or officers, including liabilities under
the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our Directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we
have been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our outstanding Common Stock as of March 1, 2000
and as adjusted to reflect this offering by:
* each person who is the beneficial owner of more than 5% of our
capital stock;
* each of our Directors;
* each of our named Executive Officers in the summary compensation
table;
* all of our named Executive Officers and Directors as a group.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
-------------------- --------------------
Before Offering(1) After Offering(1)
------------------ -----------------
Name and Address Shares Percent Shares Percent
- ---------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Robert D. Arnold 1,760,000(2) 29.6% 1,760,000(2) 23.3%
410 17th Street
Suite 1940
Denver, CO 80202
Michael V. Schranz 150,000 2.5% 150,000 2.0%
410 17th Street
Suite 1940
Denver, CO 80202
Allan R. Short 140,000 2.4% 140,000 1.9%
1357 43rd Avenue
Greeley, CO 80634
D. Gary Nelson 160,000 2.7% 160,000 2.1%
1604 Sunset Street
Longmont, CO 80501
Dean C. Myers 100,000 1.7% 100,000 1.3%
685 Ridge View Drive
Louisville, CO 80027
Robert C. Vaughan 1,000,000 16.8% 1,000,000 13.2%
2315 Kachina Street
Mesa, AZ 85203
David Clem 1,580,000 26.6% 1,580,000 21.0%
P.O. Box 10379
Zephyr Cove, WV 89448
All Executive Officers
and Directors as a
group (7 persons) 4,890,000 82.3% 4,890,000 64.8%
</TABLE>
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_____________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule 13d-
3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose
of calculating the number and percentage owned by each other person listed.
(2) Includes a total of 300,000 shares of Common Stock owned beneficially
by Mr. Arnold's wife and children.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company (formerly know as AAE Education Corporation) was
incorporated in the State of Delaware in July 1998 and currently has
authorized capital of 30,000,000 shares, .0001 par value per share,
consisting of 25,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. There are currently 5,940,000 shares of Common Stock
issued and outstanding and at the completion of our public offering, there
will be 7,540,000 shares of Common Stock issued and outstanding. See
"Principal Shareholders" and "Description of Securities."
On March 26, 1999, Gary D. Nelson, the Company's President, sold all
of his issued and outstanding shares of Lab Technologies, Inc. ("Lab Tech")
to n-Gen for $50,000 in cash and a promissory note in the amount of
$550,000 at an interest rate of 8% commencing in July 1999 in monthly
installments with a final payment of the balance in April 2004. In
addition, Mr. Nelson received 160,000 shares of n-Gen Common Stock, a
second promissory note of $100,000 at 8% per annum, distribution of
$200,000 in the predecessor sub-chapter s corporation, retained earnings,
repayment of an existing $100,000 promissory note and a five (5) year
employment agreement.
DESCRIPTION OF SECURITIES
COMMON STOCK
Our authorized capital stock of the Company consists of 30,000,000
shares consisting of 25,000,000 shares of Common Stock and 5,000,000 shares
of Preferred Stock, $.0001 value. There are presently 5,940,000 issued and
outstanding shares of Common Stock. Holders of the Common Stock do not
have preemptive rights to purchase additional shares of Common Stock or
other subscription rights. The Common Stock carries no conversion rights
and is not subject to redemption or to any sinking fund provisions. All
shares of Common Stock are entitled to share equally in dividends from
sources legally available therefore when, as and if declared by the Board
of Directors and, upon liquidation or dissolution of the Company, whether
voluntary or involuntary, to share equally in the assets of the Company
available for distribution to stockholders. All outstanding shares are
validly authorized and issued, fully paid and
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nonassessable. The Board of Directors is authorized to issue additional
shares of Common Stock, not to exceed the amount authorized by the
Company's Certificate of Incorporation, and to issue options and warrants
for the purchase of such shares on such terms and conditions and for such
consideration as the Board may deem appropriate without further stockholder
action. Each holder of Common Stock is entitled to one vote per share on
all matters on which such stockholders are entitled to vote. Since the
shares of Common Stock do not have cumulative voting rights, the holders of
more than 50% of the shares voting for the election of Directors can elect
all Directors if they choose to do so and, in such event, the holders of
the remaining shares will not be able to elect any person to the Board of
Directors. The above description concerning the Common Stock of the
Company does not purport to be complete. Reference is made to the
Company's Certificate of Incorporation and By-laws, which are available for
inspection at the Company's principal executive offices, as well as to the
applicable statutes of the State of Delaware for a more complete
description concerning the rights and liabilities of stockholders under
Delaware law.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval
of the Company's shareholders, to cause up to 5,000,000 shares of Preferred
Stock to be issued in one or more series and to establish the number of
shares to be included in each such series and their respective
designations, preferences, limitations and relative rights, including
voting rights. Because the Board of Directors has the power to establish
the preferences and rights of each series, it may afford the holders of any
series of Preferred Stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of Common Stock. This includes,
among other things, voting rights, conversion privileges, dividend rates,
redemption rights, sinking fund provisions and liquidation rights which
shall be superior to the Common Stock issued to purchasers in this
offering. Future issuance of shares of Preferred Stock could have the
effect of delaying or preventing a change in control of the Company. No
shares of Preferred Stock will be outstanding at the close of this
Offering. The Board of Directors has no current plans to issue any shares
of Preferred Stock.
WARRANTS
Prior to this offering, there were no Warrants issued and outstanding.
The Warrants will be issued in registered form under an agreement dated on
the date of this Prospectus ("Warrant Agreement"), between n-GEN and
American Securities Transfer, Inc., Denver, Colorado, as warrant agent (the
"Warrant Agent"). The following discussion of certain terms and provisions
of the Warrants is qualified in its entirety by reference to the Warrant
Agreement. A form of the certificate representing the Warrants which forms
a part of the Warrant Agreement has been filed as an exhibit to the
registration statement of which this Prospectus forms a part.
Each of the Warrants entitles the registered holder to purchase one
share of common stock. The Warrants are exercisable at a price of $5.50
(which exercise price has been arbitrarily determined by n-GEN and the
Underwriter) subject to certain adjustments. The Warrants are entitled to
the benefit of adjustments in their exercise prices and in the number of
shares of
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common stock or other securities deliverable upon the exercise thereof in
the event of a stock dividend, stock split, reclassification,
reorganization, consolidation or merger.
The Warrants may be exercised at any time and continuing thereafter
until the close of five years from the date hereof, unless such period is
extended by n-GEN. After the expiration date, Warrant holders shall have no
further rights. Warrants may be exercised by surrendering the certificate
evidencing such Warrant, with the form of election to purchase on the
reverse side of such certificate properly completed and executed, together
with payment of the exercise price and any transfer tax, to the Warrant
Agent. If less than all of the Warrants evidenced by a Warrant certificate
are exercised, a new certificate will be issued for the remaining number of
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as
shareholders of n-GEN. N-GEN has the right at any time to redeem the
Warrants, at a price of $.05 per warrant, by written notice to the
registered holders thereof, mailed not less than thirty (30) nor more than
sixty (60) days prior to the Redemption Date. N-GEN may exercise this
right only if the closing bid price for the Common Stock equals or exceeds
$10 per share during a thirty (30) consecutive trading day period ending no
more than fifteen (15) days prior to the date that the notice of redemption
is mailed, provided there is then a current registration statement under
the Securities Act of 1933, as amended (the "Act") with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. If
n-GEN exercises its right to call Warrants for redemption, such Warrants may
still be exercised until the close of business on the day immediately
preceding the Redemption Date. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable, and the holder
thereof will be entitled only to the repurchase price. Notice of redemption
will be mailed to all holders of Warrants or record at least thirty (30)
days, but not more than sixty (60) days, before the Redemption Date. The
foregoing notwithstanding, n-GEN may not call the Warrants at any time that
a current registration statement under the Act is not then in effect. Any
redemption of the Warrants during the one-year period commencing on the
date of this Prospectus shall require the written consent of the Underwriter.
The Warrant Agreement permits n-GEN and the Warrant Agent, without the
consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that n-GEN and the Warrant
Agent deem necessary or desirable and that do not adversely affect the
interest of any Warrant holder. N-GEN and the Warrant Agent may also
supplement or amend the Warrant Agreement in any other respect with the
written consent of holders of not less than a majority in the number of
Warrants then outstanding; however, no such supplement or amendment may (i)
make any modification of the terms upon which the Warrants are exercisable
or may be redeemed; or (ii) reduce the percentage interest of the holders
of the Warrants without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an
effective registration statement, with a current prospectus on file with
the Securities and Exchange Commission covering the shares of common stock
underlying the Warrants, and the issuance of such shares to the holder must
be registered, qualified or exempt under the laws of the state in which the
holder
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<PAGE>
resides. If required, n-GEN will file a new registration statement with
the Securities and Exchange Commission with respect to the securities
underlying the Warrants prior to the exercise of such Warrants and will
deliver a prospectus with respect to such securities to all holders thereof
as required by Section 10(a)(3) of the Securities Act of 1933, as amended.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering we will have outstanding 7,645,250
shares of Common Stock, including 5,010,000 shares outstanding at September
30, 1999, 105,250 shares issued upon conversion of the promissory note at
completion of this offering and shares issued in this offering, assuming no
exercise of the Underwriters' over-allotment option on any other option on
Warrant. Excluding the 1,600,000 shares of Common Stock offered hereby and
assuming no exercise of the Underwriters' over-allotment option or any
other options or Warrants, as of the effective date of the registration
statement, there will be 6,045,250 shares of Common Stock outstanding, all
of which are "restricted" shares under the Securities Act. All restricted
shares are subject to lock-up agreements with the Underwriters pursuant to
which the holders of the restricted shares have agreed not to sell, pledge
or otherwise dispose of such shares for a period of fifteen (15) months
after the date of this Prospectus. The Underwriter may release the shares
subject to the lock-up agreements in whole or in part at any time with or
without notice. However, the Underwriter has no current plans to do so.
The following table indicates approximately when the 6,045,250 shares
of our Common Stock that are not being sold in the offering but which will
be outstanding at the time the offering is complete will be eligible for
sale into the public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
At effective date . . . . . . . . . . . . . . . . . . . . . . . 0
Fifteen months after effective date . . . . . . . . . . 6,045,250
Most of the restricted shares that will become available for sale in
the public market beginning 90 days after the effective date will be
subject to volume and other resale restrictions pursuant to Rule 144
because the holders are our affiliates. The general provisions of Rule 144
are described below.
In general, under Rule 144, any of our affiliates, or person, or
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of:
* 1% of the then outstanding shares of the Common Stock,
approximately 76,000 shares immediately after this offering, or
* the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales pursuant to Rule 144 are subject to requirements relating to
manner of sale, notice and availability of current public information about
us. A person, or persons whose shares are aggregated, who is not deemed to
have been one of our affiliates at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or shares for at
least two years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above.
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<PAGE>
LOCK-UP AGREEMENTS
All Officers and Directors and all of the holders of Common Stock have
agreed pursuant to "lock-up" agreements that they will not offer, sell,
contract to sell, pledge, grant any option to sell, or otherwise dispose
of, directly or indirectly, any shares of Common Stock or securities
convertible or exchangeable for Common Stock, or Warrants or other rights
to purchase Common Stock for a period of fifteen (15) months after the date
of this Prospectus without the prior written consent of the Underwriter.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our securities is American
Securities Transfer & Trust, Inc., 12039 W. Alameda Parkway, Lakewood,
Colorado 80228.
REPORTS TO SECURITY-HOLDERS
We will furnish to holders of our securities annual reports containing
audited financial statements. We may issue other unaudited interim reports
to our security-holders as we deem appropriate. Contemporaneously, with
this offering, we intend to register our securities with the Securities and
Exchange Commission under the provisions of Section 12(g) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, we will be required to comply with certain reporting, proxy
solicitation and other requirements of the Exchange Act.
UNDERWRITING
Subject to the material terms and conditions of the Underwriting
Agreement, all of which are included herein, Barron Chase Securities, Inc.,
the Underwriter, has agreed to purchase from n-GEN an aggregate of
1,600,000 shares of Common Stock and 1,600,000 Warrants. The securities are
offered by the Underwriter subject to prior sale, when, as and if delivered
to and accepted by counsel and certain other conditions. The Underwriter is
committed to purchase all of the securities offered by this Prospectus, if
any are purchased (other than those covered by the over-allotment option
described below).
We have been advised by the Underwriter that the Underwriter proposes
to offer the securities to the public at the offering prices set forth on
the cover page of this Prospectus. The Underwriter has advised us that the
Underwriter proposes to offer the securities through members of the
National Association of Securities Dealers, Inc. ("NASD"), and may allow
concessions, in its discretion, to certain selected dealers who are members
of the NASD and who agree to sell the securities in conformity with the
NASD's Conduct Rules. Such concessions will not exceed the amount of the
underwriting discount that the Underwriter is to receive.
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<PAGE>
We have granted to the Underwriter an over-allotment option,
exercisable for 45 days from the effective date of the offering, to
purchase up to an additional 240,000 shares of Common Stock and an
additional 240,000 Warrants at the respective public offering prices less
the underwriting discounts set forth on the cover page of this Prospectus.
The Underwriter may exercise this option solely to cover over allotments in
the sale of the securities being offered by this Prospectus.
Our officers and Directors may introduce the Underwriter to persons to
consider this offering and to purchase securities either through the
Underwriter or through participating dealers. In this connection, no
securities have been reserved for those purchases and officers and
directors will not receive any commissions or any other compensation. We
have agreed to pay to the Underwriter a commission of ten percent (10%) of
the gross proceeds of this offering which is the underwriting discount,
including the gross proceeds from the sale of the over-allotment option, if
exercised. In addition, we have agreed to pay to the Underwriter the non-
accountable expense allowance of three percent (3%) of the gross proceeds
of this offering, including proceeds from any securities purchased pursuant
to the over-allotment option. We have paid to the Underwriter a $50,000
advance with respect to the non-accountable expense allowance. The
Underwriter's expenses in excess of the non-accountable expense allowance
will be paid by the Underwriter. To the extent that the expenses of the
Underwriter are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional
compensation to the Underwriter. The Underwriter has informed us that it
does not expect sales of discretionary accounts to exceed five percent (5%)
of the total number of securities offered by us.
We have agreed to engage the Underwriter of the offering as a
financial advisor for a fee of $108,000, which is payable to the
Underwriter on the closing date. Under the terms of a financial advisory
agreement, the Underwriter has agreed to provide, at our request, advice to
us concerning potential merger and acquisition and financing proposals,
whether by public financing or otherwise. With regard to the Underwriter's
engagement to locate mergers or acquisitions for us, the Underwriter does
not have any current plans, proposals, arrangements or understandings in
this regard. We have also agreed that if we participate in any transaction
which the Underwriter has introduced in writing to us during a period of
five years after the closing (including mergers, acquisitions, joint
ventures and any other business transaction for us introduced in writing by
the Underwriter), and which is consummated after the closing (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares or other securities of n-GEN), or if we retain the services of the
Underwriter in connection with any such transaction, then we will pay for
the Underwriter's services an amount equal to 5% of up to one million
dollars of value paid or received in the transaction, 4% of the next one
million dollars of such value, 3% of the next one million dollars of such
value, 2% of the next one million dollars of such value, and 1% of the next
million dollars of such value and of all such value above $4,000,000.
Prior to this offering, there has been no public market for the shares
of Common Stock or the Warrants. Consequently, the initial public offering
prices for the securities, and the terms of the Warrants (including the
exercise price of the Warrants), have been determined by negotiation
between n-GEN and the underwriter. Among the factors considered in
determining the public
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<PAGE>
offering prices were the history of, and the prospects for, our business,
an assessment of our management, our past and present operations, our
development and the general condition of the securities market at the time
of this offering. The initial public offering prices do not necessarily
bear any relationship to our assets, book value, earnings or other
established criteria of value. Such prices are subject to change as a
result of market conditions and other factors, and no assurance can be
given that a public market for the shares or the Warrants will develop
after the closing, or if a public market in fact develops, that such public
market will be sustained, or that the shares or the Warrants can be resold
at any time at the offering or any other price.
At the closing, we will issue to the Underwriter and/or persons
related to the Underwriter, for nominal consideration, the Common Stock
Underwriter Warrants to purchase up to 160,000 shares of Common Stock and
the Underwriter Warrant Options to purchase up to 160,000 Warrants. The
Common Stock Underwriter Warrants, the Underwriter Warrant Options and the
underlying Warrants are sometimes referred to in this Prospectus as the
"Underwriter Warrants." The Common Stock Underwriter Warrants and the
Underwriter Warrant Options will be exercisable for a five-year period
commencing on the effective date. The initial exercise price of each Common
Stock Underwriter Warrant shall be $8.00 per underlying share (160% of the
public offering price). The initial exercise price of each Underwriter
Warrant Option shall be $0.20 per underlying Warrant (160% of the public
offering price). Each underlying Warrant will be exercisable for a five-year
period commencing on the effective date to purchase one share of
Common Stock at an exercise price of $8.00 per share (160% of the public
offering price) of Common Stock. The Underwriter Warrants will be
restricted from sale, transfer, assignment or hypothecation for a period of
twelve months from the effective date by the holder, except (i) to officers
of the Underwriter and members of the selling group and officers and
partners thereof; (ii) by will; or (iii) by operation of law.
The Common Stock Underwriter Warrants and the Underwriter Warrant
Options contain provisions providing for appropriate adjustment in the
event of any merger, consolidation, recapitalization, reclassification,
stock dividend, stock split or similar transaction. The Underwriter
Warrants contain net issuance provisions permitting the holders thereof to
elect to exercise the underwriter warrants in whole or in part and instruct
n-GEN to withhold from the securities issuable upon exercise, a number of
securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the
effect of requiring n-GEN to issue shares of Common Stock without a
corresponding increase in capital. A net exercise of the Underwriter
Warrants will have the same dilutive effect on the interests of our
shareholders as will a cash exercise. The Underwriter Warrants do not
entitle the holders thereof to any rights as a shareholder of n-GEN until
such Underwriter Warrants are exercised and shares of Common Stock are
purchased thereunder.
The Underwriter Warrants and the securities issuable thereunder may
not be offered for sale except in compliance with the applicable provisions
of the Securities Act. We have agreed that if we shall cause a post-effective
amendment, a new registration statement or similar offering document to be
filed with the Commission, the holders shall have the right, for seven (7)
years from the effective date, to include in such registration statement or
offering statement the Underwriter Warrants and/or the securities issuable
upon their exercise at no expense to the holders. Additionally, we have
agreed that, upon request by the holders of 50% or more of the
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<PAGE>
Underwriter Warrants during the period commencing one year from the
effective date and expiring four years thereafter, we will, under certain
circumstances, register the Underwriter Warrants and/or any of the
securities issuable upon their exercise.
In order to facilitate the offering of the Common Stock and Warrants,
the Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the Common Stock and Warrants. Specifically,
the Underwriter may over allot in connection with the offering, creating a
short position in the Common Stock and Warrants for its own account. In
addition, to cover over-allotments or to stabilize the price of the Common
Stock and Warrants, the Underwriter may bid for, and purchase, shares of
Common Stock and Warrants in the open market. Finally, the Underwriter may
reclaim selling concessions allowed to a dealer for distributing the Common
Stock and Warrants in the offering, if the Underwriter repurchases
previously distributed Common Stock or Warrants in transactions to cover
the Underwriter's short position in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market
price of the Common Stock and Warrants above independent market levels. The
Underwriter is not required to engage in these activities and may end any
of these activities at any time.
We have agreed to indemnify the Underwriter against any costs or
liabilities incurred by the Underwriter by reason of misstatements or
omissions to state material factors in connection with the statements made
in the registration statement filed by n-GEN with the Commission under the
Securities Act (together with all amendments and exhibits thereto, the
"Registration Statement") and this Prospectus. The Underwriter has in turn
agreed to indemnify n-GEN against any costs or liabilities by reason of
misstatements or omissions to state material facts in connection with the
statements made in the Registration Statement and this Prospectus, based on
information relating to the Underwriter and furnished in writing by the
Underwriter. To the extent that these provisions may purport to provide
exculpation from possible liabilities arising under the federal securities
laws, in the opinion of the Securities and Exchange Commission, such
indemnification is contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the
Registration Statement.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation that arises in the
normal course of business operations. As of the date of this Prospectus,
n-GEN is not a party to any legal proceedings and, to the best of our
information, knowledge and belief, none is contemplated or has been threatened.
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<PAGE>
LEGAL MATTERS
The validity of the securities being offered hereby will be passed
upon for n-GEN by Berenbaum, Weinshienk & Eason, P.C., 370 Seventeenth
Street, suite 2600, Denver, Colorado 80202-5626. Certain legal matters
will be passed upon for the Underwriter by David A. Carter, P.A., 2300
Glades Road, Suite 210W, Boca Raton, Florida 33431.
EXPERTS
The financial statements of the Company as of and for the nine months
ended September 30, 1999 and the period July 13, 1998 (Inception) to
December 31, 1998, included in the registration statement and this
Prospectus have been included herein in reliance on the report of Gordon,
Hughes & Banks LLC, independent certified public accountants, given on the
authority of Gordon, Hughes & Banks LLC as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933, as
amended, with respect to the securities offered in this Prospectus. This
Prospectus does not contain all of the information contained in the
registration statement and the exhibits and schedules to the registration
statement. Some items are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. For further
information about n-GEN and the securities offered under this Prospectus,
you should review the registration statement and the exhibits and schedules
filed as a part of the registration statement. Descriptions of contracts
or other documents referred to in this Prospectus are not necessarily
complete. If the contract or document is filed as an exhibit to the
registration statement, you should review that contract or document. You
should be aware that when we discuss these contracts or documents in the
Prospectus we are assuming that you will read the exhibits to the
registration statement for a more complete understanding of the contract or
document. The registration statement and its exhibits and schedules may be
inspected without charge at the public reference facilities maintained by
the Securities and Exchange Commission in Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the Securities and Exchange Commission's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies may be obtained from the Securities and Exchange Commission
after payment of fees prescribed by the Securities and Exchange Commission.
The Securities and Exchange Commission also maintains a Website that
contains reports, proxy and information statements and other information
regarding registrants, including n-GEN, that file electronically with the
Securities and Exchange Commission. The address of this Website is
www.sec.gov. You may also contact the Securities and Exchange Commission by
telephone at (800) 732-0330.
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N-GEN SOLUTIONS.COM, INC.
(A DELAWARE CORPORATION)
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
CONSOLIDATED FINANCIAL STATEMENTS OF N-GEN SOLUTIONS.COM, INC.
(A DELAWARE CORPORATION):
Report of independent public accountant . . . . . . . . . . . . .F-2
Consolidated Balance Sheets at December 31, 1999
(unaudited) and September 30, 1999. . . . . . . . . . . .F-3 - F-4
Consolidated Statements of Operations --For the three
months ended December 31, 1999 (unaudited) and 1998
(unaudited), the nine months ended September 30, 1999
and the period from July 13, 1998 (Inception) to
December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . .F-5
Consolidated Statement of Stockholders' (Deficit) -- For the
period from July 13, 1998 (Inception) to September 30, 1999
and the three months ended December 31, 1999 (unaudited). . . .F-6
Consolidated Statements of Cash Flows -- For the three months
ended December 31, 1999 (unaudited) and 1998 (unaudited),
the nine months ended September 30, 1999 and the period
from July 13, 1998 (Inception) to December 31, 1998 . . .F-7 - F-8
Notes to consolidated financial statements. . . . . . . . F-9 - F-28
FINANCIAL STATEMENTS OF N-GEN SOLUTIONS.COM, INC. (A COLORADO CORPORATION)
Report of independent public accountant . . . . . . . . . . . . F-29
Statement of Operations - For the year ended
December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . F-30
Statement of Stockholders' Equity - For the year
ended December 31, 1998 . . . . . . . . . . . . . . . . . . . F-31
Statement of Cash Flows - for the year ended
December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . F-32
Notes to financial statements . . . . . . . . . . . . . .F-33 - F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
n-Gen Solutions.com, Inc. (a Delaware Corporation)
Denver, Colorado
We have audited the accompanying consolidated balance sheet of n-Gen
Solutions.com, Inc. (a Delaware corporation) and subsidiary as of September
30, 1999 and the related consolidated statements of operations,
stockholders' (deficit) and cash flows for the nine months ended September
30, 1999 and for the period July 13, 1998 (Inception) to December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of n-Gen
Solutions.com, Inc. (a Delaware corporation) and subsidiary as of September
30, 1999, and the consolidated results of its operations and cash flows for
the nine months ended September 30, 1999 and for the period July 13, 1998
(Inception) to December 31, 1998 in conformity with generally accepted
accounting principles.
GORDON, HUGHES & BANKS, LLP
February 1, 2000
Englewood, Colorado
F-2
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1999 September 30,
(Unaudited) 1999
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 453,528 $ 210,196
Accounts receivable, trade, net of allowances for
doubtful accounts of $98,590 (Unaudited) and $98,590 1,025,937 1,399,319
Employee advances 46,797 35,368
Work in progress 259,732 304,719
Inventory 42,316 42,316
------------ ------------
Total current assets 1,828,310 1,991,918
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION (NOTE 3) 198,580 199,464
OTHER ASSETS
Intangible assets, net of accumulated amortization (Note 2) 268,856 310,051
Deferred offering costs 55,248 30,000
Debt acquisition costs, net 36,160 36,606
Other 2,500 2,500
------------ ------------
362,764 379,157
------------ ------------
Total assets $ 2,389,654 $ 2,570,539
============ ============
</TABLE>
See accompanying notes to financial statements F-3
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
December 31,
1999 September 30,
(Unaudited) 1999
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 796,348 $ 1,186,221
Accounts payable - related party (Note 10) 80,418 83,218
Accrued expenses 115,514 155,081
Deferred sales revenue 258,266 293,451
Notes payable, current portion - related party (Note 4) 196,348 194,459
Notes payable - bank (Note 5) 354,335 354,859
Notes payable - investors (Note 6) 590,546 242,418
Capital lease obligation, current portion (Note 7) 46,459 45,087
------------ ------------
Total current liabilities 2,438,234 2,554,794
LONG-TERM LIABILITIES
Notes payable, net of current portion - related
party (Note 4) 409,832 434,639
Capital lease obligation, net of current portion (Note 7) 43,213 55,353
------------ ------------
Total long-term liabilities 453,045 489,992
------------ ------------
Total liabilities 2,891,279 3,044,786
COMMITMENTS (NOTES 4, 6 AND 7)
STOCKHOLDERS' (DEFICIT)
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.0001 par value, 25,000,000 shares authorized,
5,185,000 (unaudited) and 5,010,000 shares issued
and outstanding 519 501
Additional paid-in capital 667,716 507,530
Retained (deficit) (1,169,860) (982,278)
------------ ------------
Total stockholders' (deficit) (501,625) (474,247)
------------ ------------
Total liabilities and stockholders' (deficit) $ 2,389,654 $ 2,570,539
============ ============
</TABLE>
See accompanying notes to financial statements F-4
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended December 31, July 13, 1998
------------------------------- Nine Months (Inception) to
1998 ended December 31,
1999 (Unaudited) September 30, 1998
(Unaudited) (Note 1) 1999 (Note 1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Sales $ 1,423,032 $ - $ 3,328,944 $ -
Training and installation 53,178 - 106,028 -
Commissions 22,605 - 492,381 -
----------- ----------- ----------- -----------
Total revenue 1,498,815 - 3,927,353 -
COST OF GOODS SOLD 949,679 - 2,690,979 -
----------- ----------- ----------- -----------
Gross profit 549,136 - 1,236,374 -
OPERATING EXPENSES
Selling expenses 147,758 - 525,730 -
General and administration 474,637 151,680 1,117,404 244,254
Depreciation and amortization 61,188 - 178,788 -
Bad debts - - 75,060 -
----------- ----------- ----------- -----------
Total operating expenses 683,583 151,680 1,896,982 244,254
----------- ----------- ----------- -----------
(Loss) from operations (134,447) (151,680) (660,608) (244,254)
OTHER INCOME (EXPENSE)
Interest (expense) (54,528) - (95,160) -
Interest and other income 1,393 3,678 11,614 6,130
----------- ----------- ----------- -----------
NET (LOSS) $ (187,582) $ (148,002) $ (744,154) $ (238,124)
=========== =========== =========== ===========
Net (loss) per common share
Basic and dilutive earnings
per share $ (0.04) $ (0.04) $ (0.16) $ (0.06)
=========== =========== =========== ===========
Basic and dilutive weighted average
shares outstanding 5,011,882 3,994,561 4,690,515 3,994,561
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements F-5
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)
FOR THE PERIOD JULY 13, 1998 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital (Deficit) Total
--------- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, July 13, 1998 (Inception) - $ - $ - $ - $ -
Issuance of shares for
services at $.001 per share 2,170,000 217 1,953 - 2,170
Issuance of shares for
cash at $.15 per share 2,000,000 200 299,800 - 300,000
Net (loss) - - - (238,124) (238,124)
--------- ----- --------- ----------- ---------
Balance, December 31, 1998 4,170,000 417 301,753 (238,124) 64,046
Issuance of common stock ($.15 per
share) to acquire business
(Note 2) 250,000 25 37,475 - 37,500
Issuance of common stock pursuant
to sale of debt securities
($.15 per share) 100,000 10 14,990 - 15,000
Return of shares (770,000) (77) 77 - -
Issuance of common stock for
services to employees ($.19
per share) 1,260,000 126 239,274 - 239,400
Common stock to be issued pursuant
to debt offering (Note 6) - - 20,761 - 20,761
Net (loss) - - - (850,954) (850,954)
--------- ----- --------- ----------- ---------
Balance, September 30, 1999 5,010,000 501 614,330 (1,089,078) (474,247)
Issuance of common stock for
cash ($.50 per share) (Unaudited) 175,000 18 87,482 - 87,500
Common stock to be issued pursuant
to debt offering (Note 6) (Unaudited) - - 72,704 - 72,704
Net (loss) (Unaudited) - - - (187,582) (187,582)
--------- ----- --------- ----------- ---------
Balance, December 31, 1999
(Unaudited) 5,185,000 $ 519 $ 667,716 $(1,169,860) $(501,625)
========= ===== ========= =========== =========
</TABLE>
See accompanying notes to financial statements F-6
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended December 31, July 13, 1998
------------------------------- Nine Months (Inception) to
1998 ended December 31,
1999 (Unaudited) September 30, 1998
(Unaudited) (Note 1) 1999 (Note 1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES
Net (loss) $ (187,582) $ (148,002) $ (744,154) $ (238,124)
Adjustments to reconcile net (loss)
to net cash (used) by operating activities:
Depreciation and amortization 61,188 - 178,788 -
Stock for services - - 147,600 2,170
Loss on disposal of assets - - 19,441 -
Private placement stock accretion 7,082 - 679 -
Amortization of debt offering costs 21,696 - - -
(Increase) decrease in
Accounts receivable 361,953 - (677,879) -
Inventory - - 55,209 -
Work in process 44,987 - (304,719) -
Increase (decrease) in:
Accounts payable (389,873) 5,094 918,512 5,094
Deferred sales revenue (35,185) - 225,281 -
Accrued expenses (39,567) - 10,921 -
----------- ----------- ----------- -----------
Net cash (used) by operating
activities (155,301) (142,908) (170,321) (230,860)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary - - (82,913) -
Acquisition of equipment (19,109) - (79,844) -
----------- ----------- ----------- -----------
Net cash (used) by investing
activities (19,109) - (162,757) -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease (10,768) - (30,435) -
Payment of debt - related party (22,918) - (120,902) -
Payment of expenses by related party 140,452 101,419 319,891 185,964
Reimbursement to related party (143,252) (90,000) (230,137) (192,500)
Proceeds from issuance of common stock 87,500 150,000 - 300,000
Proceeds from debt - private placement 413,750 - 262,500 -
Proceeds from debt - bank - - 350,000 -
Payment of debt - bank (524) - (3,641) -
Payment of debt costs (21,250) - (36,606) -
Payment of offering costs (25,248) - (30,000) -
----------- ----------- ----------- -----------
Net cash provided by financing
activities 417,742 161,419 480,670 293,464
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 243,332 18,511 147,592 62,604
Cash and Cash Equivalents:
Beginning of period 210,196 44,093 62,604
----------- ----------- ----------- ------------
Ending of period $ 453,528 $ 62,604 $ 210,196 $ 62,604
=========== =========== =========== ============
</TABLE>
(Statement continues)
See accompanying notes to financial statements F-7
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Three months ended December 31, July 13, 1998
------------------------------- Nine Months (Inception) to
1998 ended December 31,
1999 (Unaudited) September 30, 1998
(Unaudited) (Note 1) 1999 (Note 1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER INFORMATION:
Cash basis interest paid $ 25,808 $ 2,687 $ 35,156 $ -
=========== =========== =========== ===========
NON-CASH TRANSACTIONS:
Issuance of stock for note $ - $ - $ 11,250 $ -
=========== =========== =========== ===========
Issuance of stock for services $ - $ - $ 239,400 $ -
=========== =========== =========== ===========
NON-CASH INVESTING AND FINANCING
TRANSACTIONS:
Acquisition of subsidiary:
Fair value of net assets acquired $ - $ - $(1,447,234) $ -
Liabilities assumed - - 1,364,321 -
=========== =========== =========== ===========
Net cash paid to acquire subsidiary $ - $ - $ (82,913) $ -
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements F-8
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
n-Gen Solutions.com, Inc. (the "Company"), formerly AAE Education
Corporation ("AAEE") was incorporated in Delaware on July 13,
1998. The Company was initially created to raise capital and
locate and purchase a business in the educational industry. For
the period July 13, 1998 to December 31, 1998, the Company was
considered to be in the development stage. On March 26, 1999 and
effective January 1, 1999, AAEE purchased all of the outstanding
common stock of n-Gen Solutions.com, Inc. (a Colorado
corporation) ("n-Gen Colorado") in exchange for cash, notes
payable and common stock of AAEE. n-Gen Colorado thereby became
the Company's wholly owned subsidiary. With the purchase of n-Gen
Colorado, the Company exited the development stage and became
an operating company. n-Gen Colorado was formerly known as
Technologies Learning Systems, Inc., dba Lab Technologies, Inc.
On January 19, 2000, AAEE amended its articles of incorporation
to change its name to n-Gen Solutions.com, Inc. (a Delaware
corporation) ("n-Gen Delaware").
In 1984, n-Gen Colorado, the Company's wholly owned subsidiary,
began business as a sole proprietorship and was incorporated on
March 1, 1989 in Colorado as an S corporation. The Company,
through its wholly owned subsidiary, is primarily engaged in the
business of selling educational computer hardware and software to
schools and computer aided design ("CAD") software to businesses
and providing installation and training services. The Company
sells its products in Montana, Wyoming, Nevada, Arizona,
Colorado, New Mexico, Utah and Idaho. Training is done both in
the Company's own classrooms and at the customer's location. The
Company also earns sales commissions for vendors and acts as a
sales representative for a company in California that
manufactures computerized classrooms.
CONSOLIDATION
In the accompanying financial statements, the statements for
periods in 1999 are consolidated as described below. The
statements for periods in 1998 are not consolidated since they
are prior to the acquisition of a subsidiary.
The accompanying 1999 consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary. All
significant intercompany transactions have been eliminated in
consolidation.
F-9
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of December 31, 1999 and for the
three months ended December 31, 1999 and 1998 is unaudited, but
includes all adjustments (consisting of only normal recurring
adjustments) that the Company considers necessary for the fair
presentation of the financial position and the results of
operations and cash flows for those periods. The operating
results for the unaudited three-month periods may not be
indicative of results that may be expected for the entire fiscal
years or annual periods.
ACCOUNTS RECEIVABLE
The Company, in the normal course of business, regularly extends
credit to customers. At December 31, 1999 and September 30, 1999,
accounts receivable included a reserve for doubtful accounts of
$98,950 (unaudited) and $98,950, respectively. All receivables
are pledged as collateral for a bank loan. (Note 5)
INVENTORIES AND WORK IN PROCESS
Inventories consist primarily of computer software held for sale
and are stated at the lower of cost (determined on the first-in,
first-out method) or market. All inventories are pledged as
collateral for a bank loan (Note 5).
Work in process consists of product in transit to the customer or
at the customer's location but not yet installed.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major improvements
are capitalized, while repairs and maintenance, which do not
improve or extend the life of the respective assets, are expensed
currently. All equipment is pledged as collateral for a bank
loan. (Note 5)
Depreciation is recorded for all equipment and property placed in
service using straight-line and accelerated methods over the
estimated useful lives of the assets with lives ranging from
three to five years.
Depreciation expense was $19,993 (unaudited) and $-0- (unaudited)
for the three months ended December 31, 1999 and 1998,
respectively, $55,201 for the nine months ended September 30,
1999 and $-0- for the period from July 13, 1998 (Inception) to
December 31, 1998.
F-10
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SOFTWARE COSTS
The Company utilizes American Institute of Certified Public
Accountants Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use" to account for software costs. In accordance with SOP 98-1,
the Company expenses costs incurred in the preliminary project
stage and, thereafter, capitalizes costs incurred in developing
or obtaining internal use software. Certain related costs, such
as maintenance and training, are expensed as incurred. The
Company has capitalized the direct costs of developing the
portion of its website that will be used for internal corporate
communications. Capitalized costs at December 31, 1999 and
September 30, 1999 amounted to $41,443 (unaudited) and $41,443,
respectively, and will be amortized over a period of not more
than 5 years after the software is placed into operation. The
capitalized costs are subject to impairment evaluation in
accordance with SFAS No. 121. The Company expenses as incurred
the costs of developing the portion of its website that will be
accessible to the public and utilized for corporate promotion and
for selling products.
INTANGIBLE ASSETS
Intangible assets include the excess of cost over fair market
value of identifiable assets acquired through the purchase of
n-Gen Colorado (Note 2). Intangible items are being amortized on
a straight-line basis over their estimated useful lives, which
range from two to five years.
On an ongoing basis, the Company reviews intangible assets and
other long-lived assets for impairment whenever events or
circumstances indicate that carrying amounts may not be
recoverable. To date, no such events or circumstances have
occurred. If such events or changes in circumstances occur, the
Company will recognize an impairment loss if the discounted
future cash flows expected to be generated by the assets (or
acquired business) are less than the carrying value of the
related assets. The impairment loss would adjust the assets to
its fair value. Amortization expense was $41,195 (unaudited) and
$-0- (unaudited) for the three months ended December 31, 1999 and
1998, respectively, $123,587 for the nine months ended September
30, 1999 and $-0- for the period from July 13, 1998 (Inception)
to December 31, 1998.
DEFERRED COSTS
Deferred offering costs are direct cumulative costs of the
proposed public offering. These costs will reduce the net
proceeds of the public offering if it is successful. If the
offering is not successful, the costs will be expensed.
Debt acquisition costs are direct expenditures incurred with
regard to the private placement debt offering. These costs are
being amortized to interest expense over the expected term of the
related debt instruments, which is approximately 8 months.
F-11
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
REVENUE RECOGNITION
The Company generates three types of revenues: product sales,
training and sales commissions. Products are sold primarily to
two general types of customers: schools and commercial
businesses. For sales to schools, the Company generally
considers a sale to be completed and revenue recognized after the
equipment is installed and the customer has received initial
familiarization needed to operate the system. In the case of
commercial sales, for which installation and initial
familiarization is not required, revenue is recognized at the
time the Company or the manufacturer delivers the products to the
customer. The Company records amounts invoiced to customers but
not yet recognizable as sales as deferred revenue until such time
as the revenue recognition criteria have been met. Generally, the
Company does include extensive in-depth training in its sales
contracts and training revenues are recognized at the time such
service is provided.
The Company earns vendor commissions, the significant portion of
which derive from sales that it generates for a manufacturer in
California. Generally, the Company records commission revenues
when the underlying sale and delivery of product to the customer
are completed and when receipt of the commission is substantially
assured. The Company earned commission revenue from the
California manufacturer of $-0- (unaudited) and $-0- (unaudited)
for the three months ended December 31, 1999 and 1998,
respectively, $271,414 for the nine months ended September 30,
1999 and $-0- for the period from July 13, 1998 (Inception) to
December 31, 1998, based on sales generated of approximately $-0-
(unaudited) and $-0- (unaudited) for the three months ended
December 31, 1999 and 1998, respectively, $2,286,501 for the nine
months ended September 30, 1999 and $-0- for the period from July
13, 1998 (Inception) to December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or
liquidation. Significant differences can arise between the fair
value and carrying amount of financial instruments that are
recognized at historical cost amounts. Generally, the carrying
value of the Company's financial instruments approximate fair value.
For certain financial instruments, the following methods and
assumptions were used to estimate fair value:
Cash and cash equivalents - The carrying amount approximates
fair value because of the short maturities of such instruments.
F-12
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Debt - The fair value of the Company's debt is estimated
based on the value given to similar instruments with
comparable terms and interest rates.
CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards No. 105, "Disclosure
of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentrations of Credit
Risk" requires disclosure of significant concentrations of credit
risk regardless of the degree of such risk. As of December 31,
1999 and September 30, 1999, the financial instruments which
potentially expose the Company to credit risk consist of bank
depository accounts and accounts receivable. The Company
transacts its business with one financial institution. The
amount on deposit in that one financial institution exceeded the
$100,000 federally insured limit at December 31, 1999 (unaudited)
and September 30, 1999. However, management believes that the
financial institution is financially sound, in part because it is
the Colorado operation of a national interstate bank corporation.
The Company extends credit to substantially all of its customers
who have generally demonstrated a high level of credit
worthiness. A substantial portion of the Company's revenues
derives from public schools and similar educational institutions
where purchase commitments are based only on appropriated funds.
The Company's commercial customers are geographically and
economically dispersed in the Western mountain states of the
United States. The Company historically has not had to record
material amounts of allowances for doubtful accounts. Management
believes that the allowance for doubtful accounts is adequate to
cover potential credit risk losses.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates. Significant estimates are made regarding
collectibility of receivables, depreciation, amortization of
intangible assets and realizability of long-term assets.
STATEMENT OF CASH FLOWS
For the purposes of the statements of cash flows, the Company
considers investments and savings instruments with original
maturities of three months or less to be cash equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS
F-13
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company adheres to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of." The Company reviews the carrying value its long-lived
assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Any long-lived
assets to be disposed of are reported at the lower of the
carrying amount or fair value less estimated costs to sell.
EARNINGS (LOSS) PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," requires two presentations of earnings per share -
"basic" and "diluted." Basic earnings (loss) per share is
computed by dividing income available to common stockholders (the
numerator) by the weighted-average number of common shares (the
denominator) for the period. The computation of diluted earnings
per share is similar to basic earnings per share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if the potentially
dilutive common shares had been issued. In the case of an
operating net (loss), the dilutive calculation is considered
equivalent to the basic earnings per share. Additionally, all
shares issued prior to October 1, 1999 are considered as
issuances for nominal consideration and are included as
outstanding in the calculation of basic and dilutive earnings per
share since the inception of the company. There are no
potentially dilutive common shares.
STOCK BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") in
accounting for stock based compensation. Under APB 25, the
Company recognizes no compensation expense related to employee or
director stock options unless options are granted with an
exercise price below fair value on the day of grant.
Subsequently, the Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123")
became effective. SFAS No. 123 provides an alternative method of
accounting for stock-based compensation arrangements, based on
fair value of the stock-based compensation utilizing various
assumptions regarding the underlying attributes of the options
and stock. The Financial Accounting Standards Board encourages,
but does not require, entities to adopt the fair-value based
method. The Company will continue its accounting under APB No. 25
but uses the disclosure-only provisions of SFAS No. 123 for any
options and warrants issued to employees and directors. No
options have been granted.
CAPITAL STRUCTURE
F-14
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company utilizes Statement of Financial Accounting Standards
No. 129, "Disclosure of Information about Capital Structure"
("SFAS No. 129"), which requires companies to disclose all
relevant information regarding their capital structure.
COMPREHENSIVE INCOME
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which
establishes standards for the reporting of comprehensive income.
This pronouncement requires all items considered under accounting
standards as components of comprehensive income to be reported in
the statement of operations and displayed with the same
prominence as other financial statements items. Comprehensive
income components include all changes in equity during a period
except those resulting from transactions with common or preferred
stockholders. There are no comprehensive income items.
SEGMENT REPORTING
The Company adheres to the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which
requires a public enterprise to report financial and descriptive
information about its reportable operating segments. Operating
segments, as defined in the pronouncement, are components of an
enterprise about which separate financial information is
available that is evaluated regularly by the Company in deciding
how to allocate resources and in assessing performance. The
financial information is required to be reported on the basis
that is used internally for evaluating segment performance and
deciding how to allocate resources to segments.
PENSION AND OTHER POST RETIREMENT BENEFITS
The Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pension and Other Post Retirement
Benefits" requires certain disclosures about employers' pension
and other post retirement benefit plans and specifies the
accounting and measurement or recognition of those plans. SFAS
No. 132 requires disclosure of information on changes in the
benefit obligations and fair values of the plan assets that
facilitates financial analysis. This standard currently has no
impact on the Company.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Financial Accounting Standards Board has recently issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes standards for recognizing all
derivative instruments, including those for hedging activities,
as either assets or liabilities on the balance sheet and
measuring those instruments at fair value. This
F-15
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Statement is effective for fiscal years beginning after June 30,
1999. The Company will adopt SFAS No. 133 in the year 2000 and
believes that there will be no impact on its financial statements.
MORTGAGE BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF
MORTGAGE LOANS BY MORTGAGE BANKING ENTERPRISES
The Financial Accounting Standards Board recently issued
Statement of Financial Accounting Standards No. 134, "Accounting
for Mortgage Backed Securities Retained after the Securitization
of Mortgage Loans Held by Mortgage Banking Enterprises" ("SFAS
No. 134"). SFAS No. 134 establishes new reporting standards for
certain activities of mortgage banking enterprises. The Company
believes this statement has no impact on its financial statements.
NOTE 2 - ACQUISITION OF BUSINESS AND INTANGIBLE ASSETS
On March 26, 1999 and effective January 1, 1999, the Company
purchased 100% of the outstanding common stock of n-Gen Colorado
(a subchapter S corporation) in exchange for cash, notes payable
and common stock of n-Gen Delaware as follows:
Cash $50,000
Note payable 100,000
Note payable 550,000
250,000 shares of common stock,
valued at $.15 per share 37,500
--------
Total $737,500
========
As part of the sales agreement, n-Gen Colorado, as an S
corporation, distributed cash of $200,000 to the seller. While
this distribution occurred on March 26, 1999, constructively, it
was considered to have occurred immediately prior to the sale on
January 1, 1999. The agreement also requires the Company to enter
into a five-year employment contract with the former stockholder,
paying compensation of approximately $100,000 per year. After the
acquisition, the seller of n-Gen Colorado owned 250,000 shares or
5.7% of the common stock of the Company.
The acquisition has been accounted for as a purchase by the
Company and the results of operations of the acquired business
are included in the consolidated financial statements from the
effective date of the acquisition. For accounting purposes, the
purchase price has been allocated first to the book value of the
net assets of the acquired company, which were determined to
equal the fair value. The excess of the purchase price over the
net assets has been allocated to various intangible assets. No
goodwill has been recorded as a result of this purchase.
F-16
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
As of December 31, 1999 and September 30, 1999, the cost basis
and useful lives of intangible assets consist of the following:
<PAGE>
<TABLE>
<CAPTION>
December 31,
1999 September 30, Estimated
(Unaudited) 1999 Lives
----------- --------- -------
<S> <C> <C> <C>
Goodwill $ - $ - -
Customer list 43,364 43,364 2 years
Distributor contracts 216,819 216,819 2 years
Non-compete covenant 173,455 173,455 5 years
--------- ---------
433,638 433,638
Less accumulated amortization (164,782) (123,587)
--------- ---------
$268,856 $310,051
========= =========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
December 31,
1999 September 30,
(Unaudited) 1999
------------ ------------
Demonstration supplies $ 16,169 $ 16,169
Demonstration equipment 379,625 361,839
Office furniture and equipment 132,907 131,584
Automobiles 65,745 65,745
Training and demonstration
equipment (under capital lease) 86,242 86,242
Internally developed software 41,143 41,143
---------- ----------
721,831 702,722
Less accumulated depreciation
and amortization (523,251) (503,258)
---------- ----------
$ 198,580 $ 199,464
========== ==========
All furniture, equipment and vehicles are pledged as collateral
for the bank loans, except for the Smart Classroom, which is
pledged to the capital lease.
NOTE 4 - NOTES PAYABLE - RELATED PARTY
As of December 31, 1999 and September 30, 1999, the Company owed
to the former owner of n-Gen Colorado, and a director, note
payable amounts of $506,180 and $100,000 and $529,098 and
$100,000, respectively, plus accrued interest of $18,124
(unaudited) and $16,582 at December 31, 1999 and September 30,
1999, respectively.
F-17
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
These notes were issued in connection with the Company's purchase
of n-Gen Colorado (Note 2). The $529,098 note, bearing 8%
interest, has principal and interest payments of $33,500 due
quarterly, with the outstanding balance due in April 2004. Fifty-
percent of the outstanding balance is personally guaranteed by
the Company's chairman and majority stockholder. The $100,000
unsecured note, bearing 8% interest, was originally due December
31, 1999. That note has been extended to June 30, 2000, but with
the interest rate increased from 8% to 10%. Current and long-term
portions of the aggregate debt to the related party are $194,459
and $434,639, respectively.
Principal maturities of the above related party debt for each of
the next five years are as follows:
December 31,
1999 September 30,
Year ended (Unaudited) 1999
---------- ------------ ------------
2000 $196,348 $194,459
2001 104,291 102,245
2002 112,887 110,674
2003 122,193 119,797
2004 and thereafter 70,461 101,923
---------- ----------
Total $606,180 $629,098
========== ==========
Note 5 - Notes Payable, Bank
Notes payable to a bank consist of the following:
December 31,
1999 September 30,
(Unaudited) 1999
------------ ------------
Outstanding principal on a $350,000
revolving line of credit from a
bank, monthly interest payments at
an annual rate of one and one-half
percent above prime rate, due May 31,
2000, collateralized by all
inventories, equipment and accounts
receivable. Chairman of the Board
and majority stockholder and a
Director are jointly and severally
liable for the debt. $350,000 $350,000
Note due to bank, principal and
interest payable monthly, interest
at 9.750%, matures February 2001,
collateralized by automobile. 4,335 4,859
---------- ----------
F-18
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Total notes payable $354,335 $354,859
========== ==========
The notes have been included on the balance sheet as current
liabilities. As of December 31, 1999 and September 30, 1999, the
weighted average interest rate on the above outstanding
borrowings is 11.45 % (unaudited) and 11.45%, respectively.
NOTE 6 - NOTES PAYABLE - INVESTORS
In March and April 1999, the Company issued notes payable, at
$50,000 each, to three individuals for an aggregate of $150,000.
Each of these investors also received a certain number of shares
of the Company's common stock. The notes had initial due dates of
approximately September 30, 1999 but were all extended to dates
in 2000. At December 31, 1999 and September 30, 1999, the Company
owed accrued interest on the notes of $26,268 (unaudited) and
$28,189, respectively. The stock issued to the investors was
valued at $15,000, or $.15 per share. The Company recorded the
$15,000 as additional interest expense which was fully recognized
through September 1999.
In 1999, the Company initiated the sale of debt securities (notes
payable) in a private placement offering. The notes payable are
non-interest bearing and automatically redeemable in cash, upon
the earlier of December 31, 2000 or completion of a proposed
public offering of the Company's common stock, at 90% of the
investment proceeds. In addition, at the time of repayment the
investors in the notes payable will receive shares of the
Company's "restricted" common stock at a rate of one share for
every $5.00 of their cash investment. Through December 31, 1999
and September 30, 1999, the Company raised gross proceeds of
$562,250 (unaudited) and $112,500, respectively. One of the
investors, who invested $50,000, is considered by the Company to
be a related party.
The Company has recorded the debt portion (ninety percent) of the
proceeds from each investor as a current liability, discounted at
10% per annum to reflect imputed interest. The Company has
recorded the equity portion (ten percent) of the proceeds as
additional paid-in capital. The amount recorded as additional
paid-in capital also includes the total of the imputed interest
(the discount). The imputed interest discount is being amortized
to interest expense over the anticipated term of the notes using
the interest method.
In connection with the debt private placement, the Company has
recorded direct debt offering costs of $57,856 (Unaudited) and
$36,606 as of December 31, 1999 and September 30, 1999,
respectively, which amounts are being amortized to interest
expense over approximately 8 months, the expected term of the
debt. The accumulated amortization expense was $21,696
(unaudited) and $-0- at December 31, 1999 and September 30, 1999,
respectively.
F-19
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Notes payable to investors consist of the following:
December 31,
1999 September 30,
(Unaudited) 1999
------------ ------------
Note payable to investor, interest
at 12% per annum, extended
due date April 15, 2000,
uncollateralized, 50,000 shares of
common stock granted in conjunction
with the note payable. $50,000 $50,000
Note payable to investor, non-
interest bearing, principal repayable
with a premium of $12,500, extended
due date May 6, 2000,
uncollateralized, 25,000 shares of
common stock granted in conjunction
with the note payable, investor a
related party. 50,000 50,000
Note payable to investor, non-
interest bearing, principal repayable
with a premium of $12,500, extended
due date May 10, 2000,
uncollateralized, 25,000 shares of
common stock granted in conjunction
with the note payable. 50,000 50,000
Notes payable to investors through
private placement, net of unamortized
interest imputed at 10% per annum
and amount attributable to beneficial
equity interest, notes
uncollaterized. 440,546 92,418
---------- ----------
Total notes payable - investors $590,546 $242,418
========== ==========
NOTE 7 - CAPITAL LEASE OBLIGATIONS
In 1998, the Company borrowed $140,000 from a leasing company and
is repaying the amount under a capital lease agreement. The
proceeds were substantially used to acquire its "smart
classroom," which is used for sales demonstration and training.
The underlying asset has been capitalized at $86,242, net of
internal labor used to construct the classroom. At December 31,
1999 and September 30, 1999, the present value of the lease was
$89,672 (unaudited) and $100,440, respectively, payable in
monthly installments of $4,564 (including interest at 12% per
annum plus sales tax) and
F-20
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
collateralized by the acquired equipment. This lease has been
personally guaranteed by a Director of the Company.
The Company leases computer equipment and related furniture under
a capital lease expiring in December 2001. The assets and
liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of
the asset. The assets are depreciated over their estimated
productive lives. Depreciation of assets under capital leases is
included in depreciation expense for the three months ended
December 31, 1999 (unaudited) and the nine months ended September
30, 1999.
Minimum future lease payments under the operating leases for each
of the next five years are:
December 31,
1999 September 30,
Year ended (Unaudited) 1999
---------- ------------ ------------
2000 $54,768 $54,768
2001 45,640 54,768
2002 and thereafter - 4,564
---------- ----------
Total minimum lease payments 100,408 114,100
Less: amount representing interest
and executory costs (10,736) (13,660)
---------- ----------
Present value of net minimum
lease payments 89,672 100,440
Less: Current portion (46,459) (45,087)
---------- ----------
Long-term portion $43,213 $55,353
========== ==========
NOTE 8 - LEASE COMMITMENTS
As of December 31, 1999 and September 30, 1999, the Company had
entered into an operating lease agreement for the rental of its
retail and office facility. The agreement was signed in 1998,
amended in 1999 and requires base monthly rent payments varying
between $5,093 and $5,397 over a lease period of five years.
The Company subleases office space for its headquarters from
another company partially controlled by certain major
stockholders and officers of the Company. The sublease is a
verbal agreement under which the total rent for the office suite
shared with the related company is paid by the Company.
Total rent expense for the entire Company was $33,094 (unaudited)
and $9,173 (unaudited) for the three months ended December 31,
1999 and 1998, respectively, $35,126 for the nine months ended
September 30, 1999 and $18,178 for the period from July 13, 1998
(Inception) to December 31, 1998.
F-21
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Required minimum rentals, on an annual basis, for the next five
years, are as follows:
December 31,
1999 September 30,
Year ended (Unaudited) 1999
---------- ------------ ------------
2000 $ 61,858 $ 70,895
2001 63,215 62,871
2002 64,154 64,144
2003 and thereafter 21,289 36,627
---------- ----------
Total minimum lease payments 210,516 234,537
Less: amount representing
interest and executory costs (10,433) (11,019)
---------- ----------
Present value of net minimum
lease payments $200,083 $223,518
========== ==========
NOTE 9 - STOCKHOLDERS' EQUITY
The Company was originally capitalized with common stock of
100,000,000 authorized shares of $.0001 par value stock and
25,000,000 shares of preferred stock. The holders of the common
stock are entitled to one vote per share. On April 16, 1999, the
Board of Directors and shareholders decreased the total
authorized number of shares to 30,000,000, divided into
25,000,000 shares of common stock and 5,000,000 shares of
preferred stock. The Board of directors will designate the voting
powers, preferences and rights, and the qualifications,
limitations or restrictions of the preferred stock, as needed, in
the future. No shares of preferred stock have been issued.
On July 13, 1998, in connection with the formation of the
Company, the Company issued 2,000,000 and 170,000 shares of its
common stock to two officers and directors in exchange for
services valued at $2,000 and $170, respectively.
On July 28, 1998, the Company issued 2,000,000 shares of its
common stock valued at $.15 per share to a current Director of
the Company in exchange for $50,000 cash and a $250,000 note
payable to the Company. The note required monthly payments of
$50,000 and was effectively non-interest bearing. Interest
income of $6,310 at 10% per annum was imputed, recognized as
income and charged to compensation expense. As of December 31,
1998, the Director had paid all amounts due to the Company.
In March 1999, the Company issued 250,000 shares of common stock
valued at $.15 per share as partial consideration for its
purchase on n-Gen Colorado (Note 2). In March and April 1999,
the Company issued 100,000 shares of common stock valued at $.15
per share to three individuals as consideration for working
capital loans (Note 6).
In June 1999, the Company cancelled 770,000 shares of common
stock. These shares were returned by four directors without
consideration.
F-22
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In June 1999, the Company issued 1,260,000 shares of common stock
valued at $239,400 ($.19 per share) to four employees of the
Company in consideration of past services.
In September 1999, the Company recorded an increase of $20,761 to
additional paid-in capital which constituted equity interest
granted to individuals who loaned the Company money under the
private debt offering (Note 6).
In the months of October through December, the Company recorded
an increase of $72,704 to additional paid-in capital which
constituted equity interest granted to individuals who loaned the
Company money under the private debt offering (Note 6) (unaudited).
In December 1999, the Company sold 175,000 shares of common stock
in a private placement transaction to six individuals in
consideration of $87,500, or $.50 per share (unaudited).
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company's headquarters is located in the offices of One
Capital Corporation ("One Capital"), a company partially
controlled by certain major stockholders and officers of the
Company. The Company subleases under a verbal contract from One
Capital for office space by paying substantially all of the rent
for the shared office space.
Headquarters rent expense paid to One Capital was $10,198
(unaudited) and $9,173 (unaudited) for the three months ended
December 31, 1999 and 1998, $30,084 for the nine months ended
September 30, 1999 and $18,178 for the period from July 13, 1998
(Inception) to December 31, 1998.
In addition, One Capital Corporation has paid certain expenses on
behalf of the Company, of which $80,418 (unaudited) and $83,218
is owed to One Capital as of December 31, 1999 and September 30,
1999, respectively. The total amount paid by One Capital on
behalf of the Company was $140,452 (unaudited) and $101,419
(unaudited) for the three months ended December 31, 1999 and
1998, $319,891 for the nine months ended September 30, 1999 and
$185,964 for the period from July 13, 1998 (Inception) to
December 31, 1998. The total amount reimbursed by the Company to
One Capital was $143,252 (unaudited) and $90,000 (unaudited) for
the three months ended December 31, 1999 and 1998, $230,137 for
the nine months ended September 30, 1999 and $192,500 for the
period from July 13, 1998 (Inception) to December 31, 1998.
F-23
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A Director has personally guaranteed the revolving line of credit
with a bank (Note 5). In addition, the Director has personally
guaranteed 50% of the outstanding note payable balance to the
prior owner of n-Gen Colorado (Note 4). A Director and prior
owner of n-Gen Colorado has personally guaranteed a capital lease
for the acquisition of equipment.
NOTE 11 - INCOME TAXES
There is no current or deferred tax expense for the three months
ended December 31, 1999 (unaudited) and 1998 (unaudited), the
nine months ended September 30, 1999 and the period from July 13,
1998 to December 31, 1998 due to net losses from operations by
the Company.
Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis
of assets and liabilities and their financial reporting amounts
at each year-end. Deferred income tax assets are recorded to
reflect the tax consequences on future years of income tax carry-
forward benefits, reduced by benefit amounts not expected to be
realized by the Company.
The net deferred tax asset is comprised of the following at
December 31, 1999 (unaudited) and September 30, 1999:
December 31,
1999 September 30,
(Unaudited) 1999
------------ ------------
Deferred tax asset:
Net operating loss benefit carry
Forward $476,718 $400,458
Amortization of goodwill 52,650 39,488
Allowance for doubtful accounts 38,204 38,204
Accrued interest 17,202 17,348
---------- ----------
Total 584,774 495,497
Valuation allowance for deferred
Tax assets (584,774) (495,497)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
The temporary differences causing the deferred tax asset are
expected to reverse over the next fifteen years. As of December
31, 1999 and September 30, 1999, the Company had operating loss
carryforwards of $1,169,861 (unaudited) and $982,279,
respectively. The operating loss carryforwards expire beginning
in 2018 ($238,124 in 2018 and $744,155 in 2019).
NOTE 12 - CONCENTRATIONS
F-24
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
For the three months ended December 31, 1999 and 1998, the nine
months ended September 30, 1999 and the period from July 13, 1998
(Inception) to December 31, 1998, none of the Company's sales
exceed 10% to any one customer.
The Company is dependent upon a relatively few manufacturers of
equipment and software to supply product to sell. The Company
relies upon renewable one-year distribution contracts with these
manufacturers. For the three months ended December 31, 1999 and
1998, the nine months ended September 30, 1999 and the period
from July 13, 1998 (Inception) to December 31, 1998, the
Company's cost of sales was concentrated in a few suppliers (only
those exceeding 10% are presented) as follows:
Three months Three months
ended ended Nine months
December 31, December 31, ended (Inception) to
1999 1998 September 30, December 31,
(Unaudited) (Unaudited) 1999 1998
Supplier Per cent Per cent Per cent Per cent
-------- -------- -------- -------- --------
A 27% * 36% *
B * * 10% *
C * * 10% *
D 11% * * *
* Less than 10%
NOTE 13 - EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) profit sharing
plan for the employees of its Colorado subsidiary. Under the
plan, all employees age 21 and older with twelve consecutive
months of service and 1,000 hours of service may participate.
Eligible employees may voluntarily contribute from 1% to 15%, but
not more than the maximum allowed by law (currently $10,500), of
their compensation annually to the plan. The Company may elect
at the Board's discretion to match participant contributions.
Participant contributions are fully vested and Company
contributions become vested for participants over seven years.
NOTE 14 - SEGMENT INFORMATION
The Company's operations consist of three segments: (1) sales of
computer software and hardware, (2) computer training and (3)
e-commerce site.
Identified assets by segment are those assets that are used in
the Company's operations in each segment. Corporate assets are
principally cash, furniture, fixtures, vehicles, and intangible
assets.
F-25
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). The adoption of SFAS 131
requires the presentation of descriptive information about
reportable segments which is consistent with that made available
to the management of the Company to assess performance.
The sales segment derives its revenues from the sale of
educational computer hardware and software to schools and CAD
software to businesses.
The training segment derives its revenues from providing
primarily CAD computer training to individuals.
The e-commerce site will derive revenues by providing customers
the opportunity to purchase a broad assortment of educational
products, software and office and school supplies. As of
December 31, 1999, the site was in the development stage and no
revenues have been received.
During all periods presented, there were no intersegment
revenues. The accounting policies applied by each segment are
the same as those used by the Company in general.
Segment information consists of the following:
<TABLE>
<CAPTION>
Sales Training E-commerce Corporate Consolidated
----- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Three months ended
December 31, 1999
(Unaudited):
Revenues $1,445,637 $53,178 $ - $ - $1,498,815
Income (loss) from
operations 364,795 23,233 (89,368) (433,107) (134,447)
Assets 1,534,302 14,235 - 841,117 2,389,654
Depreciation and
amortization 11,918 1,433 - 47,837 61,188
Capital expenditures 17,787 - - 1,322 19,109
Three months ended
December 31, 1998
(Unaudited):
Revenues $ - $ - $ - $ - $ -
Income (loss) from
operations - - - (151,680) (151,680)
Assets - - - 69,140 69,140
Depreciation and
amortization - - - - -
F-26
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Capital expenditures - - - - -
Nine months ended
September 30, 1999:
Revenues $3,821,325 $106,028 $ - $ - $3,927,353
Income (loss) from
operations 568,920 30,499 (41,390) (1,325,437) (767,408)
Assets 1,534,302 14,235 - 841,117 2,389,654
Depreciation and
amortization 32,135 4,031 - 142,622 178,788
Capital expenditures - - - 79,844 79,844
July 13, 1998
(Inception) to
December 31, 1998:
Revenues $ - $ - $ - $ - $ -
Income (loss) from
operations - - - (244,254) (244,254)
Assets - - - 69,140 69,140
Depreciation and
amortization - - - - -
Capital expenditures - - - - -
</TABLE>
NOTE 15 - INITIAL PUBLIC OFFERING
In June 1999, the Company entered into a letter of intent with
Barron Chase Securities, Inc. ("Underwriter"), a broker-dealer
firm and NASD member, to represent the Company in an initial
public offering ("IPO") of its common stock and warrants on a
"firm commitment" basis. The letter of intent generally requires
that the Company pay certain expenses of the Underwriter in
advance, and provides for ongoing investment banking services by
the Underwriter and a right of first refusal to act as manager on
future sales of the Company's securities for a period of five years.
The Company expects to offer 1,600,000 shares of common stock and
1,600,000 warrants to purchase common stock in the IPO for $5.00
per share and $.125 per warrant. Each warrant will exercisable
for $5.50 per share for a period of five years after the close of
the IPO. The warrants will be subject to voluntary redemption by
the Company at $.05 per warrant.
The Company has granted the Underwriter an over-allotment option
to purchase after the effective date of the offering up to
240,000 shares of common stock and 240,000 warrants. The Company
must pay a non-accountable expense allowance of 3% of gross
proceeds and a commission of 10% of gross proceeds. The Company
has already paid the Underwriter $30,000 in advance for the non-
accountable fees.
NOTE 16 - SUBSEQUENT EVENTS
F-27
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company intends to establish a stock option plan with two
million shares of the Company's common stock reserved for
issuance through the plan.
In January 2000, the Company sold 755,000 shares of commons stock
in a private placement transaction to six investors in
consideration of $377,500, or $.50 per share, less offering costs
of $44,000 (unaudited).
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
n-Gen Solutions.com, Inc.
Longmont, Colorado
We have audited the statements of operations, stockholders' equity and cash
flows of n-Gen Solutions.com, Inc. for the year ended December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the the results of operations and cash flows of
n-Gen Solutions.com, Inc. for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
GORDON, HUGHES & BANKS, LLP
February 1, 2000
Englewood, Colorado
F-29
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUE
Sales $ 5,112,432
Training and installation 129,999
Commissions 346,132
------------
Total revenue 5,588,563
COST OF GOODS SOLD 3,965,661
------------
Gross profit 1,622,902
------------
OPERATING EXPENSES
Selling expenses 649,330
General and administration 626,702
Depreciation 36,459
Bad debts 22,026
------------
Total operating expenses 1,334,517
------------
Income from operations 288,385
OTHER INCOME (EXPENSE)
Interest (expense) (13,890)
Interest income 11,861
------------
NET INCOME $ 286,356
============
Earnings per share $0.06
============
Weighted average shares outstanding 5,000,000
============
See notes to financial statements F-30
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------ Retained
Shares Amount Earnings Total
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 5,000,000 $ 7,980 $ 297,525 $ 305,505
Net income 286,356 286,356
Distributions to owner - - (88,000) (88,000)
--------- --------- ---------- ----------
Balance, December 31, 1998 5,000,000 $ 7,980 $ 495,881 $ 503,861
========= ========= ========== ==========
</TABLE>
See notes to financial statements F-31
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net Income $ 286,356
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 36,459
(Increase) decrease in:
Accounts receivable (235,198)
Inventory 25,807
Employee advances 32,341
Deposits (2,500)
Increase (decrease) in:
Accounts payable (165,348)
Accrued expenses 71,191
Deferred revenue 68,170
------------
Net cash provided by operating activities 117,278
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (45,592)
------------
Net cash (used) by investing activities (45,592)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 44,630
Payments on debt (2,941)
Distributions to owner (88,000)
------------
Net cash (used) by financing activities (46,311)
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,375
Cash and Cash Equivalents:
Beginning of year 141,708
------------
Ending of year $ 167,083
============
OTHER INFORMATION:
Cash basis interest paid $ 22,557
============
Equipment acquired through capital lease $ 86,242
============
See notes to financial statements F-31
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
In 1984, n-Gen Solutions.com, Inc. (formerly known as Technology
Learning Systems, Inc.) (the "Company") began business as a sole
proprietorship and was incorporated on March 1, 1989 in Colorado
as an S corporation. The Company is primarily engaged in the
business of selling educational computer hardware and software to
schools and computer aided design ("CAD") software to businesses
and providing installation and training services. Training is
done both in its own classrooms and at the customer's location.
The Company also acts as a sales representative for a company in
California that manufactures computerized classrooms. The Company
sells its products in Montana, Wyoming, Nevada, Arizona,
Colorado, New Mexico, Utah and Idaho. The Company primarily
derives its revenues from sales of product in two sectors:
educational institutions and commercial business.
REVENUE RECOGNITION
The Company generates three types of revenues: product sales,
training, and sales commissions. Products are sold to two types
of customers: schools and commercial businesses. For computer
labs and computerized ("smart") classrooms, a sale is complete
and revenue is recognized when the equipment is installed and the
customer has received initial familiarization needed to operate
the system. Formal in-depth training is an additional service and
completion of the sale is not dependent upon delivery of in-depth
training. In the case of commercial sales, for which installation
and training is not required, revenue is recognized at the time
that products are delivered to the customer. Training revenues
are recognized when the training is provided. Sales commission
revenues are recognized when the manufacturer's systems are
installed at the customer.
The Company earns commissions based on sales that it generates
for a company in California. The Company earned commission
revenue of $346,132 for the year ended December 31, 1998, based
on sales of computerized classrooms generated of approximately
$2,900,000.
As of December 31, 1998, the Company was owed approximately
$97,000 from the California company. However, at December 31,
1998, the Company was negotiating the conversion of the
receivable to a note receivable but did not record the amount as
commission revenue or as a receivable since at the time
collection was not substantially assured.
F-33
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
DEPRECIATION
Property and equipment are recorded at cost. Major improvements
are capitalized, while repairs and maintenance, which do not
improve or extend the life of the respective assets, are expensed
currently. All equipment is pledged as collateral for a bank loan.
Depreciation is computed for all equipment and equipment using
the straight-line and accelerated methods over the estimated
useful lives of the assets with lives ranging from three to five
years.
INCOME TAXES
Through December 31, 1998, the Company has been taxed as an S
Corporation under the Internal Revenue Code and applicable state
statutes. Under an S Corporation election, the net income of the
Company flows through to the stockholders to be taxed at the
individual level rather than the corporate level. Accordingly,
the corporation has no tax liability in the period presented.
Subsequent to December 31, 1998, the control of the Company
changed and the Company's tax status automatically changed to a
C Corporation for federal and state income tax purposes.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates.
STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, the Company
considers investments and savings instruments with maturities of
three months or less to be cash equivalents.
EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," became effective in the fourth quarter of 1997 and
requires two presentations of earnings per share - "basic" and
"diluted." Basic earnings per share is computed by dividing
income available to common stockholders (the numerator) by the
weighted-average number of common shares (the denominator) for
the period. The computation of diluted earnings per share is
similar to basic earnings per share, except that the denominator
is increased to include the number of additional common shares that
F-34
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
would have been outstanding if the potentially dilutive common
shares had been issued. There were no dilutive common shares.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes standards for the reporting of comprehensive
income. This pronouncement requires that all items recognized
under accounting standards as components of comprehensive income,
as defined in the pronouncement, be reported in a financial
statement that is displayed with the same prominence as other
financial statements. Comprehensive income includes all changes
in equity during a period except those resulting from investments
by owners and distributions to owners. The Company adopted SFAS
No. 130 in 1998 and determined there is no impact on any of the
periods presented. There were no comprehensive income items.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which amends the
requirements for a public enterprise to report financial and
descriptive information about its reportable operating segments.
Operating segments, as defined in the pronouncement, are
components of an enterprise about which separate financial
information is available and that is evaluated regularly by the
Company in deciding how to allocate resources and in assessing
performance. The financial information is required to be
reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to
segments. The Company adopted SFAS No. 131 in 1998.
NOTE 2 - LEASE COMMITMENTS
As of December 31, 1998, the Company entered into an operating
lease agreement for the rental of its retail and office facility.
The agreement was signed in 1998 and requires base monthly rent
payments varying between $1,613 and $4,121 over a lease period of
five years. Rent expense for 1998 was $40,788.
Required minimum rentals, on an annual basis, are as follows:
Year ending December 31,:
1999 $38,448
2000 39,329
2001 40,237
2002 41,172
2003 and thereafter 13,073
F-35
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Total minimum lease payments 172,259
---------
NOTE 3 - STOCKHOLDER'S EQUITY
The common stock of the Company consists of 30,000,000 authorized
shares of no-par value stock, divided into 25,000,000 shares of
common stock and 5,000,000 shares of preferred stock. At December
31, 1998 8,000,000 shares of common stock were issued and
outstanding. However, in 1999, 3,000,000 shares were returned by
the stockholder and cancelled. All references in these financial
statements to the number of shares outstanding have been adjusted
for the returned 3,000,000 shares.
The holder of the common stock is entitled to one vote per share.
As disclosed in the statement of changes in stockholder's equity,
the Company made distributions periodically to the sole
stockholder. The distributions consisted of cash in 1998.
NOTE 4 - CONCENTRATIONS
For the year ended December 31, 1998, none of the Company's sales
exceed 10% to any one customer.
The company is dependent upon a relatively few manufacturers of
equipment to supply product to sell. The Company relies upon
renewable one-year distribution contracts with these
manufacturers. For the year ended December 31, 1998, the
Company's cost of sales was concentrated in a few suppliers (only
those exceeding 10% or are presented) as follows:
Supplier Per Cent
-------- --------
A 30%
B 16%
NOTE 5 - SEGMENT INFORMATION
The Company's operations consist of three segments: (1) sales of
computer software and hardware and (2) computer training.
Identified assets by segment are those assets that are used in
the Company's operations in each segment.
The Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). The adoption of SFAS 131
requires the presentation of descriptive information about
reportable segments which is consistent with that made available
to the management of the Company to assess performance.
F-36
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
The sales segment derives its revenues from the sale of
educational computer hardware and software to schools and CAD
software to businesses.
The training segment derives its revenues from providing
primarily CAD computer training to individuals.
During all periods presented, there were no inter-segment
revenues. The accounting policies applied by each segment are
the same as those used by the Company in general.
Segment information consists of the following:
<TABLE>
<CAPTION>
Sales Training Corporate Total
----- -------- --------- -----
Year-ended December 31, 1998:
<S> <C> <C> <C> <C>
Revenues $5,458,563 $129,999 $ - $5,588,563
Income(loss) from operations $893,907 $31,937 $(637,459) $288,385
Depreciation and amortization $22,765 $2,937 $10,756 $36,459
Capital expenditures $31,359 $ - $14,233 $45,592
</TABLE>
In addition, $86,242 of equipment was acquired through a capital
lease during 1998.
NOTE 6 - SUBSEQUENT EVENTS
CHANGE IN CONTROL OF THE COMPANY
On March 26, 1999 and effective January 1, 1999, AAE Education
Corporation purchased all of the outstanding common stock from
the Company's then sole stockholder for cash, notes payable and
common stock in AAEE. As part of the sales price, AAEE agreed to
pay the seller $200,000 of the then existing retained earnings at
any time on or after closing. The agreement also requires the
Company to enter into a five-year employment contract with the
former sole stockholder at approximately $100,000 per year.
EMPLOYEE BENEFIT PLAN
Effective January 1, 1999, the Company adopted a defined
contribution 401(k) profit sharing plan for its employees.
F-37
<PAGE>
=========================================================================
You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different
from that contained in this prospectus. We are offering to sell, and
seeking offers to buy, common shares and warrants only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of common shares.
Until , 2000, all dealers selling common shares or warrants
whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
___________________
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .4
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . .8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Special Note Regarding Forward-Looking Statements. . . . . . . . . . . 26
How We Intend to Use the Proceeds from the Offering. . . . . . . . . . 27
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Management's Discussion and Analysis
or Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . . . 31
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 56
Certain Relationships and Related Party Transactions . . . . . . . . . 57
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . 57
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . 61
Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . . . 62
Reports to Security-Holders . . . . . . . . . . . . . . . . . . . . . 62
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Where You Can Find More Information. . . . . . . . . . . . . . . . . . 66
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . 67
___________________
=========================================================================
1,600,000 SHARES
1,600,000 WARRANTS
N-GEN SOLUTIONS.COM, INC.
COMMON STOCK
WARRANTS
________________
Prospectus
________________
Barron Chase
Securities, Inc.
7700 W. Camino Real
Boca Raton, Florida 33433
(561) 347-1200
Beverly Hills, California
Boca Raton, Florida
Boston, Massachusetts
Buffalo, New York
Chicago, Illinois
Clearwater, Florida
Edison New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hasbrook Heights, New Jersey
La Jolla, California
Long Island, New York
New York, New York
Orlando, Florida
Sarasota Florida
Tampa, Florida
, 2000
=========================================================================
<PAGE>
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation (the "Restated
Certificate") provides that the Company shall indemnify each person who is
or was a director, officer or employee of the Company to the fullest extent
permitted under Section 145 of the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of
such corporation, or is or was serving at the request of such corporation
as a director, officer, employee or agent of another corporation or
enterprise. A corporation may indemnify such person against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. A corporation
may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the
expenses (including attorneys' fees) incurred by any officer or director in
defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation.
A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation to procure a judgment in its
favor under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred
to above, the corporation must indemnify him against the expenses
(including attorneys' fees) which he actually and reasonably incurred in
connection therewith. The indemnification provided is not deemed to be
exclusive of any other rights to which an officer or director may be
entitled under any corporation's bylaw, agreement, vote or otherwise.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors,
officers, or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is
therefore unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimates of fees and expenses incurred or to be incurred in
connection with the issuance and distribution of securities being
registered, all of which are being paid exclusively by the Company, other
than underwriting discounts and commissions are as follows:
Securities and Exchange Commission filing fee . . . . . . . .$ 5,845.49
National Association of Securities Dealers filing fee . . . . 2,000.00 *
Nasdaq and Exchange filing fees . . . . . . . . . . . . . . . 13,000.00 *
State Securities Laws (Blue Sky) fees and expenses. . . . . . 15,000.00 *
Printing and mailing costs and fees . . . . . . . . . . . . . *
Legal fees and costs. . . . . . . . . . . . . . . . . . . . . *
Accounting fees and costs . . . . . . . . . . . . . . . . . . *
Due diligence and travel. . . . . . . . . . . . . . . . . . . 50,000.00 *
Transfer Agent fees . . . . . . . . . . . . . . . . . . . . . 1,000.00 *
Miscellaneous expenses. . . . . . . . . . . . . . . . . . . . 20,000.51 *
-----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000.00*
===========
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated in March 1998 in the State of Delaware.
The Company has authorized capital of 30,000,000 shares consisting of
25,000,000 shares of Common Stock, $.0001 par value and 5,000,000 shares of
Preferred Stock, $.0001 par value. The Company has 5,940,000 shares of
Common Stock issued and outstanding and no shares of Preferred Stock issued
and outstanding prior to this offering. See "Principal Stockholders" and
"Description of Securities."
In July 1998, the Company issued 2,170,000 shares of Common Stock (of
which 260,000 were returned to treasury) to two persons, both Officers and
Directors (Robert D. Arnold and Michael V. Schranz) in a private
transaction in consideration of $2,170 in services rendered or $.001 per
share. See "Principal Stockholders."
On July 28, 1998, the Company issued 2,000,000 shares of Common Stock
(of which 420,000 were returned to treasury) to one person, an Officer and
Director (David Clem) in a private transaction in consideration of $300,000
or $.15 per share. See "Principal Shareholders."
On March 8, 1999, the Company issued 250,000 shares of Common Stock
(90,000 of which were subsequently returned to treasury) in a private
transaction to D. Gary Nelson in exchange for all of his shares owned in
Lab Technologies, Inc.
In June 1999, the Company issued 1,260,000 shares of its Common Stock
to certain Officers, Directors and employees.
In December 1999, the Company borrowed $526,250 from twenty-one
investors in a private placement transaction pursuant to Regulation D and
Rule 501 adopted thereunder and
II-2
<PAGE>
issued twenty-one promissory notes, payable at closing of this offering or
upon the one year anniversary of the notes, whichever occurs first. The
Company will also issue 105,250 shares to the noteholders at closing of
this public offering.
From December 1999 through February 2000, the Company issued 930,000
shares of its Common Stock in a private transaction to seven investors at
$.50 per share for a total of $465,000.
All unregistered securities issued by the Company prior to this
offering are deemed "restricted securities" within the meaning of that term
as defined in Rule 144 of the Securities Act of 1933, as amended ("Act")
and have been issued pursuant to certain "private placement" exemptions
under Section 4(2) and Rule 506 of Regulation D of the Act, as promulgated
by the Securities and Exchange Commission, such that the sales of the
securities were to "accredited" investors, as that term is defined in Rule
501 of Regulation D of the Act, and were transactions by an issuer not
involving any public offering. Such accredited investors had access to
information on the Company necessary to make an informed investment
decision. Also, under terms of the Underwriting Agreement or subscription
agreement, the current stockholders of n-Gen have agreed not to sell,
transfer, assign or otherwise dispose of any restricted securities of n-Gen
for a period of 15 months following the date of this Prospectus.
Reference is also made hereby to "Dilution," "Principal Stockholders,"
"Certain Transactions" and "Description of Securities" in the Prospectus
for more information with respect to the previous issuance and sale of the
Company's securities.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities," as defined in Rule 144
of the rules and regulations of the Securities and Exchange Commission.
All of the aforesaid securities were issued for investment purposes only
and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were
issued pursuant to the "private placement" exemptions under the Securities
Act of 1933, as amended, as transactions by an issuer not involving any
public offering. The Registrant has been informed that each person is able
to bear the economic risk of his investment and is aware that the
securities were not registered under the Securities Act of 1933, as
amended, and cannot be re-offered or re-sold until they have been so
registered or until the availability of an exemption therefrom. The
transfer agent and registrar of the Registrant will be instructed to mark
"stop transfer" on its ledgers to assure that these securities will not be
transferred absent registration or until the availability of an exemption
therefrom is determined.
ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Participating Dealer Agreement
3.1 Certificate of Incorporation dated July 13, 1998
II-3
<PAGE>
3.2 Bylaws
3.3 Amendment to Certificate of Incorporation dated January 19,
2000
4.1 Form of Underwriter's Warrant Agreement
5.0 Form of Opinion of Berenbaum, Weinshienk & Eason, P.C.
10.1 Distribution and Fulfillment Agreement with Ingram
Entertainment dated November 29, 1999
10.2 Supplier Agreement with e-NITED dated February 8, 2000
10.3 Website Development Agreement with The August Group, Inc.
dated February 24, 2000
10.4 Content Agreement - Tech Notes I & II with Ingram Micro
dated September 2, 1997
10.5 Discreet Authorized Educational Reseller Agreement dated
December 1, 1999
10.6 Authorized Dealer Agreement with SMART Technologies Inc.
dated December 24, 1996
10.7 Distribution Agreement with Robotel Electronique dated
April 6, 1994
10.8 Reseller Agreement with Healthkit Company dated May 19, 1999
10.9 EduTECH Dealer Agreement dated January 1, 1995
10.10 Interior Concepts letter dated March 9, 1999
10.11 intelitek Educational Dealer Agreement dated August 1, 1997
10.12 Employment Agreement, Dean C. Meyers, dated February 2000
10.13 Employment Agreement, Gary D. Nelson, dated March 26, 1999
10.14 Lease Agreement dated July 13, 1999
10.15 Master Equipment Lease Agreement with Lease Capital
Corporation dated December 21, 1998
10.16 Autodesk Authorized Reseller Agreement
10.17 Financial Advisory Agreement
II-4
<PAGE>
10.18 Merger and Acquisition Agreement
24.1 Consent of Berenbaum, Weinshienk & Eason, P.C. is contained
on page II-8 of the Registration Statement
24.2 Consent of Gordon, Hughes & Banks, LLC
27.1 Financial Data Schedule
________________
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes the following to provide
to participating broker-dealers, at the closing, certificates in such
denominations and registered in such names as required by the participating
broker-dealers, to permit prompt delivery to each purchaser
The undersigned Registrant also undertakes
(1) To file, during any period in which it offers or sales are being
made, a post-effective amendment to this registration statement:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or nay material change to such
information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3 or Form S-8,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
This Registration Statement consists of the following:
1. Facing page.
2. Cross-Reference Sheet.
3. Prospectus.
4. Complete text of Items 24-28 in Part Two of Registration Statement.
5. Exhibits.
6. Signature page.
7. Consents of:
Berenbaum, Weinshienk & Eason, P.C.
Gordon, Hughes & Banks, LLC
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has authorized
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, State of Colorado on
March 27, 2000.
n-GEN SOLUTIONS.COM, INC.
By: /s/ ROBERT D. ARNOLD
-------------------------------------
Robert D. Arnold
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ ROBERT D. ARNOLD Chairman of the Board, Chief March 27, 2000
- ------------------------ Executive Officer and Director
Robert D. Arnold
/s/ MICHAEL V. SCHRANZ Treasurer, Secretary, Chief March 27, 2000
- ------------------------ Financial Officer and Director
Michael V. Schranz
/s/ GARY D. NELSON President and Director March 27, 2000
- ------------------------
Gary D. Nelson
/s/ DEAN C. MEYERS Vice President and Director March 27, 2000
- ------------------------
Dean C. Meyers
/s/ ROBERT C. VAUGHAN Vice President and Director March 27, 2000
- ------------------------
Robert C. Vaughan
/s/ DAVID CLEM Director March 27, 2000
- ------------------------
David Clem
/s/ ALLAN R. SHORT Director March 27, 2000
- ------------------------
Allan R. Short
II-7
<PAGE>
CONSENT OF COUNSEL
The consent of Berenbaum, Weinshienk & Eason, P.C., 370 Seventeenth
Street, Suite 2600, Denver, Colorado 80202-5626, to the use of their name
in this Form SB-2 Registration Statement, and related Prospectus, as
amended, of n-Gen Solutions.Com, Inc. is contained in his opinion filed as
Exhibit 5.0 hereto.
II-8
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 30, 1999 accompanying the
financial statements of n-Gen Solutions.Com, Inc. contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to
the use of our name as it appears under the caption "Experts."
GORDON, HUGHES & BANKS, LLC
Denver, Colorado
March 27, 2000
II-9
<PAGE>
As filed with the Securities and Exchange Commission on March 28, 2000
Registration No. 333-__________
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM SB-2
Registration Statement
Under
The Securities Act of 1993
n-GEN SOLUTIONS.COM, INC.
EXHIBITS
__________________________________________________________________________
II-10
<PAGE>
n-GEN SOLUTIONS.COM, INC.
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
1.1 Form of Underwriting Agreement
1.2 Form of Participating Dealer Agreement
3.1 Certificate of Incorporation dated July 13, 1998
3.2 Bylaws
3.3 Amendment to Certificate of Incorporation dated January 19,
2000
4.1 Form of Underwriter's Warrant Agreement
5.0 Form of Opinion of Berenbaum, Weinshienk & Eason, P.C.
10.1 Distribution and Fulfillment Agreement with Ingram
Entertainment dated November 29, 1999
10.2 Supplier Agreement with e-NITED dated February 8, 2000
10.3 Website Development Agreement with The August Group, Inc.
dated February 24, 2000
10.4 Content Agreement - Tech Notes I & II with Ingram Micro
dated September 2, 1997
10.5 Discreet Authorized Educational Reseller Agreement dated
December 1, 1999
10.6 Authorized Dealer Agreement with SMART Technologies Inc.
dated December 24, 1996
10.7 Distribution Agreement with Robotel Electronique dated April
6, 1994
10.8 Reseller Agreement with Healthkit Company dated May 19, 1999
10.9 EduTECH Dealer Agreement dated January 1, 1995
10.10 Interior Concepts letter dated March 9, 1999
10.11 intelitek Educational Dealer Agreement dated August 1, 1997
10.12 Employment Agreement, Dean C. Meyers, dated February 2000
II-11
<PAGE>
10.13 Employment Agreement, Gary D. Nelson, dated March 26, 1999
10.14 Lease Agreement dated July 13, 1999
10.15 Master Equipment Lease Agreement with Lease Capital
Corporation dated December 21, 1998
10.16 Autodesk Authorized Reseller Agreement
10.17 Financial Advisory Agreement
10.18 Merger and Acquisition Agreement
24.1 Consent of Berenbaum, Weinshienk & Eason, P.C. is contained
on page II-8 of the Registration Statement
24.2 Consent of Gordon, Hughes & Banks, LLC
27.1 Financial Data Schedule
________________
II-12
EXHIBIT 1.1
N-GEN SOLUTIONS.COM, INC.
1,600,000 SHARES OF COMMON STOCK AND
1,600,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
----------------------
Boca Raton, Florida
_____________, 2000
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
n-Gen Solutions.Com, Inc. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein,
hereby proposes to issue and sell to Barron Chase Securities, Inc. (the
"Underwriter" or "you") for sale in a proposed public offering (the
"Offering") pursuant to the terms of this Underwriting Agreement (the
"Agreement"), on a "firm commitment" basis, 1,600,000 shares of Common
Stock (the "Shares") at $5.00 per Share and 1,600,000 Redeemable Common
Stock Purchase Warrants (the "Warrants") at $.125 per Warrant. The Shares
and the Warrants are collectively referred to as the "Securities". Each
Warrant is exercisable to purchase one (1) share of Common Stock (the
"Common Stock") at $5.50 per share at any time during the period between
the Effective Date and five (5) years from the Effective Date. The date
upon which the Securities and Exchange Commission ("Commission") shall
declare the Registration Statement of the Company effective shall be the
"Effective Date". The Warrants are subject to redemption under certain
circumstances. In addition, the Company proposes to grant to the
Underwriter the option referred to in Section 2(b) to purchase all or any
part of an aggregate of 240,000 additional Shares and/or 240,000 additional
Warrants (the "Option Securities").
You have advised the Company that you desire to purchase the
Securities, and that you are authorized to execute this Agreement. The
Company confirms the agreements made by it with respect to the purchase of
the Securities by the Underwriter, as follows:
1
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with the
Underwriter as of the Effective Date (as defined above), the Closing Date
(as hereinafter defined) and the Option Closing Date (as hereinafter
defined) that:
(a) A registration statement (File No. 333-_____) on Form SB-2
relating to the public offering of the Securities, including a preliminary
form of the prospectus, copies of which have heretofore been delivered to
you, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Commission thereunder, and
has been filed with the Commission under the Act. The Company has prepared
in the same manner and proposes to file, prior to the Effective Date of
such registration statement, an additional amendment or amendments to such
registration statement, including a final form of Prospectus, copies of
which shall be delivered to you. "Preliminary Prospectus" shall mean each
prospectus filed pursuant to the Rules and Regulations under the Act prior
to the Effective Date. The registration statement (including all financial
schedules and exhibits) as amended at the time it becomes effective and the
final prospectus included therein are respectively referred to as the
"Registration Statement" and the "Prospectus", except that (i) if the
prospectus first filed by the Company pursuant to Rule 424(b) of the Rules
and Regulations shall differ from said prospectus as then amended, the term
"Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b),
and (ii) if such registration statement or prospectus is amended or such
prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined),
the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term
"Prospectus" shall include the prospectus as so supplemented, or both, as
the case may be.
(b) At the Effective Date and at all times subsequent thereto up to
the Option Closing Date, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriter or Selected Dealers: (i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and
the Rules and Regulations; and (ii) neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make statements therein, in light of the circumstances under which they are
made, not misleading; provided, however, that the Company makes no
representations, warranty or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and
in conformity with, written information furnished to the Company by the
Underwriter specifically for use in the preparation thereof. It is
understood
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that the statements set forth in the Prospectus under the heading
"Underwriting" and regarding the identity of counsel to the Underwriter
under the heading "Legal Matters" constitute the only information furnished
in writing by the Underwriter for inclusion in the Registration Statement
and Prospectus.
(c) Each of the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus and is duly qualified to do
business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where
failure to so qualify will not materially affect the Company's business,
properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company
as of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the
Company have been, or will be when issued as set forth in the Prospectus,
duly authorized, validly issued and fully paid and non-assessable; the
issuances and sales of all such securities complied in all material respect
with, or were exempt from, applicable Federal and state securities laws;
the holders thereof have no rights of rescission against the Company with
respect thereto, and are not subject to personal liability by reason of
being such holders; none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company; except as set forth in the
Prospectus, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to convert any
obligation into, any securities of the Company have been granted or entered
into by the Company; and all of the securities of the Company, issued and
to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights of any
security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated in
this Agreement gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any securities
of the Company, except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized,
validly issued and delivered and will constitute
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valid and legally binding obligations of the Company entitling the holders
to the benefits provided by the warrant agreement pursuant to which such
Warrants are to be issued (the "Warrant Agreement"), which will be
substantially in the form filed as an exhibit to the Registration
Statement. The shares of Common Stock issuable upon exercise of the
Warrants have been reserved for issuance and when issued in accordance with
the terms of the Warrants and Warrant Agreement will be duly and validly
authorized, validly issued, fully paid and non-assessable, free of pre-
emptive rights, and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may
not be changed or revised by the Company without the prior written consent
of the Underwriter. The Warrant Agreement has been duly authorized and,
when executed and delivered pursuant to this Agreement, will have been duly
executed and delivered and will constitute the valid and legally binding
obligation of the Company enforceable in accordance with its terms.
The Common Stock Underwriter Warrants, the Warrant Underwriter
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Underwriter Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in
the Underwriter's Warrant Agreement described in Section 11 herein), have
been duly authorized and, when issued, delivered and paid for, will be
validly issued, fully paid, non-assessable, free of pre-emptive rights and
no personal liability will attach to the ownership thereof, and will
constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms and entitled to the benefits provided by the
Underwriter's Warrant Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and
the Underwriter's Warrant Agreement have been duly and validly authorized,
executed and delivered by the Company, and assuming due execution of this
Agreement by the other party hereto, constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally. The
Company has full power and authority to authorize, issue and sell the
Securities to be sold by it hereunder on the terms and conditions set forth
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the
Securities or the securities to be issued pursuant to the Underwriter's
Warrant Agreement, except such as may be required under the Act or state
securities laws, or as otherwise have been obtained.
(g) Except as described in the Prospectus, neither the
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Company nor any subsidiary is in material violation, breach of or default
under, and consummation of the transactions herein contemplated and the
fulfillment of the terms of this Agreement will not conflict with, or
result in a breach of, or constitute a material default under, or result in
the creation or imposition of any material lien, charge or encumbrance upon
any property or assets of the Company or any subsidiary or any of the terms
or provisions of any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any
subsidiary is a party or by which the Company or any subsidiary may be
bound or to which any of the property or assets of the Company or any
subsidiary is subject, nor will such action result in any material
violation of the provisions of the Articles of Incorporation or By-Laws of
the Company or any subsidiary, as amended, or any statute or any order,
rule or regulation applicable to the Company or subsidiary of any court or
of any regulatory authority or other governmental body having jurisdiction
over the Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the
Company and each subsidiary have good and marketable title to all
properties and assets described in the Prospectus as owned by each of them,
free and clear of all liens, charges, encumbrances or restrictions, except
such as are not material to its business, financial condition or results of
operation; all of the material leases and subleases under which the Company
or each subsidiary is the lessor or sublessor of properties or assets or
under which the Company or each subsidiary holds properties or assets as
lessee or sublessee as described in the Prospectus are in full force and
effect, and, except as described in the Prospectus, neither the Company nor
each subsidiary is in default in any material respect with respect to any
of the terms or provisions of any of such leases or subleases, and no claim
has been asserted by anyone adverse to rights of the Company or any
subsidiary as lessor, sublessor, lessee, or sublessee under any of the
leases or subleases mentioned above, or affecting or questioning the right
of the Company or any subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each
subsidiary owns or leases all such properties described in the Prospectus
as are necessary to its operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted as set
forth in the Prospectus.
(i) Gorden, Hughes & Banks LLC, who has given its report on certain
financial statements filed and to be filed with the Commission as part of
the Registration Statement, and which are included in the Prospectus, is
with respect to the Company, independent public accountants as required by
the Act and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration
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Statement present fairly the financial condition, results of operations and
cash flows of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which
they apply. Said financial statements and related notes and schedules have
been prepared in accordance with generally accepted accounting principles
applied on a basis which is consistent during the periods involved. The
Company's internal accounting controls and procedures are sufficient to
cause the Company and each subsidiary to prepare financial statements which
comply in all material respects with generally accepted accounting
principles applied on a basis which is consistent during the periods
involved. During the preceding five (5) year period, nothing has been
brought to the attention of the Company's management that would result in
any material reportable condition relating to the Company's internal
accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including
the Option Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) neither the Company nor any
subsidiary has incurred and will not have incurred any material liabilities
or obligations, direct or contingent, and has not entered into and will not
have entered into any material transactions other than in the ordinary
course of business and/or as contemplated in the Registration Statement and
the Prospectus; (ii) neither the Company nor any subsidiary has and will
not have paid or declared any dividends or have made any other distribution
on its capital stock; (iii) there has not been any change in the capital
stock of, or any incurrence of long-term debt by, the Company or any
subsidiary; (iv) neither the Company nor any subsidiary has issued any
options, warrants or other rights to purchase the capital stock of the
Company or any subsidiary; and (v) there has not been and will not have
been any material adverse change in the business, financial condition or
results of operations of the Company or any subsidiary, or in the book
value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or,
to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the
Company or any subsidiary, or any material action, suit, proceeding,
inquiry, arbitration, or investigation, which might result in any material
adverse change in the condition (financial or other), business prospects,
net worth, or properties of the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and
each subsidiary has filed all necessary federal, state and foreign income
and franchise tax returns and has paid all taxes
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shown as due thereon; and there is no tax deficiency which has been or to
the knowledge of the Company might be asserted against the Company or any
subsidiary that has not been provided for in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and
each subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all
material respects in compliance therewith and owns or possesses adequate
right to use all material patents, patent applications, trademarks, service
marks, trade-names, trademark registrations, service mark registrations,
copyrights, and licenses necessary for the conduct of such business and has
not received any notice of conflict with the asserted rights of others in
respect thereof. To the best of the Company's knowledge, none of the
activities or business of the Company or any subsidiary are in violation
of, or cause the Company or any subsidiary to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or
of any agency or body of the United States or of any state, county or
locality, the violation of which would have a material adverse impact upon
the condition (financial or otherwise), business, property, prospective
results of operations, or net worth of the Company and any subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar
public of quasi-public duties, other than payments or contributions
required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all
laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been
so described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have
the right to include such Common Stock or other securities in the
Registration Statement and Prospectus.
(s) Except as set forth in or contemplated by the
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Registration Statement and the Prospectus, neither the Company nor any
subsidiary has any material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest
in any partnership, joint venture, association or other entity except as
disclosed in the Registration Statement or Prospectus. Except as described
in the Registration Statement and Prospectus, the Company owns all of the
outstanding securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus with respect to the offer and sale of
the Securities and each Preliminary Prospectus, as of its date, has
conformed fully in all material respects with the requirements of the Act
and the Rules and Regulations and did not include any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein not misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three
year period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions
which were exempt from the registration provisions of the Act and not in
violation of Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter against any losses, claims,
damages or liabilities, which shall include, but not be limited to, all
costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or beneficial owner of five percent (5%) or more of the
securities of the Company or any subsidiary has any direct or indirect
affiliation or association with any member of the National Association of
Securities Dealers, Inc. ("NASD"), except as disclosed to the Underwriter
in writing, and no beneficial owner of the Company's unregistered
securities has any direct or indirect affiliation or association with any
NASD member
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except as disclosed to the Underwriter in writing. The Company will advise
the Underwriter and the NASD if any beneficial owner of the securities of
the Company or any subsidiary is or becomes an affiliate or associated
person of an NASD member participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting
the employment of its employees and employment practices, terms and
conditions of employment and wages and hours relating thereto. There are
no pending investigations involving the Company or any subsidiary by the
U.S. Department of Labor, or any other governmental agency responsible for
the enforcement of such federal, state or local laws and regulations.
There is no unfair labor practice charge or complaint against the Company
or any subsidiary pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or to the
knowledge of the Company, threatened against or involving the Company or
any subsidiary or any predecessor entity. No question concerning
representation exists respecting the employees of the Company or any
subsidiary and no collective bargaining agreement or modification thereof
is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or
existing collective bargaining agreements of the Company or any subsidiary,
if any.
(aa) Except as disclosed in the Prospectus, neither the Company nor
any subsidiary maintains, sponsors nor contributes to, nor is it required
to contribute to, any program or arrangement that is an "employee pension
benefit plan", an "employee welfare benefit plan", or a "multi-employer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Except as disclosed in the Prospectus,
neither the Company nor any subsidiary maintained or contributed to a
defined benefit plan, as defined in Section 3(35) of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors
of the Company or any subsidiary have been:
(1) The subject of a petition under the federal bankruptcy
laws or any state insolvency law filed by or against them, or by
a receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which any
of them was a general partner at or within two years before the
time of such filing, or any corporation or business association
of which any of them was an executive officer at or within two
years before the time of such filing;
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(2) Convicted in a criminal proceeding or a named subject
of a pending criminal proceeding (excluding traffic violations
and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining any
of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction merchant,
any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer
in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or
continuing any conduct or practice in connection with any
such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of federal or state securities
law or federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for
more than sixty (60) days their right to engage in any activity
described in paragraph (3)(i) above, or be associated with
persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or vacated.
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(ac) Based upon written representations received from the officers
and directors of the Company, each of the officers and directors of the
Company has reviewed the sections in the Prospectus relating to their
biographical data and equity ownership position in the Company, and all
information contained therein is true and accurate.
2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement and based
upon the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriter an aggregate of
1,600,000 Shares at $4.50 per Share and 1,600,000 Warrants at $.1125 per
Warrant, (the public offering price less ten percent (10%)), at the place
and time hereinafter specified. The price at which the Underwriter shall
sell the Securities to the public shall be $5.00 per Share and $.125 per
Warrant.
Delivery of the Securities against payment therefor shall take place
at the offices of Barron Chase Securities, Inc., 7700 West Camino Real,
Boca Raton, Florida 33433 (or at such other place as may be designated by
the Underwriter) at 10:00 a.m., Eastern Time, on such date after the
Registration Statement has become effective as the Underwriter shall
designate, but not later than ten (10) business days (holidays excepted)
following the first date that any of the Securities are released to you,
such time and date of payment and delivery for the Securities being herein
called the "Closing Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and based upon the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 240,000 Shares
and 240,000 Warrants at the same price per Share and Warrant as the
Underwriter shall pay for the Securities being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Securities
being referred to herein as the "Option Securities"). This option may be
exercised within forty-five (45) days after the Effective Date of the
Registration Statement upon notice by the Underwriter to the Company
advising as to the amount of Option Securities as to which the option is
being exercised, the names and denominations in which the certificates for
such Option Securities are to be registered and the time and date when such
certificates are to be delivered. Such time and date shall be determined
by the Underwriter but shall not be later than ten (10) full business days
after the exercise of said option, nor in any event prior to the Closing
Date, and such time and date is referred to herein as the "Option Closing
Date". Delivery of the Option Securities against payment therefor shall
take place at the offices of the Underwriter. The Option granted hereunder
may be exercised only to cover overallotments in the sale by the
Underwriter of the Securities referred to in subsection (a)
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above. In the event the Company declares or pays a dividend or
distribution on its Common Stock, whether in the form of cash, shares of
Common Stock or any other consideration, prior to the Option Closing Date,
such dividend or distribution shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you or your representative for inspection at
least two (2) full business days prior to the Closing Date at the offices
of the Underwriter, and such certificates shall be registered in such names
and denominations as you may request. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Company to the Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to
you for the account of the Underwriter against payment of the purchase
prices by the Underwriter by wire transfer in New York Clearing House funds
to the account of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities
pursuant to the provisions of subsection (b) above, payment for such
Securities shall be made by wire transfer, at the time and date of delivery
of such Securities as required by the provisions of subsection (b) above,
against receipt of the certificates for such Securities by the Underwriter
for the account of the Underwriter registered in such names and in such
denominations as the Underwriter may request.
It is understood that the Underwriter proposes to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriter that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will
not at any time, whether before or after the Effective Date, file any
amendment to the Registration Statement or supplement to the Prospectus of
which you shall not previously been advised and furnished with a copy or to
which you or your counsel shall have objected in writing, acting
reasonably, or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the later of (i) the completion by the
Underwriter of the distribution of the Securities as contemplated hereby;
or (ii) 25 days after the date on which the Registration Statement shall
have become or been declared effective, the Company will prepare and file
with the Commission, promptly upon your request, any amendments or
supplements to the Registration Statement or
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Prospectus which may be necessary or advisable in connection with the
distribution of the Securities and as mutually agreed by the Company and
the Underwriter.
After the Effective Date and as soon as the Company is advised
thereof, the Company will advise you, and confirm the advice in writing, of
the receipt of any comments of the Commission, of the effectiveness of any
post-effective amendment to the Registration Statement, of the filing of
any supplement to the Prospectus or any amended Prospectus, of any request
made by the Commission for amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body
of any stop order or other order suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
Preliminary Prospectus, or of the suspension of the qualification of the
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any of such purposes, and will use its best efforts to
prevent the issuance of any such order, and, if issued, to obtain as soon
as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has
consented and hereby consents to the use of such copies for the purposes
permitted by the Act. The Company authorizes the Underwriter and Selected
Dealers to use the Prospectus in connection with the sale of the Securities
for such period as in the opinion of counsel to the Underwriter the use
thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within
such period as a Prospectus is required under the Act to be delivered in
connection with sales by the Underwriter or Selected Dealers, of any event
of which the Company has knowledge and which in the opinion of counsel for
the Company or counsel for the Underwriter should be set forth in an
amendment to the Registration Statement or a supplement to the Prospectus,
in order to make the statements therein not then misleading, in light of
the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Securities, or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with
the Act and the Rules and Regulations, the Company will notify you promptly
and forthwith prepare and furnish to you copies of such amended Prospectus
or of such supplement to be attached to the Prospectus, in such quantities
as you may reasonably request, in order that the Prospectus, as so amended
or supplemented, will not contain any untrue statement of a material fact
or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which
they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus
or supplement to be attached to the Prospectus shall be without expense to
the Underwriter.
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The Company will comply with the Act, the Rules and Regulations
thereunder, and the provisions of the Securities Exchange Act of 1934 (the
"1934 Act"), and the rules and regulations thereunder in connection with
the offering and issuance of the Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities
for sale under the securities or "blue sky" laws of such jurisdictions as
the Underwriter may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with
such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general
consent to service of process in any jurisdiction in any action other than
one arising out of the offering or sale of the Securities. The Company
will, from time to time, prepare and file such statements and reports as
are or may be required to continue such qualification in effect for so long
a period as the Underwriter may reasonably request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not
limited to, all such expenses itemized in Section 8(a) and 8(c) hereof, and
either (i) the out-of-pocket expenses of the Underwriter, not to exceed the
$50,000 previously paid if the Underwriter elects to terminate the offering
for any reason; or (ii) the out-of-pocket expenses of the Underwriter if
the Company elects to terminate the offering for any reason. For the
purposes of this sub-section, the Underwriter shall be deemed to have
assumed such expenses when they are billed or incurred, regardless of
whether such expenses have been paid. The Underwriter shall not be
responsible for any expenses of the Company or others, or for any charges
or claims relative to the proposed public offering if it is not
consummated. In the event the public offering is not consummated, the
Underwriter will return any unaccounted for portion of the $50,000 advanced
against non-accountable expenses to the Company.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial
statements and exhibits filed therewith, and of each amendment or
supplement thereto. The Company will deliver to or upon the order of the
Underwriter, from time to time until the Effective Date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date of the Registration Statement as the
Underwriter may reasonably request. The Company will deliver to the
Underwriter on the Effective Date of the Registration Statement and
thereafter for so long as a Prospectus is required to be delivered under
the Act, from time to time, as many copies of the Definitive Prospectus, or
as thereafter amended or supplemented, as the Underwriter may from
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time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish
to the Underwriter during the period ending five (5) years from the
Effective Date, (i) as soon as practicable after the end of each fiscal
year, a balance sheet of the Company and any of its subsidiaries as at the
end of such fiscal year, together with statements of income, surplus and
cash flow of the Company and any subsidiaries for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report
thereon of independent accountants; (ii) as soon as they are available, a
copy of all reports (financial or other) mailed to security holders; (iii)
as soon as they are available, a copy of all non-confidential documents,
including annual reports, periodic reports and financial statements,
furnished to or filed with the Commission under the Act and the 1934 Act;
(iv) copies of each press release, news item and article with respect to
the Company's affairs released by the Company; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company
and its subsidiary or subsidiaries are consolidated in reports furnished to
its stockholders generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to the Underwriter as
soon as it is practicable, but in no event later than the first day of the
sixteenth full calendar month following the Effective Date, an earnings
statement (which need not be audited) covering a period of at least twelve
consecutive months beginning with the Effective Date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and
the Company will make all filings required to and will have obtained
approval for the listing of the Shares and Warrants on The Nasdaq SmallCap
Market System, and will use its best efforts to maintain such listing for
at least seven (7) years from the date of this Agreement.
(i) For a period of seven (7) years following the Effective Date, the
Company will hold an annual meeting of stockholders for the election of
Directors within 180 days after the end of each of the Company's fiscal
years and, within nine (9) months after the end of each of the Company's
fiscal years will provide the Company's stockholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required
by Rule 14a-3 under the 1934 Act and shall be included in an annual report
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pursuant to the requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file such reports with the
Commission with respect to the sale of the Securities and the application
of the proceeds therefrom as may be required by the Act and the 1934 Act.
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the Underwriter and the
Company may be reasonably necessary or advisable in connection with the
distribution of the Securities and will use its best efforts to cause the
same to become effective as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you
the Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Underwriter's Warrant Agreement filed as an exhibit to the Registration
Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable
upon exercise of the Underwriter's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
warrants, options and Preferred Stock of the Company) as of the Effective
Date shall agree in writing, in a form satisfactory to the Underwriter, not
to sell, transfer or otherwise dispose of any of such securities (or
underlying securities) of the Company for a period of eighteen (18) months
from the Effective Date, or any longer period required by the NASD, Nasdaq
or any State, without the written consent of the Underwriter.
(o) The Company will obtain, on or before the Closing Date, key
person life insurance on the life of Robert D. Arnold in an amount of not
less than $2,000,000, and will use its best efforts to maintain such
insurance for a period of at least five (5) years from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and
such other manuals as the Underwriter may designate, such listings to
contain the information required by such manuals and the Uniform Securities
Act. The Company hereby agrees to use its best efforts to maintain such
listing for a period of not less than five (5) years. The Company shall
take such action as may be reasonably requested by the
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Underwriter to obtain a secondary market trading exemption in such states
as may be reasonably requested by the Underwriter.
(q) During the one (1) year period commencing on the Closing Date,
the Company will not, without the prior written consent of the Underwriter,
grant options or warrants to purchase the Company's Common Stock at a price
less than the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to
the Company or its activities or the offering of the Securities other than
routine customary advertising of the Company's products and services, and
except as required by any applicable law or the directives of any relevant
regulatory authority in any relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Underwriter as
a non-exclusive financial advisor to the Company for a period of twelve
(12) months commencing on the first day of the month following the
Company's receipt of the proceeds of this offering, at an aggregate fee of
$108,000, all of which shall be payable to the Underwriter on the Closing
Date. The financial advisory agreement will provide that the Underwriter
shall, at the Company's request, provide advice and consulting services to
the Company concerning potential merger and acquisition proposals and the
obtaining of short or long-term financing for the Company, whether by
public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the
financial statements to be included in any registration statement or
similar disclosure document to be filed by the Company hereunder, or any
amendment or supplement thereto. For a period of five (5) years from the
Effective Date, the Company, at its expense, shall cause its regularly
engaged independent certified public accountants to review (but not audit)
the Company's financial statements for each of the first three (3) fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's quarterly report and the mailing of quarterly
financial information to stockholders.
(u) The Company shall retain American Securities Transfer & Trust,
Inc. as the transfer agent for the securities of the Company, or such other
transfer agent as you may agree to in writing. In addition, the Company
shall direct such transfer agent to furnish the Underwriter with daily
transfer sheets as to each of the Company's securities as prepared by the
Company's transfer agent and copies of lists of stockholders and
warrantholders as reasonably requested by the Underwriter, for a five (5)
year period commencing from the Closing Date.
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(v) The Company shall cause the Depository Trust Company, and any
other depository of the Company's securities, to furnish security position
reports and special DTC Tracking Reports to the Underwriter at the expense
of the Company. The security position reports shall be furnished on a
weekly basis for a five (5) year period from the Effective Date, and the
DTC Tracking Reports shall be furnished for the initial two (2) month
period from the Effective Date, after which time the Company's obligation
to furnish such tracking reports will be reviewed by the Company and the
Underwriter.
(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Underwriter shall designate and the Company may
reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of
five (5) persons, two (2) of whom shall be independent and not otherwise
affiliated with the Company or associated with any of the Company's
affiliates. The Underwriter shall have the opportunity to invite an
observer to attend Board of Directors meetings of the Company and the
Company shall pay the out-of-pocket expenses of such observer.
(y) On the Closing Date, the Company shall execute and deliver to you
a non-exclusive M/A Agreement with the Underwriter in a form satisfactory
to the Underwriter, providing:
(1) that the Underwriter will be paid a finder's fee, of from
five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction introduced
by the Underwriter (including mergers, acquisitions, joint ventures,
and any other business for the Company introduced by the Underwriter)
consummated by the Company, as an "Introduced, Consummated
Transaction", by which the Underwriter introduced the other party to
the Company during a period ending five (5) years from the date of the
M/A Agreement; and
(2) that any such finder's fee due to the Underwriter will be
paid in cash or stock as mutually agreed at the closing of the
particular Introduced, Consummated Transaction for which the finder's
fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Underwriter at a total cost not to exceed $15,000.
(aa) For such period as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective
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amendments to the Registration Statement or a new Registration Statement to
become effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause
a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant and to furnish the Underwriter and each dealer as
many copies of each such Prospectus as the Underwriter or such dealer may
reasonably request. Such post-effective amendments or new Registration
Statement shall also include the Underwriter's Warrants and all the
securities underlying the Underwriter's Warrants. The Company shall not
call for redemption any of the Warrants unless a Registration Statement
covering the securities underlying the Warrants has been declared effective
by the Commission and remains current at least until the date fixed for
redemption. In addition, the Warrants shall not be redeemable during the
first year after the Effective Date without the written consent of the
Underwriter.
(ab) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock
Exchange, the Company shall deliver to the Underwriter a written opinion
detailing those states in which the Shares and Warrants of the Company may
be traded in non-issuer transactions under the Blue Sky laws of the fifty
states ("Secondary Market Trading Opinion"). The initial Secondary Market
Trading Opinion shall be delivered to the Underwriter on the Effective
Date, and the Company shall continue to update such opinion and deliver
same to the Underwriter on a timely basis, but in any event at the
beginning of each fiscal quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to
the offering, and will distribute such volumes to the individuals
designated by the Underwriter or counsel to the Underwriter.
4. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriter to purchase and pay for the Securities which the Underwriter
has agreed to purchase hereunder from the Company is subject, as of the
date hereof and as of the Closing Date and the Option Closing Date, to the
execution of this Agreement by the Underwriter, to the continuing accuracy
of, and compliance with, the representations and warranties of the Company
herein, to the accuracy of statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at
such later time or on such later date as you may agree to in writing; (ii)
at or prior to the Closing Date, no stop order suspending the effectiveness
of the Registration
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Statement shall have been issued by the Commission and no proceeding for
that purpose shall have been initiated or pending, or shall be threatened,
or to the knowledge of the Company, contemplated by the Commission; (iii)
no stop order suspending the effectiveness of the qualification or
registration of the Securities under the securities or "blue sky" laws of
any jurisdiction (whether or not a jurisdiction which you shall have
specified) shall be threatened or to the knowledge of the Company
contemplated by the authorities of any such jurisdiction or shall have been
issued and in effect; (iv) any request for additional information on the
part of the Commission or any such authorities shall have been complied
with to the satisfaction of the Commission and any such authorities, and to
the satisfaction of counsel to the Underwriter; and (v) after the date
hereof no amendment or supplement to the Registration Statement or the
Prospectus shall have been filed unless a copy thereof was first submitted
to the Underwriter and the Underwriter did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus,
(i) there shall not have been any material change in the capital stock or
other securities of the Company or any subsidiary or any material adverse
change in the long-term debt of the Company or any material subsidiary
except as set forth in or contemplated by the Registration Statement, (ii)
there shall not have been any material adverse change in the general
affairs, business, properties, condition (financial or otherwise),
management, or results of operations of the Company or any subsidiary,
whether or not arising from transactions in the ordinary course of
business, in each case other than as set forth in or contemplated by the
Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business
or properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative
or other governmental action, order or decree, which is not set forth in
the Registration Statement and Prospectus; and (iv) the Registration
Statement and the Prospectus and any amendments or supplements thereto
shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstance under which they are
made, not misleading.
(c) Except as set forth in the Prospectus, there shall not be pending
or, to the knowledge of the Company or any subsidiary, threatened, any
material action, suit, proceeding, inquiry, arbitration or investigation
against the Company or any subsidiary, or any of the officers or directors
of the Company or any
20
<PAGE>
subsidiary, or any material action, suit, proceeding, inquiry, arbitration,
or investigation, which is likely to result in any material adverse change
in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the
Closing Date as if made at the Closing Date, and all covenants and
agreements herein contained to be performed on the part of the Company and
all conditions herein contained to be fulfilled or complied with by the
Company at or prior to the Closing Date shall have been duly performed,
fulfilled or complied with.
(e) At the Closing Date, the Underwriter shall have received the
opinion, dated as of the Closing Date, from Berenbaum, Weinshienk & Eason,
P.C., counsel for the Company, in form and substance satisfactory to
counsel for the Underwriter, which in the aggregate shall state:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is
in good standing in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capital of the Company is as set forth under
"Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for
issuance by the Company's Board of Directors have been duly
authorized, validly issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock of the Company and other securities
have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any
preemptive rights or, to such counsel's knowledge, other rights to
subscribe for or to purchase securities of the Company, nor, to such
counsel's knowledge, are there any restrictions upon the voting or
transfer of any of the securities of the Company, except as disclosed
in the Prospectus; the Common Stock, the Shares, the Warrants, and the
securities contained in the Underwriter's Warrant Agreement conform to
the respective descriptions thereof contained in the Prospectus; the
Common Stock, the Shares, the Warrants, the shares of Common Stock to
be issued upon exercise of the Warrants and
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the securities contained in the Underwriter's Warrant Agreement, have
been duly authorized and, when issued, delivered and paid for, will be
duly authorized, validly issued, fully paid, non-assessable, free of
pre-emptive rights and no personal liability will attach to the
ownership thereof; all prior sales by the Company of the Company's
securities complied in all material respects with, or were exempt
from, applicable federal and state securities laws; no shareholders of
the Company have any rescission rights against the Company with
respect to the Company's securities; a sufficient number of shares of
Common Stock has been reserved for issuance upon exercise of the
Warrants and the Underwriter Warrants, and to the best of such
counsel's knowledge, neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by this
Agreement gives rise to any registration rights or other rights, other
than those which have been waived or satisfied or described in the
Registration Statement;
(iii) this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement have been duly and validly authorized, executed and
delivered by the Company and, assuming the due authorization,
execution and delivery of this Agreement by the Underwriter, are the
valid and legally binding obligations of the Company, enforceable in
accordance with their terms, except (a) as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect which
effect creditors' rights generally; and (b) no opinion is expressed as
to the enforceability of the indemnity provisions or the contribution
provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company, the Shares, the Common Stock and the Warrants are in
valid and proper legal form;
(v) to the best of such counsel's knowledge, except as set forth
in the Prospectus, there is not pending or threatened any material
action, suit, proceeding, inquiry, arbitration or investigation
against the Company or any subsidiary or any of the officers of
directors of the Company or any subsidiary, nor any material action,
suit, proceeding, inquiry, arbitration, or investigation, which might
materially and adversely affect the condition (financial or
otherwise), business prospects, net worth, or properties of the
Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement, the Financial
Advisory Agreement, and the M/A Agreement, and the incurrence of the
obligations herein and therein set forth and
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the consummation of the transactions herein or therein contemplated,
will not result in a violation of, or constitute a default under (a)
the Articles of Incorporation or By-Laws of the Company and each
subsidiary; (b) to the best of such counsel's knowledge, any material
obligations, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company or any subsidiary is a
party or by which it or any of its material properties is bound; or
(c) to the best of such counsel's knowledge, any material order, rule,
regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or
are pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company in connection with the
execution, delivery and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein, or
the issuance of the Underwriter's Warrants or the Securities
underlying the Underwriter's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such
counsel may rely upon certificates of any officer of the Company or public
officials as to matters of fact; and may rely as to all matters of law,
upon opinions of counsel satisfactory to you and counsel to the
Underwriter. The opinion of such counsel to the Company shall state that
the opinion of any such other counsel is in form satisfactory to such
counsel and that the Underwriter and they are justified in relying thereon.
Such counsel shall also include a statement to the effect that
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such counsel has participated in the preparation of the Registration
Statement and the Prospectus and nothing has come to the attention of such
counsel to lead such counsel to believe that the Registration Statement or
any amendment thereto at the time it became effective contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they are made, not misleading or that the
Prospectus or any supplement thereto contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make statements therein, in light of the
circumstances under which they are made, not misleading (except, in the
case of both the Registration Statement and any amendment thereto and the
Prospectus and any supplement thereto, for the financial statements, notes
thereto and other financial information and statistical data contained
therein, as to which such counsel need express no opinion).
(f) You shall have received on the Closing Date, a certificate dated
as of the Closing Date, signed by the Chief Executive Officer and the Chief
Financial Officer of the Company and such other officers of the Company as
the Underwriter may reasonably request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities is in
effect and no proceedings for such purpose are pending or are, to
their knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any
officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are
required to be summarized in the Prospectus which are not so
summarized; and they do not know of any material contracts required to
be filed as exhibits to the Registration Statement which are not so
filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any
amendment or supplement to either of the foregoing contains an untrue
statement of any material fact or omits to state any material fact
required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they are made, not
misleading; and since the Effective Date, to the best of their
knowledge, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
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(iv) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been
any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects, and the
Company has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and other tax return or the payment of
any federal, state or other taxes; they know of no proposed
redetermination or re-assessment of taxes, adverse to the Company or
any subsidiary, and the Company and each subsidiary has paid or
provided by adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company, contingent or otherwise, not disclosed in the Registration
Statement and Prospectus;
(viii) This Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement, the consummation of the transactions therein contemplated,
and the fulfillment of the terms thereof, will not result in a breach
by the Company of any terms of, or constitute a default under, the
Company's Articles of Incorporation or By-Laws, any indenture,
mortgage, lease, deed of trust, bank loan or credit agreement or any
other material agreement or undertaking of the Company or any
subsidiary including, by way of specification but not by way of
limitation, any agreement or instrument to which the Company or any
subsidiary is now a party or pursuant to which the Company or any
subsidiary has acquired any material right and/or obligations by
succession or otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in
the condition or general affairs of the Company, financial or
otherwise, other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein or
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contemplated thereby, neither the Company nor any subsidiary has,
prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent,
for borrowed money, or (ii) entered into any material transaction
other than in the ordinary course of business. The Company has not
declared, paid or made any dividend or distribution of any kind on its
capital stock;
(xi) They have reviewed the sections in the Prospectus relating
to their biographical data and equity ownership position in the
Company, and all information contained therein is true and accurate;
and
(xii) Except as disclosed in the Prospectus, during the past
five years, they have not been:
(1) The subject of a petition under the federal bankruptcy
laws or any state insolvency law filed by or against them, or by
a receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which any
of them was a general partner at or within two years before the
time of such filing, or any corporation or business association
of which any of them was an executive officer at or within two
years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject
of a pending criminal proceeding (excluding traffic violations
and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining any
of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction merchant,
any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer
in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or
continuing any conduct or practice in connection with any
such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection
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with the purchase or sale of any security or commodity or in
connection with any violation of federal or state securities
law or federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for
more than sixty (60) days their right to engage in any activity
described in paragraph (3)(i) above, or be associated with
persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriter shall have received from Gorden, Hughes & Banks
LLC, independent auditors to the Company, certificates or letters, one
dated and delivered on the Effective Date and one dated and delivered on
the Closing Date, in form and substance satisfactory to the Underwriter,
stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and,
in their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available
unaudited interim financial statements or other financial information
of the Company (with an indication of the date of the latest available
unaudited interim financial statements), inquiries of officers of the
Company who have responsibility for financial and accounting matters,
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<PAGE>
review of minutes of all meetings of the shareholders and the Board of
Directors of the Company and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing
inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to
the date of such letters, there has been any change in the Common
Stock, long-term debt or other securities of the Company (except
as specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, shareholder's equity, working capital or in any other
item appearing in the Company's financial statements as to which
the Underwriter may request advice, in each case as compared with
amounts shown in the balance sheet as of the date of the most
recent financial statements in the Prospectus, except in each
case for changes, increases or decreases which the Prospectus
discloses have occurred or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease
in revenues or in the total or per share amounts of income or
loss before extraordinary items or net income or loss, or any
other material change in such other items appearing in the
Company's financial statements as to which the Underwriter may
request advice, in each case as compared with the fiscal period
ended as of the date of the most recent financial statements in
the Prospectus, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will
occur;
(c) the unaudited interim financial statements of the
Company appearing in the Registration Statement and the
Prospectus (if any) do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles and
practices on a basis substantially consistent with the audited
financial statements included in the Registration Statements or
the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may
28
<PAGE>
be derived from the general accounting records, including work sheets,
of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letters and
found them to be in agreement; and
(v) they have not during the immediately preceding five (5) year
period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriter. Any changes, increases or
decreases in the items set forth in such letters which, in the judgment of
the Underwriter, are materially adverse with respect to the financial
position or results of operations of the Company shall be deemed to
constitute a failure of the Company to comply with the conditions of the
obligations to the Underwriter hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the Underwriter to purchase and pay for the Option
Securities referred to therein will be subject (as of the date hereof and
as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriter.
(ii) At the Option Closing Date, there shall have been delivered
to you the signed opinion from Berenbaum, Weinshienk & Eason, P.C.,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriter, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4(e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company, dated the Option Closing Date,
in form and substance satisfactory to counsel to the Underwriter,
substantially the same in scope and substance
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<PAGE>
as the certificate furnished to you at the Closing Date pursuant to
Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you a letter in form and substance satisfactory to you from Gorden,
Hughes & Banks LLC, independent auditors to the Company, dated
the Option Closing Date and addressed to the Underwriter confirming
the information in their letter referred to in Section 4(g) hereof and
stating that nothing has come to their attention during the period
from the ending date of their review referred to in said letter to a
date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriter, and
the Underwriter and counsel to the Underwriter shall have been
furnished with all such documents, certificates, and opinions as you
may request in connection with this transaction in order to evidence
the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of
the covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD,
the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal
or agent) in the Securities and no proceedings for the taking of such
action shall have been instituted or shall be pending, or, to the knowledge
of the Underwriter or the Company, shall be contemplated by the Commission
or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or
the NASD. The Company shall advise the Underwriter of any NASD
affiliations of any of its officers, directors, or stockholders or their
affiliates in accordance with Section 1(y) of this Agreement.
(j) At the Effective Date, you shall have received from counsel to
the Company, dated as of the Effective Date, in form and substance
satisfactory to counsel for the Underwriter, a written Secondary Market
Trading Opinion detailing those states in which the Shares and Warrants may
be traded in non-issuer transactions under the Blue Sky laws of the fifty
(50) states after the Effective Date, in accordance with Section 3(ab) of
this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to
counsel for the Underwriter, and such counsel shall
30
<PAGE>
be furnished with such documents, certificates and opinions as they may
reasonably request to enable them to pass upon the matters referred to in
this sub-section.
(l) Prior to the Effective Date, the Underwriter shall have received
clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriter, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be canceled at, or
at any time prior to, the Closing Date and/or the Option Closing Date by
the Underwriter notifying the Company of such cancellation in writing or by
facsimile at or prior to the applicable Closing Date or Option Closing
Date. Any such cancellation shall be without liability of the Underwriter
to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of
the Company to sell and deliver the Securities is subject to the execution
of this Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Underwriter may
agree in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement
shall have been issued under the Act or any proceedings therefore
initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled
after the Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION. (a) The Company indemnifies and holds harmless
the Underwriter and each person, if any, who controls the Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this
Agreement, include but not be limited to, all reasonable costs of defense
and investigation and all attorneys' fees), to which the Underwriter or
such controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (i) the
Registration Statement, any Preliminary Prospectus, the Prospectus,
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<PAGE>
or any amendment or supplement thereto, (ii) any blue sky application or
other document executed by the Company specifically for that purpose or
based upon written information furnished by the Company and filed in any
state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application,
document or information being hereinafter called a "Blue Sky Application"),
or arise out of or are based upon the omission or alleged omission to state
in the Registration Statement, any Preliminary Prospectus, Prospectus, or
any amendment or supplement thereto, or in any Blue Sky Application, a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will
not be liable in any such cases to the extent, but only to the extent, that
any such losses, claim, damages or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
Registration Statement or any amendment or supplement thereof or any Blue
Sky Application or any Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. Notwithstanding the foregoing, the
Company shall have no liability under this Section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and
the Prospectus is not delivered to the person or persons alleging the
liability upon which indemnification is being sought. This indemnity will
be in addition to any liability which the Company may otherwise have.
(b) The Underwriter indemnifies and holds harmless the Company, each
of its directors, each nominee (if any) for director named in the
Prospectus, each of the persons who have signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of the
Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs
of defense and investigation and all attorneys' fees) to which the Company
or any such director, signer of the Registration Statement, officer or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statements or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by the Underwriter
specifically for use in such Registration Statement or Prospectus.
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<PAGE>
Notwithstanding the foregoing, the Underwriter shall have no liability
under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section, promptly notify in writing the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party other than indemnification under this Section. In case
any such action is brought against any indemnified party, and it promptly
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the
indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act,
the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the
named parties to any such action (including any impleaded parties) include
both the Underwriter or such controlling person and the indemnifying party
and in the reasonable judgment of the Underwriter, it is advisable for the
Underwriter or such Underwriter or controlling persons to be represented by
separate counsel (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the Underwriter or
such controlling person). No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnifying party, which shall not be unreasonably withheld in light of
all factors of importance to such indemnifying and indemnified parties.
7. CONTRIBUTION.
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(a) If the indemnification provided for in this Agreement is
unavailable to any indemnified party in respect to any losses, claims,
damages, liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, will contribute to
the amount paid or payable by such indemnified party, as a result of such
losses, claims, damages, liabilities or expenses (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on
the one hand, and by the Underwriter on the other hand, from the Offering,
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above, but also the
relative fault of the Company on the one hand, and of the Underwriter on
the other hand, in connection with any statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses as well
as any other relevant equitable considerations; provided, that any
contribution hereunder by the Underwriter shall not exceed the amount of
consideration received by the Underwriter hereunder. The relative benefits
received by the Company on the one hand, and by the Underwriter on the
other hand, shall be deemed to be in the same proportion as the total
proceeds from the Offering (net of sales commissions, and the non-accountable
expense allowance, but before deducting expenses) received by
the Company, bear to the commissions and the non-accountable expense
allowance received by the Underwriter. The relative fault of the Company
on the one hand, and of the Underwriter on the other hand, will be
determined with reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company, and its
relative intent, knowledge, access or information and opportunity to
correct or prevent such statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if contribution
pursuant to this Section were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to in this paragraph.
(b) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any
action, suit, or proceeding, such party will, if a claim for contribution
in respect thereof is to be made against another party ("Contributing
Party"), notify the Contributing Party of the commencement thereof, but the
omission to so notify the Contributing Party will not relieve it from any
liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against
any party, and such party notifies a Contributing Party or its
representative of the commencement thereof within the aforesaid fifteen
(15) days, the Contributing Party will be entitled to participate therein
with the notifying party and any other Contributing Party similarly
notified. Any such Contributing Party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
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<PAGE>
proceeding which was effected by such party seeking contribution on account
of any settlement of any claim, action or proceeding effected by such party
seeking contribution without the prior written consent of such Contributing
Party. The contribution provisions contained in this Section are intended
to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
8. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriter is consummated,
the Company will pay all costs and expenses incident to the performance of
this Agreement by the Company including but not limited to the fees and
expenses of counsel to the Company and of the Company's accountants; the
costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented; the
fee of the National Association of Securities Dealers, Inc. ("NASD") in
connection with the filing required by the NASD relating to the offering of
the Securities contemplated hereby; all state filing fees, expenses and
disbursements and legal fees of counsel to the Underwriter in their
capacity as Blue Sky counsel to the Company in connection with the filing
of applications to register the Securities under the state securities or
blue sky laws (which legal fees shall be payable by the Company in the sum
of $25,000, of which $12,500 has been paid); the cost of printing and
furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Selected
Dealers Agreement, and the Blue Sky Memorandum; the cost of printing the
certificates evidencing the securities comprising the Securities; the cost
of preparing and delivering to the Underwriter and its counsel bound
volumes containing copies of all documents and appropriate correspondence
filed with or received from the Commission and the NASD and all closing
documents; and the fees and disbursements of the transfer agent for the
Company's securities. The Company shall pay any and all taxes (including
any original issue, transfer, franchise, capital stock or other tax imposed
by any jurisdiction) on sales to the Underwriter hereunder. The Company
will also pay all costs and expenses incident to the furnishing of any
amended Prospectus or of any supplement to be attached to the Prospectus.
The Company shall also engage the Company's counsel to provide the
Underwriter with a written Secondary Market Trading Opinion in accordance
with Sections 3(ab) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Underwriter a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received from the sale of
the Securities, of which an advance of $50,000 has been paid to date. In
the event the overallotment option is exercised, the Company shall pay to
the Underwriter at the Option Closing Date an additional amount equal to
three percent (3%) of the gross proceeds received upon exercise of the
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overallotment option.
(c) Other than as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company,
from the Underwriter or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify
and hold harmless the Underwriter against any losses, claims, damages or
liabilities, which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all
attorneys' fees, to which the Underwriter may become subject insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an
employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by
reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness
until 11:00 a.m., Eastern time, on the first full business day following
the execution of this Agreement; or at such earlier time after the
Effective Date of the Registration Statement as you in your discretion
shall first commence the public offering of any of the Securities. The
time of the public offering shall mean the time after the effectiveness of
the Registration Statement when the Securities are first generally offered
by you to the Selected Dealers and/or the public. This Agreement may be
terminated by you at any time before it becomes effective as provided
above, except that Sections 3(c), 6, 7, 8, 12, 13, 14, 15, 16 and 17 shall
remain in effect notwithstanding such termination.
10. TERMINATION. (a) This Agreement, except for Sections 3(c), 6,
7, 8, 12, 13, 14, 15, 16, and 17 hereof, may be terminated at any time
prior to the Closing Date, and the option referred to in Section 2(b)
hereof, if exercised, may be cancelled at any time prior to the Option
Closing Date, by you if in your judgment it is impracticable to offer for
sale or to enforce contracts made by the Underwriter for the resale of the
Securities agreed to be purchased hereunder by reason of: (i) the Company
having sustained a material adverse loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on the New York Stock Exchange or the American Stock Exchange
having been suspended or limited; (iii) material governmental restrictions
having been imposed on trading in securities generally (not in force and
effect on the date hereof); (iv) a banking moratorium having been declared
by Federal or New York or Florida state authorities; (v) an outbreak of
major international hostilities or other national or international calamity
having occurred; (vi) the passage by the Congress of the United States or
by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body
or any authoritative
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<PAGE>
accounting institute or board, or any governmental executive, which is
reasonably likely to have a material adverse impact on the business,
financial condition or financial statements of the Company or the market
for the Securities offered hereby; (vii) any material adverse change in the
financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement; (viii) any material adverse
change having occurred, since the respective dates as of which information
is given in the Registration Statement and Prospectus, in the earnings,
business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business; (ix)
a pending or threatened legal or governmental proceeding or action relating
generally to the Company's business, or a notification having been received
by the Company of the threat of any such proceeding or action, which could
materially adversely affect the Company; (x) except as contemplated by the
Prospectus, the Company is merged or consolidated into or acquired by
another company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control occurs; or
(xi) the Company shall not have complied in all material respects with any
term, condition or provisions on its part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall
be promptly notified by you, by telephone, telegram or facsimile, confirmed
by letter.
11. UNDERWRITER'S WARRANT AGREEMENT. At the Closing Date, the
Company will issue to the Underwriter and/or persons related to the
Underwriter, for an aggregate purchase price of $10, and upon the terms and
conditions set forth in the form of Underwriter's Warrant Agreement annexed
as an exhibit to the Registration Statement, Underwriter Warrants to
purchase up to an aggregate of 160,000 Shares and 160,000 Warrants, in such
denominations as the Underwriter shall designate. In the event of conflict
in the terms of this Agreement and the Underwriter's Warrant Agreement, the
language of the form of Underwriter's Warrant Agreement shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company and its principal officers, where
appropriate, and the Underwriter set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter, the Company or any
of its officers or directors or any controlling person and will survive
delivery of and payment for the Securities and the termination of this
Agreement.
13. NOTICE. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed,
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delivered or telefaxed, and confirmed:
If to the Underwriter: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Robert D. Arnold, Chairman
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, CO 80202
Copy to: John B. Wills, Esq.
Berenbaum, Weinshienk & Eason, P.C.
370 Seventeenth Street, Suite 2600
Denver, Colorado 80202-5626
14. PARTIES IN INTEREST. This Agreement herein set forth is made
solely for the benefit of the Underwriter, the Company and, to the extent
expressed, the holders of the Underwriter Warrants, any person controlling
the Company or the Underwriter, and directors of the Company, nominees for
director (if any) named in the Prospectus, each person who has signed the
Registration Statement, and their respective executors, administrators,
successors, assigns and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns"
shall not include any purchaser of the Securities, as such purchaser, from
the Underwriter.
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts made and to be performed entirely within the State of Florida.
The parties agree that any action brought by any party against another
party in connection with any rights or obligations arising out of this
Agreement shall be instituted properly in a federal or state court of
competent jurisdiction with venue only in the Fifteenth Judicial Circuit
Court in and for Palm Beach County, Florida or the United States District
Court for the Southern District of Florida, West Palm Beach Division. A
party to this Agreement named as a Defendant in any action brought in
connection with this Agreement in any court outside of the above named
designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if
necessary, have the case dismissed, requiring the other party to refile
such action in an appropriate court in the above designated county or
federal district.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all
38
<PAGE>
purposes be deemed to be an original, and such counterparts shall together
constitute but one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become
a binding Agreement between the Company and the Underwriter in accordance
with its terms.
Very truly yours,
n-Gen Solutions.Com, Inc.
BY:_______________________________________
Robert D. Arnold, Chairman
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
BARRON CHASE SECURITIES, INC.
BY:_______________________________________
Robert T. Kirk, President
39
EXHIBIT 1.2
n-Gen Solutions.Com, Inc.
1,600,000 Shares of Common Stock and
1,600,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
-------------------------
Boca Raton, Florida
_____________, 2000
Gentlemen:
1. Barron Chase Securities, Inc. (the "Underwriter") is offering for
sale an aggregate of 1,600,000 Shares of Common Stock (the "Shares") and
1,600,000 Warrants (the "Warrants") (collectively the "Firm Securities")
of n-Gen Solutions.Com, Inc. . (the "Company"), which the Underwriter has
agreed to purchase from the Company, and which are more particularly
described in the Registration Statement, Underwriting Agreement and
Prospectus. In addition, the Underwriter has been granted an option to
purchase from the Company up to an additional 240,000 Shares and an
additional 240,000 Warrants (the "Option Securities") to cover
overallotments in connection with the sale of the Firm Securities. The
Firm Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be
offered for sale by the Underwriter is more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the Underwriter
at the price per Share and price per Warrant set forth on the cover page of
the Prospectus (the "Public Offering Price"), in accordance with the terms
of offering set forth in the Prospectus.
3. The Underwriter, subject to the terms and conditions hereof, is
offering a portion of the Securities for sale to certain dealers who are
actually engaged in the investment banking or securities business and who
are either (a) members in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), or (b) dealers with their principal
places of business located outside the United States, its territories and
its possessions and not registered as brokers or dealers under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), who have
agreed not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents
therein (such dealers who shall agree to sell Securities hereunder being
herein called "Selected Dealers") at the public offering price, less a
selling concession (which may be changed) of not in excess of $________ per
Share and/or $________ per Warrant payable as hereinafter provided, out of
which concession an amount not exceeding $___________ per Share and/or
$__________ per
1
<PAGE>
Warrant may be reallowed by Selected Dealers to members of the NASD or
foreign dealers qualified as aforesaid. The Selected Dealers who are
members of the NASD agree to comply with all of the provisions of the NASD
Conduct Rules. Foreign Selected Dealers agree to comply with the
provisions of Rule 2740 of the NASD Conduct Rules, and, if any such dealer
is a foreign dealer and not a member of the NASD, such Selected Dealer also
agrees to comply with the NASD's Interpretation with Respect to Free-Riding
and Withholding, and to comply, as though it were a member of the NASD,
with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and
to comply with Rule 2420 thereof as that Rule applies to non-member foreign
dealers. The Underwriter has agreed that, during the term of this
Agreement, it will be governed by the terms and conditions hereof.
4. The Underwriter shall act as Underwriter and shall have full
authority to take such action as it may deem advisable in respect to all
matters pertaining to the public offering of the Securities.
5. If you desire to act as a Selected Dealer and purchase any of the
Securities, your application should reach us promptly by facsimile or
letter at the offices of Barron Chase Securities, Inc., 7700 West Camino
Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We reserve the
right to reject subscriptions in whole or in part, to make allotments, and
to close the subscription books at any time without notice. The Securities
allotted to you will be confirmed, subject to the terms and conditions of
this Selected Dealers Agreement (the "Agreement").
6. The privilege of subscribing for the Securities is extended to
you only on the condition that the Underwriter may lawfully sell the
Securities to Selected Dealers in your state or other applicable
jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the account of the Underwriter an
amount equal to the Selected Dealer concession as to any Securities
purchased by you hereunder which, prior to the completion of the public
offering as defined in paragraph 8 below, we may purchase or contract to
purchase for our account and, in addition, we may charge you with any
broker's commission and transfer tax paid in connection with such purchase
or contract to purchase. In short, in the event that, prior to the
completion of the distribution of the securities covered by this Agreement,
we purchase in the open market or otherwise any securities delivered to
you, if we are acting as the Underwriter, you agree to repay to
2
<PAGE>
us for the account of the Underwriter, the amount of the concession allowed
to you plus brokerage commissions and any transfer taxes paid in connection
with such purchase.
You agree to advise us from time to time, upon request, of the number
of Securities purchased by you hereunder and remaining unsold at the time
of such request, and, if in our opinion any such Securities shall be needed
to make delivery of the Securities sold or overallotted for the account of
the Underwriter, you will, forthwith upon our request, grant to us for the
account of the Underwriter the right, exercisable promptly after receipt of
notice from you that such right has been granted, to purchase, at the
Public Offering Price less the selling concession or such part thereof as
we shall determine, such number of Securities owned by you as shall have
been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the Underwriter to you
will be paid when such Securities are delivered to you. However, you shall
pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of
the Securities other than as contained in the Prospectus.
8. By accepting this Agreement, the Selected Dealer has assumed full
responsibility for proper training and instruction of its representatives
concerning the selling methods to be used in connection with the offer and
sale of the Company's Securities, giving special emphasis to the principles
of suitability and full disclosure to prospective investors and
prohibitions against "free-riding and withholding".
9. For the purpose of stabilizing the market in the Securities, we
have been authorized to make purchases and sales of the Securities of the
Company, in the open market or otherwise, for long or short account, and,
in arranging for sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating
to the distribution of preliminary and final prospectuses for securities of
an issuer (whether or not the issuer is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act) and confirm that you
have complied and will comply therewith.
3
<PAGE>
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or
the rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are
qualified for sale under the respective securities or Blue Sky laws of such
states and other jurisdictions, but we shall not assume any obligation or
responsibility as to the right of any Selected Dealer to sell the
Securities in any state or other jurisdiction or as to the eligibility of
the Securities for sale therein. We will, if requested, file a Further
State Notice in respect of the Securities pursuant to Article 23-A of the
General Business Law of the State of New York.
12. No Selected Dealer is authorized to act as agent for the
Underwriter, or otherwise to act on our behalf, in offering or selling the
Securities to the public or otherwise or to furnish any information or make
any representation except as contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriter, or with each other,
but you will be responsible for your share of any liability or expense
based on any claim to the contrary. We shall not be under any liability
for or in respect of value, validity or form of the Securities, or the
delivery of the certificates for the Securities, or the performance by
anyone of any agreement on its part, or the qualification of the Securities
for sale under the laws of any jurisdiction, or for or in respect of any
other matter relating to this Agreement, except for lack of good faith and
for obligations expressly assumed by us or by the Underwriter in this
Agreement and no obligation on our part shall be implied herefrom. The
foregoing provisions shall not be deemed a waiver of any liability imposed
under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at
the Public Offering Price less the above-mentioned selling concession on
such time and date as we may advise, at the office of Barron Chase
Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk, by wire transfer to the account of the
Underwriter, against delivery of certificates for the Securities so
purchased. If such payment is not made at such time, you agree to pay us
interest on such funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of Barron
Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk. Notices to you shall be deemed to have been
duly given if telephoned, telefaxed or mailed
4
<PAGE>
to you at the address to which this Agreement or accompanying Selected
Dealer Letter is addressed.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to the choice
of law or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of the Selected Dealer Letter enclosed
herewith, even though you may have previously advised us thereof by
telephone, telefax, or letter. Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:____________________________________
Authorized Officer
5
<PAGE>
SELECTED DEALER LETTER
----------------------
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
We hereby subscribe for _______________ Shares and/or ______________
Warrants of n-Gen Solutions.Com, Inc. in accordance with the terms and
conditions stated in the foregoing Selected Dealers Agreement and this
Selected Dealer letter. We hereby acknowledge receipt of the Prospectus
referred to in the Selected Dealers Agreement and Selected Dealer letter.
We further state that in purchasing said Shares and/or Warrants we have
relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a
member in good standing of the National Association of Securities Dealers,
Inc. ("NASD"); or (ii) a dealer with its principal place of business
located outside the United States, its territories and its possessions and
not registered as a broker or dealer under the Securities Exchange Act of
1934, as amended, who hereby agrees not to make any sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein. As a member of the NASD, we hereby agree to
comply with all of the provisions of NASD Conduct Rules. If we are a
foreign Selected Dealer, we agree to comply with the provisions of Rule
2740 of the NASD Conduct Rules, and if we are a foreign dealer and not a
member of the NASD, we agree to comply with the NASD's interpretation with
respect to free-riding and withholding, and agree to comply, as though we
were a member of the NASD, with provisions of Rules 2730 and 2750 of the
NASD Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules
as that Rule applies to non-member foreign dealers.
Firm:_________________________________
By:_________________________________
(Name and Position)
Address:_________________________________
_________________________________
Telephone No.:_________________________________
Dated: ____________________, 2000
6
EXHIBIT 3.1
State of Delaware
Office of the Secretary of State
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE
OF INCORPORATION OF "AAE EDUCATION CORPORATION", FILED IN THIS OFFICE ON
THE THIRTEENTH DAY OF JULY, A.D. 1998, AT 3 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
SEAL /s/ EDWARD J. FREEL
--------------------------------------
Edward J. Freel, Secretary of State
2919877 8100 AUTHENTICATION: 9195585
981270822 DATE: 07-14-98
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AAE EDUCATION CORPORATION
The undersigned, who, if a natural person, is eighteen years of age
or older, hereby establishes a corporation pursuant to the Delaware
General Corporation Law, as amended, and adopts the following Certificate
of Incorporation:
FIRST: The name of the corporation is AAE Education Corporation.
SECOND: The corporation shall have and may exercise all of the
rights, powers and privileges now or hereafter conferred upon
corporations organized under the laws of Delaware. In addition, the
corporation may do everything necessary, suitable or proper for the
accomplishment of any of its corporate purposes. The corporation may
conduct part or all of its business in any part of Delaware, the United
States or the world and may hold, purchase, mortgage, lease and convey
real and personal property in any of such places.
THIRD: (a) The aggregate number of shares which the corporation
shall have authority to issue is 100,000,000 shares of common stock and
25,000,000 shares of preferred stock. The common and preferred stock
shall both have a par value of .0001.
(b) COMMON STOCK. The shares of the class of common stock shall
have unlimited voting rights and shall constitute the sole voting group
of the corporation, except to the extent any additional voting group or
groups may hereafter be established in accordance with the Delaware
General Corporation Law. The shares of this class shall also be entitled
to receive the net assets of the corporation upon dissolution.
Each common shareholder of record shall have one vote for each share
of stock standing in his name on the books of the corporation and
entitled to vote, except that in the election of directors each
shareholder shall have as many votes for each share held by him as the
are directors to be elected and for whose election the shareholder has a
right to vote. Cumulative voting shall not be permitted in the election
of directors or otherwise.
Unless otherwise ordered by a court of competent jurisdiction, at
all meetings of shareholders one-third of the shares of a voting group
entitled to vote at such meeting, represented in person or by proxy,
shall constitute a quorum of that voting group.
(c) PREFERRED STOCK. The designations and the powers, preferences
and rights, and the qualifications, limitations or restrictions of the
Preferred Stock, and variations in the relative rights and preferences as
between different series shall be established in accordance with the
Delaware General Corporation Law by the Board of Directors.
Except for such voting powers with respect to the election of
directors or other matters as may be stated in the resolutions of the
Board of Directors creating any series of Preferred Stock, the holders of
any such series shall have no voting power whatsoever.
<PAGE>
FOURTH: The number of directors of the corporation shall be fixed
by the bylaws, or if the bylaws fail to fix such a number, then by
resolution adopted from time to time by the Board of Directors, provided
that the number of directors shall not be more than twelve nor less than
one. One director shall constitute the initial Board of Directors. The
following person is elected to serve as the corporation's initial
directors until the first annual meeting of shareholders or until their
successor is duly elected and qualified.
NAME ADDRESS
Robert D. Arnold 410 17th Street, Suite 1940
Denver, CO 80202
Michael V. Schranz 410 17th Street, Suite 1940
Denver, CO 80202
David Clem 1090 Deer Cliff Drive
Skyland, NV 89448
FIFTH: The street address of the initial registered office of the
corporation is 1209 Orange Street, Willmington, Delaware 19801. The name
of the initial registered agent The Corporation Trust Company. (New
Castle)
SIXTH: The address of the initial principal office of the
corporation is 410 17th Street, Suite 1940, Denver, Colorado 80202.
SEVENTH: The following provisions are inserted for the management
of the business and for the conduct of the affairs of the corporation,
and the same are in furtherance of and not in limitation or exclusion of
the powers conferred by law.
(a) CONFLICTING INTEREST TRANSACTIONS. As used in this paragraph,
"conflicting interest transaction" means any of the following (i) a loan
or other assistance by the corporation to a director of the corporation
or to any entity in which a director of the corporation is a director or
officer or has a financial interest; (ii) a guaranty by the corporation
of an obligation of a director of the corporation or of an obligation of
an entity in which a director of the corporation is a director or officer
or has a financial interest; or (iii) a contract or transaction between
the corporation and a director of the corporation or between the
corporation and an entity in which a director of the corporation is a
director or officer or has a financial interest. No conflicting interest
transaction shall be void or voidable, be enjoined, be set aside, or give
rise to an award of damages or other sanctions in a proceeding by a
shareholder or by or in the right of the corporation, solely because the
conflicting interest transaction involves a director of the corporation
or an entity in which a director of the corporation is a director or
officer or has a financial interest, or solely because the director is
present at or participates in the meeting of the corporation's Board of
Directors or of the committee of the Board of Directors which authorizes,
approves or ratifies a conflicting interest transaction or solely because
the director's vote is counted for such propose if: (A) the material
facts as the director's relationship or interest and as to the
conflicting interest transaction are disclosed or are known to the
-2-
<PAGE>
Board of Directors or the committee, and the Board of Directors or
committee in good faith authorizes, approves or ratifies the conflicting
interest transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors are less
than a quorum; or (B) the material facts as to the director's
relationship or interest and as to the conflicting interest transaction
are disclosed or are known to the shareholders entitled to vote thereon,
and the conflicting interest transaction is specifically authorized,
approved or ratified in good faith by a vote of the shareholders; or (C)
a conflicting interest transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the shareholders. Common or
interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes, approves or ratifies the conflicting interest transaction.
(b) LOANS AND GUARANTIES FOR THE BENEFIT OF DIRECTORS. Neither the
Board of Directors nor any committee thereof shall authorize a loan by
the corporation to a director of the corporation or to an entity in which
a director of the corporation is a director or officer or has a financial
interest, or a guaranty by the corporation of an obligation of a director
of the corporation or of an obligation of an entity in which a director
of the corporation is a director or officer or has a financial interest,
until at least ten days after written notice of the proposed
authorization of the loan or guaranty has been given to the shareholders
who would be entitled to vote thereon if the issue of the loan or
guaranty were submitted to a vote of the shareholders. The requirements
of this paragraph (b) are in addition to, and not in substitution for,
the provisions of paragraph (a) of Article SEVENTH.
(c) INDEMNIFICATION. The corporation shall indemnify, to the
maximum extent permitted by law, any person who is or was a director,
officer, agent, fiduciary or employee of the corporation against any
claim, liability or expense arising against or incurred by such person
made party to a proceeding because he is or was a director, officer,
agent, fiduciary or employee of the corporation or because he is or was
serving another entity as a director, officer, partner, trustee,
employee, fiduciary or agent at the corporation's request. The
corporation shall further have the authority to the maximum extent
permitted by law to purchase and maintain insurance providing such
indemnification.
(d) LIMITATION ON DIRECTOR'S LIABILITY. No director of this
corporation shall have any personal liability for monetary damages to the
corporation or its shareholders for breach of his fiduciary duty as a
director, except that this provision shall not eliminate or limit the
personal liability of a director to the corporation or its shareholders
for monetary damages for: (i) any breach of the director's duty of
loyalty to the corporation or its shareholders; (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) voting for or assenting to a distribution in
violation of Delaware General Corporation Law or the articles of
incorporation; or (iv) any transaction from which the director directly
or indirectly derives an improper personal benefit. Nothing contained
herein will be construed to deprive any director of his right to all
defenses ordinarily available to a director nor will anything herein be
construed to deprive any director of any right he many have for
contribution from any other director or other persons.
(e) NEGATION OF EQUITABLE INTERESTS IN SHARES OR RIGHTS. Unless a
person is recognized as a shareholder through procedures established by
the corporation pursuant to Delaware General Corporation Law or any
similar law, the corporation shall be entitled to treat the registered
holder
-3-
<PAGE>
of any shares of the corporation as the owner thereof for all purposes
permitted by the Delaware General Corporation Law, including without
limitation all rights deriving from such shares, and the corporation
shall not be bound to recognize any equitable or other claim to, or
interest in, such shares or rights deriving from such shares on the part
of any other person including without limitation, a purchaser, assignee
or transferee of such shares, unless and until such other person becomes
the registered holder of such shares or is recognized as such, whether or
not the corporation shall have either actual or constructive notice of
the claimed interest of such other person. By way of example and not of
limitation, until such other person has become the registered holder of
such shares or is recognized pursuant to Delaware General Corporation Law
or any similar law, he shall not be entitled: (i) to receive notice of
the meetings of the shareholders; (ii) to vote at such meetings; (iii) to
examine a list of the shareholders; (iv) to be paid dividends or other
distributions payable to shareholders; or (v) to own, enjoy and exercise
any other rights deriving from such shares against the corporation.
Nothing contained herein will be construed to deprive any beneficial
shareholder, as defined in Delaware General Corporation law, of any right
he may have pursuant to Delaware General Corporation Law or any
subsequent law.
EIGHTH: The name and address of the incorporator is:
John B. Wills
410 17th Street, Suite 1940
Denver, CO 80202
DATED the 13th day of July, 1998.
/s/ JOHN B. WILLS
----------------------------------
Incorporator, John B. Wills
-4-
EXHIBIT 3.2
BYLAWS
OF
AAE EDUCATION CORPORATION
ARTICLE I
OFFICES
The principal office of the corporation shall be designated from
time to time by the corporation and may be within or outside of Delaware.
The corporation may have such other offices, either within or
outside Delaware, as the board of directors may designate or as the
business of the corporation may require from time to time.
The registered office of the corporation required by the Delaware
General Corporation Law to be maintained in Delaware may be, but need not
be, identical with the principal office, and the address of the
registered office may be changed from time to time by the board of directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held during the month of October of each year on a date and at a
time fixed by the board of directors of the corporation (or by the
president in the absence of action by the board of directors), beginning
with the year 1999, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If
the election of directors is not held on the day fixed as provided herein
for any annual meeting of the shareholders, or any adjournment thereof,
the board of directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as it may conveniently be
held.
A shareholder may apply to the district court in the county in
Delaware where the corporation's principal office is located or, if the
corporation has no principal office in Delaware, to the district court of
the county in which the corporation's registered office is located to
seek an order that a shareholder meeting be held (i) if an annual meeting
was not held within six months after the close of the corporation's most
recently ended fiscal year or fifteen months after its last annual
meeting, whichever is earlier, or (ii) if the shareholder participated in
a proper call of or proper demand for a special meeting and notice of the
special meeting was not given within thirty days after the date of the
call or the date the last of the demands necessary to require calling of
the meeting was received by the corporation or the special meeting was
not held in accordance with the notice.
SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by
statute, special meetings of the shareholders may be called for any
purpose by the president or by the board of directors. The president
shall call a special meeting of the shareholders if the corporation
receives one or more
<PAGE>
written demands for the meeting, stating the purpose or purposes for
which it is to be held, signed and dated by holders of shares
representing at least ten percent of all the votes entitled to be cast on
any issue proposed to be considered at the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate
any place, either within or outside Delaware as the place for any annual
meeting or any special meeting called by the board of directors. A
waiver of notice signed by all shareholders entitled to vote at a meeting
may designate any place, either within or outside Delaware, as the place
for such meeting. If no designation is made, or if a special meeting is
called other than by the board, the place of meeting shall be the
principal office of the corporation.
SECTION 4. NOTICE OF MEETING. Written notice stating the place,
date, and hour of the meeting shall be given not less than ten nor more
than sixty days before the date of the meeting, except that (i) if the
number of authorized shares is to be increased, at least thirty days'
notice shall be given, or (ii) any other longer notice period is required
by the Delaware General Corporation Law. Notice of a special meeting
shall include a description of the purpose or purposes of the meeting.
Notice of an annual meeting need not include a description of the purpose
or purposes of the meeting except the purpose or purposes shall be stated
with respect to (i) an amendment to the articles of incorporation of the
corporation, (ii) a merger or share exchange in which the corporation is
a party and, with respect to a share exchange, in which the corporation's
shares will be acquired, (iii) a sale, lease, exchange or other
disposition, other than in the usual and regular course of business, of
all or substantially all of the property of the corporation or of another
entity which this corporation controls, in each case with or without the
goodwill, (iv) a dissolution of the corporation, or (v) any other purpose
for which a statement of purpose is required by the Delaware General
Corporation Law. Notice shall be given personally or by mail, private
carrier, telegraph, teletype, electronically transmitted facsimile or
other form of wire or wireless communication by or at the direction of
the president, the secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting.
If mailed and if in a comprehensible form, such notice shall be deemed to
be given and effective when deposited in the United States mail,
addressed to the shareholder at his address as it appears in the
corporation's current record of shareholders, with postage prepaid. If
notice is given other than by mail, and provided that such notice is in a
comprehensible form, the notice is given and effective on the date
received by the shareholder.
If requested by the person or persons lawfully calling such meeting,
the corporation shall give notice thereof at corporation expense. No
notice need be sent to any shareholder if three successive notices mailed
to the last known address of such shareholder have been returned as
undeliverable until such time as another address for such shareholder is
made known to the corporation by such shareholder. In order to be
entitled to receive notice of any meeting, a shareholder shall advise the
corporation in writing of any change in such shareholder's mailing
address as shown on the corporation's books and records.
When a meeting is adjourned to another date, time or place, notice
need not be given of the new date, time or place if the new date, time or
place of such meeting is announced before adjournment at the meeting at
which the adjournment is taken. At the adjourned meeting the corporation
may transact any business which may have been transacted at the original
meeting. If the
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adjournment is for more than 120 days, or if a new record date is fixed
for the adjourned meeting, a new notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting as of
the new record date.
A shareholder may waive notice of a meeting before or after the time
and date of the meeting by a writing signed by such shareholder. Such
waiver shall be delivered to the corporation for filing with the
corporate records. Further, by attending a meeting either in person or
by proxy, a shareholder waives objection to lack of notice or defective
notice of the meeting unless the shareholder objects at the beginning of
the meeting to the holding of the meeting or the transaction of business
at the meeting because of lack of notice or defective notice. By
attending the meeting, the shareholder also waives any objection to
consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the
shareholder objects to considering the matter when it is presented.
SECTION 5. FIXING OF RECORD DATE. For the purposes of determining
shareholders entitled to (i) notice of or vote at any meeting of
shareholders or any adjournment thereof, (ii) receive distributions or
share dividends, or (ii) demand a special meeting, or to make a
determination of shareholders for any other proper purpose, the board of
directors may fix a future date as the record date for any such
determination of shareholders, such date in any case to be not more than
seventy days, and, in case of a meeting of shareholders not less than ten
days, prior to the date on which the particular action requiring such
determination of shareholder is to be taken. If no record date is fixed
by the directors, the record date shall be the date on which notice of
the meeting is mailed to shareholders, or the date on which the
resolution of the board of directors providing for a distribution is
adopted, as the case may be. When a determination of shareholders
entitled to vote at any meeting of shareholders is made as provided in
this Section, such determination shall apply to any adjournment thereof
unless the board of directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be
given notice of action so taken shall be the date a writing upon which
the action is taken is first received by the corporation. The record
date for determining shareholders entitled to demand a special meeting
shall be the date of the earliest of any of the demands pursuant to which
the meeting is called.
SECTION 6. VOTING LISTS. The secretary shall make, at the earlier
of ten days before each meeting of shareholders or two business days
after notice of the meeting has been given, a complete list of the
shareholders entitled to be given notice of such meeting or any
adjournment thereof. The list shall be arranged by voting groups and
within each voting group by class or series of shares, shall be in
alphabetical order within each class or series, and shall show the
address of and the number of shares of each class or series held by each
shareholder. For the period beginning the earlier of ten days prior to
the meeting or two business days after notice of the meeting is given and
continuing through the meeting and any adjournment thereof, this list
shall be kept on file at the principal office of the corporation, or at a
place (which shall be identified in the notice) in the city where the
meeting will be held. Such list shall be available for inspection on
written demand by any shareholder (including for the purpose of this
Section 6 any holder of voting trust certificates) or his agent or
attorney during regular business hours and during the period available
for inspection. The original
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stock transfer books shall be prima facie evidence as to the shareholders
entitled to examine such list or to vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during
regular business hours and during the period it is available for
inspection, provided (i) the shareholder has been a shareholder for at
least three months immediately preceding the demand or holds at least
five percent of all outstanding shares of any class of shares as of the
date of the demand, (ii) the demand is made in good faith and for a
purpose reasonably related to the demanding shareholder's interest as a
shareholder, (iii) the shareholder describes with reasonable
particularity the purpose and the records the shareholder desires to
inspect, (iv) the records are directly connected with the described
purpose and (v) the shareholder pays a reasonable charge covering the
costs of labor and material for such copies, not to exceed the estimated
cost of production and reproduction.
SECTION 7. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board
of directors may adopt by resolution a procedure whereby a shareholder of
the corporation may certify in writing to the corporation that all or a
portion of the shares registered in the name of such shareholder are held
for the account of a specified person or persons. The resolution may set
forth (i) the types of nominees to which it applies, (ii) the rights or
privileges that the corporation will recognize in a beneficial owner,
which may include rights and privileges other than voting; (iii) the form
of certification and the information to be contained therein, (iv) if the
certification is with respect to a record date, the time within which the
certification must be received by the corporation, (v) the period for
which the nominee's use of the procedure is effective, and (vi) such
other provisions with respect to the procedure as the board deems
necessary or desirable. Upon receipt by the corporation of a certificate
complying with the procedure established by the board of directors, the
persons specified in the certification shall be deemed, for the purpose
or purposes set forth in the certification, to be the registered holders
of the number of shares specified in place of the shareholder making the
certification.
SECTION 8. QUORUM AND MANNER OF ACTING. One-third of the votes
entitled to be cast on a matter by a voting group shall constitute a
quorum of that voting group for action on the matter. If less than one-
third of such votes are represented at a meeting, a majority of the votes
so represented may adjourn the meeting from time to time without further
notice, for a period not to exceed 120 days for any one adjournment. If
a quorum is present at such adjourned meeting, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, unless the
meeting is adjourned and a new record date is set for the adjourned
meeting.
If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the
voting group favoring the action exceed the votes cast within the voting
group opposing the action, unless the vote of a greater number of voting
by classes is required by law or the articles of incorporation.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder
may vote by proxy by signing an appointment form similar writing, either
personally or by his duly authorized attorney-in-fact. A shareholder may
also appoint a proxy by transmitting or authorizing the
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transmission of a telegram, teletype, or other electronic transmission
providing a written statement of the appointment to the proxy, a proxy
solicitor, proxy support service organization, or other person duly
authorized by the proxy to receive appointments as agent for the proxy,
or to the corporation. The transmitted appointment shall set forth or be
transmitted with written evidence from which it can be determined that
the shareholder transmitted or authorized the transmission of the
appointment. The proxy appointment form or similar writing shall be
filed with the secretary of the corporation before or at the time of the
meeting. The appointment of a proxy is effective when received by the
corporation and is valid for eleven months unless a different period is
expressly provided in the appointment form or similar writing.
Any complete copy, including an electronically transmitted
facsimile, of an appointment of a proxy may be substituted for or used in
lieu of the original appointment for any purpose for which the original
appointment could be used.
Revocation of a proxy does not affect the right of the corporation
to accept the proxy's authority unless (i) the corporation had notice
that the appointment was coupled with an interest and notice that such
interest is extinguished is received by the secretary or other officer or
agent authorized to tabulate votes before the proxy exercises his
authority under the appointment, or (ii) other notice of the revocation
of the appointment is received by the secretary or other officer or agent
authorized to tabulate votes before the proxy exercises his authority
under the appointment. Other notice of revocation may, in the discretion
of the corporation, be deemed to include the appearance at a
shareholders' meeting of the shareholder who granted the proxy and his
voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority
unless notice of the death or incapacity in received by the secretary or
other officer or agent authorized to tabulate votes before the proxy
exercises his authority under the appointment.
The corporation shall not be required to recognize an appointment
made irrevocable if it has received a writing revoking the appointment
signed by the shareholder (including a shareholder who is a successor to
the shareholder who granted the proxy) either personally or by his
attorney-in-fact, notwithstanding that the revocation may be a breach of
an obligation of the shareholder to another person not to revoke the
appointment.
Subject to Section 11 and any express limitation on the proxy's
authority appearing on the appointment form, the corporation is entitled
to accept the proxy's vote or other action as that of the shareholder
making the appointment.
SECTION 10. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote, except in the election of
directors, and each fractional share shall be entitled to a corresponding
fractional vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares
of any class of classes are limited or denied by the articles of
incorporation and by the resolution of the board of directors authorizing
the issuance of the shares of any particular class, as permitted by the
Delaware General Corporation Law. Cumulative voting shall not be
permitted in the election of directors or for any other purpose. Each
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record holder of shares of common stock shall be entitled to vote in the
election of directors and shall have as many votes for each of the shares
owned by him as there are directors to be elected and for whose election
he has the right to vote.
At each election of directors, that number of candidates equaling
the number of directors to be elected, having the highest number of votes
cast in favor of their election, shall be elected to the board of
directors.
Except as otherwise ordered by a court of competent jurisdiction
upon a finding that the purpose of this Section would not be violated in
the circumstances presented to the court, the shares of the corporation
are not entitled to be voted if they are owned, directly or indirectly,
by a second corporation, domestic or foreign, and the first corporation
owns, directly or indirectly, a majority of the shares entitled to vote
for directors of the second corporation except to the extent the second
corporation holds the shares in a fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the
shares has been deposited with a bank, trust company or other financial
institution under an irrevocable obligation to pay the holders the
redemption price on surrender of the shares.
SECTION 11. CORPORATION'S ACCEPTANCE OF VOTES. If the name signed
on a vote, consent, waiver, proxy appointment, or proxy appointment
revocation corresponds to the name of a shareholder, the corporation, if
acting in good faith, is entitled to accept the vote, consent, waiver,
proxy appointment or proxy appointment revocation and give it effect as
the act of the shareholder. If the name signed on a vote, consent,
waiver, proxy appointment or proxy appointment revocation does not
correspond to the name of a shareholder, the corporation, if acting in
good faith, is nevertheless entitled to accept the vote, consent, waiver,
proxy appointment or proxy appointment revocation and to give it effect
as the act of the shareholder if:
(i) the shareholder is an entity and the name signed purports to be
that of an officer of agent of the entity;
(ii) the name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if
the corporation requests, evidence of fiduciary status acceptable to the
corporation has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee
in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation has been presented
with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(iv) the name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact of the shareholder and, if the corporation
requests, evidence acceptable to the corporation of the signatory's
authority to sign fr the shareholder has been presented with respect to
the vote, consent, waiver, proxy appointment or proxy appointment revocation;
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(v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one
of the co-tenants or fiduciaries, and the person signing appears to be
acting on behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment
or proxy appointment revocation is otherwise proper under rules
established by the corporation that are not inconsistent with this
Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other
officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or
about the signatory's authority to sign for the shareholder.
Neither the corporation nor its officers nor any agent who accepts
or rejects a vote, consent, waiver, proxy appointment or proxy
appointment revocation in good faith and in accordance with the standards
of this Section is liable in damages for the consequences of the
acceptance or rejection.
SECTION 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken
without a meeting if a written consent (or counterparts there of) that
sets forth the action so taken is signed by all of the shareholders
entitled to vote with respect to the subject matter thereof and received
by the corporation. Such consent shall have the same force and effect as
a unanimous vote of the shareholders and may be stated as such in the
document. Action taken under this Section 12 is effective as of the date
the last writing necessary to effect this action is received by the
corporation, unless all of the writings specify a different effective
date, in which case such specified date shall be the effective date for
such action. If any shareholder revokes his consent as provided for
herein prior to what would otherwise be the effective date, the action
proposed in the consent shall be invalid. The record date for
determining shareholders entitled to take action without a meeting is the
date the corporation receives a writing upon which the action is taken.
Any shareholder who has signed a writing describing and consenting
to action taken pursuant to this Section 12 may revoke such consent by a
writing signed by the shareholder describing the action and stating that
the shareholder's prior consent thereto is revoked, if such writing is
received by the corporation before the effectiveness of the action.
SECTION 13. MEETINGS BY TELECOMMUNICATION. Any or all of the
shareholders may participate in an annual or special shareholders'
meeting by, or the meeting may be conducted through the use of, any means
of communication by which all persons participating in the meeting may
hear each other during the meeting. A shareholder participating in a
meeting by this means is deemed to be present in person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of
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its board of directors, except as otherwise provided in the Delaware
General Corporation Law or the articles of incorporation.
SECTION 2. NUMBER, QUALIFICATIONS AND TENURE. The number of
directors of the corporation shall be fixed from time to time by
resolution of the board of directors, within a range of no less than one
or more than twelve. A director shall be a natural person who is
eighteen years of age or older. A director need not be a resident of
Delaware or a shareholder of the corporation.
Directors shall be elected at each annual meeting of shareholders.
Each director shall hold office until the next annual meeting of
shareholders following his election and thereafter until his successor
shall have been elected and qualified. Directors shall be removed in the
manner provided by the Delaware General Corporation Law.
SECTION 3. VACANCIES. Any director may resign at any time by giving
written notice to the corporation. Such resignation shall take effect at
the time the notice is received by the corporation unless the notice
specifies a later effective date. Unless otherwise specified in the
notice of resignation, the corporation's acceptance of such resignation
shall not be necessary to make it effective. Any vacancy on the board of
directors may be filled by the affirmative vote of a majority of the
shareholders or the board of directors. If the directors remaining in
office constitute fewer than a quorum of the board, the directors may
fill the vacancy by the affirmative vote of a majority of all the
directors remaining in office. If elected by the directors, the director
shall hold office until the next annual shareholder's meeting at which
directors are elected. If elected by the shareholders, the director
shall hold office for the unexpired term of his predecessor in office;
except that, if the director's predecessor was elected by the directors
to fill a vacancy, the director elected by the shareholders shall hold
office for the unexpired term of the last predecessor elected by the
shareholders.
SECTION 4. REGULAR MEETINGS. A regular meting of the board of
directors shall be held without notice immediately after and at the same
place as the annual meeting of shareholders. The board of directors may
provide by resolution the time and place, either within or outside
Delaware, for the holding of additional regular meetings without other
notice.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the president or chief
executive officer, or any director. The person or persons authorized to
call special meetings of the board of directors may fix any place, either
within or outside Delaware, as the place for holding any special meeting
of the board of directors called by them, provided that no meeting shall
be called outside the State of Delaware unless a majority of the board of
directors has so authorized.
SECTION 6. NOTICE. Notice of any special meeting shall be given at
least two days prior to the meeting by written notice either personally
delivered or mailed to each director at his business address, or by
notice transmitted by telegraph, telex, electronically transmitted
facsimile or other form of wire or wireless communication. If mailed,
such notice shall be deemed to be given and to be effective on the
earlier of (i) three days after such notice is deposited in the united
States mail, properly addressed, with postage prepaid, or (ii) the date
shown on the return receipt, if mailed by registered or certified mail
return receipt requested. If notice is given by telex, electronically
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transmitted facsimile or other similar form of wire or wireless
communication, such notice shall be deemed to be given and to be
effective when sent, and with respect to a telegram, such notice shall be
deemed to be given and to be effective when the telegram is delivered to
the telegraph company. If a director has designated in writing one or
more reasonable addresses or facsimile numbers for delivery of notice to
him, notice sent by mail, telegram, telex, electronically transmitted
facsimile or other form of wire or wireless communication shall not be
deemed to have been given or to be effective unless sent to such
addresses or facsimile numbers, as the case may be.
A director may waive notice of a meeting before or after the time
and date of the meeting by a writing signed by such director. Such
waiver shall be delivered to the corporation for filing with the
corporate records. Further, a director's attendance at or participation
in a meeting waives any required notice to time of the meeting unless at
the beginning of the meeting, or promptly upon his arrival, the director
objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice and does not thereafter
vote for or assent to action taken at the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by
the board of directors pursuant to Section 2 or, if no number is fixed, a
majority of the number in office immediately before the meeting begins,
shall constitute a quorum for the transaction of business at any meeting
of the board of directors. If less than such majority is present at a
meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice, for a period not to exceed sixty
days at nay one adjournment.
SECTION 8. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the
act of the board of directors. No director may vote or act by proxy at
any meeting of directors.
SECTION 9. COMPENSATION. By resolution of the board of directors,
any director may be paid any one or more of the following: his expenses,
if any, of attendance at meetings, a fixed sum for attendance at each
meeting, a stated salary as director, or such other compensation as the
corporation and the director may reasonably agree upon. No such payment
shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
SECTION 10. PRESUMPTION OF ASSENT. A director of the corporation
who is present at a meeting of the board of directors or committee of the
board at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless (i) the director objects at
the beginning of the meeting, or promptly upon his arrival, to the
holding of the meeting or the transaction of business at the meeting and
does not thereafter vote for or assent to an action taken at the meeting,
(ii) the director contemporaneously requests that his dissent or
abstention as to any specific action taken be entered in the minutes of
the meeting, or (iii) the director causes written notice of his dissent
or abstention as to any specific action to be received by the presiding
officer of the meeting before its adjournment or by the corporation
promptly after the adjournment of the meeting. A director may dissent to
a specific action at a meeting, while assenting to others. The right to
dissent to a specific action taken at a meeting of the board of directors
or a committee of the board shall not be available to a director who
voted in favor of such action.
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SECTION 11. COMMITTEES. By resolution adopted by a majority of all
the directors in office when the action is taken, the board of directors
may designate from among its members an executive committee and one or
more other committees, and appoint one or more members of the board of
directors to serve on them. To the extent provided in the resolution,
each committee shall have all the authority of the board of directors,
except that no such committee shall have the authority to (i) authorize
distributions, (ii) approve or propose to shareholders actions or
proposals required by the Delaware General Corporation Law to be approved
by shareholders, (iii) fill vacancies on the board of directors or any
committee thereof, (iv) amend articles of incorporation, (v) adopt, amend
or repeal the bylaws, (vi) approve a plan of merger not requiring
shareholder approval, (vii) authorize or approve the reacquisition of
shares unless pursuant to a formula or method prescribed by the board of
directors, or (viii) authorize or approve the issuance or sale of shares,
or contract for the sale of shares or determine the designations and
relative rights, preferences and limitations of a class or series of
shares, except that the board of directors may authorize a committee or
officer to do so within limits specifically prescribed by the board of
directors. The committee shall then have full power within the limits
set by the board of directors. The committee shall the have full power
within the limits set by the board of directors to adopt any final
resolution setting forth all preferences, limitations and relative rights
of such class or series and to authorize an amendment of the articles of
incorporation stating the preferences, limitations and relative eights of
a class or series for filing with the Secretary of State under the
Delaware General Corporation Law.
Sections 4, 5, 6, 7, 8 and 12 of Article III, which govern meetings,
notice, waiver of notice, quorum, voting requirements and action without
a meeting of the board of directors, shall apply to committees and their
members appointed under this Section 11.
Neither the designation of any such committee, the delegation of
authority to such committee, nor any action by such committee pursuant to
its authority shall alone constitute compliance by any member of the
board of directors or a member of the committee in question with his
responsibility to conform to the standards of care set forth in Article
III, Section 14 of these bylaws.
SECTION 12. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the directors or any committee
designated by the board of directors may be taken without a meeting if a
written consent (or counterparts thereof) that sets forth the action so
taken is signed by all of the directors entitled to vote with respect to
the action taken. Such consent shall have the same force and effect as a
unanimous vote of the directors or committee members and ma be stated as
such in any document. Unless the consent specifies a different effective
date, action taken under this Section 12 is effective at the time the
last director signs a writing describing the action taken, unless, before
such time, any director has revoked his consent by a writing signed by
the director and received by the president or secretary of the
corporation.
SECTION 13. TELEPHONIC MEETINGS. The board of directors may permit
any director (or any member of a committee designated by the board) to
participate in a regular or special meting of the board of directors or a
committee thereof through the use of any means of communication by which
all directors participating in the meeting can hear each other during the
meeting. A director participating in a meeting in this manner is deemed
to be present in person at the meeting.
SECTION 14. STANDARD OF CARE. A director shall perform his duties
as a director, including, without limitation his duties as a member of
any committee of the board, in good faith, in a manner
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he reasonably believes to be in the best interests of the corporation,
and with the care an ordinarily prudent person in a like position would
exercise under similar circumstances. In performing his duties, a
director shall be entitled to rely on information, opinions, reports or
statements, including financial statements and other financial data, in
each case prepared or presented by the persons herein designated.
However, he shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such
reliance to be unwarranted. A director shall not be liable to the
corporation or its shareholders for any action he takes or omits to take
as a director if, in connection with such action or omission, he performs
his duties in compliance with this Section 14.
The designated persons on whom a director is entitled to rely are
(i) one or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented, (ii) legal counsel, public accountant, or other person as to
matters which the director reasonably believes to be within such person's
professional or expert competence, or (iii) a committee of the board of
directors on which the director does not serve if the director reasonably
believes the committee merits confidence.
ARTICLE IV
OFFICERS AND AGENTS
SECTION 1. GENERAL. The officers of the corporation shall be as
determined by the board of directors from time to time, and may include a
president, one or more vice presidents, a secretary, a treasurer, and
such other officers, assistant officers, committees and agents, including
a chairman of the board, assistant secretaries and assistant treasurers,
as the board may consider necessary. Each officer shall be a natural
person eighteen years of age or older. The board of directors or the
officer or officers authorized by the board shall from time to time
determine the procedure for the appointment of officers, their term of
office, their authority and duties and their compensation. One person
may hold more than one office. In all cases where the duties of any
officer, agent or employee are not prescribed by the bylaws, or by the
board of directors, such officer, agent or employee shall follow the
orders and instructions of the president of the corporation.
SECTION 2. APPOINTMENT AND TERM OF OFFICE. The officers of the
corporation shall be appointed by the board of directors at each annual
meeting of the board held after each annual meeting of the shareholders.
If the appointment of officers is not made at such meeting or if an
officer or officers are to be appointed by another officer or officers of
the corporation, such appointment shall be made as soon thereafter as
conveniently may be. Each officer shall hold office until the first of
the following occurs: his successor shall have been duly appointed and
qualified, his death, his resignation, or his removal in the manner
provided in Section 3.
SECTION 3. RESIGNATION AND REMOVAL. An officer may resign at any
time by giving written notice of resignation to the corporation. The
resignation is effective when the notice is received by the corporation
unless the notice specifies a later effective date.
Any officer or agent may be removed at any time with or without
cause by the board of directors or an officer or officers authorized by
the board. Such removal does not affect the contract
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rights, if any, of the corporation or of the person so removed. The
appointment of an officer or agent shall not in itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office, however occurring,
may be filled by the board of directors, or by the officer or officers
authorized by the board, for the unexpired portion of the officer's term.
If an officer resigns and his resignation is made effective at a later
date, the board of directors, or officer or officers authorized by the
board, may permit the officer to remain in office until the effective
date and may fill the pending vacancy before the effective date if the
board of directors or officer or officers authorized by the board provide
that the successor shall not take office until the effective date. In
the alternative, the board of directors, or officer or officers
authorized by the board of directors, may remove the officer at any time
before the effective date and may fill the resulting vacancy.
SECTION 5. PRESIDENT. Subject to the direction and supervision of
the board of directors, and unless otherwise determined by the board of
directors in its designation of officers from time to time, the president
shall be the chief executive officer of the corporation, and shall have
general and active control of its affairs and business and general
supervision of its officers, agents and employees. Unless otherwise
directed by the board of directors, the president shall attend in person
or by substitute appointed by him, or shall execute on behalf of the
corporation written instruments appointing a proxy or proxies to
represent the corporation, at all meetings of the stockholders of any
other corporation in which the corporation holds any stock. On behalf of
the corporation, the president may in person or by substitute or by proxy
execute written waivers of notice and consents with respect to any such
meetings. At all such meetings and otherwise, the president, in person
or by substitute or proxy, may vote the stock held by the corporation,
execute written consents and other instruments with respect to such
stock, and exercise any and all rights and powers incident to the
ownership or said stock, subject to the instructions, if any, of the
board of directors. The president shall have custody of the treasurer's
bond, if any.
SECTION 6. VICE PRESIDENTS. Any vice presidents designated by the
board of directors as officers of the corporation shall assist the
president and shall perform such duties as may be assigned to them by the
president or by the board of directors. In the absence of the president,
the vice president, if any (or, if more than one, the vice presidents in
the order designated by the board of directors, or if the board makes no
such designation, then the vice president designated by the president, or
if neither the board nor the president makes any such designation, the
senior vice president as determined by first election to that office),
shall have the powers and perform the duties of the president.
SECTION 7. SECRETARY. In the event a secretary is designated by the
board of directors as an officer of the corporation, the secretary shall
(i) prepare and maintain as permanent records the minutes of the
proceedings of the shareholders and the board of directors, a record of
all actions taken by the shareholders or board of directors without a
meeting, a record of all actions taken by a committee of the board of
directors in place of the board of directors on behalf of the
corporation, and a record of all waivers of notice of meetings of
shareholders and of the board of directors or any committee thereof, (ii)
see that all notices are duly given in accordance with the provisions of
these bylaws and as required by law, (iii) serve as custodian of the
corporate records and of the seal of the corporation and affix the seal
to all documents when authorized by the board of directors, (iv) keep
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at the corporation's registered office or principal place of business a
record containing the names and addresses of all shareholders in a form
that permits preparation of a list of shareholders arranged by voting
group and by class or series of shares within each group, that is
alphabetical within each class or series and that shows the address of,
and the number of shares of each class or series held by each
shareholder, unless such a record shall be kept at the office of the
corporation's transfer agent or registrar, (v) maintain at the
corporation's principal office the originals or copies of the
corporation's articles of incorporation, bylaws, minutes of all
shareholders' meetings and records of al action taken by shareholders
without a meeting for the past three years, all written communications
within the past three years to shareholders as a group or to the holders
of any class or series of shares as a group, a list of the name and
business addresses of the current directors and officers, a copy of the
corporation's most recent corporate report filed with the Secretary of
State, and financial statements showing in reasonable detail the
corporation's assets and liabilities and results of operations for the
last three years, (vi) have general charge of the stock transfer books of
the corporation, unless the corporation has a transfer agent, (vii)
authenticate records of the corporation, and (vii) in general, perform
all duties incident to the office of secretary and such other duties as
from time to time may be assigned to him by the president or by the board
of directors. Assistant secretaries, if any, shall have the same duties
and powers subject to supervision by the secretary. The directors and/or
shareholders may however respectively designate a person other than the
secretary or assistant secretary to keep the minutes of their respective
meetings.
Any books, records, or minutes of the corporation may be in written
form or in any form capable of being converted into written form within a
reasonable time.
SECTION 8. TREASURER. In the event a treasurer is designated by the
board of directors as an officer of the corporation, the treasurer shall
be the principal financial officer of the corporation, shall have the
care and custody of all funds, securities, evidences of indebtedness and
other personal property of the corporation and shall deposit the same in
accordance with the instructions of the board of directors. He shall
receive and give receipts and acquittance for money paid in on account of
the corporation, and shall pay out of the corporation's funds on hand all
bills, payrolls and other just debts of the corporation of whatever
nature upon maturity. He shall perform all other duties incident to the
office of the treasurer and, upon request of the board, shall make such
reports to it as may be required at any time. He shall, if required by
the board, give the corporation a bond in such sums and with such
sureties as shall be satisfactory to the board, conditioned upon the
faithful performance of his duties and for the restoration to the
corporation of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation. He shall have such other powers and perform such other
duties as may from time to time be prescribed by the board of directors
or the president. The assistant treasurers, if any, shall have the same
powers and duties, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Delaware General Corporation Law, prepare and file all
local, state and federal tax returns, prescribe and maintain an adequate
system of internal audit and prepare and furnish to the president and the
board of directors statements of account showing the financial position
of the corporation and the results of its operations.
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<PAGE>
ARTICLE V
STOCK
SECTION 1. CERTIFICATES. The board of directors shall be authorized
to issue any of its classes of shares with or without certificates. The
fact that the shares are not represented by certificates shall have no
effect on the rights and obligations of shareholders. If the shares are
represented by certificates, such shares shall be represented by
consecutively numbered certificates signed, either manually or by
facsimile, in the name of the corporation by one or more persons
designated by the board of directors. In case any officer who has signed
or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, such
certificate may nonetheless be issued by the corporation with the same
effect as if he were such officer at the date of its issue. Certificates
of stock shall be in such form and shall contain such information
consistent with law as shall be prescribed by the board of directors. If
shares are not represented by certificates, within a reasonable time
following the issue or transfer of such shares, the corporation shall
send the shareholder a complete written statement of all of the
information required to be provided to holders of uncertificated shares
by the Delaware General Corporation Law.
SECTION 2. CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully
paid. The board of directors may authorize the issuance of shares for
consideration consisting of any tangible or intangible property or
benefit to the corporation, including cash, promissory notes, services
performed or other securities of the corporation. Future services shall
not constitute payment or partial payment for shares of the corporation.
The promissory note of a subscriber or an affiliate of a subscriber shall
not constitute payment or partial payment for shares of the corporation
unless the note is negotiable and is secured by collateral, other than
the shares being purchased, having a fair market value at least equal to
the principal amount of the note. For purposes of this Section 2,
"promissory note" means a negotiable instrument on which there is an
obligation to pay independent of collateral and does not include a non-
recourse note.
SECTION 3. LOST CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, the board of
directors may direct the issuance of a new certificate in lieu thereof
upon such terms and conditions in conformity with law as the board may
prescribe. The board of directors may in its discretion require an
affidavit of lost certificate and/or a bond in such form and amount and
with such surety as it may determine before issuing a new certificate.
SECTION 4. TRANSFER OF SHARES. Upon surrender to the corporation or
to a transfer agent of the corporation of a certificate of stock duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, and receipt of such documentary stamps as may be
required by law and evidence of compliance with all applicable securities
laws and other restrictions, the corporation shall issue a new
certificate to the person entitled thereto, and cancel the old
certificate. Every such transfer of stock shall be entered on the stock
books of the corporation which shall be kept at its principal office or
by the person and at the place designated by the board of directors.
The corporation shall be entitled to treat the registered holder of
any shares of the corporation as the owner thereof for all purposes, and
the corporation shall not be bound to recognize
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<PAGE>
any equitable or other claim to, or interest in, such shares or rights
deriving from such shares on the part of any person other than the
registered holder, including without limitation any purchaser, assignee
or transferee of such shares or rights deriving from such shares, unless
and until such other person becomes the registered holder of such shares,
whether or not the corporation shall have either actual or constructive
notice of the claimed interest of such other person.
SECTION 5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board
may at its discretion appoint one or more transfer agents, registrars and
agents for making payment upon any class of stock, bond, debenture or
other security of the corporation. Such agents and registrars may be
located either within or outside Delaware. They shall have such rights
and duties and shall be entitled to such compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
SECTION 1. INDEMNIFICATION. For purposes of Article VI, a "Proper
Person" means any person who was or is a party or is threatened to be
made a party to any threatened, pending, or complete action, suit or
proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal, by reason of the fact that he is or was a
director, officer, employee, fiduciary or agent of the corporation, or is
or was serving a the request of the corporation as a director, officer,
partner, trustee, employee, fiduciary or agent of any foreign or domestic
profit or nonprofit corporation or of any partnership, joint venture,
trust, profit or nonprofit unincorporated association, limited liability
company, or other enterprise or employee benefit plan. The corporation
shall indemnify any Proper Person against reasonably incurred expenses
(including any attorneys' fees), judgments, penalties, fines (including
any excise tax assessed with respect to an employee benefit plan) and
amounts paid in settlement reasonably incurred by him in connection with
such action, suit or proceeding if it is determined by the groups set
forth in Section 4 of this Article that he conducted himself in good
faith and that he reasonably believed (i) in the case of conduct in his
official capacity with the corporation, that his conduct was in the
corporation's best interests, or (ii) in all other cases (except criminal
cases), that his conduct was at least not opposed to the corporation's
best interests, or (iii) in the case of any criminal proceeding, that he
had no reasonable cause to believe his conduct was unlawful. A Proper
Person will be deemed to be acting in his official capacity while acting
as a director, officer, employee or agent on behalf of this corporation
and not while acting on this corporation's behalf for some other entity.
No indemnification shall be made under this Article VI to a Proper
Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of a corporation in which the Proper Person
was adjudged liable to the corporation or in connection with any
proceeding charging that the Proper person derived an improper personal
benefit, whether or not involving action in an official capacity, in
which he was adjudged liable on the basis that he derived an improper
personal benefit. Further, indemnification under this Section in
connection with a proceeding brought by or in the right of the
corporation shall be limited to reasonable expenses, including attorneys'
fees, incurred in connection with the proceeding.
SECTION 2. RIGHT TO INDEMNIFICATION. The corporation shall
indemnify any Proper Person who was wholly successful, on the merits or
otherwise, in defense of any action, suit, or proceeding
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<PAGE>
SECTION 2. RIGHT TO INDEMNIFICATION. The corporation shall
indemnify an Proper Person who was wholly successful, on the merits or
otherwise, in defense of any action, suit, or proceeding as to which he
was entitled to indemnification under Section 1 of this Article VI
against expenses (including attorneys' fees) reasonably incurred by him
in connection with the proceeding without the necessity of any action by
the corporation other than the determination in good faith that the
defense has been wholly successful.
SECTION 3. EFFECT OF TERMINATION OF ACTION. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not of itself
create a presumption that the person seeking indemnification did not meet
the standards of conduct described in Section 1 of this Article VI.
Entry of a judgment by consent as part of a settlement shall not be
deemed an adjudication of liability, as described in Section 2 of this
Article VI.
SECTION 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION.
Except where there is a right to indemnification as set forth in Sections
1 or 2 of this Article or where indemnification is ordered by a court in
Section 5, any indemnification shall be made by the corporation only as
authorized in the specific case upon a determination by a proper group
that indemnification of the Proper Person is permissible under the
circumstances because he has met the applicable standards of conduct set
forth in Section 1 of this Article. This determination shall be made by
the board of directors by a majority vote of those present at a meeting
at which a quorum is present, which quorum shall consist of directors not
parties to the proceeding ("Quorum"). If a Quorum cannot be obtained,
the determination shall be made by a majority vote of a committee of the
board of directors designated by the board, which committee shall consist
of two or more directors not parties to the proceeding, except that
directors who are parties to the proceeding may participate in the
designation of directors for the committee. If a Quorum of the board of
directors cannot be obtained and the committee cannot be established, or
even if a Quorum of the board of directors cannot be obtained and the
committee cannot be established, or even if a Quorum is obtained or the
committee is designated and a majority of the directors constituting such
Quorum or committee so directs, the determination shall be made by (i)
independent legal counsel selected by a vote of the board of directors or
the committee in the manner specified in this Section 4, or, if a Quorum
of the full board of directors cannot be obtained and a committee cannot
be established, by independent legal counsel selected by a majority vote
of the full board (including directors who are parties to the action) or
(ii) a vote of the shareholders.
SECTION 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may
apply for indemnification to the court conducting the proceeding or to
another court of competent jurisdiction for mandatory indemnification
under Section 2 of this Article, including indemnification for reasonable
expenses incurred to obtain court-ordered indemnification. If the court
determines that such Proper Person is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not
he met the standards of conduct set forth in Section 1 of this Article or
was adjudged liable in the proceeding, the court may order such
indemnification as the court deems proper except that if the Proper
Person has been adjudged liable, indemnification shall be limited to
reasonable expenses incurred in connection with the proceeding and
reasonable expenses incurred to obtain court-ordered indemnification.
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<PAGE>
SECTION 6. ADVANCE OF EXPENSES. Reasonable expenses (including
attorneys' fees) incurred in defending an action, suit or proceeding as
described in Section 1 may be paid by the corporation to any Proper
Person in advance of the final disposition of such action, suit or
proceeding upon receipt of (i) a written affirmation of such Proper
Person's good faith belief that he has met the standards of conduct
prescribed by Section 1 of this Article VI, (ii) a written undertaking,
executed personally or on the Proper Person's behalf, to repay such
advances if it is ultimately determined that he did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited
general obligation of the Proper Person but need not be secured and may
be accepted without reference to financial ability to make repayment),
and (iii) a determination is made by the proper group (as described in
Section 3 of this Article VI) that the facts as then known to the group
would not preclude indemnification. Determination and authorization of
payments shall be made in the same manner specified in Section 4 of this
Article VI.
SECTION 7. WITNESS EXPENSES. The sections of this Article VI do not
limit the corporation's authority to pay or reimburse expenses incurred
by a director in connection with an appearance as a witness in a
proceeding at a time when he has not been a named defendant or respondent
in the proceeding.
SECTION 8. REPORT TO SHAREHOLDERS. Any indemnification of or
advance of expenses to a director in accordance with this Article VI, if
arising out of a proceeding by or on behalf of the corporation, shall be
reported in writing to the shareholders with or before the notice of the
next shareholders' meeting. If the next shareholder action is taken
without a meeting at the instigation of the board of directors, such
notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
ARTICLE VII
PROVISION OF INSURANCE
By action of the board of directors, notwithstanding any interest of
the directors in the action, the corporation may purchase and maintain
insurance, in such scope and amounts as the board of directors deems
appropriate on behalf of nay person who is or was a director, officer,
employee, fiduciary or agent of the corporation, or who, while a
director, officer, employee, fiduciary or agent of the corporation, is or
was serving at the request of the corporation as a director, officer,
partner, trustee, employee, fiduciary or agent of any other foreign or
domestic corporation or of any partnership, joint venture, trust, profit
or nonprofit unincorporated association, limited liability company or
other enterprise or employee benefit plan, against any liability asserted
against, or incurred by, him in that capacity arising out of his status
as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of Article VI or
applicable law. Any such insurance may be procured from any insurance
company designated by the board of directors of the corporation, whether
such insurance company is formed under the laws of Delaware or any other
jurisdiction of the United States or elsewhere, including any insurance
company in which the corporation has an equity interest or any other
interest, through stock ownership or otherwise.
ARTICLE VIII
MISCELLANEOUS
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<PAGE>
SECTION 1. SEAL. The corporate seal of the corporation shall be
circular in form and shall contain the name of the corporation and the
words, "Seal, Delaware."
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be
as established by the board of directors.
SECTION 3. AMENDMENTS. The board of directors shall have power, to
the maximum extent permitted by the Delaware General Corporation Law, to
make, amend and repeal the bylaws of the corporation at any regular or
special meeting of the board unless the shareholders, in making, amending
or repealing a particular bylaw, expressly provide that the directors may
not amend or repeal such bylaw. The shareholders also shall have the
power to make, amend or repeal the bylaws of the corporation at any
annual meeting or at any special meeting called for that purpose.
SECTION 4. GENDER. The masculine gender is used in these bylaws as
a matter of convenience only and shall be interpreted to include the
feminine and neuter genders as the circumstances indicate.
SECTION 5. CONFLICTS. In the event of any irreconcilable conflict
between these bylaws and either the corporation's articles of
incorporation or applicable law, the latter shall control.
SECTION 6. DEFINITIONS. Except as otherwise specifically provided
in these bylaws, all terms used in these bylaws shall have the same
definition as in the Delaware General Corporation Law.
THE FOREGOING BYLAWS, consisting of twenty (20) pages, including
this page, constitute the bylaws of AAE Education Corporation, adopted by
the board of directors of the corporation as of July 15, 1998.
/s/ ROBERT D. ARNOLD
-----------------------------------
Robert D. Arnold
President
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EXHIBIT 3.3
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE
OF AMENDMENT OF "AAE EDUCATION CORPORATION", CHANGING ITS NAME FROM "AAE
EDUCATION CORPORATION" TO "N-GEN SOLUTIONS.COM, INC.", FILED IN THIS
OFFICE ON THE TWENTIETH DAY OF JANUARY, A.D. 2000, AT 11:30 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL
SEAL -----------------------------------
Edward J. Freel, Secretary of State
2919877 8100
AUTHENTICATION: 0210290
001030644 DATE: 01-21-00
<PAGE>
CERTIFICATE OF AMENDMENT TO
THE
CERTIFICATE OF INCORPORATION
OF
AAE EDUCATION CORPORATION
Allan R. Short and Michael V. Schranz hereby certify that:
1. They are the President and Secretary, respectively, of AAE
Education Corporation, a Delaware corporation (the "Company").
2. The Certificate of Incorporation of the Company is hereby
amended as set forth on EXHIBIT A attached hereto and incorporated herein
by this reference.
3. Such amendments have been duly approved by the Board of
Directors of this Company.
4. Such amendments have been duly approved by the Company's
shareholders in accordance with Section 242 of the Delaware General
Corporation Law. The total number of outstanding shares of common stock
of the Company is 4,750,000. The number of shares approving the
amendment equaled or exceeded that required. The percentage approval
required was more than 50% of the outstanding shares of common stock.
There are no shares of preferred stock issued and outstanding.
The undersigned further declare under penalty of perjury under the laws
of the State of Delaware that the matters set forth in this certificate
are true and correct of their own knowledge.
Executed at Denver, Colorado, on January 19, 2000.
/s/ ALLAN R. SHORT
------------------------------------
Allan R. Short, President
/s/ MICHAEL V. SCHRANZ
------------------------------------
Michael V. Schranz, Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:30 AM 01/20/2000
001030644 - 2919877
<PAGE>
EXHIBIT A
AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION
OF
AAE EDUCATION CORPORATION
Article FIRST of the Certificate of Incorporation of AAE Education
Corporation shall be amended by replacing it in its entirety with the
following:
FIRST: The name of the corporation is n-Gen Solutions.com, Inc.
Article THIRD: (a) of the Certificate of Incorporation of AAE
Education Corporation shall be amended by replacing it in its entirety
with the following:
THIRD: (a) The aggregate number of shares which the corporation
shall have the authority to issue is 25,000,000 shares of common stock
and 5,000,000 shares of preferred stock. The common stock shall have a
par value f $0.0001 per share and the preferred stock shall have a par
value of $0.0001 per share.
Article THIRD (b) of the Certificate of Incorporation of AAE
Education Corporation shall be amended by replacing it in its entirety
with the following:
(b) COMMON STOCK. The shares of the class of common stock shall
have unlimited voting rights and shall constitute the sole voting group
of the corporation, except to the extent any additional voting group or
groups may hereafter be established in accordance with the Delaware
General Corporation Law. The shares of this class shall also be entitled
to receive the net assets of the corporation upon dissolution.
Each common shareholder of record shall have one vote for each share
of stock standing in his or her name on the books of the corporation.
Cumulative voting shall not be permitted in the election of directors or
otherwise.
Unless otherwise ordered by a court of competent jurisdiction, at
all meetings of shareholders one-third of the shares of a voting group
entitled to vote at such meeting, represented in person or by proxy,
shall constitute a quorum of that voting group.
EXHIBIT 4.1
UNDERWRITER'S WARRANT AGREEMENT (the "Underwriter's Warrant Agreement"
or "Agreement"), dated as of ____________, 2000, between n-Gen
Solutions.Com, Inc. (the "Company") and Barron Chase Securities, Inc. (the
"Underwriter").
W I T N E S S E T H:
---------------------
WHEREAS, the Underwriter has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof
between the Company and the Underwriter, to act as the Underwriter in
connection with the Company's proposed public offering (the "Public
Offering") of 1,600,000 shares of the Company's Common Stock at $5.00 per
share and 1,600,000 Warrants ("Public Warrants") at $.125 per Public
Warrant; and
WHEREAS, the Company proposes to issue to the Underwriter and/or
persons related to the Underwriter as those persons are defined in Rule
2710 of the NASD Conduct Rules (the "Holder"), 160,000 warrants ("Common
Stock Underwriter Warrants") to purchase 160,000 shares of the Company's
Common Stock (the "Shares") and 160,000 warrants ("Warrant Underwriter
Warrants") to purchase 160,000 Common Stock Purchase Warrants ("Underlying
Warrants") exercisable to purchase 160,000 shares of the Company's Common
Stock. The "Common Stock Underwriter Warrants" and the "Warrant
Underwriter Warrants" are collectively referred to as the "Warrants". The
"Shares" and the "Underlying Warrants" are collectively referred to as the
"Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part
of the compensation in connection with, the Underwriter acting as
Underwriter pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment to the
Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set
forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant and Period.
----------------
The above recitals are true and correct. The Public Offering has been
registered under a Registration Statement on Form SB-2 (File No. 333-_____)
and declared effective by the Securities and Exchange Commission (the "SEC"
or "Commission") on _______, 2000 (the "Effective Date"). This Agreement,
relating to the purchase of the Warrants, is entered into pursuant to the
Underwriting Agreement between the Company and the Underwriter in
connection with the Public Offering.
1
<PAGE>
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration
Time"), up to 160,000 Shares at an initial exercise price (subject to
adjustment as provided in Article 8 hereof) of $8.00 per share (160% of the
public offering price) and/or 200,000 non-redeemable Underlying Warrants at
an initial exercise price of $.20 per warrant (160% of the public offering
price) (the "Exercise Price" or "Purchase Price"), subject to the terms and
conditions of this Agreement. Each Underlying Warrant is exercisable to
purchase one (1) share of Common Stock at $8.80 per share (160% of the
Public Warrant exercise price) during the five (5) year period commencing
on the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption
"Description of Securities" in the Registration Statement, and as
designated in the Company's Articles of Incorporation and any amendments
thereto, and the Underlying Warrants shall be governed by the terms of the
Warrant Agreement executed in connection with the Company's public offering
(the "Warrant Agreement"), except as provided herein, and the Holders shall
have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Warrants, the Shares, the Underlying Warrants, and the
shares of Common Stock underlying the Underlying Warrants, as more fully
described in paragraph seven (7) of this Underwriter's Warrant Agreement.
In the event of any extension or change of the expiration date or reduction
or change of the exercise price of the Public Warrants, the same expiration
date and percentage price change to the Underlying Warrants shall be
simultaneously effected, except that the Underlying Warrants shall expire
no later than five (5) years from the Effective Date.
2. Warrant Certificates.
--------------------
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in
the form of Warrant Certificate, attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
-------------------
3.1 Full Exercise.
-------------
(i) The Holder may effect a cash exercise of the Common Stock
Underwriter Warrants and/or the Warrant Underwriter Warrants and/or
the Underlying Warrants by surrendering to the Company the Warrant
Certificate, together with a Subscription in the form of Exhibit "A"
attached thereto, duly executed by
2
<PAGE>
such Holder, at any time prior to the Expiration Time, at the
Company's principal office, accompanied by payment in cash or by
certified or official bank check payable to the order of the Company
in the amount of the aggregate purchase price (the "Aggregate Price"),
subject to any adjustments provided for in this Agreement. The
aggregate price hereunder for each Holder shall be equal to the
exercise price as set forth in Section six (6) hereof multiplied by
the number of Warrants, Underlying Warrants or Shares that are the
subject of each Holder's Warrant (as adjusted as hereinafter
provided).
(ii) The Holder hereof may effect a cashless exercise of the
Common Stock Underwriter Warrants and/or the Underlying Warrants by
delivering the Warrant Certificate to the Company together with a
Subscription in the form of Exhibit "B" attached thereto, duly
executed by such Holder, in which case no payment of cash will be
required. Upon such cashless exercise, the number of Shares to be
purchased by each Holder hereof shall be determined by dividing: (i)
the number obtained by multiplying the number of Shares that are the
subject of each Holder's Warrant Certificate by the amount, if any, by
which the then Market Value (as hereinafter defined) exceeds the
Purchase Price; by (ii) the then per share Market Value or Purchase
Price, whichever is greater. In no event shall the Company be
obligated to issue any fractional securities and, at the time it
causes a certificate or certificates to be issued, it shall pay the
Holder in lieu of any fractional securities or shares to which such
Holder would otherwise be entitled, by the Company check, in an amount
equal to such fraction multiplied by the Market Value. The Market
Value shall be determined on a per Share basis as of the close of the
business day preceding the exercise, which determination shall be made
as follows: (a) if the Common Stock is listed for trading on a
national or regional stock exchange or is included on the NASDAQ
National Market or Small-Cap Market, the average closing sale price
quoted on such exchange or the NASDAQ National Market or Small-Cap
Market which is published in THE WALL STREET JOURNAL for the three (3)
trading days immediately preceding the date of exercise, or if no
trade of the Common Stock shall have been reported during such period,
the last sale price so quoted for the next day prior thereto on which
a trade in the Common Stock was so reported; or (b) if the Common
Stock is not so listed, admitted to trading or included, the average
of the closing highest reported bid and lowest reported ask price as
quoted on the National Association of Securities Dealer's OTC Bulletin
Board or in the "pink sheets" published by the National Daily
Quotation Bureau for the first day immediately preceding the date of
exercise on which the Common Stock is traded.
3.2 Partial Exercise. The securities referred to in
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paragraph 3.1 above also may be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof, except that with respect to a cash exercise, the Purchase Price
payable shall be equal to the number of securities being purchased
hereunder multiplied by the per security Purchase Price, subject to any
adjustments provided for in this Agreement. Upon any such partial
exercise, the Company, at its expense, will forthwith issue to the Holder
hereof a new Warrant Certificate or Warrants of like tenor calling in the
aggregate for the number of securities (as constituted as of the date
hereof) for which the Warrant Certificate shall not have been exercised,
issued in the name of the Holder hereof or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
------------------------
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other
securities shall be made forthwith (and in any event within three (3)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections
5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in
a name other than that of the Holder and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman
or Vice Chairman of the Board of Directors or President or Vice President
of the Company, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
-----------------------------------
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of
one (1) year from the Effective Date of the Public Offering, except (a) to
officers of the Underwriter or to officers and partners of the Selected Dealers
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participating in the Public Offering; (b) by will; or (c) by operation of law.
6. Exercise Price.
--------------
6.1 Initial and Adjusted Exercise Prices.
------------------------------------
The initial exercise price of each Common Stock Underwriter Warrant
shall be $8.00 per share (160% of the public offering price). The initial
exercise price of each Warrant Underwriter Warrant shall be $.20 per
Underlying Warrant (160% of the public offering price). The initial
exercise price of each Underlying Warrant shall be $8.80 per share (160% of
the Public Warrant exercise price). The adjusted exercise price shall be
the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section
8 hereof. The Warrant Underwriter Warrants and the Underlying Warrants are
exercisable during the five (5) year period commencing on the Effective
Date.
6.2 Exercise Price.
--------------
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
-------------------
7.1 Registration Under the Securities Act of 1933.
---------------------------------------------
The Warrants, the Shares, the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants
(collectively the "Registrable Securities") have been registered under the
Securities Act of 1933, as amended (the "Act"). Upon exercise, in part or
in whole, of the Warrants, certificates representing the Shares, the
Underlying Warrants and/or the shares of Common Stock issuable upon
exercise of the Underlying Warrants shall bear the following legend in the
event there is no current registration statement effective with the
Commission at such time as to such securities:
The securities represented by this certificate may not be offered
or sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act and
applicable state securities laws is available.
5
<PAGE>
7.2 Piggyback Registration.
----------------------
If, at any time commencing after the Effective Date of the offering
and expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new
Registration Statement under the Act, or files a Notification on Form 1-A
or otherwise registers securities under the Act, or files a similar
disclosure document with the Commission (collectively the "Registration
Documents") as to any of its securities under the Act (other than under a
Registration Statement pursuant to Form S-8), it will give written notice
by registered mail, at least thirty (30) days prior to the filing of each
such Registration Document, to the Underwriter and to all other Holders of
the Registrable Securities of its intention to do so. If the Underwriter
and/or other Holders of the Registrable Securities notify the Company
within twenty (20) days after receipt of any such notice of its or their
desire to include any such Registrable Securities in such proposed
Registration Documents, the Company shall afford the Underwriter and such
Holders of such Registrable Securities the opportunity to have any
Registrable Securities registered under such Registration Documents or any
other available Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice
pursuant to this Section 7.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
-------------------
(a) At any time commencing one (1) year after the Effective Date of
the Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at
that time outstanding shall have the right (which right is in addition to
the registration rights under Section 7.2 hereof), exercisable by written
notice to the Company, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and/or such other
documents, including a prospectus, and/or any other appropriate disclosure
document as may be reasonably necessary in the opinion of both counsel for
the Company and counsel for the Underwriter and Holders, in order to comply
with the provisions of the Act, so as to permit a public offering and sale
of their respective Registrable Securities for nine (9) consecutive months
(or such longer period of time as permitted by the Act) by such Holders and
any other Holders of any of the Registrable Securities who notify the
Company within twenty (20) days after receipt of notice by registered or
certified mail from the Company of such request. A Demand Registration
shall not be counted as a Demand Registration hereunder until such Demand
Registration has been declared
6
<PAGE>
effective by the SEC and maintained continuously effective for a period of
at least nine months or such shorter period when all Registrable Securities
included therein have been sold in accordance with such Demand
Registration, provided that a Demand Registration shall be counted as a
Demand Registration hereunder if the Company ceases its efforts in respect
of such Demand Registration at the request of the majority Holders making
the demand for a reason other than a material and adverse change in the
business, assets, prospects or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice by
registered or certified mail, of any registration request under this
Section 7.3 by the majority of the Holders to all other registered Holders
of any of the Registrable Securities within ten (10) days from the date of
the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year
after the Effective Date of the offering, and expiring four (4) years
thereafter, the Holders of a majority of the Registrable Securities shall
have the right, exercisable by written request to the Company, to have the
Company prepare and file, on one occasion, with the Commission a
registration statement or any other appropriate disclosure document so as
to permit a public offering and sale for nine (9) consecutive months (or
such longer period of time as permitted by the Act) by any such Holder of
Registrable Securities; provided, however, that the provisions of Section
7.4(b) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such securities
for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to provide
all such information and materials concerning the Holders and take all
such action as may be reasonably required to permit the Company to
comply with all applicable requirements of the Commission and to
obtain acceleration
7
<PAGE>
of the effective date of the registration statement.
(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at
that time outstanding, a request that the Company effect a registration on
Form S-3 with respect to the Registrable Securities and if Form S-3 is
available for such offering, the Company shall, as soon as practicable,
effect such registration as would permit or facilitate the sale and
distribution of the Registrable Securities as are specified in the request.
All expenses incurred in connection with a registration requested pursuant
to this Section shall be borne by the Company. Registrations effected
pursuant to this Section 7.3(e) shall not be counted as registrations
pursuant to Section 7.3(a) and 7.3(c) hereof.
7.4 Covenants of the Company With Respect to Registration.
-----------------------------------------------------
In connection with the filing of any Registration Document by the
Company, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company
will promptly notify each seller of such Registrable Securities and confirm
such advice in writing, (i) when such registration statement becomes
effective, (ii) when any post-effective amendment to such registration
statement becomes effective and (iii) of any request by the SEC for any
amendment or supplement to such registration statement or any prospectus
relating thereto or for additional information.
The Company shall furnish to each seller of such Registrable
Securities such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including each
preliminary prospectus and summary prospectus) in conformity with the
requirements of the Act, and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if
any, and fees and expenses of Holder(s)' counsel and the Holder's pro-rata
portion of the selling discount or commissions), fees and expenses in
connection with all registration statements filed pursuant to Sections 7.2
and 7.3(a) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c). If the Company
shall fail to comply with the provisions of Section
8
<PAGE>
7.3(a), the Company shall, in addition to any other equitable or other
relief available to the Holder(s), be liable for any or all special and
consequential damages sustained by the Holder(s) requesting registration of
their Registrable Securities.
(c) The Company shall prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be reasonably necessary to keep such
registration statement effective for at least nine months (or such longer
period as permitted by the Act), and to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the seller or sellers of Registrable Securities
set forth in such registration statement. If at any time the SEC should
institute or threaten to institute any proceedings for the purpose of
issuing a stop order suspending the effectiveness of any such registration
statement, the Company will promptly notify each seller of such Registrable
Securities and will use all reasonable efforts to prevent the issuance of
any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take
all reasonably necessary action which may be required in qualifying or
registering the Registrable Securities included in a registration statement
for offering and sale under the securities or blue sky laws of such states
as reasonably are required by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the
laws of any such jurisdiction. The Company shall use its good faith
reasonable efforts to cause such Registrable Securities covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities of the United States or any State
thereof as may be reasonably necessary to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them
may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement but only to the same extent and with the
same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriter as contained in the Underwriting Agreement.
9
<PAGE>
(e) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each of the
Holder(s) of the Registrable Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or otherwise,
arising from written information furnished by such Holder, or their
successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in the Underwriting Agreement pursuant to which the Underwriter
has agreed to indemnify the Company, except that the maximum amount which
may be recovered from each Holder pursuant to this paragraph or otherwise
shall be limited to the amount of net proceeds received by the Holder from
the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants or Underlying Warrants
prior to the filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof without the prior written
consent of the Holders of the Registrable Securities representing a
majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement)
signed by the independent public accountants who have issued a report on
the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities.
10
<PAGE>
(i) The Company shall deliver promptly to each Holder participating
in the offering and to the managing underwriter copies of all
correspondence between the Commission and the Company, its counsel or
auditors and all non-privileged memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the National Association
of Securities Dealers, Inc. ("NASD"). Such investigation shall include
access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to
such reasonable extent and at such reasonable times and as often as any
such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to
Section 7.3, the Company, if requested, shall enter into an underwriting
agreement with the managing underwriter, reasonably satisfactory to the
Company, selected for such underwriting by Holders holding a majority of
the Registrable Securities requested to be included in such underwriting.
Such agreement shall be satisfactory in form and substance to the Company,
each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders, if required by the Underwriter to be
parties to any underwriting agreement relating to an underwritten sale of
their Registrable Securities, may, at their option, require that any or all
the representations, warranties and covenants of the Company to or for the
benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3
of this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or
paragraph 7.3 hereof if, within thirty (30) days after its receipt of a
request to register such Registrable Securities (i) counsel for the Company
delivers an opinion to the Holders requesting registration of such
Registrable Securities, in form and substance satisfactory to counsel to
such Holder(s), to the effect that the entire number of Registrable
Securities proposed to be sold by such Holder(s) may otherwise be sold, in
the manner proposed by such Holder(s), without registration under the
Securities Act, or (ii) the SEC shall have issued a no-action position, in
form and substance satisfactory to counsel for the Holder(s) requesting
registration of such
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<PAGE>
Registrable Securities, to the effect that the entire number of Registrable
Securities proposed to be sold by such Holder(s) may be sold by it, in the
manner proposed by such Holder(s), without registration under the
Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving
corporation and (b) the stockholders of the Company are to receive, in
whole or in part, capital stock or other securities of the surviving
corporation, unless the surviving corporation shall, prior to such merger,
business combination or consolidation, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Securities" shall be deemed to include
the securities which the Holders would be entitled to receive in exchange
for Registrable Securities under any such merger, business combination or
consolidation, provided that to the extent such securities to be received
are convertible into shares of Common Stock of the issuer thereof, then any
such shares of Common Stock as are issued or issuable upon conversion of
said convertible securities shall also be included within the definition of
"Registrable Securities".
8. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
8.1 Adjustment for Dividends, Subdivisions, Combinations or
-------------------------------------------------------
Reclassifications.
-----------------
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital
stock of any other class), (b) subdivide its outstanding shares of Common
Stock into a greater number of shares, (c) combine its outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of its shares of Common Stock any shares of capital stock
of the Company; then, and in each such case, the per share Exercise Price
and the number of Warrant Securities in effect immediately prior to such
action shall be adjusted so that the Holder of this Warrant thereafter upon
the exercise hereof shall be entitled to receive the number and kind of
shares of the Company which such Holder would have owned immediately
following such action had this Warrant been exercised immediately prior
thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or reclassification. If, as
a result of an adjustment made pursuant to this Section, the Holder of this
Warrant shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors of the Company (whose
determination shall be conclusive) shall determine the allocation of the
adjusted Exercise Price
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<PAGE>
between or among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of
Warrant Certificates (by first class mail, postage prepaid), which notice
shall state the Exercise Price resulting from such adjustment, and any
increase or decrease in the number of Warrant Securities to be acquired
upon exercise of the Warrants, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
------------------------------------------------------
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental Warrant Agreement providing that the
Holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which
such warrant might have been exercised immediately prior to such
reorganization, consolidation, merger, conveyance, sale or transfer. Such
supplemental Warrant Agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8 and such registration
rights and other rights as provided in this Agreement. The Company shall
not effect any such consolidation, merger, or similar transaction as
contemplated by this paragraph, unless prior to or simultaneously with the
consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing,
receiving, or leasing such assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations
of the Company under this Agreement. The above provision of this
Subsection shall similarly apply to successive consolidations or
successively whenever any event listed above shall occur.
8.3 Dividends and Other Distributions.
---------------------------------
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants distribute to its
stockholders any assets, property, rights, evidences of indebtedness,
securities (other than a distribution
13
<PAGE>
made as a cash dividend payable out of earnings or out of any earned
surplus legally available for dividends under the laws of the jurisdictions
of incorporation of the Company), whether issued by the Company or by
another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such distribution as if the
Warrants had been exercised immediately prior to such distribution. At the
time of any such distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this subsection or an
adjustment to the Exercise Price, which shall be effective as of the day
following the record date for such distribution.
8.4 Adjustment in Number of Securities.
----------------------------------
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 8, the number of securities issuable upon the exercise of
each Warrant and/or Underlying Warrant shall be adjusted to the nearest
full amount by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of securities issuable
upon exercise of the Warrants and/or the Underlying Warrants immediately
prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
------------------------------------------------
No adjustment of the Exercise Price shall be made if the amount of
said adjustment shall be less than 5 cents ($.05) per Share, provided,
however, that in such case any adjustment that would otherwise be required
then to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least 5 cents ($.05) per
Share.
8.6 Accountant's Certificate of Adjustment.
--------------------------------------
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company
(who may be the independent certified public accountants then auditing the
books of the Company) to compute such adjustment or readjustment in
accordance herewith and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to any Holder(s) of the Warrants and/or Underlying Warrants at the
Holder(s) address as shown on the Company's books.
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The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based
including, but not limited to, a statement of (i) the Exercise Price at the
time in effect, and (ii) the number of additional or fewer securities and
the type and amount, if any, of other property which at the time would be
receivable upon exercise of the Warrants and/or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
-----------------------------------------------
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or
not the Underlying Warrants are issued and outstanding, the Underlying
Warrant exercise price and the number of shares of Common Stock underlying
such Underlying Warrants shall be automatically adjusted in accordance with
the Warrant Agreement between the Company and the Company's transfer agent,
upon occurrence of any of the events relating to adjustments described
therein. Thereafter, the Underlying Warrants shall be exercisable at such
adjusted Underlying Warrant exercise price for such adjusted number of
underlying shares of Common Stock or other securities, properties or
rights.
9. Exchange and Replacement of Warrant Certificates.
------------------------------------------------
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive
office of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
securities in such denominations as shall be designated by the Holder
thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation
of the Warrants, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interest.
----------------------------------
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants
and/or Underlying Warrants, nor shall it be required to issue script or pay
cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests may be eliminated, at the Company's option,
by rounding any fraction up to the nearest whole number of shares of Common
Stock or other securities, properties or rights, or in lieu thereof
15
<PAGE>
paying cash equal to such fractional interest multiplied by the current
value of a share of Common Stock.
11. Reservation, Validity and Listing.
---------------------------------
The Company covenants and agrees that during the exercise period, the
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Underlying Warrants, such number of shares
of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise under this Warrant Certificate. The Company
covenants and agrees that, upon exercise of the Warrants and/or the
Underlying Warrants, and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be
duly authorized, validly issued, fully paid, non-assessable and not subject
to the preemptive rights of any stockholder. As long as the Warrants
and/or Underlying Warrants shall be outstanding, the Company shall use its
best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants and the Underlying Warrants to be listed and quoted
(subject to official notice of issuance) on all securities exchanges and
systems on which the Common Stock and/or the Public Warrants are then
listed and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
--------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Warrants and/or
Underlying Warrants and their exercise, any of the following events shall
occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the
16
<PAGE>
Company (other than in connection with a consolidation or merger) or
a sale of all or substantially all of its property, assets and
business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written
notice of such event at least fifteen (15) days prior to the date fixed as
a record date of the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale.
Such notices shall specify such record date or the date of closing the
transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription
rights, options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
13. Underlying Warrants.
-------------------
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise
of the Underlying Warrants and the form of assignment printed on the
reverse thereof) shall be substantially as set forth in the exhibits to the
Warrant Agreement. Subject to the terms of this Agreement, one (1)
Underlying Warrant shall evidence the right to initially purchase one (1)
fully-paid and non-assessable share of Common Stock at an initial purchase
price of $8.80 during the five (5) year period commencing on the Effective
Date of the Registration Statement, at which time the Underlying Warrants,
unless the exercise period has been extended, shall expire. The exercise
price of the Underlying Warrants and the number of shares of Common Stock
issuable upon the exercise of the Underlying Warrants are subject to
adjustment, whether or not the Warrants have been exercised and the
Underlying Warrants have been issued, in the manner and upon the occurrence
of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in
its entirety herein. Subject to the provisions of this Agreement and upon
issuance of the Underlying Warrants, each registered holder of such
Underlying Warrant shall have the right to purchase from the Company (and
the Company shall issue to such registered holders) up to the number of
fully-paid and non-assessable shares of Common Stock (subject to adjustment
as provided in the Warrant Agreement) set forth in such Warrant
Certificate, free and clear of all preemptive rights of stockholders,
provided that such registered Holder complies with the terms governing
exercise of the Underlying Warrant set forth in the Warrant Agreement, and
pays the applicable exercise price, determined in accordance with the terms
of the Warrant Agreement. Upon exercise of the Underlying Warrants, the
17
<PAGE>
Company shall forthwith issue to the registered Holder of any such
Underlying Warrant in his name or in such name as may be directed by him,
certificates for the number of shares of Common Stock so purchased. Except
as otherwise provided herein and in this Agreement, the Underlying Warrants
shall be governed in all respects by the terms of the Warrant Agreement.
The Underlying Warrants shall be transferrable in the manner provided in
the Warrant Agreement, and upon any such transfer, a new Underlying Warrant
certificate shall be issued promptly to the transferee. The Company
covenants to send to each Holder, irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Warrant
Agreement to be sent to holders of Underlying Warrants.
14. Notices.
-------
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when sent
(i) by facsimile; AND (ii)delivered personally or by overnight courier or
mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth below or to such
other address as the Company may designate by notice to the Holders.
Robert D. Arnold, Chairman
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, CO 80202
Copy to: John B. Wills, Esq.
Berenbaum, Weinshienk & Eason, P.C.
370 Seventeenth Street, Suite 2600
Denver, Colorado 80202-5626
and
David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
15. Entire Agreement: Modification.
------------------------------
This Agreement (and the Underwriting Agreement and Warrant Agreement
to the extent applicable) contain the entire understanding between the
parties hereto with respect to the
18
<PAGE>
subject matter hereof, and the terms and provisions of this Agreement may
not be modified, waived or amended except in a writing executed by the
Company and the Holders of at least a majority of Registrable Securities
(based on underlying numbers of shares of Common Stock). Notice of any
modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
16. Successors.
----------
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination.
-----------
This Agreement shall terminate at the earlier of (i) the public sale
of all of the Registrable Securities; or (ii) at the close of business on
________, 2007. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
-----------------------------------------
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for
all purposes shall be construed in accordance with the laws of said State
without giving effect to the rules of said State governing the conflicts of
laws. The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim arising out of, or relating in any way to, this
Agreement shall be brought and enforced in a federal or state court of
competent jurisdiction with venue only in the Fifteenth Judicial Circuit
Court in and for Palm Beach County, Florida or the United States District
Court for the Southern District of Florida, West Palm Beach Division, and
irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum.
A party to this Agreement named as a Defendant in any action brought in
connection with this Agreement in any court outside of the above named
designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if
necessary, have the case dismissed, requiring the other party to refile
such action in an appropriate court in the above designated county or
federal district.
19. Severability.
------------
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any
other provision of this Agreement.
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<PAGE>
20. Captions.
--------
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other
registered Holder(s) of the Warrant Certificates or Registrable Securities
any legal or equitable right, remedy or claim under this Agreement; and
this Agreement shall be for the sole and exclusive benefit of the Company
and the Underwriter and any other Holder(s) of the Warrant Certificates or
Registrable Securities.
22. Counterparts.
------------
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
n-Gen Solutions.Com, Inc.
BY:____________________________________
Robert D. Arnold, Chairman
Attest:
________________________________
Michael V. Schranz, Secretary
BARRON CHASE SECURITIES, INC.
By:______________________________________
Robert Kirk, President
20
<PAGE>
n-Gen Solutions.Com, Inc.
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON ___________, 2005
NO. W-_____
__________ Common Stock __________ Warrant
Underwriter Underwriter
Warrants Warrants
or
__________ Underlying
Warrants
This Warrant Certificate certifies that _______________, or registered
assigns, is the registered holder of __________ Common Stock Underwriter
Warrants and/or __________ Warrant Underwriter Warrants and/or __________
Underlying Warrants of n-Gen Solutions.Com, Inc. (the "Company"). Each
Common Stock Underwriter Warrant permits the Holder hereof to purchase
initially, at any time from ________, 2000 ("Purchase Date") until 5:30
p.m. Eastern Time on _______, 2005 ("Expiration Date"), one (1) share of
the Company's Common Stock at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $8.00 per
share (160% of the public offering price). Each Warrant Underwriter
Warrant permits the Holder hereof to purchase initially, at any time from
the Purchase Date until five (5) years from the Purchase Date, one (1)
Underlying Warrant at the Exercise Price of $.20 per Underlying Warrant.
Each Underlying Warrant permits the Holder thereof to purchase, at any time
from the Purchase Date until five (5) years from the Purchase Date, one
(1) share of the Company's Common Stock at the Exercise Price of $8.80 per
share.
21
<PAGE>
Any exercise of Common Stock Underwriter Warrants and/or Warrant
Underwriter Warrants and/or Underlying Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, but subject to the conditions set forth
herein and in the Underwriter's Warrant Agreement dated as of _______,
2000, between the Company and Barron Chase Securities, Inc. (the
"Underwriter's Warrant Agreement"). Payment of the Exercise Price shall be
made by wire transfer to the account of the Company or by certified check
or official bank check in New York Clearing House funds payable to the
order of the Company in the event there is no cashless exercise pursuant to
Section 3.1(ii) of the Underwriter's Warrant Agreement. The Common Stock
Underwriter Warrants, the Warrant Underwriter Warrants, and the Underlying
Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to
for a description of the rights, limitation or rights, obligations, duties
and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder)
of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events, the Exercise Price and the type and/or number of the
Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the
holder, issue a new Warrant Certificate evidencing the adjustment in the
Exercise Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the
Company to issue such new Warrant Certificates shall not in any way change,
alter, or otherwise impair, the rights of the holder as set forth in the
Underwriter's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Underwriter's Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with
such transfer.
22
<PAGE>
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of
any exercise hereof, and of any distribution to the holder(s) hereof, and
for all other purposes, and the Company shall not be affected by any notice
to the contrary.
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in
the Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
Dated as of _______, 2000
n-Gen Solutions.Com, Inc.
BY:_____________________________________
Robert D. Arnold, Chairman
Attest:
________________________________
Michael V. Schranz, Secretary
23
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
------------------------------------
(To be signed only upon exercise of Warrant)
TO: Robert D. Arnold, Chairman
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, CO 80202
The undersigned, the Holder of Warrant Certificate number _____ (the
"Warrant"), representing __________ Common Stock Underwriter Warrants
and/or __________ Warrant Underwriter Warrants and/or __________ Underlying
Warrants of n-Gen Solutions.Com, Inc. (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to
exercise the purchase right provided by the Warrant Certificate for, and to
purchase thereunder, __________ Shares and/or __________ Underlying
Warrants of the Company, and herewith makes payment of $__________
therefor, and requests that the certificates for such securities be issued
in the name of, and delivered to, ___________________________________,
whose address is ______________________________________________________
_______________________________________________________________________,
all in accordance with the Underwriter's Warrant Agreement and the Warrant
Certificate.
Dated: ____________________
_____________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant Certificate)
_____________________________________
_____________________________________
(Address)
_____________________________________
(Social Security Number or Tax
Identification Number)
24
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
----------------------------------------
TO: Robert D. Arnold, Chairman
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, CO 80202
The undersigned, the Holder of Warrant Certificate number _____ (the
"Warrant"), representing ___________ Common Stock Underwriter Warrants
and/or ___________ Underlying Warrants of n-Gen Solutions.Com, Inc. (the
"Company"), which Warrant is being delivered herewith, hereby irrevocably
elects the cashless exercise of the purchase right provided by the
Underwriter's Warrant Agreement and the Warrant Certificate for, and to
purchase thereunder, Shares of the Company in accordance with the formula
provided at Section three (3) of the Underwriter's Warrant Agreement. The
undersigned requests that the certificates for such Shares be issued in the
name of, and delivered to, _________________________________, whose address
is, ___________________________________________________________________
_______________________________________________________________________,
all in accordance with the Warrant Certificate.
Dated: _____________________
_____________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant Certificate)
_____________________________________
_____________________________________
(Address)
_____________________________________
(Social Security Number or Tax
Identification Number)
25
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint _________
___________________________________ Attorney, to transfer the within
Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: Signature:
________________________ _____________________________________
(Signature must conform in all respects
to name of holder as specified on the
fact of the Warrant Certificate)
_____________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
26
EXHIBIT 5.0
March 27, 2000
Board of Directors
n-Gen Solutions.Com, Inc.
410 17th Street
Suite 1940
Denver, CO 80202
RE: N-GEN SOLUTIONS.COM, INC.
SB-2 REGISTRATION STATEMENT, AND RELATED PROSPECTUS
Dear Sirs/Madam:
As counsel to n-Gen Solutions.Com, Inc. ("Registrant"), a Delaware
corporation, in connection with the above-referenced SB-2 Registration
Statement, and related Prospectus ("Registration Statement"), relating to
the registration of 1,600,000 shares of common stock, $.001 par value per
share, and 1,600,000 redeemable common stock purchase warrants, we have
examined the Certificate of Incorporation and By-laws of the Registrant,
and such other documents as we have deemed relevant and material. Based on
the foregoing, and certain representations of the officers, directors and
representatives of the Registrant, it is the opinion of this office that:
1. The Registrant has been duly organized and is validly existing and
in good standing in the State of Delaware, the jurisdiction of its
incorporation.
2. The aforementioned securities to be registered pursuant to the
Registration Statement have been duly and validly authorized by the
requisite corporate action in accordance with the general requirements of
corporation law.
3. When, as and if the aforementioned securities are delivered
against payment in accordance with the Registration Statement, and related
Prospectus, such securities will be validly authorized and issued, fully
paid and nonassessable in accordance with the general requirements of
Delaware corporation law.
I hereby consent to the use of the opinion of this office as Exhibit
5.0 to the Registration Statement of the Registrant, and further consent to
the reference to its name in such Registration Statement, as amended, and
related Prospectus.
Very truly yours,
BERENBAUM, WEINSHIENK & EASON, P.C.
JBW/db
EXHIBIT 10.1
CONFIDENTIAL
DISTRIBUTION AND FULFILLMENT AGREEMENT
--------------------------------------
This DISTRIBUTION AND FULFILLMENT AGREEMENT (the "Agreement") is
made as of Nov. 29, 1999 (the "Effective Date") by and between N-GEN
SOLUTIONS, a Colorado corporation, with its principal place of business
at PO Box 1117, Longmont, Colorado 80502 (the "Seller"), and INGRAM
ENTERTAINMENT INC., a Tennessee corporation, with its principal place of
business at Two Ingram Boulevard, La Vergne, Tennessee 37089 (the
"Distributor").
1. DEFINITIONS.
1.1 "Back Ordered Products" means Products that Distributor
does not have in stock in its shipping facilities at the time an
Order is submitted for them.
1.2 "Business Day" means a day on which Distributor regularly
conducts business, excluding holidays.
1.3 "Customer" means a person in the United States, its
territories and protectorates, who orders Products from Seller's
online retail store.
1.4 "Damaged Products" means Products shipped by Distributor
which are damaged during shipment to Customers to the extent that
the Products cannot be used for their intended purpose. Products
damaged while in the care, custody, or control of the Customer are
not Damaged Products for purposes of this Agreement.
1.5 "Defective Products" means Products shipped by Distributor
which contain manufactured defects which prevent them from being
used for their intended purpose.
1.6 "EDI" means electronic data interchange for transmitting
data between computers via a value-added network (mailbox service
provider) or via the Internet.
1.7 "Electronic Report" means information provided
electronically.
1.8 "FTP" means file transfer protocol utilized to provide
information necessary for placing orders with Distributor via a
value-added network or the Internet.
1.9 "Inserts" means custom insertions acceptable to
Distributor which Seller delivers to Distributor at no expense to
Distributor and which Seller requests to be included with Shipments.
1.10 "Order" means a Product order placed by Seller in
accordance with this Agreement.
1.11 "Products" means Distributor's (or its vendors') products
Seller may purchase pursuant to this Agreement.
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<PAGE>
CONFIDENTIAL
1.12 "Shipment" means a shipment of Product by Distributor in
response to an Order.
1.13 "Shipping Facilities" means Distributor facilities in the
United States designated from time-to-time by Distributor as direct-
to-consumer distribution facilities.
1.14 "Unmerchandisable Products" means Products shipped by
Distributor which are shopworn and/or soiled.
2. ELECTRONIC DATA TRANSMISSION. Electronic data transmissions
between Distributor and Seller shall be via EDI. For EDI through a
value-added network, Seller will pay all usual and customary fees related
to transmission and retrieval through Seller's value-added network and
any related interconnect charges to or from Distributor's value-added
network. Distributor will furnish Seller the specifications for FTP and
any other means of electronic data transmission (other than EDI).
Distributor may change those specifications from time-to-time on not less
than 30 days prior written notice to Seller.
3. FULFILLMENT SERVICES.
3.1 ORDERS. Seller will transmit, via electronic data
transmission, Orders to Distributor. Each Order shall contain the
following information: (a) the Customer's name and complete shipping
address; (b) the Distributor-approved shipping method to be used;
(c) the text of any special messages to the Customer; and (d) the
Products to be shipped and their quantity.
3.2 FULFILLMENT. After receipt of an Order, Distributor will
endeavor to: (a) fill the Order from Products in stock at the
Shipping Facilities; (b) print all packing slips excluding Inserts;
(c) insert all packing slips and Inserts; (d) print and affix
shipping labels in Shipments; (e) when made available by
Distributor, print the text of any reasonable special message
acceptable to Distributor on the standard packing slip requested by
Seller in the order; (f) ship the Order to the Customer; (g) order
from the vendor any Back Ordered Products and notify Seller that the
Back Ordered Products are backordered (in which case Seller may, via
electronic data transmission to Distributor, elect to terminate the
Order with respect to the Back Ordered Products or in total); and
(h) if not terminated as described in CLAUSE (g), ship any Back
Ordered Products following their receipt by Distributor at the
Shipping Facilities in accordance with the terms of this Section.
Provided Distributor receives an Order and the related picking
ticket is printed no later than 1:00 p.m., central time, and the
product is available in stock, Distributor will use commercially
reasonable efforts to ship the Order that same Business Day. If the
Order is received and the related picking ticket is printed after
1:00 p.m., central time, and the product is available in stock,
Distributor will use commercially reasonable efforts to ship the
order the following Business Day. If Distributor does not ship an
Order as provided above, Distributor will notify Seller no later
than the second following Business Day, and Seller may without
obligation cancel the order by notice to Distributor via electronic
data transmission. Seller will also have the right to cancel an
Order by notice to Distributor via electronic data transmission at
any time prior to the printing or generation of the pick ticket with
respect to that Order. Seller will not be invoiced for cancelled
Orders. Seller will notify Customers of Order cancellations.
2
<PAGE>
CONFIDENTIAL
3.3 PACKING SLIPS. Packing slips printed and inserted in
Shipments by Distributor will be agreed upon in "look and feel" by
Distributor and Seller, based on Seller's specification and
Distributor's capability.
3.4 SHIPMENT. Distributor will use commercially reasonable
efforts to ship Products in accordance with the Distributor-approved
shipping methods specified by Seller in the Order. Distributor will
use commercially reasonable efforts to package all Shipments in a
manner to prevent damage during shipment, the "look and feel" of
which packaging will be agreed upon by Distributor and Seller, based
on Seller's specifications and Distributor's capability.
Distributor will cooperate with Seller in tracking any lost
shipments and filing any related carrier claims. Except as
specifically set out in this Agreement, all shipping shall be at the
expense of Seller. The risk of loss for Products shall pass from
Distributor when the Products are delivered to the carrier for
shipment to the Customers.
3.5 MASTER DATABASE LICENSE AGREEMENT. This Agreement
incorporates by reference the terms of the Master Database License
Agreement in the form of EXHIBIT A hereto (the "Database License").
The Database License describes the Products as of the most recent
update of the Ingram Entertainment Inc. Master Database (the "Master
Database") made available to Seller. Distributor makes no
representation or warranty as to the availability of any of the
Products, whether or not included in the Master Database.
3.6 REPORTS TO SELLER.
(a) Each Business Day, Distributor will furnish Seller
Electronic Reports of the following: (A) all Shipments made
that Business Day by Order number and tracking number (if
available), all Products contained in each Order, and al Back
Ordered Products by order number, and (B) Orders received, but
not shipped, and the status of each such Order; and (C) all
Product returns (identified by Return Authorization Number)
processed by Distributor indicating quantity and item(s)
received and other information in reasonably sufficient detail
(i.e. Customer and invoice number) to allow Seller to properly
credit Customers for such returns.
(b) On a monthly basis, Distributor shall provide a
statement of account which details (i) all invoices sent to
Seller during the prior calendar month; (ii) all payments
received from Seller during the prior calendar month, and other
credits made against Seller's payment obligations; and (iii)
all unpaid invoices.
3.7 LICENSE. Seller hereby grants to Distributor all license
to (a) distribute the Inserts in connection with the Products, and
(b) use Seller's trademarks in accordance with Seller's
specifications on Product invoices and other materials provided to
Customers.
3.8 NON-EXCLUSIVE DEALING. Nothing in this Agreement requires
Distributor to deal exclusively with Seller in any capacity.
3
<PAGE>
CONFIDENTIAL
4. RETURNS.
4.1 RETURNS GENERALLY. (a) In order for returned Products
(including Defective Products, Unmerchandisable Products, Damaged
Products, and Products erroneously shipped to Customers) to be
eligible for credit pursuant to this Agreement, Seller agrees to the
following procedures:
(i) Seller will furnish each Customer desiring to return
Products a return authorization number of no more than eight
characters, all of which must be alpha numeric; and
(ii) Seller will furnish to Distributor that authorization
number; the Seller's account number; the item number(s) or UPC
number(s) of he Products being returned; the quantity of each
Product being returned; Seller's invoice number to which the
return is to be applied; and the reason for the Product return
(carrier damage, shipped in error, defective, Customer error,
Customer change in preference, etc.).
Within five Business Days of Distributor's receipt of the returned
Products, all returned Products will be logged into Distributor's
inventory, Seller will be issued a credit by Distributor for the
lowest price per unit paid by Seller to Distributor for the returned
Products (excluding freight and handling fees) or, if less, the
current market value of those Products; PROVIDED, HOWEVER, that if
Seller furnishes Distributor the applicable invoice number and the
returned Products have been received by Distributor no more than 60
days after the invoice date, such credit will be equal to the order
or line item amounts for the returned Products shown on that
invoice. In the event of the return by Customers of Defective
Products, Unmerchandisable Products, Products shipped erroneously to
Customers, and/or Damaged products, the credit set out in this
paragraph will include the freight costs initially charged to Seller
by Distributor for those Products. The credit set out in this
paragraph will be reduced by any applicable processing fee described
in SECTION 4.2. Distributor will provide Seller with information in
reasonably sufficient detail (i.e. Sellers RA number and invoice
number (if provided by Customer)) to allow Seller to properly credit
Customer for such returns. Credit memos for returns will be
processed by Distributor and delivered to Seller within 15 days
after Distributor's receipt of the returned Product. Credits issued
to Seller under any such credit memos will be applied immediately to
payables incurred by Seller. Seller will reimburse Distributor per
normal payment terms set out in SECTION 5.3 for any freight costs
charged to Distributor by the carrier due to Customer refusal to
accept delivery of Products correctly shipped to the Customer which
are then returned by the carrier to Distributor. Distributor's sole
liability for any Defective Products, Unmerchandisable Products,
Products erroneously shipped to Customer, and/or Damaged Products
will be acceptance of their return and issuance of the credit set
out in this paragraph. If Seller desires replacement of any of the
four types of Products described in the preceding sentence, Seller
will initiate a new order for the replacement Products.
(b) Distributor will not be obligated to accept any returns of
Products submitted more than 60 days after shipment of such Products
to a Customer, including
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CONFIDENTIAL
returns of Defective Products, Damaged Products, Unmerchandisable
Products and/or erroneously shipped Products.
4.2 PROCESSING FEE. For returns of Products (other than
returns of Defective Products, Unmerchandisable Products, Damaged
Products, or Products erroneously shipped to Customers), Seller will
pay Distributor a processing fee of $0.65 per unit for all units
returned. The processing fee will reduce the amount of any credits
provided pursuant to SECTION 4.1.
4.3 MINT, RESALABLE CONDITION. All Product returned to
Distributor (except for returns of Defective Products,
Unmerchandisable Products, or Damaged Products) must be with the
original packaging intact (including manufacturer's shrink wrap) and
otherwise in mint, resalable condition. No credit will be issued
for any returned Product not in mint, resalable condition with the
original packaging intact.
5. PAYMENT.
5.1 PRICES. Product prices to be paid by Seller to
Distributor are set forth on EXHIBIT B. Distributor may change such
prices with 30 days' prior written notice.
5.2 FEES. Fees for services provided by Distributor to Seller
are set forth on EXHIBIT C. Distributor may change such fee amounts
with 30 days prior written notice.
5.3 PAYMENT TERMS. Distributor will invoice Seller upon
shipment of Product. To the extent Seller establishes a credit line
with Distributor, all invoices shall be due and payable thirty days
from invoice date. Distributor may establish a credit line for
Seller based upon Seller's credit application and submission of
financial data per Distributor's policies. Seller understands that
if a credit line with Distributor is established, it may be modified
from time-to-time based upon Distributor's credit review and credit
policies. Any amounts not paid when due will be subject to a late
charge of 1 1/2% per month (18% per annum) on the overdue balance
(or, if less, the maximum amount permitted by applicable law).
5.4 ADVERTISING. Distributor will pass through to Seller a
proportionate share of any co-op advertising or market development
funds from vendors applicable to the Products. All advertising must
have prior approval of Distributor and the vendor to qualify for
pass through. In order to qualify for these funds, Seller
acknowledges its understanding that it must provide Distributor and
the vendor with acceptable proof of performance on forms and within
the time frames specified by vendor. Deductions for advertising
prior to receipt of credit are prohibited.
6. DISCLAIMER. DISTRIBUTOR PROVIDES ALL PRODUCTS, MATERIALS AND
SERVICES TO SELLER AND ITS CUSTOMERS "AS IS," AND DISTRIBUTOR DISCLAIMS
ALL WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. However, the
foregoing disclaimer does not limit any warranties provided by Product
vendors to either Seller or its Customers. To the extent any Order
includes a message
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CONFIDENTIAL
from the Customer to the recipient of the Order, Seller acknowledges that
Distributor will not screen or review any such message and Seller agrees
to indemnify and hold harmless distributor from and for any claim
allegation, costs, loss, or liability of Distributor related to any such
message or its inclusion in any Order. Each party acknowledges that it
has not entered into this Agreement in reliance upon any warranty or
representation except as specifically set forth herein. DISTRIBUTOR HAS
NOT LICENSE OR PROVIDED AND DOES NOT HEREBY LICENSE OR PROVIDE SELLER THE
RIGHT TO USE ANY LOGO, TRADEMARK, OR OTHER INTELLECTUAL PROPERTY OF
DISTRIBUTOR, ANY SUPPLIER OR VENDOR, OR ANY OTHER PARTY.
7. LIMITATION OF LIABILITY. NEITHER DISTRIBUTOR NOR SELLER SHALL
BE LIABLE FOR PUNITIVE, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR
LOST PROFITS (INCLUDING DUE TO NEGLIGENCE) ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS NOTICE OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL DISTRIBUTOR BE LIABLE IN
AN AMOUNT GREATER THAN THE AMOUNTS ACTUALLY PAID BY SELLER TO DISTRIBUTOR
HEREUNDER. THE ONLY LIABILITY DISTRIBUTOR WILL HAVE WITH RESPECT TO ANY
DEFECTIVE PRODUCTS, DAMAGED PRODUCTS, UNMERCHANDISABLE PRODUCTS, AND/OR
PRODUCTS ERRONEOUSLY SHIPPED WILL BE THE RETURN RIGHTS OF CUSTOMERS AND
THE OBLIGATION TO PROVIDE THE CREDITS DESCRIBED IN THIS AGREEMENT.
8. TERM AND TERMINATION.
8.1 TERM. Unless earlier terminated as specified below, this
Agreement commences on the Effective Date and expires on the first
anniversary of the Effective Date; PROVIDED, HOWEVER, that unless a
party exercises its termination rights provided herein, the term
shall be automatically renewed for successive one year periods.
8.2 TERMINATION FOR CONVENIENCE. Either party may terminate
this Agreement at any time during any renewal term for its
convenience upon 90 days prior written notice to the other.
8.3 EVENT OF DEFAULT. Either party may terminate this
Agreement at any time during any renewal term for its convenience
upon 90 days prior written notice to the other.
8.3 EVENT OF DEFAULT. Either party may terminate this
Agreement immediately upon the occurrence of an Event of Default by
the other party. As used herein, an "Event of Default" means the
defaulting party's failure to cure, after receipt of not less than
30 days' prior written notice form the non-defaulting party, any of
the following: (a) failure of the defaulting party to observe or
perform any condition or obligation imposed on the defaulting party
under this Agreement (including payment obligations); (b) breach of
any warranty made by the defaulting party under this Agreement; or
(c) filing of a voluntary petition in bankruptcy or having an
involuntary petition filed against the defaulting party, or the
execution of an assignment for the benefit of creditors of the
defaulting party; PROVIDED, HOWEVER, that if a default is not
capable of cure within the above 30 day period, the period will be
extended until such cure can reasonably be accomplished or, if
sooner, until the breaching party ceases to use diligent efforts to
effect that cure. The option to terminate this Agreement shall be
in addition to, and not in lieu of, any other remedy available to
the terminating party under this Agreement or at law or equity, all
such remedies being cumulative.
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CONFIDENTIAL
8.4 EFFECT OF TERMINATION. Upon expiration or termination, at
Seller's option, Distributor will either (a) fulfill all pending
Orders in accordance with their terms, in which case all applicable
covenants and licenses under this Agreement shall survive to the
limited extent necessary to fulfill such Orders, or (b) cancel all
pending Orders and immediately refund any payments already made for
such pending Orders and any credits due. Absent election by Seller,
Distributor may elect (a) or (b). Further, the parties will
promptly reconcile accounts payable and receivable and bring the
balance owed, if any, current. SECTIONS 2, 4, 6, 7, 8.4, 9, 10, 11,
and 12 shall survive termination or expiration.
9. CONFIDENTIALITY. The parties agree, during the term of this
Agreement and for the five year period following its termination or
expiration, to keep strictly confidential and not disclose to any party,
other than its agents, employees, contractors, or advisors, and then only
on a need to know basis after having informed such individuals of the
confidential nature of the information and such party's obligation to
protect that confidentiality and not to disclose such information except
as set out herein, the following: (a) any term or condition of this
Agreement or of any transaction entered into pursuant to it, or (b) any
information about the other party or its business, operations, products,
finances, customers, distributors, systems, budgets, or liabilities
obtained in connection with this Agreement or the transactions
contemplated by it. Distributor further agrees that any Customer
information provided to Distributor by Seller for shipping purposes will
not be used for solicitation or any other purpose by Distributor. The
provisions of this Section shall not apply to information which (w) is
already known to the receiving party or is publicly available at the time
of disclosure; (x) becomes publicly available after disclosure through no
act of the receiving party; (y) is disclosed by the disclosing party
without an obligation or reasonable expectation of confidentiality; or
(z) is required by law to be disclosed (after providing the disclosing
party the opportunity to seek a protective order at its expense).
Neither party shall issue any press release or similar publicity
statement concerning this Agreement's existence or terms without both
parties' prior approval.
10. COMPLIANCE WITH LAWS. At its own expense, each party will
comply with all applicable laws and regulations regarding its activities
related to this agreement.
11. TAXES. Seller is for all purposes the seller of the products
to its Customers and shall be responsible for any and all sales and
similar taxes arising from such sales. SELLER SHALL FOREVER DEFEND,
INDEMNIFY, AND HOLD HARMLESS DISTRIBUTOR AND ITS AFFILIATES, AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AND CONTRACTORS, FROM ANY AND
ALL SALES AND OTHER TAX LIABILITY ARISING FROM THE SALE OF PRODUCTS TO
THE CUSTOMERS, INCLUDING INTEREST, PENALTIES, AND RELATED CHARGES.
12. GENERAL PROVISIONS.
12.1 GOVERNING LAW. This Agreement will be governed and
construed in accordance with the laws of the State of Tennessee
without giving to conflict of laws principles. Both parties submit
to the jurisdiction and venue of the federal and state courts
sitting in Nashville, Tennessee, and further agree that any cause of
action arising under this Agreement shall be brought in such courts.
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CONFIDENTIAL
12.2 SEVERABILITY; HEADINGS. If any provision herein is held
to be invalid or unenforceable for any reason, the remaining
provisions will continue in full force without being impaired or
invalidated in any way. Headings are for reference purposes only
and in no way define, limit, construe or describe the scope or
extent of such section.
12.3 FORCE MAJEURE. If performance hereunder is prevented,
restricted or interfered with by any action or condition whatsoever
beyond the reasonable control of a party, the party so affected,
upon giving prompt notice to the other party, shall be excused from
such performance to the extent of such prevention, restriction or
interference. Each party shall use commercially reasonable efforts
to mitigate the effect of a force majeure.
12.4 INDEPENDENT CONTRACTORS. The parties are independent
contractors, and no agency, partnership, joint venture, employee-employer
or franchisor-franchisee relationship is intended or created by this
Agreement. Neither party shall make any warranties or representations
on behalf of the other party.
12.5 NOTICE. Except as otherwise specified, any notices
hereunder shall be given to the appropriate party at the address
specified above or at such other address as the party shall specify
in writing. Notice shall be deemed given, upon personal delivery,
if sent by fax, upon confirmation of receipt, if sent by certified
or registered mail, postage prepaid, when sent; or if sent by
overnight courier, upon receipt.
12.6 ENTIRE AGREEMENT; WAIVER. This Agreement sets forth the
entire understanding and agreement of the parties, and supersedes
any and all oral or written agreements or understandings between the
parties, as to the subject matter of this Agreement. Except as
otherwise provided herein, it may be changed only by a writing
signed by both parties. The waiver of a breach of any provision of
this Agreement will not operate or be interpreted as a waiver of any
other or subsequent breach.
"SELLER" "DISTRIBUTOR"
N-GEN SOLUTIONS INGRAM ENTERTAINMENT INC.
By: /s/ JOSEPH H. FORD By: /s/ BOB GEISTMAN
--------------------------- ---------------------------
Print Name: Joseph H. Ford Print Name: Bob Geistman
------------------- -------------------
Title: VP - Marketing Title: VP-Business Development
------------------------ ------------------------
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CONFIDENTIAL
EXHIBITS
--------
A. Master Database License Agreement
B. Product Pricing
C. Fee
9
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CONFIDENTIAL
EXHIBIT A
MASTER DATABASE LICENSE AGREEMENT ("Database License")
For the set up fee of $5,000 and a monthly fee of $700 for subsequent
updates (so long as such updates are made available in the discretion of
Ingram Entertainment Inc.), Ingram Entertainment Inc. (the "Company") is
prepared to deliver to you the Ingram Entertainment Inc. Master Database,
including updates (collectively the "Material"), subject to the following
terms and conditions.
1. WAIVER OF FEES: Provided you use the Company as your primary
supplier of pre-recorded video software, DVD software,
audiobooks, and video game software, hardware, and accessories
for the one-year period following the date you sign the
agreement to which this Database License is an Exhibit, the
Company will waive the above $5,000 set-up fee and the $700
update fees. Following that one-year period, the Company will
waive the $700 update fees provided that at all times following
that one-year period you have continued to use the Company as
your primary supplier for above products. In the event you do
not use the Company as your primary supplier of those products
during the initial one-year period of this Database License,
you agree retroactively to pay the Company the above fee which
the Company waived in anticipation of its primary suppler
status. If you fail to use the Company as your primary
supplier after the first year, however, you will not be liable
for the above retroactive payment. Your obligation to use the
Company as your primary supplier of the above products shall be
subject to the following exceptions: (a) products not carried
by the Company; (b) purchases of used products; (c) orders
which the Company is unable to fill from inventory on hand or
inventory with an expected delivery date to the Company of no
more than 48 hours from the date of your order; (d) orders in
excess of the credit limit extended to you by the Company,
provided you are within your credit terms with the Company at
the time of such order; or (e) products carried by the Company
which are bundled as a unit with products not carried by the
Company.
2. LIMITATION ON USE. You may provide access to the Material
available via kiosks, on-line services including electronic
bulletin systems, and through Internet on-line search and query
systems as appropriate to encourage the resale of products in
the Material. This excludes and prohibits the right to copy,
distribute or sell the Material or portions thereof apart from
your product(s) that may incorporate the Material (or portions
thereof) as a component thereof. A violation of the preceding
sentence will terminate this Database License at which time you
will agree to return the Material within 10 days of termination
and to purge the Material entirely from your systems where the
Material is stored and/or used.
3. CONFIDENTIAL INFORMATION. As used herein, "Confidential
Information" shall mean the Material and all extracts,
analysis, summaries, reviews, and other items prepared by you
which contain or are derived in any way from the Material.
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<PAGE>
CONFIDENTIAL
4. CONFIDENTIALITY OBLIGATION. You agree with respect to the
Material and Confidential Information that you (a) will not use
it for any purpose except that which is expressly contemplated
by this agreement; (b) will not assign or transfer it to any
party (other than a successor to all or substantially all of
your assets); and (c) will not disclose to any third party
directly or indirectly that it was received from or is
attributable to the Company.
5. NO REPRESENTATION. You acknowledge that, while the Company
believes the Material and Confidential Information to be
generally reliable, none of the Company or its affiliates,
employees, agents, or contractors has made or is hereby making
any express or implied representation or warranty as to the
accuracy or completeness of the Material or Confidential
Information. You further agree that none of them will have any
liability to you for any errors or omissions in or related to
it. None of the Company or any of the above other entities or
individuals has any obligation to inform you of or correct any
errors or omissions in the Material or Confidential Information
of which may have knowledge or become aware.
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CONFIDENTIAL
EXHIBIT B
VIDEO: Seller will receive a discount of 9% off Dealer pricing on all
pre-recorded video software.
DVD: Seller will receive margin 8% pricing over Distributor's gross cost
on all DVD software.
VIDEO GAMES: Seller will receive margin 10% pricing over Distributor's
gross cost on all video game software.
AUDIOBOOKS: Seller will receive a discount of 38% off Retail pricing on
all audiobook software.
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CONFIDENTIAL
EXHIBIT C
SET UP: None
FREIGHT: Manifested freight will be passed through to Seller.
HANDLING FEE: Seller will be charged $.65 per unit shipped to Customers.
INSERTS: Seller will be charged $0.05 per insertion for standard inserts
(such as small catalogs, single page information/promotion cards, etc.).
Non-standard inserts are priced on a per item basis.
13
EXHIBIT 10.2
E-NITED
business solutions
SUPPLIER AGREEMENT
This Supplier Agreement (this "Agreement") is made by and between
e-NITED business solutions, a division of United Stationers Supply Co. an
Illinois corporation having a principal place of business at 2200 East Golf
Road, Des Plaines, Illinois 60016-1267 ("United" or "Supplier"), and N-Gen
Solutions, d/b/a Learning Wire.com, a Delaware corporation having a
principal place of business at 8245 West I-25 Frontage Road, Suite #4,
Erie, Colorado 80516 ("Reseller"), and shall be effective as of this 8th
day of February, 2000 ("Effective Date").
WHEREAS, Supplier is the wholesale distributor of certain products,
including office supplies, computer consumables, and cleaning supplies;
WHEREAS, Reseller owns and operates one or more Internet web sites
having the URL www.learningwire.com (collectively, the "Web Site") wherein
Reseller displays and makes available for sale certain consumer products;
and
WHEREAS, Reseller desires to sell Supplier's products that are listed
on Supplier's Electronic Catalog Database (provided under separate cover)
to Reseller's Consumers (the "Consumers"), and Supplier wishes to fulfill
Consumer orders for the Products by delivering such to the Consumers.
NOW THEREFORE, in consideration of the mutual promises, covenants, and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:
1. PURCHASE OF PRODUCTS. The Parties agree that Consumers shall
order Products directly from the Web Site and Reseller shall act as the
merchant and collect all payments for the Products from the Consumers.
According to the terms and conditions set forth herein, Reseller shall
purchase from Supplier the Products ordered by Consumer and Supplier shall
be responsible for fulfilling such Consumer orders by delivering the
Products to the Consumer.
2. PRICING. Except as otherwise provided in this Agreement, initial
pricing terms for each Product will be provided via Price File Download and
are subject to change. The Parties agree that Supplier may change prices
from time to time, without notice. Pricing updates will become effective
immediately. Reseller should download pricing updates daily from the FTP
(File Transfer Protocal) site of Supplier. The Parties agree that pricing
for the Products is based upon the assumption that Reseller will work
diligently and exert all reasonable efforts to market and to create
significant sales opportunities for office supply products online through
telemarketing, direct sales, and mailings. Reseller may refuse to sell, or
discontinue, the sale of any Product in its sole discretion. Reseller is
responsible for setting its own prices for the sale of each product to
Consumers.
<PAGE>
3. RESELLER ORDERS. The Parties agree that an integrated electronic
data interchange system (the "EDI system") will be used as the primary
method of order processing. Supplier may add a handling charge of $2.50
per order to any order which does not comply with electronic order
provisions of the Terms of Sale ("Exhibit A"). In the event of its
electronic systems failure, Supplier shall accept and process telephone and
fax orders.
Supplier shall assign, via postal zip code, all orders received from
Reseller to the nearest United shipping facility. All orders received into
Supplier's system by 2pm local time in the time zone of the assigned
shipping facility will be shipped from Suppliers facility on the same day,
but in the event Supplier's initially assigned facility cannot complete or
fulfill the order, Supplier's system will search the next closet facility
and ship the Products to the Consumer on the same day the order is
received, assuming that the item is available in stock. An order which is
improperly transmitted or an order for out of stock merchandising is
automatically cancelled.
In the event Supplier believes that it cannot fulfill, either in whole
or in part, a Consumer's order for a Product, Supplier shall notify
Reseller within 2 hours of receipt of such order from Reseller of
Supplier's inability to deliver the ordered Product(s) to the Consumer and
such order for an out of stock item will be deemed cancelled. Reseller
will be responsible for notifying Consumer.
4. DISTRIBUTION/DELIVERY. Supplier shall use its nation-wide
express delivery system to deliver Products to the Consumer. Reseller
agrees that all shipments from Supplier to Consumer may bear Reseller's
indicia including, but not limited to, Reseller's trademarks, trade names,
logos and any source identifiers Reseller may adopt from time to time and
Reseller hereby grants Supplier a limited license to use Reseller's indicia
for such shipments.
5. PAYMENT/ADJUSTMENTS. Reseller shall pay Supplier for Products
ordered, handling charges, and shipping fees in accordance with the terms
and conditions of Exhibit B.
6. RETURNS. All requests for Product returns, repairs, or
replacements shall be directed to Reseller and shall be subject to
Reseller's return policy. All requests for Product returns to Supplier are
subject to the terms and conditions in Exhibit B and must include a Return
Authorization Number provided by United.
7. OWNERSHIP OF INFORMATION. Reseller shall own all information
concerning or relating to a specific Consumer who completes an online order
form to Reseller from the Web Site (the "Consumer Information"). The
Parties hereby acknowledge and agree that Reseller may provide Consumer
Information to Supplier and notwithstanding the provisions contained in
this Paragraph 7, nothing shall prevent Supplier from using, collecting,
compiling, storing, or selling Aggregate Consumer Information derived form
the Consumer Information. For the purposes of this Agreement, "Aggregate
Consumer Information" includes, but is not limited to, information
constituting or descriptive of demographics, habits, usage patterns,
preferences, survey data, or any other Product-related, non-personal
information (i.e., information which does not allow Supplier to identify
the individual Consumer) of one or more Consumers.
8. LIMITED WARRANTY. Each Party represents and warrants that: (a)
it has all necessary authority to enter into this Agreement and (b) the
rights it has granted hereunder do not breach any other agreement to which
it is a Party or by which it is bound. Reseller
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acknowledges that the Products are distributed by Supplier and not
manufactured by Supplier, but are manufactured by entities for whom Seller
acts as a distributor and/or reseller. Furthermore, this limited warranty
and any liability hereunder shall not exceed the warranty provided by the
manufacturer of the Products. ALL WARRANTIES FOR THE PRODUCTS ARE SUBJECT
TO AND LIMITED BY AND TO ANY WARRANTIES PROVIDED BY THE MANUFACTURER(S) OF
ANY OF THE PRODUCTS. THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER
WARRANTIES EXCEPT THOSE, IF ANY, SUPPLIED BY THE MANUFACTURER OF THE
PRODUCTS, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. This is
a limited warranty and supersedes all other warranties. The remedies
provided herein are the Reseller's exclusive remedies for breach of this
warranty and shall be the sole liability of Supplier for a breach of this
warranty. IN NO CASE SHALL SUPPLIER BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
OR CONSEQUENTIAL DAMAGES BASED UPON BREACH OF WARRANTY, BREACH OF CONTRACT,
NEGLIGENCE, STRICT TORT, OR ANY OTHER LEGAL THEORY; INCLUDING, WITHOUT
LIMITATION, LOSS OF PROFITS, LOSS OF SAVINGS OR REVENUES, LOSS OF USE OF
ANY ASSOCIATED EQUIPMENT, COST OF CAPITAL, COST OF ANY SUBSTITUTE
EQUIPMENT, FACILITIES OR SERVICES, DOWNTIME, THE CLAIMS OF THIRD PARTIES,
INCLUDING CONSUMERS OR SUPPLIERS, AND INJURY TO PROPERTY.
9. INDEMNITY. Reseller shall indemnify and hold Supplier harmless
from any and all liabilities, damages, and expenses of any nature,
including reasonable attorneys fees and costs, arising out of or relating
to any action instituted by either Reseller or any third party for
Reseller's breach or alleged breach of representations and warranties,
omissions, or misrepresentations regardless of the form of action.
Reseller shall indemnify and hold Supplier harmless from any and all
liabilities, damages and expenses of any nature, including reasonable
attorneys fees and costs, for claims alleged against Supplier based on
improper use or misuse of Reseller's trademarks, trade names, or logos as
specified in this Agreement.
10. CONFIDENTIAL INFORMATION. Each party acknowledges and agrees
that any information relating to the other Party's business, products, or
methods of operation, which is not generally known to the public, is
confidential and proprietary information of the other Party (the
"Confidential Information"). Each Party agrees that it shall not disclose
Confidential Information in order to perform its obligations under this
Agreement. Each Party agrees that it shall not use Confidential
Information of the other Party except to perform its obligations under this
Agreement. The foregoing obligations shall not apply to Confidential
Information that (a) is or becomes part of the public domain through no
fault of the receiving party; (b) is lawfully received from a third party
without an obligation of confidentiality; (c) is independently developed by
the receiving party without reference to the Confidential Information of
the other party; or (d) is required to be disclosed by applicable law.
Notwithstanding the foregoing, each party may request and receive approval
in writing from the other party to disclose to the public that it has
entered into an agreement with the other party (without disclosing pricing
and other nonpublic details), and that the Products are being sold on the
Web Site.
11. TERM AND TERMINATION. This Agreement is effective for one (1)
year from the Effective Date (the "Term") unless sooner terminated by
either Party with ninety (90) days prior written notice to the other Party.
This Agreement shall automatically renew for one (1)
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<PAGE>
additional year, unless ninety (90) days prior to the expiration of any
Term, notice of election not to renew is provided in writing by either
Party to the other Party.
12. MISCELLANEOUS.
a. INDEPENDENT PARTIES. The relationship between Supplier and
Reseller is, and at all times shall remain, solely that of independent
parties, and shall not be, or construed to be a joint venture,
partnership, fiduciary, or other relationship of any nature.
b. NOTICES. Any notice, report, or statement required or
permitted under this Agreement will be considered to be given or
transmitted when sent by certified mail, postage prepaid, addressed to
the Party for whom it is intended at its address of record; by
facsimile, which notice will be effective on computer confirmation of
receipt; or by courier or messenger service, which notice will be
effective on receipt by recipient as indicated on the courier's
receipt. The record addresses of the Parties are as follows:
e-NITED business solutions
898 Carol Court
Carol Stream, IL 60188-9048
Attention: Mark D'Annunzio
With a copy to the Attention: General Counsel
United Stationers Supply Co.
2200 East Golf Road
Des Plaines, IL 60016-1267
Reseller: N-Gen Solutions.com
8245 W. I.-25, Frontage Rd. #4
Erie, CO 80516
Attention: Joe Ford
c. AMENDMENT. This Agreement may be supplemented, amended, or
modified only by the mutual agreement of the Parties. No supplement,
amendment, or modification of this Agreement will be binding unless it
is in writing and signed by both Parties.
d. NO WAIVER. No waiver of a breach, failure of any condition,
or any rights or remedy contained in or granted by this Agreement will
be effective unless it is in writing and signed by the Party waiving
the breach, failure, right, or remedy. No waiver of any breach,
failure, right, or remedy will be deemed a waiver of any other breach,
failure, right, or remedy, whether or not similar, nor will any waiver
constitute a continuing waiver unless the writing so specifies.
e. ATTORNEY FEES. In any litigation, arbitration, or other
proceeding by which one Party either seeks to enforce its rights under
this Agreement (whether in contract, tort, or both) or seeks a
declaration of any rights or obligations under this Agreement, the
prevailing Party will be awarded reasonable attorney fees, together
with any costs and expenses, to resolve the dispute and to enforce the
final judgment.
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f. GOVERNING LAW. This Agreement, and any dispute arising from
the relationship between the Parties to this Agreement, shall be
governed and determined by Illinois State law. Any dispute that
arises under or relates to this Agreement (whether contract, tort, or
both) shall be resolved in state or federal court in Chicago,
Illinois, and the Parties expressly waive any right they may otherwise
have to cause any such action or proceeding to be brought or tried
elsewhere. The parties agree that a senior executive of each will
meet in person in a good faith attempt to settle any dispute before
filing any legal action.
g. SEVERABILITY. Any provision of this Agreement that in any
way contravenes the law or any state or country in which this
Agreement is effective will, in that state or country, to the extent
the law is contravened, be considered separable and inapplicable and
will not affect any other provision or provisions of this Agreement.
h. ASSIGNMENT. Neither Party shall have the right to assign
any of its rights or obligations under this Agreement without the
prior written consent of the other Party; except that Supplier shall
have the right to assign its rights and obligations, in whole or in
part, to any corporation controlled by, controlling or under common
control with Supplier or to any third Party which acquires all, or
substantially all, of the assets of Supplier.
i. INTEGRATION. This Agreement, and any and all Exhibits
attached hereto and made a part hereof, constitutes the final,
complete, and exclusive statement of the terms of this Agreement
between the Parties pertaining to the subject matter of this Agreement
and supersedes all prior and contemporaneous understandings or
agreements of the Parties. No Party has been induced to enter into
this Agreement by, nor is any party relying on, any representation or
warranty outside those expressly set forth in this Agreement.
j. INTERPRETATION. This Agreement shall be interpreted in
accordance with its plain meaning and shall not be interpreted against
the drafting Party.
k. CAPTIONS. The captions and headings contained in this
Agreement are for convenience only and shall not control the meaning,
effect, or construction of the Agreement.
l. INDEPENDENT COUNSEL. All Parties to this Agreement have
read the Agreement and have had the opportunity to consult with
independent counsel prior to executing the Agreement.
m. FORCE MAJEURE. Neither Party shall be responsible to the
other Party for any failure to comply with the terms of this Agreement
due to causes beyond its reasonable control; provided, however, that
no such causes shall excuse Reseller from paying amounts due and
outstanding to Supplier.
INTENDING TO BE LEGALLY BOUND, the Parties have executed this
Agreement to be effective as of the Effective Date.
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Reseller: e-NITED business solutions a division of
N-GEN SOLUTIONS.COM United Stationers Supply Co.
By:/s/ JOSEPH H. FORD By: /s/
----------------------------- ----------------------------
Its: Joseph H. Ford/e-Commerce Its: V.P., Sales
---------------------------- ---------------------------
Date: February 9, 2000 Date: 2/11/00
--------------------------- --------------------------
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EXHIBIT 10.3
WEBSITE DEVELOPMENT AGREEMENT
This Website Development Agreement (the "Agreement") is entered into
and effective as of this 24 day of February, 2000, by and between THE
AUGUST GROUP, INC. a Delaware corporation ("Developer") and N-GEN
SOLUTIONS.COM, INC., a Delaware corporation ("Client").
RECITALS
WHEREAS, Developer is in the business of developing and maintaining
custom web sites for third party end-users; and
WHEREAS, Client desires to have Developer develop its portal site
located at URL www.ngensolutions.com and at www.learningwire.com and
provide other deliverables which will perform specific applications, upon
the terms and conditions set forth herein; and
WHEREAS, Developer desires to develop the portal site and provide the
deliverables for the Client, upon the terms and conditions set forth
herein;
NOW THEREFORE, in consideration of the mutual promises and covenants
described herein, as well as other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
stated meanings:
1.01. "DELIVERABLES" shall mean the collection of services, HTML
documents, database schema, Third Party Licenses, data, User Documentation
and related files to be provided by Developer in connection with
development of the Portal Site, including, without limitation, the items
specified in each Statement of Work.
1.02. "INTELLECTUAL PROPERTY" shall mean patents, copyrights,
trademarks, service marks, trade dress rights, trade secret rights, logos,
ideas, inventions, know-how, data processing techniques, software, code,
source code, object code, user documentation, and any other intellectual
property or proprietary rights in or related to any party's company,
business or assets.
1.03. "PORTAL SITE" shall mean the bundle of Deliverables, to be
developed by Developer and delivered to Client.
1.04. "STATEMENT OF WORK" shall mean a specified project to be
performed by Developer for Client under the terms of this Agreement and
pursuant to a memorandum describing the Statement of Work between Developer
and Client, which shall specify work to be performed,
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schedule for the work, fixed price payable for performance (the "Task
Price") and the schedule for invoice and payment. The cost of materials,
services, Third Party Licenses, and taxes shall be incorporated in the
agreed Task Price. Each Statement of Work shall be a separate component of
this Agreement. Where the terms of a Statement of Work vary from this
Agreement, the Statement of Work shall govern. Statements of Work shall be
executed by the parties, and attached hereto as Exhibits A-1, A-2, et seq.
1.05. "TASK" shall mean the services to be performed by Develop for
Client pursuant to a specific Statement of Work.
1.06. "THIRD PARTY LICENSES" shall mean any rights licensed to
Client by any third party not under the control of Developer, and shall
include all such rights to use third party Intellectual Property as shall
be required for the Client to obtain the intended practical benefit from
the use of the Deliverables, without infringement upon the Intellectual
Property of any third party.
1.07. "USER DOCUMENTATION" shall mean such documentation that
Developer has agreed to provide Client that is described in the
Specifications, hereinafter defined below, or in a Statement of Work to
enable Client and Client's agents and customers to use the Deliverables
incorporated into the Portal Site.
1.08. "WEBSITE" shall mean the publicly available proprietary
Internet website location, to be developed by Developer and owned
exclusively by Client, which is located at URL www.learningwire.com and at
www.ngensolutions.com
ARTICLE II - DESCRIPTION OF SERVICES
2.01. DELIVERY OF DELIVERABLES. Developer agrees to develop,
perform, and deliver to Client the Deliverables described in the Statement
of Work.
2.02. TIMELY DELIVERY. Deliverables shall timely be delivered to
Client, as specified in the Statement of Work. Delivery shall have been
effected, when the Deliverables on the Client's servers function in
accordance with the specifications in the applicable Statement of Work and
Developer has delivered User Documentation in accordance with the
specifications in such Statement of Work. (Such Deliverable and User
Documentation specifications, as may be supplemented by general
requirements and specifications, are attached as Exhibits B-1, B-2, et.
seq., as may be applicable and are hereinafter referred to as
"Specifications").
2.03. ACCEPTANCE TESTING.
(a) Upon delivery of Deliverables, Client, with Developer's
assistance, shall test the Deliverables and shall review the User
Documentation, to determine that the Deliverables and User Documentation
comply in all material respects with the applicable Specifications and
applicable Statement of Work (the "Acceptance Testing"). Acceptance
Testing shall be performed
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in accordance with the development schedule described on such Statement of
Work, and completed within forty-five (45) days of Developer's delivery of
the Deliverables (the "Acceptance Testing Period"). If delivery of the
Deliverables to be tested occurs later than scheduled, as a direct result
of Developer's delay, the Acceptance Testing Period may be extended by the
Client, for a period not to exceed the period of delay in delivery.
(b) Unless Client delivers to Developer written notice (the
"Noncompliance Notice") describing the manner in which the Deliverables and
User Documentation fail to comply with the applicable Specifications and
applicable Statement of Work prior to conclusion of the Acceptance Testing
Period, the Deliverables and User Documentation shall be deemed accepted by
Client on the last day of the Acceptance Testing Period, as may be
extended. If Client delivers to Developer a Noncompliance Notice, such
Deliverables and User Documentation shall be deemed rejected.
(c) Within thirty (30) days after delivery of the Notice of
Noncompliance, Developer shall deliver compliant Deliverables and User
Documentation that comply with the Specifications and Statement of Work.
Following receipt of revised Deliverables and User Documentation, Client
shall have a further period of fifteen (15) days for Acceptance Testing and
the provisions of Section 2.03(b) and this Section 2.03(c) shall govern the
acceptance or rejection of such Deliverables and User Documentation.
2.04. DEVELOPER PERSONNEL. Developer may assign, reassign and
substitute personnel, provided that any reassignment or substitution shall
not interfere with Developer's performance of this Agreement.
2.05. REIMBURSABLE EXPENSES. Developer shall invoice Client
within thirty (30) days, and Client shall pay within fifteen (15) days from
receipt of invoice, all reasonable travel expenses (including lodging and
meals) in connection with necessary travel approved by Client. Commercial
transportation shall be reimbursed at economy or tourist rates for travel
approved by Client in advance of the travel. Travel by automobile shall be
reimbursed by Client based upon Client's standard rate for mileage
reimbursement.
2.06 TAXES. Client shall pay all taxes, duties and levies of any
governmental entity, exclusive of taxes on Developer's net income. If
Client claims exemption from any taxes resulting from this Agreement,
Client shall provide Developer with documentation required by the taxing
authority to support an exemption.
2.07 ACCESS TO FACILITIES. Client grants Developer access to
Client's facilities and proprietary information and data, at all reasonable
times, for purposes reasonably related to performance of Tasks.
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2.08 CONFIDENTIALITY.
(a) Each party hereto shall keep confidential, and not disclose
or permit access to, all confidential or proprietary information of the
other party which is disclosed to or learned by it, including, without
limitation, confidential or proprietary business records, financial
information, trade secrets (including, without limitation, customer lists
and price lists), Intellectual Property, strategies, or methods or
practices of such other party (collectively, the "Confidential
Information"), without the written consent of the other party.
Notwithstanding the foregoing, each party may disclose or permit access to
the Confidential Information, to the extent required to provide services to
the other party.
(b) No party shall have any obligation under this Agreement to
maintain in confidence any Confidential Information which (i) is in the
public domain at the time of disclosure; (ii) is in the possession of such
party free of any obligation of confidence prior to the time of disclosure;
(iii) though originally Confidential Information, subsequently becomes part
of the public knowledge through no fault of such party, as of the date of
its becoming part of the public knowledge; (iv) though originally
Confidential Information, subsequently is rightfully received by such party
without obligations of confidence from a third party who is free to
disclose the information, as of the date of such third-party disclosure; or
(v) is independently developed by such party without the use of any
Confidential Information, as of the date of such independent development
(c) This Agreement shall not be breached by disclosure pursuant
to a valid governmental, judicial or administrative order; PROVIDED
HOWEVER, that the disclosing party shall have made a reasonable attempt to
obtain an appropriate confidentiality order and shall have promptly
notified the other party of the disclosure order.
(d) Each party shall advise its employees and agents of the
confidential and proprietary nature of the Confidential Information and the
confidentiality covenants herein.
(e) Each party acknowledges that each other party hereto may, as
a result of its receipt of or exposure to Confidential Information,
increase or enhance the knowledge and experience retained in the unaided
memories of each of their directors, employees, agents or contractors. No
party shall: (i) intentionally use the Confidential Information for the
purpose of creating a residual or copy of the same; or (ii) avoid its
obligation to maintain the confidentiality of Confidential Information
merely by having a person commit such item to memory so as to reduce it to
an intangible form. No party shall have any rights in any business
endeavors of any other party that may use such Confidential Information in
breach of this Agreement nor any right to compensation related to a party's
use of such Confidential Information in breach of this Agreement.
(f) Developer shall not directly or indirectly, disclose to a
third party, establish a relationship with or on the behalf of a third
party, or receive compensation for, any interest in, investment, merger,
acquisition, joint venture, advisory, agency, or vendor relationship with any
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of the parties set forth on Exhibit C.
2.09 NON-COMPETITION. Developer shall not assist a third party,
either directly or indirectly, in development of a portal site which
competes with Client's Portal Site in the education and learning market.
Developer shall not circumvent, or interfere or establish business
relationships with any suppliers listed on Exhibit C.
2.10 TRAINING. As requested by Client, Developer shall provide
initial training in operation of the Deliverables to Client's operating
employees and/or agents (the "OPERATORS"). Client is responsible to select
Operators who are qualified to operate the Deliverables on Client's
equipment.
ARTICLE III - OWNERSHIP AND PROPRIETARY RIGHTS
3.01. CLIENT'S OWNERSHIP. Except as specifically provided herein,
Developer acknowledges that it has no right or interest in the following
property of Client:
(a) WEBSITE AND PORTAL SITE. Except as provided in Section
3.02, Client shall retain all right, title and interest, including
Intellectual Property rights, in the WebSite and Portal Site. Except as
provided in Section 3.02, all materials, products and modifications
developed or prepared by Developer under this Agreement, including, without
limitation, forms, images and viewable text, any HTML elements relating
thereto, and software, including Deliverables, as well as modifications and
updates, and Intellectual Property encompassed in the Website and Portal
Site are the property of Client, and shall be considered works made for
hire by Developer for Client. To the extent that title to any such works
may not, by operation of law, vest in Client or such works may not be
considered to be works made for hire, all right, title and interest therein
are hereby irrevocable assign to Client by Developer.
(b) CLIENT'S CONTENT. The materials provided by Client,
including Intellectual Property, user information, images, illustrations,
graphics, printed materials, procedural and technical developments,
software, data and other materials ("Client's Content"), which Client shall
permit Developer to use to perform this Agreement, are the exclusive
property of Client. Developer shall have a limited license to use,
reproduce, derive derivative works from, perform and display Client and
Intellectual Property, solely for the purpose to facilitate Developer's
performance of its duties hereunder.
(c) SOURCE CODE AND OBJECT CODE. Except as provided in Section
3.02, the following is the property of Client, to be used by Client in such
manner as Client shall determine, including, without limitation, derivation
of derivative works therefrom which Client shall exclusively own:
(1) the source code and object code developed by Developer
specifically for the Portal Site; and,
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(2) modified or customized code required specifically for
the Portal Site of the core set of E-commerce enabling source and object
code and SuiteTools(TM) (defined as Internet based office and sales
automation software) source and object code developed by the Developer,
including future versions or releases.
Developer shall deliver to Client the source code, object code,
test plans, test cases, test code, design documents, project plans,
functional specifications, documentation of source code, build
instructions, install instructions, and all other related documentation
within thirty (30) days of Client's request. Such source code and object
code shall be in form suitable for Client's use, including modification
thereof or derivation of derivative works.
3.02 DEVELOPER'S OWNERSHIP. Except as provided herein, Client
acknowledges that it has no right or interest in the following property of
Developer.
(a) DEVELOPER'S CONTENT. Materials provided by Developer in
order to perform this Agreement, including Intellectual Property, portal
development knowledge, experience, software, data and other materials
("Developer's Content").
(b) SOFTWARE. Any software used for the development of the
Portal Site that Developer owned before this Agreement, including, but not
limited to, the core set of E-commerce enabling and SuiteTools(TM) (defined
as Internet based office and sales automation software) source and object
code developed by the Developer, including future versions or releases (the
"Software"), and all Intellectual Property rights, including all patent,
trademark, copyright and trade secret rights in and to such Software, and
all source code and object code of such Software, belong to and shall
remain exclusively with Developer except as provided herein or otherwise
required by law. All modifications or enhancements to Software shall be and
remain exclusively owned by and the property of the Developer and shall be
subject to the terms of this Agreement. Developer shall place into escrow
the source code and object code of the Software within thirty (30) days of
Client's request.
(c) CLIENT'S USE OF SOFTWARE, DEVELOPER'S CONTENT AND
DEVELOPER'S INTELLECTUAL PROPERTY. Developer hereby grants to Client the
following:
(1) a perpetual, irrevocable, non-exclusive, royalty free
license for Client or its agents or assigns to use, reproduce, derive
derivative works from, perform, display, modify, copy, transfer and
maintain the Developer's Content, Software or Intellectual Property in
conjunction with the operation, maintenance and updating of the WebSite and
Portal Site; provided however, this Agreement does not give Client the
right or license to reproduce, translate, rearrange, modify, enhance,
display, sell, lease, sublicense, distribute or otherwise transfer the
Software, in whole or in part except as it pertains to the full-functioning
Portal site. Client shall not decompile, reverse-assemble, or reverse-
compile the Software in whole or in part, nor investigate, research, or
pursue any course of effort to acquire knowledge about the logic or
structure of the Software for the purpose of redistributing any portion of
the Software.
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(2) the right to assign the Portal Site as a whole
including the entire set of e-commerce enabling and SuiteTools(TM) (defined
as Internet based office and sales automation software) source and object
code, and technologies related to the Portal Site that in any way
constitute, contribute, or are essential to the integrity and full-
functioning of Portal Site and in absence of, would limit the ability of
Portal Site to conduct business with customers, suppliers, representatives
or other parties not defined herein but deemed as stakeholders by Client to
a full functioning Portal Site; provided however that any assignee shall
agree in writing to be bound by the terms and conditions of this Agreement
as provided for in Section 6.01.
3.03. THIRD PARTY INTELLECTUAL PROPERTY. Developer warrants that
none of the Deliverables, when delivered, and none of the use of such
Deliverables, shall infringe upon the Intellectual Property rights of any
third party. Developer shall obtain for Client all Third Party Licenses
which shall be required for Client to use the Deliverables without
infringement.
3.04. PROHIBITED CONTENT. Neither Client nor Developer shall
deliver to each other any content which is defamatory, harassing, grossly
offensive, malicious or pornographic.
ARTICLE IV - WARRANTIES, REMEDIES, AND LIMITATIONS OF WARRANTIES
AND REMEDIES
4.01. WARRANTIES.
(a) PERFORMANCE OF DELIVERABLES. Developer warrants that the
Deliverables shall substantially perform in accordance with the
Specifications of the Statement of Work, for one year after acceptance.
THIS WARRANTY SHALL BE VOID, TO THE EXTENT OF ANY CLIENT MODIFICATIONS, IF
CLIENT MODIFIES OR CHANGES THE SOURCE CODE, OBJECT CODE OR OTHER
DELIVERABLES, WITHOUT ASSISTANCE OF DEVELOPER. This Warranty shall not
extend to derivative works, derived without assistance of Developer.
(b) WARRANTIES. Each party hereto hereby represents and warrants
to the other party hereto as follows:
(1) OWNERSHIP OF INTELLECTUAL PROPERTY, DEVELOPER'S OR
CLIENT'S CONTENT AND SOFTWARE. Such party owns or otherwise has rights to
use the Intellectual Property, Developer's Content or Client's Content, as
applicable, and Software which such party shall provide to the other in
connection with the performance of this Agreement.
(2) POWER AND AUTHORITY. Such party has the requisite
power and authority to enter into and fully perform its obligations under
this Agreement and that all required corporate action has been taken to
authorize the execution, delivery and performance of this Agreement.
(3) VALID AND BINDING OBLIGATION. This Agreement
constitutes legal, valid and binding obligations of such party, enforceable
against such party in accordance with their respective terms.
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(4) ACCURACY OF REPRESENTATIONS. The accuracy of such
party's representations contained in this Agreement.
4.02. DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY SET FORTH IN
SECTIONS 3.03, 4.01 AND 4.03, DEVELOPER MAKES NO OTHER WARRANTIES,
INCLUDING, WITHOUT LIMITATION, EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR
PURPOSE, OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED.
4.03. LIMITATIONS OF WARRANTY. Developer shall have no product or
service warranty obligation for malfunctions or errors attributable to
equipment malfunction, use of Deliverables contrary to the User
Documentation, acts of God, strikes, power failure, telephone service
failure, war, insurrection or other force majeure. Developer's sole
liability for breach of the warranty set forth in Section 4.01(a) shall be
correction of the errors or replacement of the Deliverables with
Deliverables that substantially perform in accordance with the applicable
Specifications and Statement of Work. Replacement Deliverables are
warranted for the longer of the remaining warranty period or ninety (90)
days from acceptance of delivery of replacement deliverables in accordance
with the acceptance procedures set forth in Article II.
4.04. NO CONSEQUENTIAL DAMAGES. EXCEPT FOR BREACH OF THE
COVENANTS OF CONFIDENTIALITY AND NON-COMPETITION SET FORTH IN SECTIONS 2.08
AND 2.09 AND THE OBLIGATIONS OF INDEMNIFICATION FOR INFRINGEMENT PURSUANT
TO SECTION 4.06, NEITHER PARTY SHALL BE LIABLE FOR ANY INCIDENTAL, SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF BUSINESS, LOSS OF PROFITS, OR
LOSS OF GOODWILL RELATING TO OR ARISING FROM ANY BREACH OF THIS AGREEMENT,
EVEN IF ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGES.
4.05. LIMITATIONS OF DAMAGES. EXCEPT FOR BREACH OF THE COVENANTS
OF CONFIDENTIALITY AND NON-COMPETITION SET FORTH IN SECTIONS 2.08AND 2.09
AND THE OBLIGATIONS OF INDEMNIFICATION FOR INFRINGEMENT PURSUANT TO SECTION
4.06, ANY LIABILITY OF DEVELOPER FOR DAMAGES OR OTHER CLAIMS HEREUNDER
SHALL BE LIMITED TO THE ACTUAL AMOUNTS PAID BY CLIENT TO DEVELOPER
HEREUNDER.
4.06. THIRD PARTY INFRINGEMENT CLAIMS.
(a) DEVELOPER'S INDEMNITY.
(1) Developer shall indemnify, defend and hold harmless
Client against any claim, demand, suit or action (each, a "Claim") by a
third party, based upon Client's use of any portion of the Deliverables,
including User Documentation infringing a valid, enforceable United States
patent, copyright, or other Intellectual Property right, or misappropriates
a trade secret (any
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such claimed act, an "Infringement"). Developer shall pay all damages and
costs awarded to a third party or agreed to in settlement of a Claim by
Developer, and all reasonable attorneys' fees related thereto, provided
that Developer shall have been given notice in writing of such Claim within
thirty (30) calendar days of the date Client receives actual notice of any
such Claim, or Developer shall not have been substantially prejudiced by
any delay in the giving of such notice.
(2) Developer shall control the defense of any Claim, and
at its discretion, may enter into a stipulation of discontinuance and
settlement thereof. At Developer's expense, Client shall cooperate with
Developer and make available all persons, documents and things required by
Developer in defense of a Claim.
(3) If the source code, object code or other Deliverables
are determined to constitute an Infringement, or Client's future use
thereof is enjoined or restricted, Developer shall: (i) procure from the
claimant the license to use of the Deliverables, or (ii) modify the
Deliverables to permit Client the use thereof without Infringement, at the
election of Developer.
(4) The indemnity pursuant to this Section 4.06 shall not
be available, for any Claim resulting from Client's use of any Deliverable
in an operating environment other than that described in the User Documentation.
(b) CLIENT INDEMNITY.
(1) Client shall indemnify, defend and hold Developer
harmless against any Claim, to the extent such Claim is based upon an
Infringement resulting from Client's pre-existing Intellectual Property or
Client's change or modification to any Deliverable (any such Claim, a
"Client Infringement Claim"). Client shall pay all damages and costs
(including reasonable attorneys' fees) finally awarded to a third party or
agreed to in a settlement of such Client Infringement Claim by Client,
provided that Client shall have been given notice in writing of such Claim
within thirty (30) calendar days of the date Developer receives actual
notice of any such Claim, or Client shall not have been substantially
prejudiced by any delay in the giving of such notice.
(2) Client shall control the defense of any Client
Infringement Claim, and at its discretion, may enter into a discontinuance
or settlement thereof. At Client's expense, Developer shall cooperate with
Client and make available to Client all persons, documents and things
required by Client in defense of any such Client Infringement Claim.
ARTICLE V - TERMINATION
5.01. TERMINATION BY CLIENT. Client may terminate this Agreement
on written notice to Developer if any one or more of the following shall
occur:
(a) Developer breaches the confidentiality provisions set forth
in Section 2.08;
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(b) Developer breaches the non-competition provisions set forth
in Section 2.09;
(c) Developer breaches any of its other representations,
warranties, covenants or agreements set forth herein and such breach
continues uncured for 30 days after notice of such breach is first given;
(d) After payment of the Task Price specified in any Statement
of Work or Developer's failure to delivery acceptable Deliverables pursuant
to any Statement of Work and in accordance with Article II of this
Agreement, Client shall have the right to terminate this Agreement, upon
thirty (30) days written notice to Developer, provided that Client shall
remain obligated to pay to Developer all undisputed charges for
Deliverables delivered and all reimbursable expenses incurred by Developer
through the effective date of termination.
5.02. TERMINATION BY DEVELOPER. Developer may terminate this
Agreement on written notice to Client if any one or more of the following
shall occur:
(a) Client breaches the confidentiality provisions set forth in
Section 2.08;
(b) Client fails to pay the Task Price or reimbursable expenses
pursuant to any Statement of Work within 45 days following the agreed upon
payment schedules for any outstanding balances as provided for in the
Statement of Work;
(c) Client engages in conduct making it illegal for Developer to
provide the Deliverables in accordance with this Agreement;
(d) Client breaches any of its other representations,
warranties, covenants or agreements set forth herein and such breach
continues uncured for 30 days after notice of such breach is first given.
5.03 TERMINATION. Upon the termination of this Agreement,
(a) Client shall pay Developer for all work undertaken in
performance of the Statement of Work up to the date of termination, unless
such amount or amounts are disputed by Client. Such payment is due upon
Developer's submission of an invoice that reasonably documents the extent
to which performance of the Statement of Work was completed through such
date of termination.
(b) As contemplated by Section 3.01(c), Developer shall deliver
to Client the source code, object code test plans, test cases, test code,
design documents, project plans, functional specifications, documentation
of source code, build instructions, install instructions, and all other
related documentation within fifteen (15) days of the date of termination.
Such source code and object code shall be in form suitable for Client's
use, including modification thereof or derivation of derivative works.
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ARTICLE VI - MISCELLANEOUS PROVISIONS
6.01. NO ASSIGNMENT. This Agreement may not be assigned by either
party without the written consent of the other party hereto; provided,
however that either party may assign its rights or obligations under this
Agreement to any entity into which it is merged or to which all or a
substantial portion of its assets are sold, provided that such entity
agrees in writing to be bound by the terms and conditions hereof to the
same extent as such party. Subject to the foregoing provision, this
Agreement shall be binding upon and the benefits hereof inure to the
benefit of each party's permitted assigns and successors.
6.02. NOTICES. All communications under this Agreement shall be in
writing and shall be deemed to have been duly given (i) upon personal
delivery or (ii) upon delivery by a nationally or internationally
recognized courier, to the address set forth after the signatures to this
Agreement or such other address as either party may specify to the other by
notice sent in accordance with this Section 6.02.
6.03. WAIVER. No provision of, right, power or privilege under
this Agreement shall be deemed to have been waived by any act, delay,
omission or acquiescence on the part of either party, its agents, or
employees, but only by an instrument in writing signed by an authorized
officer of each party. No waiver by either party of any breach or default
of any provision of this Agreement by the other party shall be effective as
to any other breach or default, whether of the same or any other provision
and whether occurring prior to, concurrent with, or subsequent to the date
of such waiver.
6.04. CHOICE OF LAW, JURISDICTION AND VENUE. This Agreement shall
be governed by and construed in accordance with Colorado law, without
regard to its choice of law provisions. In event of any failure of the
arbitration provision hereof, jurisdiction and venue shall be in the
District Courts of the City and County of Denver, Colorado.
6.05. BINDING ARBITRATION. All disputes or controversies arising
under this Agreement shall be subject to binding arbitration, initiated by
one party giving written notice thereof to the other party. Arbitration
shall be conducted pursuant to the rules then in effect of the American
Arbitration Association, in Denver, Colorado. The prevailing party may
seek an arbitral award of reasonable costs, including attorneys' fees,
incurred in the arbitration. Arbitral awards are enforceable in any court
of competent jurisdiction.
6.06. SURVIVAL. Notwithstanding the termination of this Agreement
for whatever reason, Sections 2.08, 2.09, Articles III, IV,V and VI of this
Agreement shall survive such termination and remain in full force and
effect.
6.07 ENTIRE AGREEMENT. This Agreement, including any exhibits,
Statements of Work, and addenda (a) constitutes the entire agreement of the
parties hereto with respect to the subject matter
11
<PAGE>
hereof and supersedes all prior understandings and agreements, whether
written or oral, as to such subject matter and (b) may be amended only by
a writing executed by each of the parties hereto.
6.08. NO AGENCY RELATIONSHIP. No party hereto is authorized to
act as the agent, employee, partner, co-joint venturer, or associate of any
other party. No party hereto is authorized to act for or in the name of
any other party, or to obligate such other party in any manner.
6.09. NON-RECRUITMENT. No party shall recruit or otherwise
attempt to employ the employees of any other party, during the term of this
Agreement, and for one year following the termination of this Agreement.
6.10 HEADINGS. Captions and headings contained in this Agreement have
been included for ease of reference and convenience and shall not be
considered in interpreting or construing this Agreement.
6.11. COUNTERPART AND FACSIMILE EXECUTION. This Agreement may be
executed in counterpart duplicate originals. Execution may be effected by
exchange of facsimiles, followed by delivery of hard copies.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement,
effective as of the first date above written.
Addresses: DEVELOPER:
- ---------
6 East Street, Suite 200
Frederick, Maryland 21701 THE AUGUST GROUP, INC., a Delaware
Corporation
By: /s/
President & CEO 2/28/2000
------------------------------------
(name and title)
CLIENT:
8245 W. 1-25 Frontage Rd, Suite 4
Erie, Colorado 80516 N-GENSOLUTIONS.COM, INC., a
Delaware Corporation
By: /s/
VP of Operations
-----------------------------------
(name and title)
13
EXHIBIT 10.4
INGRAM
MICRO(R) Content Agreement-Tech Notes I & II
LEADING THE WAY IN WORLDWIDE DISTRIBUTION
THIS AGREEMENT ("Agreement") dated as of September 2, 1999 is by and
between Ingram Micro Inc. ("Ingram"), a Delaware corporation having an
address at 1800 East Saint Andrew Place, Santa Ana, California 62705-4926,
and Lab Technologies having an address at 8245 West 1-25 Frontage Road,
Suite 4, Erie, CO 80516 ("Reseller").
The parties agree as follows:
1. DELIVERY AND LICENSE. Pursuant to this Agreement, Ingram may provide
Reseller data and information, which may include text, music, video,
drawings and photographs that may be updated from time to time, regarding
Tech Notes I & II (collectively "Content") for use by Reseller including
but not limited to, display via the WORLD WIDE WEB, CD-ROM disk, and other
electronic media. Ingram hereby grants Reseller a nonexclusive, limited,
worldwide license to use and display to End Users the Content. Reseller
may, at its discretion, make minor additions or minor changes to data from
the Content but Reseller is not authorized to alter Content data or the
facts or data structure thereof. Any use, distribution, display or
transmission not expressly authorized in this Section 1 or to other than
Reseller's and users is a material breach of the Agreement and Ingram may
seek all available remedies at law and in equity.
2. USE. Reseller agrees that whether or not Ingram owns all proprietary
rights in materials and data comprising the Content, Ingram owns the
copyright in the selection coordination, enhancement, arrangement, and
computation of the Content, including the fields and data structures
thereof. Reseller will not use, reproduce, display, transmit or
restructure the Content or the selection, coordination, announcement,
arrangement, or compilation of such Content or the fields and data
structures thereof accept as expressly authorized pursuant to Section 1.
3. WARRANTIES. Ingram warrants that it either is the owner of all
applicable rights necessary to provide the Content to Reseller or has
acquired all such necessary rights and permission from the owner(s) of
those rights. Ingram does not warrant that the distribution of the Content
will be uninterrupted or error time. Ingram shall not be responsible for
screening, editing, or monitoring the Content prior to its delivery to
Reseller.
4. NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, INGRAM MAKES NO OTHER WARRANTIES AND RESELLER ACKNOWLEDGES THAT
THE CONTENT IS DISTRIBUTED "AS IS." INGRAM HEREBY SPECIFICALLY DISCLAIMS
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE
CONTENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE.
5. LIMITATION OF LIABILITY. EXCEPT AS OTHERWISE PROVIDED HEREIN, UNDER
NO CIRCUMSTANCES SHALL INGRAM BE LIABLE TO THE RESELLER OR ANY THIRD PARTY
FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN
IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING
FROM THE USE OR INABILITY TO USE THE CONTENT, OR ANY OTHER PROVISIONS OF
THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO LOSS OF REVENUE, ANTICIPATED
PROFITS OR LOST BUSINESS.
6. INDEMNITY. Each party will defend, indemnify, save and hold harmless
the other party and the officers, directors, agents, affiliates,
distributors, franchises and employees of the other party from any and all
third party claims, demands, liability, cost or expenses, including
reasonable attorney's fees ("Liabilities") resulting from the indemnifying
party's material breach of any duty, representation, or warranty of this
Agreement, except where Liabilities result from the gross negligence or
knowing and willful misconduct of the other party.
7. TERM AND TERMINATION. This Agreement shall be effective from the
Commencement Date for a period of one (1) year and shall automatically
renew on the anniversary unless terminated by written notice of either
party thirty (30) days prior to the expiration. Either party may terminate
this Agreement without cause upon thirty (30) days written notice to the
other party. Ingram may terminate this Agreement immediately for cause
upon written notice which notice will include a ten (10) day opportunity to
cure. Upon termination Reseller shall immediately cease all use and
display of the Content and upon request by Ingram promptly return all
software, materials and documentation embodying or relating to the Content.
8. FEES. Reseller agrees to pay Ingram a one-time License fee of One
Thousand Dollars ($1,000.00) due and payable thirty (30) days after invoice
date.
9. GOVERNING LAW. The validity, construction, and performance of this
Agreement will be governed by the substantive law of the State of
California, not including its law of conflicts of law, if any provision of
this Agreement is held by a court of competent jurisdiction to be illegal,
invalid, unenforceable, or otherwise contrary to law, the remaining
provisions of this Agreement shall remain in full force and effect.
10. ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other unless that assignment
occurs in connection with the acquisition of substantially all of a party's
assets or by reason of a merger or corporation reorganization.
11. INDEPENDENT CONTRACTOR. The parties hereto hereby agree that in the
performance of their respective obligations hereunder, they are, and shall
be, independent contractors and not agents of each other.
12. WAIVER. The failure of either party to enforce or to exercise, at any
time or for any period of time, any term of or any right arising pursuant
to this Agreement does not constitute, and will not be construed as, a
waiver of such term or right, and shall in no way affect that party's right
later to enforce or exercise it.
13. CONFIDENTIAL INFORMATION. Each party acknowledges that confidential
information may be disclosed to the other party
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20-036556 Confidential
<PAGE>
during the course of this Agreement. Each party agrees that it shall take
reasonable steps, at least substantially equivalent to the steps it takes
to protect its own proprietary information (at all times executing at least
reasonable care), during the period this Agreement is in effect, and for a
period of three (3) years following expiration or termination of this
Agreement to prevent the duplication or disclosure of confidential
information to others than by or to employees or agents who must have
access to the confidential information to perform such party's obligations
hereunder.
14. NOTICES. All notices or other communications required to be given
hereunder shall be in writing and delivered either personally or by mail or
overnight courier to the parties at the address provided to each party
below, unless such address has been changed in accordance with this
provision. All notices so mailed shall be deemed received two (2) days
after postmark date.
15. ENTIRE AGREEMENT. The provisions of this Agreement or other
Agreements authorizing Reseller to use the content constitute the entire
Agreement between the parties as to the subject matter hereof. No
amendment, modification, or waiver of any provision of this Agreement shall
be effective unless it is set forth in writing that refers to the Agreement
and provisions so affected and as secured by authorized representatives of
each party.
- --------------------------------------------------------------------------
Agreed as of the Commencement Date stated above.
"Reseller" "Ingram"
Lab Technologies Ingram Micro Inc.
8245 West 1-25 Frontage Road, Suite 4 1800 East St. Andrew Place
Erie, CO 80516 Santa Ana, CA 62705
By: /s/ JOSEPH H. FORD By:
------------------------- --------------------------
Name: Joseph H. Ford Name: Gary Wingo
------------------------- --------------------------
Title: e-Commerce Manager Title: Vice President, eSolutions
------------------------- --------------------------
Date: October 28, 1999 Date:
------------------------- --------------------------
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20-036556 Confidential
<PAGE>
INGRAM
MICRO(R) ELECTRONIC DATA TRANSFER AGREEMENT
LEADING THE WAY IN WORLDWIDE DISTRIBUTION
THIS AGREEMENT ("Agreement") dated as of September 2, 1999 is by and
between Ingram Micro Inc. ("Ingram"), a Delaware corporation having an
address at 1800 East Saint Andrew Place, Santa Ana, California 62705-4926,
and Lab Technologies having an address at 8245 West 1-25 Frontage Road,
Suite 4, Erie, CO 80516 ("Licensee").
In consideration of the mutual promises contained herein, Ingram and
Licensee agree as follows:
1. INFORMATION AND SOFTWARE DEFINED. Ingram shall provide to Licensee
product pricing, descriptions and/or availability information in the
form of electronic reports and real time queries, any and all such
agreed upon information and reports and parts thereof when pertain to
the Licensee and set-up documentation hereinafter referred to as the
"Information." Ingram shall also provide one (1) copy of the RPC
software for Licensee's internal use only ("Software").
2. LICENSE TO USE. Ingram hereby grants Licensee a limited, non-exclusive,
non-assignable license to use the Information and Software
for Licensee's internal sales and pricing analysis and/or to provide
real-time price (cost) and availability information to present to the
internet to Licensee's and customers, for use only in price and
availability queries and /or purchases from Ingram and for no other
purpose. All information will be sent via inside line.
Notwithstanding the above, the Licensee may assign its right to use
the Information and Software to a third party, independent consultant
with whom it has contracted, provided that Ingram is notified of
Licensee's intent to sub-license the Information or Software and
Ingram grants such assignment in writing.
3. TERM AND TERMINATION. The term of this Agreement shall commence on
the date indicated above and shall continue until Licensee ceases to
be a customer of Ingram, subject to Ingram's right to terminate this
Agreement at any time upon thirty (30) days written notice, or
immediately upon Licensee's breach of this Agreement. Upon
termination, Licensee agrees to immediately return all information
and/or Software, including any copies thereof regardless of form, to
Ingram, or if Ingram so requests, to certify to Ingram that all
Information and Software and copies have been destroyed.
4. COPYRIGHTS. Licensee acknowledges that the Information and Software
are the property of Ingram and that the granting of a license to use
the Information and Software hereunder shall in no way constitute or
be construed as a grant of any proprietary interests or copyrights in
the Information or Software. Licensee agrees that it will not copy,
scan, duplicate or reproduce any of the Information or Software in any
manner whatsoever, except that Licensee shall be permitted to create
additional copies of the Information for its internal use only and as
permitted under Section 2.
5. NON-DISCLOSURE. Licensee agrees to hold in confidence and not to
directly or indirectly use, reveal, report, publish, disclose or
transfer to any other person or entity any of the Information, or
utilize any of the Information or Software for any purpose at any time
except as permitted under Section 2. Licensee shall have the right to
disclose the Information and Software to employees of Licensee and any
Ingram authorized independent contractor to the extent necessary to
perform tasks directly related to the permitted uses; provided,
however, that the Licensee shall take steps to ensure that such
persons conduct themselves so as to preserve the confidentiality of
the Information and Software, whether or not such Information and
Software is marked as confidential. The obligations stated in this
Paragraph 5 shall survive the termination of this Agreement for a
period of two (2) years.
6. REMEDY IN EVENT OF UNAUTHORIZED DISCLOSURE OF USE. Because of the
unique and proprietary nature of the Information and Software, it is
understood and agreed that Ingram's remedies at law for breach by
Licensee of its obligations under this Agreement will be inadequate
and that Ingram shall, in the event of such breach by Licensee, be
entitled to equitable relief (including, without limitation,
injunctive relief and specific performance) without any requirement to
post a bond as a condition for such relief, in addition to all other
remedies under this Agreement or available at law.
7. DISCLAIMER OF LIABILITY. INGRAM MAKES NO WARRANTY, EITHER EXPRESS OR
IMPLIED ON THE SOFTWARE OR INFORMATION. ALL INFORMATION AND SOFTWARE
ARE PROVIDED TO LICENSEE "AS IS." INGRAM HEREBY DISCLAIMS ANY AND ALL
WARRANTIES, EXPRESS AND IMPLIED, RELATING TO THE SOFTWARE AND
INFORMATION INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTY OF
MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE.
8. LIMITATIONS OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL INGRAM BE
LIABLE TO THE LICENSEE OR ANY THIRD PARTY FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM THE USE
OR INABILITY TO USE THE SOFTWARE OR INFORMATION, OR ANY OTHER
PROVISIONS OF THIS AGREEMENT,
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<PAGE>
SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE, ANTICIPATED PROFITS OR LOST
BUSINESS.
9. INDEMNIFICATION. Licensee shall indemnify, defend and hold harmless
Ingram from and against any claims, actions, damages, demands,
liabilities, costs and expenses (including reasonable attorney's fees)
resulting from any act or omission of Licensee or Licensee's
independent contractor under this Agreement.
10. ADDITIONAL PROVISIONS. This Agreement shall be governed by the laws
of the State of California. This Agreement contains the full and
complete understanding of the parties with respect to the subject
matter hereof and supersedes all prior representations or
understanding, whether oral or written. Notwithstanding the
termination or expiration of any other agreement between the parties,
the obligations created hereunder shall continue indefinitely. As
information and Software shall only be used within the fifty United
States, export is not permitted.
Agreed as of the date first written above.
"Reseller" "Ingram"
Lab Technologies Ingram Micro Inc.
8245 West 1-25 Frontage Road, Suite 4 1800 East St. Andrew Place
Erie, CO 80516 Santa Ana, CA 62705
By: By:
------------------------- --------------------------
Name: Name: Gary Wingo
------------------------- --------------------------
Title: Title: Vice President, eSolutions
------------------------- --------------------------
Date: October 28, 1999 Date:
------------------------- --------------------------
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20-036556 Confidential
EXHIBIT 10.5
DISCREET AUTHORIZED EDUCATIONAL RESELLER AGREEMENT
(United States)
This Educational Reseller Agreement ("Agreement") effective on
December 1, 1999 ("Effective Date") is made between Discreet (Discreet), a
division of Autodesk, Inc., a Delaware corporation ("Discreet"), and the
reseller set forth below ("Reseller").
Reseller Design Technologies
Address 8245 W. 1-24 Frontage Road, #4
City Erie, CO 80516
FAX 303-449-2181
SAP 0070001215
1. DEFINITIONS
1.1 "ANNUAL BUSINESS PLAN" shall mean detailed sales and marketing plan
for the Educational Software products, which shall be incorporated by
reference as part of this Agreement.
1.2 "AUTHORIZED EDUCATION INSTITUTION" shall mean a public or private
organization in the business of teaching or training people other than
their own employees strictly for Educational Use. Discreet categorizes
Authorized Educational Institutions in four sub-markets: "K-12" for
Kindergarten through high school. 2) "Four-year Colleges" for accredited
colleges and universities offering bachelors and advanced degrees. 3) "Two-
year Colleges" for accredited institutions offering certificates and
degrees beyond high school and below a bachelor's degree, and 4) "Career
Colleges" for private, for-profit, accredited institutions offering
certificates and degrees in programs lasting at least one year.
1.3 "AUTHORIZED EDUCATION MARKETS" shall mean Authorized Educational
Institutions, their faculty, staff or Authorized Students.
1.4 "AUTHORIZED EDUCATIONAL PRODUCTS" shall mean the Educational Software
Product(s) which (a) Reseller has procured from Discreet in accordance with
this agreement, and (b) Reseller is authorized to market and distribute to
End Users only in accordance with the Product Requirements Sheet which
corresponds to such Educational Software Products(s).
1.5 "AUTHORIZED LOCATION" shall mean such physical location where Reseller
is unauthorized to market and distribute Educational Software Products to
End Users, as identified in the Product Requirements Sheet concerning such
Educational Software Products.
1.6 "AUTHORIZED STUDENT" shall mean a full-time student attending an
Authorized Educational Institution in accordance with Discreet's
certifications and purchase agreements, policies and procedures.
1.7 "AUTHORIZED TERRITORY" shall mean the United States and any
geographical area, identified in the Product Requirements Sheet, within
which Reseller is authorized to market, distribute, and support the
Authorized Educational Products corresponding to such Product Requirements
Sheet.
1.8 "CO-OP FUNDS" shall mean funds, which are made available to Reseller
for the promotion of Educational Software Products, under the terms of this
Agreement.
1.9 "EARNBACKS" shall mean rebates that Reseller shall receive, under the
terms of this Agreement, upon the achievement of Reseller's Target.
<PAGE>
1.10 "EDUCATIONAL SOFTWARE PRODUCT" shall mean the then-current educational
product offerings of Discreet, its subsidiaries and affiliates, and any
Upgrades, Bug Fixes, or Enhancements thereto.
1.11 "EDUCATIONAL USE" shall mean for instructional use by End Users and
for the management of the Authorized Educational Institution's facilities
only. Educational Software Product cannot be used in production for
commercial revenue generating activities or activities for which someone
would normally receive compensation.
1.12 "END USER" shall mean an educational institution, student, faculty or
staff member as stated in the Product Requirements Sheet and Exhibits, who
is licensing one or more Educational Software Products for Educational Use
only.
1.13 "END USER LICENSE" shall mean the then-current license agreement
shipped with, or incorporated in, each Educational Software Product, which
sets forth the terms and conditions under which an End User may use such
Educational Software Product.
1.14 "PRODUCT REQUIREMENTS SHEET" shall mean a written amendment to the
agreement executed by the parties which sets forth the terms and conditions
under which Reseller is authorized to market, distribute, and support on or
more Educational Software Products to End Users. Reseller may not market
or distribute any Educational Software Product to End-Users until the
parties have executed a Product Requirements Sheet corresponding to such
Educational Software Products. Reseller must continuously meet the
requirements set forth in the Product Requirements Sheet for each
Authorized Location in which Reseller intends to market, distribute, and
support the Educational Software Products corresponding to such Product
Requirements Sheet.
1.15 "STUDENT MARKET" shall mean sales to individual students, staff or
faculty.
1.16 "TARGETS" shall mean the revenue and other performance targets as
specified in the Product Requirement Sheets.
1.17 "UPDATES, BUG FIXES, AND ENHANCEMENTS" collectively shall mean
additions or corrections to any Educational Software Product which (a)
Discreet designates to be a modified or upgraded version of such
Educational Software Product, and (b) requires the End User to whom it is
distributed to have previously licensed the Educational Software Product
corresponding to such modified or upgraded version.
1.18 All references in this Agreement to the "sale" of or "selling" or
"purchase" of Software shall mean the sale or purchase of a license to use
such Software.
2. APPOINTMENT
2.1 NONEXCLUSIVE EDUCATIONAL RESELLER. Discreet appoints Reseller as a
nonexclusive educational reseller to market, distribute and support only
the Authorized Educational Products identified on one ore more Product
Requirements Sheet(s), solely to End Users within the Authorized Territory,
pursuant to an End User License Agreement.
2.2 RETENTION OF RIGHTS BY DISCREET. Discreet reserves the unrestricted
right (a) to market, distribute, and support any Discreet Software Product
worldwide in any location, including in the Authorized Territory, directly
to End Users or through any other channel, including, but not limited to,
original equipment manufacturers, value added resellers, distributors,
resellers, or retail outlets, and (b) to modify, augment, or otherwise
change the methods in which Discreet markets, distributes, or supports any
Educational Software Product, without any liability to Reseller.
2.3 RESTRICTIONS. Reseller agrees as follows:
(a) Reseller shall use its best efforts to enforce the terms of the End
User License Agreement and to advise Discreet promptly of any known breach
of the terms of the End User License Agreement or this Agreement.
2
<PAGE>
Reseller shall not distribute copies of any Discreet Software Product that
is marked "Not for Resale" or otherwise provided to Reseller for
demonstration purposes only ("NFR(s)").
(b) Reseller shall not market, distribute, or support any Discreet
Software Product to or for any third party other than an End User.
Reseller expressly acknowledges and agrees that Reseller is not a Discreet
distribution partner and further acknowledges and agrees that the
distribution rights granted under this Section 2 may not be construed so as
to allow Reseller to market or distribute Educational Software Products to
any person or entity other than an End User. This restriction
notwithstanding, Reseller may permit the financing of any Educational
Software Products by an End user through a financial institution, approved
by Discreet. Such financing shall be restricted to a loan arrangement or
permitting an End User to enter into a buy-out lease, provided however,
such financial institution shall not be an End User and shall have no
rights to such product as a licensee thereof. In any event, this consent
shall not be construed to permit short-term rental of Educational Software
Products.
(c) Reseller shall not purchase, license or otherwise acquire or attempt
to acquire licenses for Educational Software Products from (i) an End User,
(ii) an agent acting on behalf of an End User, or (iii) any person or party
other than Discreet or a Discreet Distribution Partner.
(d) Reseller shall not attempt to upgrade, exchange, or otherwise procure
an economic benefit from any Educational Software Product purchased,
licensed, or otherwise acquired from (i) an End User, (ii) an agent acting
on behalf o fan End User, or (iii) any person or party other than Discreet
or a Discreet Distribution Partner.
(e) Reseller shall not attempt to mischaracterize an Update, Bug Fix, or
Enhancement as a stand-alone, fully paid-up license to the corresponding
Educational Software Product for the purpose of attempting to upgrade,
exchange, or otherwise procure an economic benefit from such update, Bug
Fix, or Enhancement.
(f) Reseller shall not market, distribute, or support any Educational
Software Product (i) to any entity purporting to be an End User but which
is either known to Reseller or known to Discreet and communicated to
Reseller, to have the intent to, or have attempted to, sublicense such
Educational Software Products to bona fide End users or other third
parties, (ii) to any End User or third party who indicates an intention to
use the Educational Software Product for other than Educational Usage,
(iii) or to any End User or other third party who intends to export the
Educational Software Products, without authorization from Discreet.
(g) Reseller shall not attempt to market or distribute restricted
Educational Software Products other than in the Authorized Territory,
unless authorized by Discreet in writing. Any advertising, including but
not limited to, trade magazine and Web based advertising, which will be
seen by customers outside of Reseller's Authorized Territory, must contain
a disclaimer notifying such customers that Reseller may not sell to
customers outside of Reseller's Authorized Territory. Reseller shall
refrain from marketing or promoting, in any manner, any Educational
Software Product other than the Authorized Products(s).
(h) In addition to all other remedies available to Discreet under law or
equity or this Agreement, in the event that Reseller violates any of the
provisions of subsections 2.3(a)-(f) herein, Reseller shall pay to
Discreet, as liquidated damages and not as a penalty, an amount equal to
the difference between the then-current Discreet suggested retail price and
the price Reseller actually paid for the Educational Software Product used,
procured or distributed in contravention of this Section 2.3. In the event
that Reseller violates the provisions of subsections 2.3(g), Reseller shall
pay to Discreet, as liquidated damages and not as a penalty, the sum of
$500.00 for each copy of Educational Software Product the Reseller wrongly
sold or distributed. Furthermore, Discreet may terminate this agreement
for numerous or repeated violations of subsections 2.3(a-g).
2.4 REPORTING. Reseller, at its own expense and in the format requested
by Discreet, shall provide the following reports:
(a) SELL THROUGH REPORTS. Reseller shall maintain complete and accurate
records concerning each and every Authorized Product distributed to an End
User in accordance with this Agreement, including the name, phone number,
fax number, and address of each such End User, the serial number of each
Educational Software Product licensed to such End User, the Authorized
Location from which such product was distributed, the date of the
3
<PAGE>
transaction, and end-of-month inventory for each Authorized Product.
Reseller shall provide the Discreet sales office with written reports
including the above referenced information within fifteen (15) days of the
end of each calendar month during the term of this Agreement, and shall
also provide Discreet with such information promptly at other times upon
reasonable request of Discreet.
(b) FORECASTS. Reseller shall provide Discreet with monthly forecasts,
via e-mail, setting forth the numbers of copies of each Authorized Product
held in inventory by Reseller, and the numbers of copies of each Authorized
Product which Reseller expects to distribute to End Users in the ninety
(90) day period following the date of the report. Reseller also agrees,
upon the request of Discreet, to provide Discreet with market research
information regarding competition and changes in the market.
2.5 AUDIT RIGHTS. Discreet, in its sole discretion, not more than once
each Discreet fiscal quarter, may conduct an audit of the financial and
other records of Reseller for the purpose of validating or augmenting the
Reseller reports identified in Section 2.4 above and otherwise ensuring
that Reseller is complying with the terms of this Agreement. Such audits
shall be conducted at Reseller's sites during normal business hours upon
reasonable notice to Reseller. Discreet shall bear the cost of such audit,
unless Discreet determines that 9a) Reseller has underpaid Discreet by more
than five percent (5%) for any Discreet fiscal quarter or year, or (b)
Reseller has failed to disclose a material breach of an End User License
Agreement or of this Agreement.
2.6 ADDITIONAL RESELLER DUTIES. Reseller agrees to perform all of the
following obligations in good faith:
(a) PRODUCT REQUIREMENTS SHEETS. Each Authorized Location of Reseller
shall continuously comply with the specific requirements ("Product
Requirements") set forth in each Product Requirements Sheet.
(b) APPROVALS. Reseller shall obtain and maintain at its own expense all
approvals, consents, permissions, licenses, and other governmental or other
third party approvals necessary to enable Reseller to market, distribute,
and support the Products for which reseller is authorized in accordance
with this Agreement. Reseller shall comply with all applicable federal,
state, county, and local laws, statutes, ordinances, and regulations, which
apply to the activities of Reseller.
(c) MARKETING ACTIVITIES. Reseller shall use its best efforts to actively
market, promote, and distribute, at Reseller's expense, the Authorized
Products only within the Authorized Territory under the terms of this
Agreement and the Product Requirement Sheet(s). All sales and marketing
activities shall be defined in the Annual Business Plan.
(d) UPDATES, BUG FIXES, AND ENHANCEMENTS. Reseller, at its own expense,
shall be responsible for distribution and support of any updates and/or Bug
Fixes to any Educational Software Product which Reseller has licensed to an
End User promptly after delivery to Reseller of such Update or Bug Fix.
Discreet reserves the right to distribute Updates, Bug Fixes, and
Enhancements to End Users directly or through alternative channels,
including, but not limited to, electronic distribution. Reseller shall
promptly notify Discreet of any defect in any Discreet Software Product,
which is discovered by or reported to Reseller.
(e) CSC RESELLER POLICY AND PROCEDURE MANUAL AND AER ACCESS. Reseller
shall comply with all terms and conditions as set forth in the ten current
CSC Reseller Policy and Procedure Manual and AER Access. Failure to abide
by such policies and procedures shall be considered a material breach of
this agreement. Discreet reserves the right to modify such policies and
procedures at anytime.
(f) FULFILLMENT OF REBATE AND PROMOTIONAL COUPONS. From time to time
Discreet may run a promotion whereby End Users may receive a rebate or
promotional offer for Authorized Educational Products. Discreet appoints
Reseller as a non-exclusive agent for the fulfillment of rebate claims
("Rebate Claims") submitted by End Users for the various promotions
("Promotions"). Reseller shall pay to an End User who has submitted a
Rebate Claim the specified dollar amount as set forth on the Rebate Coupon,
according to the terms and conditions stated on the Rebate Coupon.
Reseller shall only pay End User for Rebate Claims, which have been
received for the Promotions for which Reseller has been authorized by
Discreet. Reseller shall pay a rebate to End User only if the Rebate
Coupons have been completely filled out by the End User, if all required
documentation is attached, and the
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Rebate Claim was postmarked or received prior to the expiration date
printed on the Rebate Coupon, unless otherwise instructed by Discreet.
After submission of all required End User documentation by Reseller to
Discreet, Discreet shall credit Reseller's account for the amount of the
Rebate Coupon.
(g) ANNUAL BUSINESS PLAN. On a yearly basis Discreet will require that
each Reseller write an Annual Business Plan to setting forth Reseller's
sales activities, marketing events and activities, dedicated personnel,
shared personnel, and financials. The purpose of the Annual Business Plan
is to establish an agreement on how to achieve Discreet and Reseller
targets, increase customer satisfaction and meet return on investment
criteria. An approved Annual Business Plan must be on file with Discreet
Education Management and Discreet Regional Sales Management upon the
execution of this Agreement. Reseller's authorizations under this
Agreement shall not be valid without an approved Annual Business Plan.
3. RESELLER ORDERS AND PAYMENT TERMS
3.1 PRICES AND ORDERS. The prices applicable to Reseller shall be the
prices reflected on the then current Reseller Price List. Discreet may
change prices and discounts at any time effective thirty (30) days after
publication of a new Educational Price List or other similar notice to
Reseller. All prices are F.O.B. or Free Carrier Discreet's manufacturing
plant. Purchase orders must be in writing (including facsimile, telex,
telecopy or electronic communication such as email, but only if such form
of electronic communication has been previously agreed to by Discreet) and
must request a delivery date during the term of this Agreement. Discreet
reserves the right to accept or reject orders, in whole or in part, and
shall make reasonable commercial efforts to advise Reseller promptly of any
order rejected hereunder. Upon acceptance by Discreet, purchase orders
shall be binding as to the products and services ordered and placed of
delivery, but not as to any other term appearing on such purchase order.
Discreet reserves the right to reject any order or to cancel any order
previously accepted if Discreet determines that Reseller is in default
under this Agreement.
3.2 TAXES. Reseller shall be responsible for the payment of all federal,
state, county, or local taxes, fees, and other charges, including all
applicable income and sales taxes, including penalties and interest, with
respect to the Educational Software Products.
3.3 PAYMENT. Payment shall be in advance of or upon delivery unless
credit has been arranged with Discreet, in which case Discreet shall submit
an invoice to Reseller upon shipment of an order or partial order. If
Discreet elect to grant credit to Reseller, all invoiced amounts shall be
due and payable net (30) days from the date of invoice. If Reseller fails
to pay any invoiced amounts when due, Discreet may at its discretion, and
in addition to any other remedies, revoke or suspend Reseller's credit
terms, require further assurances from Reseller that such invoiced amounts
shall be paid, or require Reseller to prepay for all Authorized Educational
Products ordered. Overdue amounts shall be subject to a late payment
charge of one and one-half percent (1.5%) per month, or the legal maximum,
whichever is less.
3.4 SHIPMENT. Discreet will ship orders to the address designated in
Reseller's purchase order F.O.B. or Free Carrier Discreet's manufacturing
plant, at which time risk of loss shall pass to Reseller. All freight,
insurance, customs duties, and other shipping expenses shall be paid by
Reseller.
3.5 AER SALES TOOK KIT CHARGE. Reseller shall purchase from Discreet at
the then current price, each year this Agreement is in force, one AER Sales
Took Kit per authorized location which includes not for resale copies of
the certain Authorized Educational Products and certain marketing material
as deemed appropriate by Discreet.
4. COMMISSIONS, EARNBACKS AND CO-OP FUNDS.
4.1 COMMISSION. Reseller may receive a commission on direct sales of
Authorized Products to End Users by Discreet, provided that Reseller is
authorized to sell such products and Reseller complies with all terms and
conditions for receiving a commission, as set forth in the then current
documentation (including but not limited to the Autodesk Comprehensive
Educational Solution Agreement ("ACES")).
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4.2 EARNBACK FUNDS. Reseller shall receive an Earnback of two percent
(2%) of Resellers quarterly Authorized Educational Product purchases in the
event Reseller achieves one hundred percent (100%) of Reseller's quarterly
Target. Reseller shall receive an additional two percent (2%) of Resellers
quarterly Authorized Educational Product purchases in the event Reseller
achieves one hundred and ten percent (110%) of Reseller's quarterly Target.
Earnbacks due shall be credited to Reseller's account with Discreet thirty
(30) days after the last day of the Discreet fiscal quarter. Targets shall
be assigned to Reseller by Discreet for each quarter, in writing. Targets
shall be based upon actual sales by Reseller to End Users only. In the
event that Reseller has returns of Discreet Educational Software Products
in excess of the allowable percentage of returns for that quarter, Reseller
shall not be entitled to Earnbacks for such quarter and any Earnbacks
credited to Reseller's account shall be debited. Reseller shall be
notified, in writing, of the allowable return percentage for any quarter at
least thirty (30) days prior tot he end of that quarter.
4.3 CO-OP FUNDS. Reseller's discount on Authorized Educational Product
purchases includes a two percent (2%) discount, which are designated as Co-op
funds. Co-op funds shall be used as funding for local sales and
marketing activities approved in the current Business Plan.
5. TRADEMARKS. During the term of this Agreement, Reseller shall have a
nonexclusive, nontransferable right to indicate to the public that it is a
Discreet authorized educational reseller and to advertise the Discreet
Educational Software Products within the United States under the trademarks
and slogans adopted by Discreet from time to time ("Trademarks").
Reseller's use of the Trademarks in any literature, promotion, or
advertising shall be in accordance with Discreet guidelines for such usage.
Reseller shall not contest, oppose, or challenge Discreet's ownership of
the Trademarks. All representations of Discreet Trademarks that Reseller
intends to use shall be exact copies of those used by Discreet, or shall
first be submitted to the appropriate Discreet personnel for approval of
design, color, and other details, and such approval shall not be
unreasonably withheld. If any of the Discreet Trademarks are to be used in
conjunction with another trademark on or in relation to the Software, then
the Discreet Trademarks shall be presented equally legibly, equally
prominently, but nevertheless separated from the other so that each appears
to be a trademark in its own right, distinct from the other mark.
Effective upon the termination of this Agreement, Reseller shall cease all
usage of Discreet Trademarks and shall remove all such Trademarks.
6. TITLE AND PROPRIETARY RIGHTS. The Education Software Products, and
other materials included in or incorporated in the Discreet Education
Software Products ("Materials") remain at all times the property of
Discreet. Reseller acknowledges and agrees that Discreet holds the
copyright to the Discreet Educational Software Products and, except as
expressly provided herein, Reseller is not granted any other right or
license to patents, copyrights, trade secrets, or trademarks with respect
to the Materials. Reseller shall take all reasonable measures to protect
Discreet's proprietary rights in the Materials and shall not copy, use or
distribute the Materials, or any derivative thereof, in any manner or for
any purpose, except as expressly authorized in this Agreement. Reseller
shall not disassemble, decompile, or reverse-engineer any Discreet Software
Product, including the Materials, or otherwise attempt to discovery any
Discreet trade secret or other proprietary information. Reseller
acknowledges that Discreet has an Anti-Piracy Program and Reseller agrees
to review and follow the Anti-Piracy Program Guidelines as published by
Discreet from time to time. Reseller shall notify Discreet promptly in
writing upon its discovery of any unauthorized use of the Discreet
Educational Software Products or infringement of Discreet's patent,
copyright trade secret, trademark, or other intellectual property rights.
Reseller shall not distribute any Discreet Software Product to any person
or entity if Reseller is aware that such person or entity may be involved
in potential unauthorized use of Discreet Educational Software Products or
other infringement of Discreet's proprietary rights.
7. CUSTOMER DATABASE. Reseller shall have access to Discreet's customer
database, which is Discreet confidential information. Reseller access to
such database shall be limited to customers with which Reseller has a pre-
existing business relationship.
8. SECURITY INTEREST. Reseller hereby grants to Discreet a security
interest in all of Reseller's inventory purchased from Discreet
("Reseller's Inventory"), all of Reseller's accounts receivable evidencing
any obligation to Reseller for payment for Authorized Products sold, and
all proceeds of any character, whether cash or non-cash, arising from the
disposition of Reseller's Inventory and accounts.
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9. WARRANTY AND LIMITATIONS OF WARRANTY. Discreet makes certain limited
warranties to the End User in the End User License Agreement and disclaims
all other warranties. RESELLER SHALL NOT MAKE ANY WARRANTY OR
REPRESENTATION ACTUALLY, APPARENTLY OR OSTENSIBLY ON BEHALF OF DISCREET.
EXCEPT FOR THE EXPRESS END USER WARRANTY REFERRED TO HEREIN, DISCREET MAKES
NO OTHER WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, BY STATUTE OR
OTHERWISE, REGARDING THE DISCREET EDUCATIONAL SOFTWARE PRODUCTS. DISCREET
EXPRESSLY EXCLUDES ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY OR NONINFRINGEMENT.
10. INDEMNITY
10.1 INFRINGEMENT INDEMNITY BY DISCREET. Discreet indemnify, hold
harmless, and defend, at its expense, Reseller from any which alleges that
any Discreet Software Product infringes a United States patent, copyright,
or trade secret, provided that Reseller promptly notifies Discreet in
writing of any claim, gives Discreet sole control of the defense and
settlement thereof, and provides all reasonable assistance in connection
therewith. If the Software is finally adjudged to so infringe, Discreet,
in addition to paying any judgment or damages, at its exclusive option, (a)
shall procure for Reseller the right to continue distribution of such
Discreet Software Product; (b) shall modify or replace such Discreet
Software Product with a non-infringing product; or (c) shall accept return
of the Discreet Software Product and refund the purchase price. Discreet
shall have no liability regarding any claim (i) arising out of the use of
the Discreet Software Product in combination with other products, or
modification of the Discreet Software Product, if the infringement would
not have occurred but for such combination, modification, or usage, or (ii)
for use of the Discreet Software Product which does not comply with the
terms of the End User License Agreement or this Agreement. THE FOREGOING
STATES RESELLER'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF
INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND.
11. LIMITATION OF LIABILITY. EXCEPT FOR CLAIMS UNDER THE INDEMNITY
SECTION 10 ABOVE, DISCREET'S LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR
THE ORDER OR DELIVERY OF ANY SOFTWARE SHALL NOT EXCEED THE PRICE PAID BY
RESELLER FOR THE DISCREET SOFTWARE PRODUCTS(S). IN NO EVENT SHALL DISCREET
BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR
ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES ARISING OUT OF
THIS AGREEMENT, HOWEVER CAUSED, WHETHER FOR BREACH OF CONTRACT, TORT,
(INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL THEORY, AND WHETHER OR NOT
DISCREET HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FUNDAMENTAL BREACH, BREACH OF
A FUNDAMENTAL TERM OR FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
12. CONFIDENTIALITY
12.1 CONFIDENTIAL INFORMATION. As used in this Agreement, Confidential
Information shall mean any information (a) designated as confidential
orally or in writing by either party hereto, (b) related to any Discreet
Software Product, (c) related to Discreet's business, or (d) other
information received by Reseller by virtue of Reseller's relationship with
Discreet including, but not limited to, product plans, product designs,
product costs, product prices, product names, finances, marketing plans,
business opportunities, personnel, research, development, or know-how.
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12.2 LIMITATIONS ON DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION. Each
party shall exercise reasonable care to prevent the unauthorized disclosure
of Confidential Information by employing no less than the same degree of
care employed by such party to prevent the unauthorized disclosure of its
own Confidential Information. Confidential Information disclosed under
this Agreement shall only be used by the receiving party in the furtherance
of this Agreement or the performance of its obligations hereunder. Neither
party shall disclose the terms of this Agreement to any third party without
the prior written consent of the other, except pursuant to a valid and
enforceable order of a court or government agency.
12.3 EXCEPTIONS. Confidential Information does not include information
which (a) is rightfully received by the receiving party from a third party
without restriction, (b) is known to or developed by the receiving party
independently without use of the confidential information, 9c) is or
becomes generally known to the public by other than a breach of duty
hereunder by the receiving party, or (d) has been approved for release by
written authorization of the receiving party.
13. TERM, RENEWAL, TERMINATION, AND OTHER REMEDIES
13.1 INITIAL TERM AND RENEWAL. This Agreement shall continue for the
period beginning on the Effective Date through January 31, 2001, unless
terminated earlier under the provisions of this Agreement.
13.2 TERMINATION FOR INSOLVENCY. Discreet may terminate this Agreement if
Reseller becomes the subject of a voluntary or involuntary petition in
bankruptcy or any proceeding relating to insolvency, receivership,
liquidation, or assignment for the benefit of creditors, if that proceeding
is not dismissed with prejudice within sixty (60) days after filling. In
addition to the foregoing, in the event Reseller either voluntarily files
for protection against its creditors under the United States Bankruptcy
Code or is the subject of an involuntary petition for bankruptcy, Reseller
agrees that Discreet shall be entitled to all rights to retain the benefits
of this Agreement which are set forth in 11 U.S.C. 365(n). No right
granted to Discreet under 11 U.S.C. 365 shall be deemed to have been waived
either expressly or by implication without a written agreement confirming
such waiver.
13.3 TERMINATION FOR BREACH. Either party may terminate this Agreement
upon notice if the other party breaches any material term or condition of
this Agreement.
13.4 TERMINATION FOR FAILURE TO MEET TARGETS. Failure by Reseller to meet
or exceed the quarterly and yearly Target shall be a material breach of
this Agreement and may result in Termination of this Agreement by Discreet.
13.5 TERMINATION FOR CONVENIENCE. Discreet may terminate this Agreement
for convenience upon sixty (60) days' written notice to Reseller.
13.6 BREACH OF OTHER AGREEMENTS WITH DISCREET. In the event Reseller has
other current reseller or agreements of any other type with Discreet
("Other Discreet Agreement"), the breach of any term of any such Other
Discreet Agreement may, at Discreet's option, be deemed a breach of this
Agreement and shall permit Discreet to terminate this Agreement in the same
manner as if a breach of the terms of this Agreement had occurred. Any
alleged breach by Discreet of any Other Discreet Agreement shall not be
deemed a breach of this Agreement by Discreet and shall not constitute
cause for termination by Reseller or support an allegation by Reseller of
damages under this Agreement.
13.7 TERMINATION FOR CUSTOMER DISSATISFACTION. Discreet is relying upon
Reseller acting in a professional and upstanding manner in its relationship
with all End Users. Discreet may perform customer satisfaction surveys to
evaluate Reseller's performance. Failure to attain a high level of
customer satisfaction shall be considered a material breach of this
Agreement and Discreet reserves the right to terminate Reseller in the
event that Discreet receives customer dissatisfaction complaints from End
Users, regarding Reseller.
13.8 EFFECT OF TERMINATION.
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(a) MONIES DUE AND PAYABLE. Notwithstanding any credit terms previously
established with Reseller or any other provision of this Agreement, upon
notice of a material breach pursuant to this Agreement or notice of
termination, all monies owed by Reseller to Discreet shall become due and
Reseller shall remit to Discreet such monies owed no later than thirty (30)
days after notice. Overdue amounts shall be subject to a late payment
charge of one and one-half percent (1.5%) per month, or the legal maximum,
whichever is less.
(b) FULFILLMENT OF RESELLER ORDERS. Upon delivery of notice of a material
breach or notice of termination of this Agreement, Discreet shall not be
obligated to fulfill any orders. Discreet shall not be obligated to
fulfill any orders received by Discreet subsequent tot he effective date of
termination. In Discreet's sole discretion, Discreet may continue to
fulfill orders provided that Reseller (i) submits prepayments for any such
order and (ii) pays all outstanding obligations to Discreet prior to any
shipment by Discreet.
(c) RETURN OR DEPLETION OF INVENTORY. Subject to the limitations set
froth below, upon termination, Discreet, at its sole discretion, may either
(i) repurchase all or any part of Reseller's inventory of Discreet
Educational Software Products at the price paid by Reseller to Discreet
and/or (ii) allow Reseller to continue to distribute those Discreet
Educational Software Products in inventory until the inventory is depleted,
subject to the terms and conditions set forth in this Agreement and
whatever additional terms and conditions may be imposed by Discreet.
Except as expressly set forth above, under no circumstances shall Reseller
be entitled to a refund for all or any portion of the Discreet Educational
Software Products in Reseller's inventory.
(d) RETURN OF MATERIALS. Within thirty (30) days after the termination of
this Agreement, Reseller shall return to Discreet at Discreet's expense all
Discreet Confidential Information, data, photographs, samples, literature
and sales aids, and any other property of Discreet then in Reseller's
possession.
(e) PARTIAL TERMINATION. Discreet, at its sole discretion, may exercise
its termination rights under this Section 13 solely with respect to one or
more Product Requirements Sheet(s), Authorized Locations, Authorized
Territories, or Authorized Educational Products, or with respect to any
Other Discreet Agreement terminated pursuant to Section 13.5 hereof, which
partial termination shall not affect this Agreement's application to the
remaining Product Requirements Sheet(s), Authorized Locations, Authorized
Territories, or Authorized Educational Products, or affect any remaining
part of any Other Discreet Agreement.
13.9 OTHER REMEDIES. In addition to the right to terminate this Agreement,
Discreet reserve all rights and remedies available to Discreet under law or
equity, including the right to seek damages and injunctive relief for
breach or threatened breach of this Agreement by Reseller.
13.10 ATTORNEYS' FEES. In any action brought to enforce the terms and
conditions of this Agreement, the prevailing party shall be entitled to
recover reasonable costs and attorneys' fees incurred in maintaining such
action.
13.11 SURVIVING PROVISIONS. The terms and conditions, which by their
nature should survive, shall survive and continue after termination of the
Agreement.
14. GENERAL PROVISIONS
14.1 ASSIGNMENT. Reseller acknowledges that Discreet is relying upon
Reseller's reputation, business standing, and goodwill under Reseller's
present ownership in entering into this Agreement. Accordingly, Reseller
agrees that its rights and obligations under this Agreement may not be
transferred or assigned and its duties may not be delegated directly or
indirectly without the prior written consent of Discreet. Reseller shall
notify Discreet promptly in writing of any change of ownership of Reseller
or of any sale of all or substantially all of Reseller's assets. Reseller
acknowledges that any change of ownership, sale of all or substantially all
of Reseller's assets, or attempted assignment by Reseller of this
Agreement, or any part thereof, without Discreet's prior written consent
may result in immediate termination of this Agreement by Discreet.
Discreet may assign or otherwise transfer its rights and obligations to
successors-in-interest (whether by purchase of stock or assets, merger,
operation of law, or otherwise) of that portion of its business related to
the subject matter hereof. Subject to the restrictions set forth in this
Section 14.1, all of the terms and conditions of this Agreement shall be
binding upon, insure to the benefit of, and be enforceable by the
respective successors and permitted assigns of the parties hereto.
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14.2 VENUE/CHOICE OF LAW. This Agreement shall be construed in accordance
with the laws of the State of California (excluding rules regarding
conflicts of law) and the United States of America. The parties hereby
submit to the exclusive personal jurisdiction of and venue in the Superior
Court of the State of California, County of Marin, and the United States
District Court for the Northern District of California in San Francisco.
14.3 NOTICES. Any notices required under the terms of this Agreement will
be given in writing either (a) to the persons at the addresses set forth
below, or to such other address as either party may substitute by written
notice to the other in the manner contemplated herein, and will be deemed
served when mailed to the address designated below ("Delivered"), or (b) by
facsimile, and will be deemed delivered on the day reflected in the
transmission confirmation.
If to Discreet:
Discreet, a division of Autodesk, Inc.
111 McInnis Parkway
San Rafael, California 94903
Attn: General Counsel
Facsimile: (415) 507-6126
If to Reseller, to the address and facsimile number identified on the first
page of this Agreement.
14.4 INDEPENDENT CONTRACTORS. In performing their respect duties under
this Agreement, each of the parties will be operating as an independent
contractor. Nothing contained herein will in any way constitute any
association, partnership, or joint venture between the parties hereto, or
be construed to evidence the intention of the parties to establish any such
relationship. Neither of the parties will hold itself out in any manner
that would be contrary to the provisions of this Section 14.4.
14.5 ENTIRE AGREEMENT. This document contains the entire agreement and
understanding concerning the subject matter between Reseller and Discreet
and supersedes all prior negotiations, proposed agreements, and all other
agreements, whether written or oral, except all prior confidentiality and
nondisclosure agreements to the extent that they are not expressly
superseded by this Agreement. Except as set forth in Section 1.14, this
Agreement may be amended only in writing and must be signed by authorized
individuals for both Discreet and Reseller. Any handwritten or typed
changes to this Agreement must be initialed by both parties in order to
become effective.
14.6 SEVERABILITY. In the event that it is determined by a court of
competent jurisdiction as a part of a final nonappealable judgment that any
provision of this Agreement or part there of is invalid, illegal, or
otherwise unenforceable, such provision will be enforced or reformed as
nearly as possible in accordance with the stated intention of the parties,
while the remainder of the Agreement will remain in full force and effect.
14.7 CONSTRUCTION. The parties and their respective counsel have
negotiated this Agreement. This Agreement will be fairly interpreted in
accordance with its terms and without any strict construction against
either party. Ambiguity will not be interpreted against the drafting party.
14.8 COUNTERPARTS. This Agreement may be executed in separate counterparts
and shall become effective when the separate counterparts have been
exchanged between the parties. The Undersigned are duly authorized to
execute this Agreement on behalf of this respective parties.
14.9 FORCE MAJEURE. Except for the failure to make payments, neither party
will be liable for any loss, damage or penalty resulting from delays or
failures in performance resulting from acts of God, supplier delay or other
causes beyond the non-performing party's reasonable control and not caused
by the negligence of the non-performing party, provided that the non-
performing party promptly notifies the other party of the delay and the
cause thereof and promptly resumes performance as soon as it is possible to
do so.
14.10 WAIVER. The waiver of any breach or default will not constitute
a waiver of any other right in this Agreement or any subsequent breach or
default. No waiver shall be effective unless in writing and signed by an
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authorized representative of the party to be bound. Failure to pursue, or
delay in pursing, any remedy for a breach shall not constitute a waiver of
such breach.
"Discreet" "Reseller"
Discreet, a division of Autodesk, Inc.
By: /s/ DENNIS PHINNEY By: /s/ GARY NELSON
-------------------------- ----------------------------
Dennis Phinney Gary Nelson
-------------------------- ----------------------------
Printed Name Printed Name
Channel Manager, Americas President
-------------------------- ----------------------------
Title Title
11-2-99 October 27, 1999
-------------------------- ----------------------------
Date Date
11
EXHIBIT 10.6
Dealer Agreement Date December 24, 1996 Dealer Agreement Number LT-01
Agreement by and between
having principal offices at
AUTHORIZED DEALER AGREEMENT
SMART Technologies, Inc. ("SMART")
Suite 600, 1177 11th Avenue S.W.
Calgary, AB Canada T2R1K9
and
Lab Technologies
--------------------------------------------------------
("Dealer") having principal offices at
11990 Grant Street, Suite 550
--------------------------------------------------------
Northglenn, CO 80233
--------------------------------------------------------
- --------------------------------------------------------------------------
1. Appointment and Acceptance
A) Appointment
Subject to the terms and conditions of this Agreement, SMART appoints
Dealer a an Authorized Dealer of SMART brand products ("Product"), as
listed in Appendix A, to end-users within the Primary Market Areas as
listed in Appendix B. Dealer hereby accepts such appointment and agrees
that all orders for the Product placed by Dealer with SMART or with SMART's
Authorized Manufacturer's Representatives and the relationship of the
parties generally shall be subject to the terms and conditions of this
Agreement. Dealer shall acquire Product only directly from SMART. SMART
may modify the Authorized Dealer program from time to time without prior
notice. Such changes shall be made in writing. This appointment
specifically excludes K-12 education accounts unless otherwise explicitly
indicated in Appendix B.
B) Limited Distribution
During the term of this Agreement, SMART shall appoint a limited number of
Dealers to a particular Primary Market Area. Dealers are free to resell
product into any territory so long as the sale originates form their
assigned Primary Market Area. SMART reserves the right to refer to Dealer
or to an Authorized Manufacture's Representative any orders or inquires
which it receives for shipment of the Product to any place of business
within the Primary Market Area unless such order or inquiry emanates from
an account which has been designated a House Account (Appendix E) or OEM
account by SMART.
C) Competitive Product
Dealer warrants and represents to SMART that it does not currently
represent, promote or sell any lines or products that are in direct
competition with the Product covered by this Agreement.
D) Change in Product
In the event SMART ceases to manufacture any Product covered in this
Agreement, or ceases to distribute or sell any such Product, then this
Agreement shall be automatically amended so as to debate such Product.
2. Relationship of Parties
The parties shall be deemed to be solely independent contractors and this
Agreement shall not be construed to create any partnership, joint venture,
agency, or franchise.
3. Protection of Proprietary Rights
A) Right to Recall
Dealer acknowledges that pursuant to this Agreement Dealer obtains only the
right to resell the Product into the Primary Market Area and that no right,
title, or interests in or to the Product is transferred or licensed from
SMART to Dealer. Permission to sell Product outside of the Primary Market
Area may be obtained from SMART on a per order basis. Permission may be
withheld by SMART, at SMART's sole discretion, without recourse by Dealer,
for any reason, or for no reason whatsoever. Failure by SMART to require
performance of this term, or the waiver of any breach of this term shall
not prevent a subsequent enforcement of the term, nor be deemed a waiver of
any subsequent breach.
C) Trademarks, Copyrights
Dealer shall not remove, cover or obfuscate any copyright notice,
trademark, or other proprietary rights notice placed by SMART on the
Product or any portion thereof.
D) Confidentiality
Dealer acknowledges that by reason of its relationship to SMART hereunder,
it will have access to certain information and materials concerning SMART's
business, plans,
- -------------------------------------------------------------------------
SMART Technologies, Inc. Authorized Dealer Agreement Page 1
<PAGE>
customers, technology, and Product, that are highly confidential and of
substantial value to SMART. Dealer explicitly acknowledges that such
confidential information and materials are special and unique to SMART and
that any unauthorized disclosure of such confidential information might
cause irreparable and continuing harm to SMART. Dealer agrees to hold all
confidential information of SMART confidential.
SMART acknowledges that by reason of its relationship to Dealer hereunder,
it will have access to certain information and materials concerning
Dealer's customers that is highly confidential. SMART agrees to hold all
customer information of Dealer confidential.
4. Obligations of SMART
A) Sales Materials
SMART shall supply Dealer with reasonable quantities of all sales also
produced by SMART in connection with the Product, such as brochures,
instructional materials, advertising literature, and all marketing and
technical information necessary in SMART's judgment for sales purposes.
All sales aids will be in English, unless the parties mutually agree
otherwise. All copyrights which may be issued or applied for with respect
to sales aids, or translation thereof, shall be issued or applied for in
the name of SMART and shall be the sole property of SMART.
B) Consultation
SMART agrees, at reasonable times during office hours, to make itself
available at its offices in Canada for technical advice and consultation in
connection with the sale of Product. SMART shall exert its best efforts to
respond to all inquiries from Dealer regarding the Product as promptly as
possible.
C) Repairs
SMART shall exert its best efforts to repair non-functional Product in
accordance with SMART's Warranties and other repair policies.
D) Advertising
SMART will provide, from time to time, and in reasonable quantity as
determined solely by SMART, Product advertising, which may include: direct
mail, magazine advertising, demo videos, demo diskettes, public relations
articles, or trade show participation.
5. Dealer Responsibilities
A) Promote Product
Dealer shall actively promote and market the Product in a competent and
aggressive manner and in accordance with written guidelines provided by
SMART from time to time.
B) Initial Purchase Order
Dealer hereby accepts the Initial Purchase Commitment set forth in Appendix
C.
C) Annual Volume Commitment
Dealer hereby accepts the Annual Volume commitment set forth in Appendix D,
attached hereto and incorporated herein by this reference as though set
forth in full. SMART may review the progress toward the Annual Volume
Commitment at the end of each calendar quarter and in the event Dealer is
not, in the judgment of SMART, making sufficient progress towards the
Annual Volume Commitment, SMART may revoke the Dealer's status as an
Authorized SMART Dealer and the benefits derived therefrom. SMART may
change the Annual Volume Commitment at any time and from time to time by
giving written notice to the Dealer. Notwithstanding the fact that Dealer
has accepted the Annual Volume Commitment, SMART acknowledges that Dealer
shall not be required to purchase any specific volume of Product hereunder.
D) Use of Product
Dealer shall not use any Product except as permitted in the SMART License
Agreement attached to such Product, make electronic transmission of any
product, make copies or alterations of any Product, grant sublicenses,
leases or other right in the Product except resell the product in the
ordinary course of business as authorized by this Agreement, modify or
expand any warranties or representations by SMART to Dealers or to end-users,
reverse engineer the Product and/or assume or create any obligations
on SMART's behalf.
E) Other Products
Dealer shall have the right of representing other companies provided that
such other company's products do not directly compete or conflict with the
sale of SMART Product. Dealer will keep SMART advised of other lines
handled and major changes in representation.
F) Purchase Orders Required
Dealer shall initiate all orders for Product hereunder by submitting a
written purchase order to SMART or to a SMART Authorized Manufacturer's
Representative. Dealer may, for the sake of convenience, initially place
an order by telephone, or other means, provided, however, SMART shall have
no obligation to respond to such an order unless it receives a written
purchase order from Dealer confirming the order within five (5) days of the
initial order. All purchase orders submitted by Dealer shall be subject to
acceptance or non-acceptance at the sole discretion of SMART for any
reasons, which may include without limitation: out of stock, Product
discontinued, or inability to meet delivery date specified.
G) Shipping and Payment of Taxes and Duties
All Product sold to Dealer hereunder shall be packaged for shipping in
SMART standard shipping cartons and shipped F.O.B. SMART's offices in
Calgary, AB, Canada, or Kanata, ON, Canada at its regular place of
business. Title to the Product shall not pass to Dealer until SMART has
been paid in full. Dealer shall pay all import duties and tariffs and all
value-added, sales, use, excise, gross, receipts, or other taxes arising
out of or with respect to any sale of Product hereunder. Dealer shall also
bear and pay for all freight, shipping and insurance charges, including all
loading and special packing expenses, and any and all other costs incurred
after delivery of the Product to the carrier at the F.O.B. point. SMART
shall at the expense of Dealer, enter
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SMART Technologies, Inc. Authorized Dealer Agreement Page 2
<PAGE>
into reasonable contracts for the shipment of the Product ordered by
Dealer, and for the furnishing of insurance during transportation, which
shall be all-risks insurance, without war risk, for the invoice amount of
the Product only. Unless otherwise instructed by Dealer in writing, SMART
shall select the shipper and the Insurer.
H) Invoices / Payment
SMART shall submit an invoice(s) to Dealer upon any shipment of any Product
ordered by Dealer, which invoice(s) shall be in US dollars and shall cover
the Purchase Price of the Product, plus all freight and insurance charges
incurred by SMART or SMART's distributor in connection with shipment.
Payment will be made or effected by Dealer, as aforesaid, for all product
ordered by Dealer in lawful money of the United States, and the placing of
an order by Dealer shall constitute a warranty by Dealer that it has
obtained all necessary approvals and permits required from any appropriate
governmental agency with respect to the order, its shipment and delivery,
and the payment of any amounts due to SMART in connection therewith in US
dollars. All payment shall be made without deduction for any exchange or
conversion and without deduction for any taxes at any time levied or
assessed by any governmental authority, all of such tax to be paid for by
the Dealer.
Dealer agrees to pay any and all costs incurred by SMART in the collection
of any amounts owing from Dealer to SMART.
I) Credit Policy
Dealer shall act in accordance with written credit guidelines provided by
SMART from time to time, and shall provide to SMART any information which
may be required by SMART in order to establish an appropriate level of
credit. Dealer further agrees to pay any and all interest charges from
SMART should Dealer not strictly adhere to the credit terms as provided
from time to time.
J) Change Orders
Dealer shall have the right to postpone the projected/requested delivery
date on an unshipped order where the requested deliver date is at least ten
(10) days from the date of notice of postponement. If the requested
delivery date is within ten days from the date of notice of postponement,
then postponement will be at SMART's sole discretion. Orders placed may be
postponed a maximum of thirty (30) days unless SMART otherwise authorizes
an extension to the postponed shipping date. No order may be postponed and
then later canceled.
Dealer shall have the right to cancel an unshipped order provided that
written notice is given to SMART at least thirty (30) days prior to the
requested delivery date. The cancellation of an order within the thirty-day
period will be at the sole discretion of SMART. Regardless of the
notice provided the cancellation of an order where there is any
customization work required to the Product shall be at the sole discretion
of SMART. For the purposes of this section customization work is defined
as any work that is required to be done to Product that is outside the
standard shipping product as indicated on the then-published price list.
Customization work includes the configuration of the Rear Projection SMART
Board cabinet to handle specific projectors outside the two or three normal
configurations as indicated on the published price list.
K) Duty to Inspect upon Receipt
Dealer shall inspect all Product immediately upon delivery and shall give
written notice to SMART within ten (10) days of the date of delivery of any
claim that the Product does not conform to the terms of the Order. If
Dealer shall fail to give such notice, Dealer shall be deemed to have
accepted same and shall be bound to pay for same in accordance with the
terms of this Agreement. Dealer expressly waives any right Dealer may have
to revoke acceptance after the expiration of said ten-day period.
L) all Sales Final
All sales to Dealer hereunder are final, and no Product may be returned by
Dealer, except as provided in the foregoing Section (K), without prior
written authorization from SMART. Dealer shall pay SMART, in the event
SMART consents to Dealer returning a Product, a restocking fee equal to ten
percent (10%) of the Purchase Price of such Product, and shall pay all
shipping and insurance costs incurred in returning such Product.
6. License Agreement
Dealer shall call its customers' attention to the SMART License Agreement.
Dealer agrees to comply with the obligations set forth therein.
7. Warranty / Limitation of Liability
A) Limited Warranty
SMART warrants that each hardware Product sold hereunder will conform to
the written description of the Product, provided by SMART from time to
time, and will function in accordance with specifications therein. Such
warranty shall apply to the first person or entity that purchases the
Product from Dealer and shall continue for a period of one year from the
date of each purchase. SMART's liability for breach of said warranty is
limited to repair of the Product, replacement of the Product, or refund of
the purchase price of the Product, at SMART's sole discretion. Dealer
acknowledges that SMART will not be required to make any adjustments,
alterations or repairs to a Product under the foregoing limited warranty
made necessary due to accident, unusual physical or electrical stress,
unauthorized modification, tampering, service other than by SMART, causes
other than ordinary use, or failure to properly use the Product in the
application for which it was intended, SMART Software is sold under the
terms and conditions of the SMART Software License Agreement. Copies of
this Agreement are included in the User Manual or may be obtained directly
from SMART.
B) Disclaimer of Warranties
SMART warrants that is has sufficient right to enter into this Agreement.
Except as provided in the preceding sentence and in the limited warranty to
end-users as set forth above. SMART MAKES NO WARRANTY OR
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SMART Technologies, Inc. Authorized Dealer Agreement Page 3
<PAGE>
REPRESENTATION TO DEALER OR ANY THIRD PARTIES CONCERNING THE OPERATION OF
THE PRODUCT. SMART EXCLUDES ANY AND ALL WARRANTIES AND CONDITIONS
STATUTORY AND OTHERWISE INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. SMART'S LIABILITY FOR ANY DAMAGES FOR
ANY ACTION RELATING TO THE USE OR DISTRIBUTION OF A PRODUCT OR ARISING OUT
OF THIS AGREEMENT SHALL NOT EXCEED THE AMOUNT PAID BY DEALER FOR THE
PRODUCT AT ISSUE. IN NO EVENT SHALL SMART BE LIABLE FOR INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR DISTRIBUTION
OF THE PRODUCT OR THIS AGREEMENT REGARDLESS OF THE FORM OF ACTION, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8. Terms and Termination
A) Initial Term
This Agreement shall become effective on the date SMART executes the
Agreement and transmits a copy of the executed Agreement to Dealer. The
mere submission of this Agreement by Dealer to SMART does not constitute
acceptance by SMART of this Agreement. Nor does receipt by Dealer of
Product from SMART, prior to Dealer receipt of a copy of this Agreement
executed by SMART, constitute acceptance, by SMART, of this Agreement.
B) Renewal/Termination
This Agreement shall continue for a term of twelve (12) months. At the
expiration of this term, this Agreement will continue for successive twelve
(12) month terms until such time as either party terminates this Agreement
pursuant to this section. The renewal of this Agreement will be evidenced
by the signing of the then-current Authorized Dealer Agreement and the
parties agreement on new Appendices A, B, C, D and E.
This Agreement may be terminated by either party at any time for any
reason, or for no reason whatsoever, by giving written notice of
termination to the other. Upon termination, Dealer shall, if requested by
SMART to do so, return within thirty (30) days all inventory of Product to
SMART. SMART shall repay Dealer's net purchase price of obtaining such
Product within sixty (60) days. Receipt by Dealer of Product subsequent to
termination, or subsequent to the expiration of any applicable period for
giving notice of termination, does not constitute a renewal or extension of
the Agreement.
C) Effect of Termination
Upon termination of this Agreement:
(C.1) Except as expressly provided in this Agreement, all obligations of
SMART and all rights of Dealer will terminate and any and all sums owed by
Dealer to SMART shall become immediately due and payable.
(C.2) SMART shall have the option to cancel or fill any orders placed by
Dealer for Product which have not been delivered to Dealer on the date of
termination.
(C.3) Neither party shall be liable to the other for any damages whatsoever
sustained or arising out of, or alleged to have arisen out of, each
termination, but such termination shall not affect the right of either
party to receive or recover (i) damages sustained by reason of the breach
of this Agreement by the other party; or (ii) any payments which may then
be owing under the terms of this Agreement or any invoice or other
instrument.
D) Laws affecting Termination
Dealer acknowledges that SMART has agreed to the terms and conditions of
this Agreement in reliance on Dealer's representation that this Agreement
can be terminated at any time, for any reason, or for no reason whatsoever,
without payment of any compensation, fines, penalties, or other payments to
Dealer or any other person or entity. If any law, regulation, or order
should be adopted or issued, which would prevent or interfere in any way
with the termination of this Agreement in accordance with its terms, or
which would cause SMART to pay to Dealer, or to any other person or entity,
any compensation, fines, penalties, or other payments, this Agreement shall
automatically terminate (without notice from either party) immediately
before such law, regulation, or order becomes effective.
9. Assignment
Dealer may not assign any of its rights or delegate any of its obligations
under this Agreement without the express written consent of SMART.
10. Governing Law
This Agreement shall be governed by the laws of the Province of Alberta,
Canada.
11. Miscellaneous
A) Agreement Constitutes Entire Understanding
No modification of this Agreement shall be effective unless in writing and
signed by a duly authorized representative of the party to be bound. This
Agreement and Dealer's application attached hereto constitute the entire
agreement between SMART and Dealer, superseding any oral and written
agreements between the parties with respect to the Product. No additional
or contrary provision in any purchase order or similar document will have
any effect. Any notices hereunder shall be sent by certified mail, return
receipt requested, or by personal delivery, and will be deemed effective
upon receipt.
B) Canadian Export Regulation
Product is subject to Canadian export control regulations and Dealer agrees
to comply therewith.
C) Severability
If any term or provision of this Agreement shall to any extent be found to
be invalid, void or unenforceable, the remaining terms and conditions shall
nevertheless continue in full force and effect. Failure by SMART to
require the performance of any term of this Agreement or the waiver of any
breach under this Agreement shall not prevent a subsequent enforcement of
such term, nor be deemed a waiver of any such subsequent breach.
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SMART Technologies, Inc. Authorized Dealer Agreement Page 4
<PAGE>
D) Headings for Convenience Only
The headings and subsections in this Agreement are provided for convenience
only and shall not control the interpretation of the Agreement.
12. Consent to English Language Contract
The parties acknowledge that they have requested and consented to Agreement
and all documents relating directly and indirectly hereto, forming part
hereof or resulting here from, be drawn up in English.
13. Acknowledgement of SMART's Ownership
A) Dealer acknowledges and agrees that it has no right to the copyrights,
trademarks or any other proprietary marks or rights which are affixed to or
otherwise used in connection with the Product supplied by SMART to Dealer
(the "Rights") except to use the Rights in connection with the distribution
of Product pursuant to the terms and conditions of this Agreement and only
during the term of this Agreement.
B) Dealer shall not in any way do anything to infringe upon, harm or
contest the rights. Dealer shall promptly notify SMART of any and all
infringements, imitations, illegal use or misuse, of the Right which come
to Dealer's attention. Should the law or regulations of any part of the
Primary market Area invest Dealer with any property rights to any of the
Rights, Dealer hereby transfers to SMART any and all such rights upon
termination of this Agreement (howsoever occasioned) without recourse or
cost to SMART and shall thereafter refrain from any further usage of the
Rights.
C) Dealer agrees not to register or use any of the Rights, following
termination of this Agreement, or any trademarks or other proprietary
rights which are the same as or confusingly similar to the Rights in the
Primary Market Area and this obligation shall survive the termination of
this Agreement. Dealer shall thereafter take no action that would make it
appear to the public that Dealer is still servicing or supplying the Product.
D) Dealer's obligations under Section 3 and 13 of this Agreement shall
survive termination of this Agreement for the benefit of SMART.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers in duplicate on the date set forth below.
SMART Technologies Inc. Dealer Lab Technologies
------------------------------
#600, 1177 11th Avenue S.W. Address 11990 Grant Street, Suite 550
------------------------------
Calgary, AB Canada T2R 1K9 Northglenn, CO 80233
------------------------------
Signed /s/ NANCY KNOWLTON Signed /s/ GARY NELSON
------------------------- ------------------------------
Name Nancy Knowlton Name Gary Nelson
------------------------- ------------------------------
Title Executive Vice President Title President C.E.O.
------------------------- ------------------------------
Date December 26, 1996 Date 12/23/96
------------------------- ------------------------------
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SMART Technologies, Inc. Authorized Dealer Agreement Page 5
<PAGE>
Appendix A
List of Product
(A) Software
SMART 2000 Conferencing software
SMART Bridge software
SMART Conferencing for Macintosh
SMART Notes
SMART Board
SMART WriteBoard for Windows
SMART WriteBoard for Mac
All other SMART Brand software products as determined by SMART
(B) Hardware
SMART Board
Office SMART Board
Rear Projection SMART Board Series
All other SMART Brand hardware products as determined by SMART
Appendix B
Primary Market Area
"Primary Market Area" shall mean that certain geographic area described
below for which the Dealer shall have primary marketing responsibility.
The Dealer acknowledges that the Primary Market Area consists of
Wyoming, Utah, Colorado, Arizona, Idaho, Montana, New Mexico
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
and that it shall have primary marketing responsibility for said area.
K-12 Education Sales
Dealer is an Authorized K-12 Education Dealer [X] Yes [ ]No
Appendix C
Initial Purchase Commitment
The Dealer agrees to purchase Product in the amounts stated herein in
accordance with the Initial Purchase Commitment as set forth in the Agreement.
- --------------------------------------------------------------------------
Appendix D
Annual Volume Commitment
Dealer hereby commits to meeting or exceeding the following (or attached)
Annual Volume Commitment. Annual Volume Commitments will be determined by
SMART at any time and from time to time and will be attached to and form a
part of this Agreement.
- --------------------------------------------------------------------------
Appendix E
House Accounts
Intel Corporation
Northern Telecom
Bell Northern Research
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SMART Technologies, Inc. Authorized Dealer Agreement Page 6
EXHIBIT 10.7
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of the 6th day of APRIL 1994
between Robotel Electronique, 3421 Industrial Blvd., Montreal
Quebec, Canada, H7l 4S3, the "COMPANY" and LAB TECHNOLOGIES INC.,
the "DISTRIBUTOR" having its principal place of business at 1500
KANSAS AVENUE, SUITE 4B2, LONGMONT, COLORADO 80501 herein refered to
as "DST".
1. DEFINITIONS.
a. Product or Products. Product or Products shall mean any or
all products manufactured or distributed by COMPANY intended for use
in the educational, training environment.
b. Territory. TERRITORY shall mean the geographic area designated
as the STATE OF ARIZONA, NEW MEXICO, COLORADO, UTAH, WYOMING,
MONTANA, IDAHO.
c. Starting Date. The starting date is April 6, 1994.
d. Ending Date. The ending date shall be August 31, 1994. This
contract shall be automatically renewed on an annual basis unless
either party notifies the other in writing under the provisions
outlined in 13.a.
e. Annual Periods. Annual Periods shall commence on the 1st day
of September and end on the 31 day of August each year during this
agreement. All dollars mentioned herein are in U.S. funds.
2. APPOINTMENT AND ACCEPTANCE.
a. COMPANY appoints DST as distributor of PRODUCTS in TERRITORY
and DISTRIBUTOR accepts such appointments.
b. Market Development. DST shall exert its best efforts to attain
and sustain the maximum sale of PRODUCTS in TERRITORY and shall
meet annual performance goals established by COMPANY and
communicated to DST for sales and services of PRODUCTS.
DISTRIBUTOR shall:
(1) Maintain its distribution location to display and sell PRODUCTS
at the principal place and location of the business identified
herein.
(2) Participate in local trade shows within the TERRITORY and
conduct regular local advertising and marketing efforts for the
PRODUCT within the TERRITORY.
(3) Provide installation service and follow up service to
purchasers of PRODUCTS within TERRITORY.
(4) Provide warranty service to purchasers of PRODUCTS pursuant to
COMPANY warranty policy.
<PAGE>
(5) Respond promptly to sales leads or referrals furnished by
COMPANY of other DISTRIBUTORS.
3. TERMS OF AGREEMENT. This Agreement shall become effective as of the
date hereof and shall continue unless and until terminated by either
party giving to the other not less than (30) thirty days notice in
person or by registered or certified mail of its intention to
terminate the Agreement. The notice time shall run form the date of
personal delivery of the depositing of said notice in regular
government mail deposits.
4. ORDER PLACEMENT. Orders by DST shall be in such for as the the
COMPANY deems appropriate and as provided by the current COMPANY
sales manual.
5. SALES TERMS. COMPANY shall establish prices for its PRODUCT from
time to time, and shall provide notice of such prices to DST. DST
shall pay COMPANY for PRODUCTS according to terms and schedules
established by COMPANY form time to time
6. DELIVERY. COMPANY will undertake every effort to fulfill the orders
of DST for the PRODUCTS with reasonable dispatch and in accordance
with its published delivery schedules, but shall not be liable for
any loss of trade or profit or other consequential damages to DST in
the event of delay of product delivery.
7. ACCEPTANCE AND CLAIMS. ALL PRODUCTS shall be received subject to
DST visual inspection and may be rejected by DST is found
substantially defective in materials or workmanship, The inspection
shall be promptly conducted and at the expense of DST after arrival
of PRODUCTS and DST business location, in no event later than thirty
(30) days after arrival of the PRODUCT. Claims not reported within
thirty (30) days after arrival shall be waived. COMPANY has option
of providing substitute unit of allegedly defective PRODUCTS or
crediting DST with the purchase price and shipping and expense on
return of the PRODUCT to the extent that COMPANY examination
confirms DST claim. COMPANY reserves the right to require return of
all or part of PRODUCT that are unsalable and the right to salvage,
destroy or otherwise dispose of PRODUCT.
<PAGE>
8. PRODUCT WARRANTY. COMPANY publishes its standard warranty for each
PRODUCT and all parts purchased by DST pursuant to this Agreement.
THE COMPANY'S PUBLISHED WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ANY
OTHER EXPRESSED OR IMPLIED WARRANTY OF FITNESS OR MERCHANTABILITY,
AND SUCH WARRANTY SHALL CONSTITUTE THE SOLE REMEDY OF DST OR PERSONS
TAKING UNDER THE DST AND LIABILITY OF THE COMPANY WITH RESPECT TO
ANY PRODUCTS DELIVERED PURSUANT TO THIS AGREEMENT, WHETHER CLAIMED
ON WARRANTY, CONTRACT OR NEGLIGENCE. From time to time COMPANY may
alter or amend its warranty policy, and in the event of such
amendment, it shall give DST ninety (90) days prior notice before
the effective date of change.
9. SALES FORCE AND SALES SUPPORT. DST agrees to provide competent,
trained sales persons to market COMPANY PRODUCT line in the
TERRITORY and furthermore to provide and participate in appropriate
continuing training and supporting sales aids and demonstration
equipment to support such trained sales persons. COMPANY shall make
appropriate sales training material available to DST and shall make
available factory training to DST and DST service engineers.
11. DEMONSTRATION EQUIPMENT. DISTRIBUTOR shall purchase a demonstration
kit from COMPANY at forty (40) percent discount off the published
Educational price list. DST shall purchase a new demonstration kit
from COMPANY if DST chooses to sell existing demonstration kit after
6 months of time.
12. ADVERTISING. COMPANY shall supply and retain title to sales aids
and materials to support and supplement DST sales program. DST
shall satisfactorily inform the COMPANY of its trade practices,
advertising, market data, and marketing method, planning or other
information of interest, use or benefit to COMPANY in marketing the
PRODUCT within the TERRITORY.
13. BUSINESS RECORDS AND INFORMATION. DST shall maintain up to date
books of accounts and records showing clearly all customers and
customer lists relating to the COMPANY, which shall be available to
COMPANY.
14. CONFIDENTIALITY. DST shall maintain in strict confidence and duly
safeguard to the best of its ability any and all business and
technical information pertaining to PRODUCT in the TERRITORY and
shall not, at any time, divulge, disclose or use any confidential
information respecting the COMPANY'S business or method of carrying
on its business in relation to this Agreement of the PRODUCT outside
its sales efforts.
<PAGE>
15. NON-AGENCY. This Agreement conveys no right for DST to act as an
agent for COMPANY. Nothing herein contained shall constitute a
partnership between the parties and DST shall have no authority to
speak for the COMPANY, to bind COMPANY, or to pledge COMPANY credit.
16. CHANGE OF LOCATION. Change of location from this address and
facility of DST identified in the Agreement, without the prior
written notification to the COMPANY, shall be a substantial breach
of this Agreement and shall cause this Agreement to terminate
immediately.
17. PATENTS, TRADEMARKS, TRADENAMES. DST agrees to properly exhibit and
utilize such tradenames or trademarks as may be authorized by
COMPANY in describing PRODUCT to promote, market and distribute
COMPANY'S PRODUCTS in TERRITORY. DST Shall promptly notify COMPANY
of any and all infringement of COMPANY'S trademarks, and patents in
connection with PRODUCT in the TERRITORY that may come to DST
attention.
18. BREACH OF AGREEMENT. Breach of terms, covenants, or conditions of
this Agreement by either party shall constitute a default by the
breaching party and shall be grounds for immediate termination
without notice. In the event of breach by DST and termination by
COMPANY, COMPANY may but shall not be obligated to repurchase from
DST at the net F.O.B. Montreal, Quebec, Canada on a first in, first
out basis, such current stock as it shall choose. Selected stock
shall be delivered by DST, at the expense of the DST, at the
original factory point of shipment. In the event of breach by
COMPANY and termination by DST, DST may but shall not be obligated
to return current goods an usable parts and stock of PRODUCT to
COMPANY AT THE NET F.O.B. Montreal price of current stock. Transfer
of parts or stock pursuant to this paragraph shall not constitute a
satisfaction of any damage caused by or arising out of any such
breach.
19. INSOLVENCY. This Agreement shall terminate automatically if a
petition in bankruptcy is filed by or against either party or if an
action is taken by either or against either party under any law, the
purpose and effect of which is or may be to relieve such party in
any manner from its debts or to extend the time of payment thereof,
or should either party make an assignment for the benefit of
creditors. Such termination shall be deemed a breach by the party
triggering the termination.
<PAGE>
11. TERMINATION PROVISIONS. Upon termination of this agreement pursuant
to paragraph hereof, all amounts due and owing to COMPANY shall
become immediately payable. DST will return all manuals,
advertising material, customer lists and files, and other COMPANY
property to COMPANY at COMPANIES shipping expense. DST shall
refrain from that point in using COMPANY marks. All disputes and
controversies arising upon termination shall be submitted for final
and binding arbitration under rules of the American Arbitration
Association in the county of Erie, State of New York, or Canadian
equivalent.
12. NON-WAIVER CLAUSE. No waiver by either party of any terms hereof
shall constitute a waiver of any terms of this agreement of any
breach in any other case whether prior of subsequent thereto.
13. GENERAL PROVISIONS.
a. Notice. Any notice permitted or required under this Agreement
shall be deemed to be given as such notice shall be in writing
and personally served or mailed by registered or certified
mail, postage prepaid, evidenced by post office receipt of such
registration or certification, to the addresses as shall have
changed by either party to the other in writing in accordance
with this Agreement.
b. Assignment. The parties acknowledge that this Agreement
Agreement is personal in nature and agreed that this Agreement
shall not be assigned, in whole or part, without the prior
written consent of the other. Any purported assignment of this
Agreement or any interest therein without the written consent
of the other shall be void.
c. Modification. this Agreement may be modified, amended or
revised only by written instrument duly executed by the parties
hereto.
d. Entire Agreement. This Agreement, along with any exhibits or
duly executed addenda, shall be deemed to contain the entire
and only the Agreement between the parties relating to the
subject matter hereof, and any representations, terms or
conditions relating thereto and not incorporated in this
Agreement shall not be binding upon the other party. This
Agreement cancels, voids and supersedes any Agreement before
entered into between the parties with respect to the subject
matter hereof, except as otherwise provided in this agreement
specifically.
<PAGE>
e. Execution. This Agreement is not effective until accepted
by COMPANY, Robotel Electronique, Inc, 3421 Boul Industriel,
Chomedy (Laval) Quebec, Canada H7L 4S3.
f. The parties shall be free to bring all differences of
interpretation and disputes arise in connection with this
Agreement to the attention of the other at any time without
prejudicing their harmonious relationship and operations
hereunder, and the good offices and facilities of either party
shall be available at all times for meeting under friendly and
courteous circumstances. Any controversy, claim or breach
arising our of relating to this Agreement which the parties are
unable to resolve to their mutual satisfaction may be litigated
or otherwise resolved in any court having jurisdiction thereof.
This Agreement shall be subject to and shall be enforced and
construed pursuant to the laws of the State of New York, USA,
and the Provence of Quebec, Canada. if any provision or term
of this Agreement is held to be invalid, void, or
unenforceable, the remainder of the provisions shall remain in
full force and effect and shall no way be affected, impaired or
invalidated. In the event of litigation, the prevailing party
may recover court costs and reasonable attorneys fees.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written below.
ROBOTEL ELECTRONIQUE INC.
Date: 22/01/94
-------------------------
/s/ President
- ---------------------------------------
/s/ Chief Executive Officer
- ---------------------------------------
Witness
- ---------------------------------------
DISTRIBUTOR
Date: 4-18-94
-------------------------
/s/ GARY NELSON President
- ---------------------------------------
/s/ Witness/or Notary
- ---------------------------------------
EXHIBIT 10.8
Heathkit(R)
EDUCATIONAL SYSTEMS
April 19, 1999
Please sign this contract on both pages.
Return this entire contract back to may attention and I will then send
you your completed signed contract along with the new Heathkit
Distributor Price List.
Any questions, please give me a call.
Return to:
Heathkit Company
Attn: Carolyn Mueller
455 Riverview Drive
Benton Harbor, MI 49022
Return ASAP
Thank you,
455 Riverview Drive
Benton Harbor, MI 49022
Ph. 616.925.600
Fx. 616.925.2898
Toll 800.253.0570
www.heathkit.com
[email protected]
<PAGE>
RESELLER AGREEMENT
Heathkit Company, Inc. and Lab Technologies, Inc. ("Reseller") effective
as of the date written below hereby agree as follows:
1. APPOINTMENT. Heathkit appoints Reseller to exclusively sell the
products set forth in Exhibit A (individually the "Products"
collectively the "Products") to public education end users located
in the territory described in Exhibit B (the "Territory"). The
Products set forth in Exhibit A may be unilaterally deleted by
Heathkit or additional Products may be added to Exhibit A with the
mutual consent of the parties hereto.
2. RESELLER'S OBLIGATIONS. In consideration of its appointment herein,
Reseller agrees:
(a) To use its best efforts in the Territory to promote, display,
demonstrate, and sell the Products to end-users and to promote
the reputation and good will of Heathkit and the Products.
Reseller agrees that its sales activity will involve face-to-face
pre and post sale support for end user customers in the
Territory and that it will comply with Heathkit's policies with
respect to face to face customer.
(b) To employ a sufficient number of sales and other personnel
trained to explain and demonstrate the Products and to provide
after-sale support of the Products.
(c) To participate actively in all training and other activities
which Heathkit may provide to support sales of and satisfaction with
the Products.
(d) To maintain a sufficient inventory of Products to meet demand
in the Territory for the Products, including, but not limited to,
demonstration systems and a reasonable supply of courseware and
accessories. Reseller shall sell and support all Products.
(e) To adhere to all applicable laws and regulations in
advertising, promoting, and selling the Products, and not to engage
in any false or misleading advertising or promotion of the Products.
In addition, Reseller agrees that it will not sell or ship into
another Reseller's territory or export, either directly or
indirectly, any Product, system incorporating Products, or technical
data or information acquired under this Agreement without first
obtaining the approval of Heathkit and all necessary licenses and
other approvals of the United States government.
(f) To provide for prompt service and repair of the Products
through its own service department if it is authorized to
perform warranty service by Heathkit or through other
arrangements with Heathkit Approved Service Centers designated
by Reseller and accepted by Heathkit. Reseller also agrees to
keep Heathkit reasonably informed of customer complaints and to
notify Heathkit promptly of any suspected Product defects or
safety problems.
(g) To use its best efforts in meeting assigned purchase and
territory improvement targets ("Targets") as described in Exhibit C
of this agreement.
<PAGE>
3. PURCHASE ORDERS. Any purchase orders or other documents submitted
by Reseller under this Agreement shall be subject to acceptance by
Heathkit and shall be governed solely by the provisions of this
Agreement notwithstanding any different or additional items they may
contain.
4. PRICES.
(a) The price of each Product, F.O.B. Heathkit's shipping dock,
will be the Heathkit suggested retail price, less applicable
Reseller discount, prevailing at the time of shipment to Reseller,
or such other price, including a net price with no discount
applicable, as Heathkit may establish from time to time.
(b) Prices are exclusive of all sales, use, property, and the like
taxes. Any such tax Heathkit may be required to collect or pay upon
the sale or delivery of Products shall be paid or collected by
Reseller and such sums shall in turn be promptly due and payable to
Heathkit by Reseller under Heathkit's payment terms applicable to
Reseller.
(c) Heathkit reserves the right to change its prices and discounts
at any time. Heathkit agrees to notify Reseller in writing of any
price increase or discount reduction at least thirty (30) days prior
to the effective date of such change. All shipments made as of the
effective date of a price increase shall be at the new higher price;
however, in no event shall price increases apply to products which
were ordered prior to the notification of a price increase and
scheduled by Reseller for shipment prior to the effective date of
the increase.
(d) A Reseller achieving its annual targets qualifies to receive
accelerated discounts ("Accelerators") as described in Exhibit D of
this agreement.
5. PAYMENT.
(a) Subject to the approval and policies of the Heathkit Credit
Department, all invoices for purchases of Products will be payable
within thirty (30) days from invoice date. Reseller agrees not to
make deductions of any kind from payments due without written
authorization issued by Heathkit. If Reseller fails to make
payments when due, Heathkit may withhold further deliveries until
the default has been remedied, or may require prepayment or other
payment arrangements satisfactory to Heathkit.
(b) Invoices not paid within the applicable period will be subject
to a 1 1/2% per month interest charge on any outstanding balance, or
the maximum interest allowed by law, whichever is less.
(c) A service charge of $50.00 will be applied to each returned
check. Accounts 60 days old will be placed on "Cash In Advance"
status.
<PAGE>
(d) In the event Reseller fails to pay any part of the purchase
price when due, or in the event that proceedings in bankruptcy,
receivership, or insolvency are instituted by or against Reseller or
its property, Heathkit may, at its option, cause the entire unpaid
balance to become due and immediately payable.
6. DELIVERY.
(a) Deliveries will be F.O.B. Heathkit's shipping dock, at which
point title and risk of loss shall pass to Reseller. Shipping
and handling charges will be paid by Heathkit and billed to
Reseller. Insurance coverage on all shipments is the
responsibility of the Reseller.
(b) Heathkit shall not be liable to Reseller for any failure in
filing orders accepted by Heathkit resulting directly or indirectly
from causes beyond the control of Heathkit including, without
limitation, strikes or other labor troubles; fires, floods, delays
in the delivery or shortages or materials, parts, supplies,
transportation or other facilities; impossibility or
impracticability of making deliveries because of the total volume of
orders received by Heathkit: the whole or partial use of Heathkit
products, facilities or supplies for war or other government
purposes; or the laws or regulations of the United States, any state
or territory, or any political subdivision thereof. Any such delay
shall effect a corresponding extension of the delivery period.
7. RETURNS. No returns of Products by Reseller may be made or will be
accepted by Heathkit without authorization, including a return
authorization number, issued by Heathkit. All returns shall be made
in accordance with standard Heathkit policies therefore.
8. WARRANTY.
(a) Reseller shall deliver to its customers any written warranty
and other printed matter intended for the ultimate purchase (end
user) of the Product and furnished by Heathkit. Reseller has no
authority to obligate Heathkit on any other warranty, and any
additional warranty provided by Reseller shall be clearly and
conspicuously identified to the customer as the sole responsibility
of Reseller.
(b) WRITTEN WARRANTIES FURNISHED IN CONNECTION WITH THE PRODUCT ARE
IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT
NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, AND ALL OTHER WARRANTIES ARE EXPRESSLY EXCLUDED
AND NEGATED. HEATHKIT DOES NOT WARRANT ANY EQUIPMENT NOT
MANUFACTURED BY HEATHKIT.
<PAGE>
9. SOFTWARE.
(a) Reseller agrees not to use any software provided by Heathkit
except in accordance with the license terms accompanying each
software Product. Reseller understands and acknowledges that
opening the envelope or breaking the seal on any software Product
may render Reseller an end user under the terms of the license
agreement accompanying that software Product, and may subject
Reseller to the obligations of an end user.
(b) SOFTWARE IS LICENSED (NOT SOLD). IT IS LICENSED TO RESELLERS
AND/OR END USERS WITHOUT EITHER EXPRESS OR IMPLIED WARRANTIES OF ANY
KIND ON AN "AS IS" BASIS. NEITHER THE SOFTWARE OWNER(S) NOR
HEATHKIT MAKES ANY EXPRESS OR IMPLIED WARRANTIES TO RESELLERS OR END
USERS WITH REGARD TO SOFTWARE, INCLUDING MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF PATENTS, COPYRIGHTS
OR OTHER PROPRIETARY RIGHTS OF OTHERS. NONE OF THEM SHALL HAVE ANY
LIABILITY OR RESPONSIBILITY TO CUSTOMERS FOR DAMAGES OF AN KIND,
INCLUDING SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, ARISING OUT OF
OR RESULTING FROM ANY PROGRAM, SERVICES OR MATERIALS MADE AVAILABLE
HEREUNDER OR THE USE OR MODIFICATION THEREOF.
10. INFRINGEMENT. Provided Reseller gives prompt notice to Heathkit of
any claim that any Product or part thereof furnished under this
Agreement constitutes and infringement of any United States patent,
copyright, trade secret, or other proprietary right, Heathkit agrees
to defend, indemnify, and hold Reseller harmless from and against
such claim. This indemnification shall extend only to actual
damages or costs awarded in a court of law, and shall not exceed the
total purchase price to Reseller of the allegedly infringing Product
or part, nor include loss of profits or other consequential damages
suffered by Reseller.
If any Product or part is held to constitute an infringement and its
sale enjoined, Heathkit may, at its option, procure for Reseller the
right to continue selling it or modify it so as to render it non-
infringing. The provisions of this section shall not apply to any
infringement arising from use of the Product or part to practice a
method, any Product features specified by Reseller, any modification
after delivery by Heathkit, or any combination of any Product or
part with Product of another to form a system or combined Product.
At the request and expense of Heathkit, Reseller shall cooperate
with Heathkit in defending against any such action. The provisions
of this section set forth the sole obligations of Heathkit for
patent infringement and Reseller's exclusive remedies.
<PAGE>
11. INDEPENDENT CONTRACTOR/LEGAL RELATIONSHIP. The relationship of the
parties under this Agreement is strictly that of seller and buyer,
and nothing shall be construed to constitute Reseller as an agent
for or franchisee of Heathkit. Reseller acknowledges that it is an
independent contractor, with complete responsibility for and
discretion in the conduct of its business, and that it has no power
or authority to act as Heathkit's representative or agent, or to
transact business in the name of Heathkit, but will buy from
Heathkit and sell in Reseller's own name for Reseller's own account
and at Reseller's own expense. Reseller acknowledges that it has
not been required and will not be required to pay any fee or any
other payment in lieu thereof for the right to purchase or sell
Products.
12. ASSIGNMENT.
(a) This Agreement was made in reliance upon Reseller's ability,
financial responsibility, and adequacy of facilities. Therefore,
this Agreement and the rights and duties of Reseller hereunder are
personal and are not assignable or delegable. Any purported
assignment or delegation, without the prior written consent of
Heathkit shall be null and void.
(b) If a Reseller who is a sole proprietor or a partnership later
incorporates, such Reseller agrees promptly to advise Heathkit's
Credit Department of the change in status to that of a corporation
by certified mail, return receipt requested.
13. TRADEMARKS AND TRADE NAMES. Reseller recognizes the exclusive
rights of Heathkit in its trademarks and trade names and the
goodwill associated therewith, and Reseller Agrees to conduct its
business in a manner consistent with the protection of such
exclusive rights. Specifically, and without limiting the foregoing,
Reseller agrees not to use in its corporate or business name any
Heathkit trademark or trade name, unless written permission to do so
is given by Heathkit, and agrees that upon expiration or termination
of this Agreement, it will discontinue any representations that it
is a Reseller of Heathkit products.
14. TERM AND TERMINATION.
(a) The term of this Agreement shall be one year commencing on the
date of execution thereof by HEATHKIT. This Agreement shall be
automatically renewed on each subsequent anniversary date for an
additional one (1) year term unless otherwise terminated.
(b) Either party shall have the absolute right to terminate this
Agreement at any time, with or without cause, by giving the other
party thirty (30) days advance written notice. Orders received or
shipments to be made within such period prior to termination may be
subject to special credit requirements.
<PAGE>
(c) If either party fails to perform any obligation under this
Agreement, the other party may terminate this Agreement immediately
by giving written notice of its election to do so, and such
termination will become effective immediately upon mailing or
dispatch of such notice.
(d) To the extent permitted by law, HEATHKIT may terminate this
Agreement without notice in the event that a receiver is appointed
for Reseller or it property; Reseller becomes insolvent or unable to
pay its debts or ceases to pay its debts as they mature in the
ordinary course of business, or makes an assignment for the benefit
of creditors; any proceedings are commenced by or against Reseller
under any bankruptcy; insolvency, or debtor's relief law; or
Reseller is liquidated or dissolved.
15. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
TO ANY EXTENT WHATSOEVER FOR INCIDENTAL, CONSEQUENTIAL, OR INDIRECT
DAMAGES OF ANY KIND ARISING UNDER THIS AGREEMENT, OR FOR DAMAGES,
EXPENDITURES, OR LOSS OF PROFITS OR PROSPECTIVE PROFITS ARISING OUT
OF THE TERMINATION OF THIS AGREEMENT. TERMINATION SHALL NOT,
HOWEVER, RELIEVE OR RELEASE EITHER PARTY FROM MAKING PAYMENTS WHICH
MAY BE OWING TO THE OTHER PARTY UNDER THE TERMS OF THIS AGREEMENT.
RESELLER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT IT SHALL NOT BE
ENTITLED TO ANY TERMINATION COMPENSATION FOR GOODWILL OR FOR ORDERS
FROM CUSTOMERS OBTAINED BY HEATHKIT OR ANY RESELLER AFTER
TERMINATION OF THIS AGREEMENT, REGARDLESS OF PRIOR SALES EFFORT OR
EXPENSE INCURRED BY RESELLER DURING THE TERM OF THIS AGREEMENT.
16. CONSTRUCTION OF AGREEMENT. This Agreement and written policies and
procedures issued by HEATHKIT constitute the entire agreement
between HEATHKIT and Reseller; supersede any prior communications,
representations or agreements of any kind; and may not be changed
except in writing signed by person duly authorized by the parties.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Michigan. Failure to enforce any of the
terms of this Agreement by either party shall not be deemed a waiver
or a bar to the subsequent enforcement thereof. If any provision of
this Agreement shall be held invalid, it shall not affect other
provisions which can be given effect without such provisions.
Lab Technologies, Inc. Heathkit Company, Inc.
("Reseller") ("HEATHKIT")
By: Gary Nelson By: Pete Battista
---------------------------
/s/ GARY NELSON 5/19/99 /s/ PETE BATTISTA 4/16/99
- ------------------------------ ------------------------------
Signature Date Signature Date
Its: President Its: President
--------------------------
Title
<PAGE>
Exhibit "B"
1999 Reseller Territory
Reseller: Lab Technologies, Inc.
PO Box 1117
Longmont, CO 80502-1117
Territory: Arizona
Colorado
New Mexico
Utah
Wyoming
By: /s/ GARY NELSON Date: 5/19/99
----------------------------- ------------
Lab Technologies, Inc.
By: /s/ PETE BATTISTA Date: 4/16/99
----------------------------- ------------
Heathkit Company, Inc.
<PAGE>
Exhibit "C"
1999 Reseller Targets
Lab Technologies, Inc.
AZ, CO, NM, UT, WY
$220,000
<PAGE>
Exhibit "D"
1999 Reseller "Accelerators"
* Resellers achieving their assigned annual targets will receive an
additional 5% commission on purchases over assigned target.
EXHIBIT 10.9
Agreement Number: 1995-21-E
EduTECH
EduTECH
DEALER AGREEMENT
THIS AGREEMENT made this 1st day of JANUARY, 1995 between EduTECH
(the "Company") of Pittsburg, Kansas, United States of America,
incorporated and organized under the laws of the State of Kansas and LAB
TECHNOLOGIES (the "Dealer"). This agreement supersedes any agreement
previously entered into between Company and Dealer.
1. PRODUCTS
The term "Products" as used in this agreement includes those
items listed in the attached Exhibit A and such additions and deletions
as may be made by Company from time to time.
2. GRANT OF SELLING PRIVILEGE
Company hereby grants to Dealer the right to sell the Company's
products to public and private educational or training agencies or
institutions which are organized and operated for the primary purpose of
education, and which, as part of that purpose, engage or intend to engage
in training concepts within the trade territory specified in Exhibit B
(the "Territory"). Dealer will not resell the Company's products to any
other reseller. Dealer understands that this is not an exclusive right
to sell the Company's products in this Territory, unless otherwise
specified in Exhibit B.
3. UNAUTHORIZED SALES.
If Dealer makes a sale which is not within the scope of selling
privilege set forth in Article 2 above, such Dealer shall not be entitled
to any discount or commission thereon. Should such a sale or sales be
discovered by Company at any time, Company shall be entitled to a refund
or offset (of Company's choice) as to any such commission paid or
discount extended by Company, plus an administrative expense fee of
twenty-percent of the gross sales price of such unauthorized sale. In
addition to the foregoing, Company shall have the right to terminate such
Dealer's Dealer Agreement immediately upon written notice to such Dealer.
4. AGREEMENT TO SELL
Dealer hereby accepts the above right to sell the Products and
agrees to make all sales in accordance with this agreement. Dealer
further agrees to use best efforts to sell and promote the Products and
to provide trained personnel in reasonably sufficient number to
demonstrate the product and meet sales goals as established by Company
and Dealer.
5. NO AGENCY CREATED
It is agreed that this agreement does not constitute Dealer the
agent or legal representative of Company for any purpose whatsoever.
Dealer is not granted any right or authority to assume or to create any
obligation of responsibility, express or implied, on behalf of or in the
name of Company, or to bind Company in any manner or thing whatsoever.
A DEPCO, INC. Page 1
Company
1008 West 4th Street * PO Box 178 * Pittsburg, Kansas 66762 *
316-231-9006 * FAX 316-231-0024
<PAGE>
EduTECH
6. RENEWAL AND CANCELLATION
This agreement shall be in force through the final day of the
year 1994, commencing the date stated previously, and shall govern all
transactions and relations between the parties unless canceled or
terminated. Either party may cancel or terminate this agreement at any
time, with or without cause, by notice in writing, which termination
shall be effective thirty (30) days after receipt of such notice, which
shall be deemed received five (5) days after the same has been deposited
in the United States mail, postage prepaid, and sent certified mail.
It is understood that any bona fide customer order which may
have been taken by Dealer prior to receipt of notice of cancellation
shall not in any way be subject to Company's approval and acceptance, and
settlement shall be made on a basis agreeable to both Company and Dealer.
It is agreed that such cancellation or termination will not release
Dealer or Company from any obligation to make payment of any sum which
may be owed to the other at the time of such cancellation.
This agreement will automatically renew upon the expiration of
each one (1) year term for an additional twelve (12) months unless
otherwise canceled or terminated.
7. MERGER
No change, addition, or erasure of any portion of this
agreement (except the filling in of the blank lines) shall be valid or
binding upon either party unless specifically signed by an authorized
representative of each party hereto. This agreement supersedes all
previous agreements between the parties, whether written or oral, and
sets forth the entire agreement between them, and there are no other
agreements, written or oral, between the parties relating to the subject
mater hereof.
8. PRICES AND TERMS
The Dealer agrees to pay the Company Dealer prices, according
to the Dealer Price List. Schedule of Prices may be changed from time to
time by Company without prior notice.
Unless otherwise agreed to and upon satisfactory evidence of
creditworthiness, all sales on account shall be net thirty (30) days and
shall bear interest at the lesser of one and one-half percent (1 1/2%)
per month or the highest amount allowable by law. Dealer shall have the
sole responsibility for collecting, remitting, and accounting for any
applicable sales, use, or value added tax applicable to the resale of
Products by the Dealer.
9. ACCEPTANCE OF ORDERS
All orders or Products received from Dealer by Company are
subject to acceptance by Company and Company agrees that it will endeavor
to fill the accepted orders as promptly as practicable, subject, however,
to delays caused by Government, labor or material shortages, strikes,
fires or any other cause beyond Company's control. Dealer expressly
releases Company from liabilities for any loss or damage arising from the
failure of company to fill any orders of Dealer.
A DEPCO, INC. Page 2
Company
1008 West 4th Street * PO Box 178 * Pittsburg, Kansas 66762 *
316-231-9006 * FAX 316-231-0024
<PAGE>
EduTECH
10. PLACE OF BUSINESS
Dealer agrees to maintain a place of business reasonably
satisfactory to Company and Company shall have the right at all
reasonable times during normal business hours to inspect Dealer's place
of business.
11. AGREEMENT NOT ASSIGNABLE
This agreement constitutes a personal agreement and Dealer may
not transfer or assign this agreement or any right or duty hereunder
without Company's consent.
12. NO IMPLIED WAIVERS
The failure of either party at any time to require performance
by the other party of any provision hereof shall in no way affect the
full right to require such performance at any time thereafter, nor shall
the waiver by either party of a breach of any provision hereof be taken
or held to be a waiver of any succeeding breach of such provision, or as
a waiver of the provision itself.
13. GOVERNING LAW AND JUDICIAL PROCEEDINGS
The provisions of this Agreement, in substance, meaning and
procedure, shall be governed by the laws of the State of Kansas. Any
judicial proceeding by or against either party with respect to this
Agreement (including nonpayment) shall be brought in any state or federal
court of competent jurisdiction located within the State of Kansas, and,
by execution of this Agreement. Dealer accepts the exclusive
jurisdiction of such courts and agrees to be bound by any judgment or
order rendered thereby in connection with this Agreement, whether in law
or equity. Dealer expressly waives any defense Dealer may have based on
lack of personal jurisdiction. Dealer also expressly waives personal
service of process and consents to service of process by certified mail,
return receipt requested. Dealer waives trial by jury in any judicial
proceeding brought by either party to this Agreement involving directly
or indirectly, any matter in any way arising out of, related to, or
connected with this Agreement.
14. CHANGES AND UPDATES TO PRODUCTS OR DESIGN
Company reserves the right to change the design of any Product
or part thereof at any time without notice to Dealer. If any such change
is made, there will be no obligation on Company to make such changes upon
any products shipped upon the orders of Dealer, nor shall Company be
obligated to make a similar change on any Product or parts previously
shipped to Dealer, or to instal or furnish any other or different parts
than were thereon when shipment was made.
A DEPCO, INC. Page 3
Company
1008 West 4th Street * PO Box 178 * Pittsburg, Kansas 66762 *
316-231-9006 * FAX 316-231-0024
<PAGE>
EduTECH
15. DISCLOSURE OF CONFIDENTIAL INFORMATION
Dealer recognizes that during the course of the Dealer
Agreement, Dealer may have access to certain confidential information,
trade secrets, and other proprietary information which are valuable,
special and unique assets of the Company. Dealer will not disclose such
information or any part thereof to any person, firm, corporation,
partnership, association or any other entity, whatsoever. In the event
of a breach or threatened breach by Dealer, the Company shall be entitled
to an injunction restraining the Dealer from disclosing, in whole or in
part, such information or from rendering any services to any person,
firm, corporation, partnership, association or other entity to whom such
information in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company for
such breach or threatened breach including the recovery of damages from
the Dealer.
16. WARRANTY
Company warrants its Products to be free from defects in
materials and workmanship under normal use for a period of one year from
the date of receipt, unless specified differently. The Company is not
liable for any other products and equipment, which are not Products of
the Company.
17. AUTHORITY TO MAKE AGREEMENT
This agreement is not valid or binding until and unless
executed by the President or duly authorized executive officer of Dealer
and Company.
DEALER: Lab Technologies COMPANY: EduTECH (A DEPCO, Inc.
Company)
Gary Nelson Dennis Hurt
- ----------------------------- -------------------------------
(Print Name) (Print Name)
Owner Vice President/General Manager
- ----------------------------- -------------------------------
(Print Title) (Print Title)
1/30/95 3-24-95
- ----------------------------- -------------------------------
(Date) (Date)
/s/ GARY NELSON /s/ DENNIS HURT
- ----------------------------- -------------------------------
(Signature) (Signature)
A DEPCO, INC. Page 4
Company
1008 West 4th Street * PO Box 178 * Pittsburg, Kansas 66762 *
316-231-9006 * FAX 316-231-0024
<PAGE>
EduTECH
Agreement Number: 1995-21-E
Exhibit A
Dealer Agreement
PRODUCTS (Aldus Specific)
"Explorations in Pagemaker"
PRODUCTS (Autodesk Specific)
"Explorations in 3D-Studio" 1
"Explorations in Animation"
"Explorations in Animator Pro"
"Explorations in AutoCAD" 1
"Explorations in AutoCAD" 2
"Explorations in Autosketch"
PRODUCTS (Eshed Specific)
"Explorations in Robotics"
PRODUCTS (Light Machines Specific)
"Explorations in Engraving"
CAD/CAM Lathe 1 Activity Guide
CAD/CAM Mill 1 & 2 Activity Guides
CNC Lathe Acrylic Chess Set Project
CNC Lathe Screwdriver Project
CNC Mill Cube 1 Project
CNC Mill Projects
PRODUCTS (EduTECH Specific)
Building Construction TLU
CNC Engraving TLU
Digital Music (MIDI) TLU
Flight Simulator TLU
Flight Trainer TLU
Graphic Design TLU
Laser Applications TLU
Manual Drafting TLU
Multimedia TLU
Residential Plumbing TLU
Residential Wiring TLU
SchedulTECH
TLU (Technology Learning Unit)
Products listed above are developed by DEPCO, Inc.
A DEPCO, INC.
Company
1008 West 4th Street * PO Box 178 * Pittsburg, Kansas 66762 *
316-231-9006 * FAX 316-231-0024
<PAGE>
EduTECH
Contract Number: 1995-21-E
Exhibit B
Dealer Agreement
TERRITORY
Arizona . . . . . . . . . . .Right to sell All Products
Colorado. . . . . . . . . . .Right to sell All Products
Idaho . . . . . . . . . . . .Right to sell All Products
Montana . . . . . . . . . . .Right to sell All Products
New Mexico. . . . . . . . . .Right to sell All Products
Utah. . . . . . . . . . . . .Right to sell All Products
Wyoming . . . . . . . . . . .Right to sell All Products
A DEPCO, INC.
Company
1008 West 4th Street * PO Box 178 * Pittsburg, Kansas 66762 *
316-231-9006 * FAX 316-231-0024
EXHIBIT 10.10
Interior
Concepts
The Educated Choice
March 9, 1999
Gary Nelson
Lab Technologies
8245 West I-25 Frontage Rd. #4
Erie, CO 80516
Dear Gary,
This letter, and the attachment, is to confirm the coverage that Lab
Technologies will have for Interior Concepts. I'd like to cover each
state individually with a little bit of explanation, this as follows:
ARIZONA - I have made the decision to NOT move forward with the dealer
that was added by Bob Johnson, this being Arizona School furnishings.
After evaluating both companies, I believe that your direction better
focuses on the selling approach we are looking for; pursuing major
renovations and new construction. Therefore, your company will have
exclusivity in the state for all of the areas noted.
COLORADO - I am not currently able to offer exclusivity in Colorado, due
to arrangements that were previously agreed to. Academic Specialties is
a school equipment dealer in Colorado which has had our line on a non-
exclusive basis for a number of years. The only individual in this
organization who is actually out presenting our product is Brent
Bieshaar. Brent brought a number of key individuals from school
districts along with major players from architectural firms specializing
in education to the school equipment show recently held in Denver.
Because Brent is only one person, he is not able to adequately represent
us with al of the projects going on in Colorado, and in talking to Brent
yesterday, he is the first one to admit this. Brent will be registering
projects with us and we will protect him on them. He expects that to be
a classroom here and a classroom there, not necessarily large projects.
Currently he has one project that he is working on, a computer lab at
Northglenn Middle School, of which we will provide protection to him. If
ever we see projects overlap, we will notify you immediately. We are
offering exclusivity for technology labs, life management labs and
distance learning classrooms in Colorado, these being areas that we
believe your company can do better than any other company.
IDAHO - Your company will have exclusivity in three areas and can
register projects in the other areas. Fetzers', Inc., located in Salt
Lake city, has one representative that has Idaho as part of his
territory, and both your company and his will have the opportunity to
register projects for Interior Concepts in the areas as noted on the
attached chart.
18525 Trimble Court
Spring Lake, MI 49456
616.842.5550
1.800.678.5550
FAX 616.846.3925
www.interiorconcepts.com
<PAGE>
Page 2, cont.
MONTANA - Your company will have exclusivity for our products in all
areas in this state.
NEW MEXICO - Your company will have exclusivity for our products in all
areas in this state.
UTAH - We had added a new dealer in this state, this being done while Bob
was in or employ. This company is Fetzers', Inc., located in Salt Lake
City. They have an excellent reputation in the educational market in
Utah and have three representatives located in the state itself. I have
given them exclusivity with the exception of three areas; Distance
Learning classrooms would need to be registered, and they would not be
able to pursue Technology Education or Life Management Labs.
WYOMING - Your company will have exclusivity for our products in all
areas in this state.
An additional comment on the spreadsheet; I've tried to identify many of
the common "classrooms" that we typically see, however, there are a
zillion others that I didn't list or have never even heard of. Please do
not view this list as limiting as far as areas within an educational
facility for your representatives to present our product. These were
defined more for "Connect2" and "ConnecTech" purposes. I can probably
better explain this over the phone or in person, if this is unclear.
Anyway, Gary, I am really looking forward to spending some
selling/training time with each of your representatives (and any new
ones, too). If you have any questions on any of the above information or
the spreadsheet itself, please do not hesitate to call me.
Sincerely,
Interior Concepts
/s/ CINDY WESSEL
Cindy Wessel
National Sales Manager
Attachment
<PAGE>
(Attachment)
Lab Technologies
State-by-State Coverage
For
Interior Concepts Product
March 9, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
State Computer Instructional Administrative T2 Technology Distance Media Business Life
Instructional Classrooms Workstations Tables Education Learning Centers Education Management
Classrooms Labs Classrooms Labs
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona X X X X X X X X X
- --------------------------------------------------------------------------------------------------------------------
Colorado REG REG REG REG X X REG REG X
- --------------------------------------------------------------------------------------------------------------------
Idaho REG REG REG REG X X REG REG X
- --------------------------------------------------------------------------------------------------------------------
Montana X X X X X X X X X
- --------------------------------------------------------------------------------------------------------------------
New X X X X X X X X X
Mexico
- --------------------------------------------------------------------------------------------------------------------
Utah N/A N/A N/A N/A X REG N/A N/A X
- --------------------------------------------------------------------------------------------------------------------
Wyoming X X X X X X X X X
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
X = Exclusivity in these areas in the state
N/A = Product not available for these areas in the state
REG = Register projects in these areas in the state
EXHIBIT 10.11
Agreement No. 109
----
intelitek
Educational Dealer Agreement
THIS AGREEMENT made this 1st day of AUGUST, 1997, between intelitek
of Princeton, NJ, incorporated and organized under the laws of the State
of New Jersey hereinafter referred to as the Company, and LAB
TECHNOLOGIES hereinafter referred to as the Dealer. This contract
supersedes any contract previously entered into between Company and Dealer.
1. PRODUCTS
--------
The term "Products" as used in this agreement includes those
items listed in the attached Exhibit A and such additions and deletions
as may be made by Company from time to time.
2. GRANT OF SELLING PRIVILEGE
--------------------------
Company hereby grants to Dealer the exclusive right to sell the
Company's Products and accessory items to public and private educational
and training agencies or institutions which are organized and operated
for the primary purpose of education/training and which, as part of that
purpose, engage or intend to engage in training using the company's
products in the territory of CO, UT, WY, MT, NM, ID, AZ (the
"Territory"). Dealer understands that no grant or representation of
exclusive rights to sell any customers other than as described above
within any territory has been or is made by Company hereunder.
Additionally, a non-exclusive selling privilege shall include sales to
the United States Government or its agencies, industrial and/or
commercial accounts, or any account using the equipment for the sole
purpose of training within the above described Territory. Company
reserves the right to make direct sales or to appoint other dealers at
any location within or outside the Territory as to all other accounts.
3. UNAUTHORIZED SALES
------------------
If any Dealer makes a sale which is not within the scope of the
selling privilege set forth in Article 2 above, such Dealer may not be
entitled to any discount or commission thereon. Should such a sale or
sales be discovered by Company at any time, Company should be entitled to
a refund or offset (of Company's choice) as to such commission paid or
discount extended by Company, plus an administrative expense fee of
twenty percent of the gross sales price of such unauthorized sale. In
addition to the foregoing, Company shall have the option to terminate
such Dealer's Dealer Agreement immediately upon written notice to such Dealer.
The Authorized exclusive Dealer (if any exists) to whom a
commission would otherwise have been paid on such sale by virtue of the
exclusive selling privilege granted shall be entitled to receive its
commission only upon receipt of payment of offset by the Company. The
foregoing shall be the exclusive remedies of Dealers under this Agreement
for breach of the exclusive selling privilege.
4. AGREEMENT TO SELL
-----------------
Dealer hereby accepts the above right to sell the Products and
agrees to make all sales in accordance with this agreement. Dealer
further agrees to use best efforts to sell and promote the Products and
to provide trained personnel in reasonably sufficient number to
demonstrate, the Products, provide first line service, and meet sales
goals as established by Company and Dealer.
1
<PAGE>
5. NO AGENCY CREATED
-----------------
It is agreed that this agreement does not constitute Dealer the
agent or legal representative of Company for any purpose whatsoever.
Dealer is not granted any right or authority to assume or create any
obligation or responsibility, express or implied, on behalf of or in the
name of Company, or to bind Company in any manner or thing whatsoever.
6. RENEWAL AND CANCELLATION
------------------------
This agreement shall be in force for a twelve (12) month period
commencing the date stated previously, and shall govern all transactions
and relations between the parties unless canceled or terminated. Either
party may cancel or terminate this agreement at any time, with or without
cause, by notice in writing, which termination shall be effective thirty
(30) days after receipt of such notice, which shall be deemed received
five (5) after the same has been deposited in the United States mail,
postage prepaid, and sent certified mail.
It is understood that any BONA FIDE customer order which may
have been taken by Dealer prior to receipt of notice of cancellation
shall not be in any way subject to Company's approval and acceptance, and
settlement shall be made on a basis agreeable to both Company and Dealer.
It is agreed that such cancellation or termination will not release
Dealer or Company from any obligation to make payment of any sum which
may be owed to the other at the time of such cancellation.
This agreement will automatically renew upon the expiration of
each one (1) year term for an additional twelve (12) months unless
otherwise canceled or terminated.
7. MERGER
No change, addition, or erasure of any portion of this
agreement (except the filing in of blank lines) shall be valid or binding
upon either party unless specifically initialized or signed by an
authorized representative of each party hereto. This agreement
supersedes all previous agreements between the parties, whether written
or oral, and sets forth the entire agreement between them, and there are
no other agreements, written or oral, between the parties relating to the
subject matter hereof.
8. PRICES AND TERMS.
The Dealer agrees to pay the Company's Dealer net prices F.O.B.
Company's plant, according to the Schedule of Prices, Exhibit A, and
discounts set forth in the attached Exhibit B, which schedules may be
changed from time to time by Company at its sole discretion without prior
notice.
Unless otherwise agreed to and upon satisfactory evidence of
creditworthiness, terms of sale are cash with order or C.O.D. All sales
on accounts shall be net thirty (30) days and shall bear interest at the
lesser of the one and one-half percent (1 1/2%) per month or the highest
amount allowable by law, as per the attached Exhibit C, which schedules
may be changed from time to time by Company and its sole discretion
without prior notice. Dealer shall have the sole responsibility for
collecting, remitting, and accounting for applicable sales, use, or value
added tax applicable to the resale of Products by the Dealer.
Direct orders from customers are subject to credit approval and
acceptance by Company. Commissions on direct customer orders accepted by
Company shall be paid to Dealer [within thirty (30) days after receipt of
payment by Company or forty-five (45) days after shipment]. Commission
on CIM sales made on a direct basis shall be paid on a prorata basis
consistent with the percentage of completion within thirty (30) days of
receipt of payment from the customer.
All shipments (excluding demonstration units to Dealer) shall
be made directly to the end user customer unless other arrangements are
made and agreed to in advance by Company.
2
<PAGE>
9. ACCEPTANCE OF ORDERS
--------------------
All orders for Products received from Dealer by Company are
subject to acceptance by Company and Company agrees that it will endeavor
to fill the accepted orders as promptly as practicable, subject, however,
to delays caused by Government, labor or material shortages, strikes,
fires, or any other cause beyond Company's control. Dealer expressly
releases Company from liabilities for any loss or damage arising from the
failure of Company to fill any orders of Dealer.
10. PLACE OF BUSINESS
-----------------
Dealer agrees to maintain a place of business reasonably
satisfactory to Company and Company shall have the right at all
reasonable times during normal business hours to inspect Dealer's place
of business.
11. RIGHT TO NAME
-------------
Dealer is entitled to use the trademarks "spectraLIGHT",
"spectraCAM", "proLIGHT", "Benchman", "SCORBOT" as applied to any
equipment and of the goodwill attached thereto. Said trademark is not to
be used in the name under which the Dealer's business is conducted. If
said trademark is used in any sign or advertising displayed by Dealer,
Dealer will, on termination of this agreement or upon request of Company,
discontinue the use of the trademark in such sign or advertising
displayed by Dealer. Dealer will, on termination of this agreement or
upon request of Company, discontinue the use of the trademark in such
sign or advertising and thereafter will not use the trademark either
directly or indirectly, in connection with its business, or any other
name, title, or expression that so nearly resemble the same as would be
likely to lead to confusion or uncertainty or to agreement is in effect
to use any trademarks owned by Company in connection with the sale or
promotion of the Products, subject to the prior review and approval of
the Company.
12. AGREEMENT NOT ASSIGNABLE
------------------------
This agreement constitutes a personal contract and Dealer may
not transfer or assign this agreement or any right or duty hereunder
without Company's consent.
13. NO IMPLIED WAIVERS
------------------
The failure of either party at any time to require performance
by the other party of any provision hereof shall in no way affect the
full right to require such performance at any time thereafter, nor shall
the waiver by either party of a breach of any provision hereof be taken
or held to be a waiver of any succeeding breach of such provisions, or as
a waiver of the provision itself.
14. CHOICE OF LAW
-------------
This agreement is to be governed by and construed according to
the laws of the State of New Jersey. It is understood, however, that
this is a general form of agreement, designed for the use of the United
States of America, wherever Company may desire to sell Products, and that
any provision herein, which in any way contravenes the laws of any state
or jurisdiction, shall be deemed not to be a part of this agreement. Any
action on or relating to this agreement shall be brought only on a court
of competent subject matter jurisdiction sitting in the State of New
Jersey, and Dealer hereby irrevocably appoints the Secretary of State of
New Jersey as its agent for service or process and consent to the
jurisdiction of the New Jersey Superior Court of Mercer County.
3
<PAGE>
15. CHANGE OF MODELS OR DESIGN
--------------------------
Company reserves the right to change the design of any Product
or part thereof at anytime without notice to Dealer. If any such change
is made, there will be no obligation on Company to make such changes upon
any products shipped upon the orders of Dealer, nor shall Company be
obligated to make a similar change on any Product or parts previously
shipped top Dealer, or to install or furnish any other or different parts
that were thereon when shipment was made.
16. WARRANTY
--------
Dealer is not authorized to perform warranty repair work or to
alter, expand, or in any way modify Company's warranty as to products.
Warranty repair work shall only be performed at Company's plant by
Company. Dealer is not authorized to change or modify Company's warranty
terms in any way.
17. EXPORT
------
Notwithstanding any other provision of this agreement, Dealer
will not export, directly or indirectly, any Product, U.S. source
technical data (including computer software) or electronic components
(including computer hardware) acquired from intelitek or any product
utilizing such data or components without first obtaining consent to do
so from itelitek and the Department of Commerce or other agencies of the
U.S. Government when required by applicable statute or regulation.
18. AUTHORITY TO MAKE AGREEMENT
---------------------------
This agreement is not valid or binding until and unless
executed by the President or duly authorized executive officer of Dealer
and Company.
DEALER intelitek
- ------ ---------
/s/ GARY NELSON /s/
- --------------------------- -------------------------
(Signature) (Signature)
PRESIDENT Director
- --------------------------- -------------------------
(Title) (Title)
AUGUST 19, 1997 August 1, 1997
- --------------------------- -------------------------
(Date) (Date)
4
<PAGE>
EXHIBIT C
CREDIT AGREEMENT AND TERMS
--------------------------
Thank you for choosing intelitek as your supplier of Education curriculum
and training system. We look forward to a long and prosperous business
relationship with you.
Please take this opportunity to review the "Terms and Conditions of Sale"
that are attached, as well as the standard credit policies of intelitek.
Your account number and credit limit have been established based on the
information you have previously provided.
Customer Name: LAB TECHNOLOGIES Account No.: L-1000
Amounts due as a result of any and all purchases made by Customer from
supplier will be paid to Supplier on the following terms and conditions.
CREDIT LIMIT: 60,000
TERMS: Due and payable in full within 30 days from the date
of the invoice unless otherwise agreed upon in
writing. Accounts 60 days old will be placed on
prepaid or C.O.D. status. Legal action will be taken
after an account is 90 days old.
LATE PAYMENT: Past due amounts are subject to late payment service
charges of 1 1/2% per month; 18% annual rate.
RETURNS: No returned goods will be accepted without
authorization (RMA numbers can be obtained from our
customer service department). A restocking charge
(10%) will be made on all goods returned unless due
to an error caused by the Supplier.
FAILURE TO PAY
OR INSOLVENCY: Failure by Customer to pay any part of the purchase
price when due, or in the event that proceedings in
bankruptcy, receivership, or insolvency are
instituted by or against Customer for his property,
Supplier may, at its option cause the entire unpaid
balance to become due and immediately payable.
Customer hereby expressly waives any right to action
which may accrue by reason of the entry for taking
possession of or the selling of said materials and
agrees to pay all costs incurred with respect thereto
including service charges and reasonable attorney's
fees and court costs.
THE UNDERSIGNED AGREES TO THE FOREGOING AND ACKNOWLEDGES RECEIPT OF THE
CREDIT TERMS AND CONDITIONS OF SALE AS STATED BY INTELITEK.
PLEASE COMPLETE THE REQUESTED INFORMATION BELOW AND RETURN TO INTELITEK.
Accepted by Customer: Accounts Payable Contact:
By: /s/ GARY NELSON Name:
----------------------- --------------------------
Signature Please Print
PRESIDENT Telephone:
----------------------- ---------------------
Position
Date Accepted: AUGUST 19,1997
---------------
EXHIBIT 10.12
EMPLOYMENT AGREEMENT BETWEEN
n-GEN SOLUTIONS.COM, INC d/b/a LAB TECHNOLOGIES
AND DEAN C. MYERS
This Employment Agreement (hereinafter referred to as the "Agreement")
is entered into in Denver, Colorado effective as of September 1, 1999, by
and between n-GEN SOLUTIONS.COM, INC. d/b/a LAB TECHNOLOGIES, a Delaware
corporation (hereinafter referred to as the "Company"), and DEAN C. MYERS
(hereinafter referred to as "Employee").
RECITALS
--------
WHEREAS, the Company desires to employ Employee as Vice President of
Operations and Chief Technical Officer of the Company, and Employee is
willing and able to be so employed; and
WHEREAS, the parties desire to set forth the terms and conditions of
their employment relationship as provided herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties agree as
follows:
AGREEMENT
---------
SECTION I - EMPLOYMENT
The Company hereby employs Employee and Employee hereby accepts
employment from the Company as Vice President of Operations and Chief
Technical Officer of the Company, subject to the conditions and terms of
this Agreement. Employee shall have the responsibilities and authority
typical of a Vice President of Operations and Chief Technical Officer,
subject to the reasonable control and direction of the Company. During the
term of this Agreement, the Company shall ensure that Employee remains a
director of the Company.
SECTION II TERM
Subject to the provisions of Section V of this Agreement, the term of
this Agreement shall be for a period of three (3) years commencing on
October 1, 1999, and terminating on September 30, 2002. Thereafter, the
term of this Agreement shall be automatically renewed for successive one
(1) year periods unless prior written notice to the contrary is given by
the Company or the Employee to the other party at least thirty (30) days
prior to the expiration of the initial term or the renewal period, as the
case may be.
<PAGE>
SECTION III - COMPENSATION.
A. BASE SALARY. During the first year of this Agreement, the
Company shall pay Employee an annual base gross salary of $92,000;
provided, however, that a portion of such base salary shall be deferred and
Employee shall be paid on the Company's standard payroll dates of the 5th
and the 20th of each month based on an annual base gross salary of $74,000
until the earlier of: (i) the end of six (6) months from the date of this
Agreement; (ii) the Initial Public Offering ("IPO"). At such time, the
deferred salary of $18,000 shall be paid to Employee, prorated to the date
of such event, and the Company shall commence to pay Employee, on the
Company's standard payroll dates of the 5th and the 20th of each month,
based on an annual base gross salary of $92,000. In each subsequent year
of this Agreement, Employee's annual base gross salary shall be increased
to account for cost of living increases and Employee's job performance and
professional growth, in a minimum amount of ten percent (10%) each year,
B. ANNUAL BONUSES. In addition to the annual base salary described
above and all other forms of compensation contemplated by this Agreement,
the Company shall pay Employee annual bonuses in accordance with the following:
1. At the beginning of each year of this Agreement, the Company
shall be required to establish Revenue Targets for the Company upon
which Employee's Annual Bonus shall be based. Employee shall receive
an Annual Bonus based on the percentage of the Revenue Target
achieved in accordance with the following:
Revenue Employee Bonus
------- --------------
Targets
-------
40% of target 3% of base salary
50% of target 5% of base salary
60% of target 7% of base salary
70% of target 9% of base salary
80% of target 12% of base salary
90% of target 15% of base salary
100% of target 18% of base salary
In the event that over 100% of the Revenue Target is achieved,
Employee shall receive an additional 0.5% of Employee's base salary
for each percentage point above 100% achieved.
2. Employee's Annual Bonus shall be paid on the last day of the
third month following the end of each year of this Agreement, unless
this Agreement is terminated or the parties otherwise agree. In the
event of termination, payment of
2
<PAGE>
Employee's Annual Bonus shall be governed by the terms of Section V.
In the event of termination, the Company shall not be entitled to
assert that Employee's Annual Bonus is not determinable or vested.
Employee's Annual Bonus shall not be subject to forfeiture under any
circumstances.
C. STOCK.
1. NUMBER AND VALUE OF SHARES. In addition to the base salary
and all other forms of compensation contemplated by this Agreement,
Employee shall receive a minimum of 100,000 shares of Company stock
upon the effective date of this Agreement. If the official nominal
share price at the commencement of the Company's IPO is less than the
anticipated $5.00 per share, then Company shall issue to Employee upon
the completion of the IPO such number of additional shares as may be
necessary in order that the total value of Employee's shares
(calculated using the nominal price per share at the commencement of
the IPO) shall be equal to $500,000. All shares issued to Employee
shall be deemed fully paid, non-assessable, and fully vested upon
issuance.
2. OTHER OFFERINGS OR ISSUANCE OF COMPANY SHARES; ANTI-DILUTION.
In the event that the Company issues, or commits to issue,
(whether by warrant, option, or otherwise) shares in addition to the
shares issued as of the effective date of this Agreement, and provided
that the IPO has not occurred as of the date of such issuance or
committment, the Company shall simultaneously with the issuance of
such other shares issue to Employee without additional consideration
such number of additional shares as may be necessary in order to
preserve Employee's percentage ownership of the Company as Employee
would have in the absence of such other issuance of shares. All shares
issued to Employee pursuant to this subsection shall be be deemed
fully paid, non-assessable, and fully vested upon issuance.
3. RIGHTS AND PRIVILEGES OF OFFICERS AND DIRECTORS. Throughout
the term of this Agreement, Employee shall be entitled to receive and
the Company shall be obligated to provide, at Employee's option, the
same rights and privileges with respect to Employee's share ownership
in the Company as are provided to any other Officer or Director of the
Company, including but not limited to pre-emptive rights, registration
rights, anti-dilution protection, and disposition/sale rights.
4. REPURCHASE REQUIREMENT. In the event of expiration of this
Agreement after the initial term or upon non-renewal of this
Agreement, Employee may, at Employee's option, require that the
Company purchase all of the shares held by Employee at a cash price
per share equal to the book value of the shares (as determined by the
Company's regular certified public accountants) as of the effective
date of the expiration or non-renewal of this Agreement.
3
<PAGE>
D. PROFIT SHARING. In the event that there has not been an IPO
prior to the end of the first year of this Agreement, Employee shall
receive from the Company an amount equal to 3% of the Company's earnings
before income tax, depreciation, and amortization ("EBITDA") for the
Company's fiscal year in which the first year of this Agreement terminates.
In the event that there has not been an IPO prior to the end of the second
year of this Agreement, Employee shall receive from the Company an amount
equal to 5% of the Company's EBITDA for the Company's fiscal year in which
the second year of this Agreement terminates. In the event that there has
not been an IPO prior to the end of the third year of this Agreement,
Employee shall receive from the Company, an amount equal to 8% of the
Company's EBITDA for the Company's fiscal year in which the third year of
this Agreement terminates. Each profit sharing payment to Employee shall be
paid within sixty (60) days of the end of the Company's fiscal year.
E. BENEFITS. The Company shall provide the following benefits to
Employee throughout the term of this Agreement:
1. MEDICAL, DENTAL AND DISABILITY INSURANCE. The Company shall
provide reasonable medical, dental and disability insurance to
Employee and his family at no cost to Employee.
2. LIFE INSURANCE. The Company shall pay Employee's annual
life insurance annuity premium of $5,000; provided that Employee shall
be obligated to pay any income tax associated with the payment of such
premium by the Company.
3. 401(k) PLAN. The Company shall offer and Employee shall be
entitled to participate in a 401(k) plan.
4. VACATION LEAVE. Employee shall be entitled to 15 days of
paid vacation leave per year. Vacation leave will be increased at the
rate of five (5) days for each additional twelve-month term that this
Agreement is extended beyond the original three year term, up to a
maximum of twenty five (25) business days per year. Employee shall
also be paid for all legal holidays.
5. BUSINESS EXPENSES. The Company shall reimburse Employee for
all business-related expenses, including but not limited to travel and
other reasonable business development expenses.
6. PAYMENT OF LEGAL EXPENSES. The Company shall pay Employee's
reasonable legal expenses related to the preparation and negotiation
of this Agreement, as well as Employee's reasonable legal expenses
associated with any legal counsel necessary to advise Employee with
regard to stock-related matters such as the IPO, anti-dilution,
registration rights, sale/disposition rights, or other related matters.
4
<PAGE>
7. ADDITIONAL BENEFITS. Employee shall receive such additional
benefits as the Company shall establish from time to time for its
executives or management level employees.
SECTION IV - SALE PARTICIPATION RIGHTS.
A. SALE COMPENSATION. In the event that there is a sale of the
Company (as hereinafter defined) during the term of this Agreement, the
Company shall pay to Employee, as deferred compensation, an amount equal to
ten percent (10%) of his annual base gross salary for the year in which
such sale occurs. In addition, at the election of Employee, the Company
shall be obligated to purchase the outstanding shares of the Company issued
to Employee as of the date of the sale of the Company at a cash price per
share equal to the book value of the shares (as determined by the Company's
regular certified public accountants) as of the effective date of the sale.
As an alternative to the purchase of Employee's shares by the Company, in
the event that the sale of the Company involves a sale or exchange of stock
as contemplated in paragraphs B.3 and B.4 below, at Employee's election,
the Company shall ensure that the outstanding shares of the Company issued
to Employee as of the date of the sale of the Company are purchased or
exchanged on terms no less favorable than the terms upon which the other
shares of the Company are sold or exchanged, as determined in Employee's
reasonable discretion.
B. DEFINITION OF SALE. For the purposes of paragraph A above and
paragraph C below, a "sale of the Company" shall be defined as:
1. The sale of all or substantially all of the assets of the
Company;
2. The sale of an operating division or a separate and
identifiable profit-center of the Company to a third party;
3. The sale of more than fifty percent (50%) of the issued and
outstanding shares of the Company's common stock to a third
party; or
4. The exchange of more than fifty percent (50%) of the issued
and outstanding shares of the Company's common stock for other
securities in connection with a merger or other acquisition of
the Company by a third party.
C. RIGHT TO CONTINUE EMPLOYMENT. In the event of any sale of the
Company, at Employee's election, the Company shall ensure that Employee may
remain employed by the purchaser of the Company for the balance of the term
of this Agreement upon terms no less favorable than those set forth herein,
as determined in Employee's reasonable discretion. Under such
circumstances, the Company may assign this Agreement to the purchaser;
provided however, that prior to any such assignment, Employee must provide
his written consent, which shall be given or withheld in Employee's sole
discretion.
5
<PAGE>
SECTION V - TERMINATION OF AGREEMENT.
A. TERMINATION OF AGREEMENT. Either party may terminate this
Agreement, for any reason, by providing sixty (60) days' prior written
notice to the other party; provided that the same shall have the effect
described in paragraphs B and C below.
B. TERMINATION BY COMPANY. Upon termination of this Agreement for
any reason whatsoever by the Company, the Company shall pay to Employee at
such termination (i) any amount of compensation deferred pursuant to the
terms hereof; (ii) an amount equal to six (6) months' base gross salary for
the year in which the termination occurs; and (iii) a Bonus amount equal to
nine percent (9%) of Employee's annual base gross salary for such year. In
addition, Employee shall be entitled to retain all shares issued to
Employee, and Employee shall receive from the Company a profit sharing
amount equal to eight percent (8%) of the Company's EBITDA for the
Company's fiscal year in which the termination occurs in the event that
there has not been an IPO prior to the termination of this Agreement by the
Company. Such profit sharing amount shall be payable within sixty (60)
days after the end of the Company's fiscal year in which the Employee's
termination occurs. In addition, upon termination of this Agreement for
any reason whatsoever by the Company, at the written election of Employee,
the Company shall be immediately obligated to re-purchase the shares in the
Company issued to Employee. If, prior to Employee's termination, the
Company's stock is traded publicly, the cash purchase price for such stock
shall be the trading price as of the day of termination, but no less than
$5.00 per share. However, if prior to Employee's termination, the
Company's stock is not publicly traded, the cash purchase price for
Employee's shares shall be the book value of the shares (as determined by
the Company's regular certified public accountants) as of the effective
date of the termination of this Agreement. Further, upon termination of
this Agreement for any reason whatsoever by the Company, the Company shall
be required, within sixty (60) days of the effective date of the
termination, to reimburse Employee for any fees or penalties incurred
related to Employee's 401K account, including any and all such fees or
penalties associated with transferring, maintaining, or terminating such
account. Finally, upon termination of this Agreement for any reason
whatsoever by the Company, the Company shall also immediately pay to
Employee an amount equal to the value of any and all earned and/or vested
benefits.
C. TERMINATION BY EMPLOYEE. Upon termination of this Agreement by
Employee, Employee shall retain and/or be paid by the Company all forms of
compensation earned and/or vested as of the date of termination, including
but not limited Employee's salary, deferred compensation, bonuses, stock,
profit sharing, and benefits. Upon termination of this Agreement for any
reason whatsoever by Employee, Employee shall be entitled to no further
compensation from the Company; provided however, that the parties may
nevertheless endeavor to negotiate an agreement for the purchase of the
outstanding shares in the Company issued to Employee as of the effective
date of the termination of this Agreement.
6
<PAGE>
SECTION VI - GOVERNING LAW; DISPUTE RESOLUTION; ATTORNEYS' FEES.
This Agreement has been made and entered into in the State of Colorado
and shall be governed and construed in accordance with the laws of the
State of Colorado without regard to the conflicts of laws or principles
thereof. All disputes arising under this Agreement or involving this
Agreement shall be brought and maintained in the District Court, City and
County of Denver, Colorado. The Parties hereby irrevocably waive any other
venue to which they may be entitled by virtue of domicile, habitual
residence or otherwise. In the event either party to this Agreement
commences any action or proceeding against another party to enforce or
interpret this Agreement or to recover damages resulting from the breach of
this Agreement, the prevailing party, shall be awarded all costs and fees,
including but not limited to reasonable attorneys' fees. Prior to
commencing an action to enforce or interpret this Agreement, the parties
agree to undertake reasonable efforts to mediate the dispute.
SECTION VII - SEVERABILITY.
In case any one or more of the provisions contained herein shall, for
any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect
any other provisions of this Agreement. Such provision shall be deemed
amended to conform to the requirements of the law so as to be valid and
enforceable in light of the parties' apparent intent as evidenced by this
Agreement.
SECTION VIII - COMPLETE AGREEMENT AND MODIFICATION.
This Agreement contains the full and complete agreement between the
parties concerning the employment of Employee. It supercedes all prior
statements, agreements, understandings and representations with respect to
the employment. This Agreement may be modified only by written amendment,
signed by Employee and an officer of The Company.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the effective date specified above.
THE COMPANY: EMPLOYEE:
n-GEN SOLUTIONS.COM, INC.
D/B/A LAB TECHNOLOGIES
a Delaware corporation
By:_________________________ By: __________________________
DEAN C. MYERS
_________________________
7
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
AGREEMENT is made this 26th day of March, 1999, by and between
Technology Learning Systems, Inc., a Colorado Corporation (hereinafter
"Corporation") and Gary Nelson, (hereinafter "Employee").
WHEREAS, Corporation desires to employ Employee as President and of
Corporation to devote full time to the business of the Corporation, and
Employee desires to be so employed.
NOW THEREFORE, the parties agree as follows:
1. EMPLOYMENT. Corporation agrees to employ Employee, and
Employee agrees to be so employed, in the capacity of President of
Corporation. Employee's duties shall be as set forth herein as well as
those additional duties that Employee has historically performed for the
corporation.
2. TERM. Employee's employment with Corporation shall be for a
term of five (5) years effective as of the date of mutual execution of
this Agreement and terminating on the fifth anniversary date of mutual
execution of this Agreement.
3. TIME AND EFFORTS. Employee shall diligently and
conscientiously devote his full time and attention in discharging his
duties as the Corporation's President and Chief Executive Officer.
4. BOARD OF DIRECTORS. Employee shall at all times discharge his
duties in consulting with, and under supervision of, the Corporation's
Board of Directors. In the performance of his duties, Employee shall
make his principal office in the Corporation's principal place of
business in Colorado.
5. COMPENSATION.
(a) First year. During the first year of the term of this
Agreement Corporation shall pay to Employee as compensation for his
services the sum of $108,000.00. This amount shall be paid in equal
semi-monthly installments through the year.
(b) Second year and thereafter. After the first year of the
employment term Employee shall receive, in addition to the amount set
forth in paragraph 5(a) above, such costs of living increase as the Board
of Directors shall determine appropriate considering the position
<PAGE>
of Employee with the Corporation and the performance of the company over
the preceding 12 month period.
6. EXPENSES.
(a) Reimbursement. The Corporation shall reimburse Employee
for all reasonable and necessary expenses incurred in carrying out his
duties under this Agreement. Employee shall present to the Corporation
from time to time an itemized account of such expenses in any form
required by the Corporation.
(b) Automobile. The Corporation recognizes the Employee's
need to an automobile for business purposes. It, therefore, shall
provide the Employee with an automobile, including all related
maintenance, repairs, insurance, and other costs. The automobile and
related costs shall be comparable to those which the Corporation
presently provides the Employee.
7. DISABILITY. In the event any illness or accident renders
Employee totally disabled, Corporation's obligations under this Agreement
shall terminate 26 weeks after the determination of total disability.
8. PAID VACATION. Employee shall be provided four (4) weeks of
paid vacation per year, which vacation shall be scheduled with notice to
the Board of Directors. The vacation accrual for each year shall be
deemed accrued on the first day of each year during the contract term.
9. 401K PLAN. Employee shall participate in the Corporation's
401K Pension Plan to the same extent as the other employees of the
Corporation. In the event that the 401K Plan is replaced with another
plan at some point in the future Employee shall participate in the
replacement plan to the same extent as all other employees of the
Corporation.
10. HEALTH INSURANCE. Employee shall be provided health and
hospitalization insurance for Employee and his dependent family members
at no cost to Employee. Employee must approve all changes to health and
hospitalization insurance coverages and/or carriers during the term of
this Agreement.
11. STOCK OPTIONS. Within the first twelve (12) months of the term
of this Agreement Corporation shall establish a stock option plan for
Employee, which plan shall be mutually agreeable to the parties.
12. ADDITIONAL STOCK IN THE EVENT OF PUBLIC OFFERING. In the event
of a public offerring of the Corporation, either during or after the term
of this agreement, Corporation shall issue to Employee the equivalent of
Eight Hundred Thousand Dollars ($800,000.00) in stock of the corporation
based upon offering price. This provision of this agreement shall
survive the expiration or termination of this agreement, regardless of
the cause.
<PAGE>
13. NOTICE.
All notices required or permitted to be given under this Agreement
shall be given by certified mail, return receipt requested, to the
parties at the following addresses or to such other addresses as either
may designate in writing to the other party;
If to Corporation: Technology Learning Systems, Inc.
---------------------------------
c/o Robert D. Arnold
------------------------------
410 17th Street, Suite 1940
------------------------------
Denver, CO 80202
------------------------------
If to Employee: Gary Nelson
------------------------------
1604 Sunset Street
------------------------------
Longmont, CO 80501
------------------------------
14. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the state of Colorado.
15. TERMINATION. In the event that Employee is terminated by
Corporation during the term of this Agreement, Corporation shall
nevertheless continue to pay Employee the compensation provided for
hereunder, and shall provide for Employee the health insurance provided
for hereunder, for the entire contract term.
16. ENTIRE CONTRACT. This Agreement constitutes the entire
understanding and agreement between the Corporation and Employee with
regard to all matters herein. There are no other agreements, conditions
or representations, oral or written, express or implied, with regard
thereto. This Agreement may be amended only in writing, signed by both
parties.
17. NON-COMPETITION. During the term of this Agreement Employee
shall not perform services, whether paid or unpaid, for any corporation
or entity that is in substantially the same business as Corporation and
is directly in competition with Corporation.
18. NON-WAIVER. A delay or failure by either party exercise a
right under this Agreement, or a partial or single exercise of that
right, shall not constitute a waiver of that or any other right.
19. Headings. Headings in this Agreement are for convenience only
and shall not be used to interpret or construe its provisions.
<PAGE>
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
21. BINDING EFFECT. The provisions of this Agreement, consisting
of four (4) pages, shall be binding upon and inure to the benefit of both
parties and their respective successors and assigns.
22. CORPORATE GUARANTY. It is agreed that all financial and other
obligations of Corporation as set forth herein are guaranteed by AAE
Educational Corporation d/b/a The Rembrandt Group.
CORPORATION:
Technology Learning Systems, Inc.,
a Colorado Corporation
ATTEST:
/s/ GARY NELSON
-----------------------------------
/s/ KAREN KITTLER By: Gary Nelson, President
- ------------------------------
By: Karen Kittler, Secretary
EMPLOYEE:
WITNESS
/s/ GARY NELSON
----------------------------------
/s/ JOHN B. WILLS Gary Nelson
- ------------------------------
GUARANTOR:
AAE Educational Corporation,
a Delaware Corporation
ATTEST:
/s/ ROBERT D. ARNOLD
----------------------------------
/s/ MICHAEL V. SCHRANZ By: Robert D. Arnold
- ------------------------------
By: , Secretary
EXHIBIT 10.14
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT, MADE THIS 13th DAY OF JULY, 1999, BY AND
BETWEEN DAVE PARKER, AS LANDLORD, AND TECHNOLOGY LEARNING SYSTEMS INC,
dba Lab Technologies, AS TENANT.
WITNESSETH, THAT, IN CONSIDERATION OF THE COVENANTS HEREIN, IT IS
AGREED:
1. LEASE OF PREMISES.
THE LANDLORD HEREBY LEASES TO THE TENANT, AND THE TENANT HEREBY
LEASES FROM THE LANDLORD, THE LAND AND BUILDING LOCATED AT, 8245 W I-25
FRONTAGE RD., STE 3, FREDERICK, CO, TOGETHER WITH ALL APPURTENANCES
THERETO, AND ALL FIXTURES ATTACHED THERETO, IN PRESENT CONDITION.
2. CONDITION OF PROPERTY.
-------------------------
TENANT HAS EXAMINED, AND ACCEPTS THE BUILDING, IMPROVEMENTS, AND ANY
FIXTURE, IN PRESENT CONDITION. NO REPRESENTATIONS, STATEMENT, OR
WARRANTY, EXPRESS OR IMPLIED, HAS BEEN MADE BY OR ON BEHALF OF LANDLORD
AS TO SUCH CONDITION, OR AS TO THE USE THAT MAY BE MADE OF SUCH PROPERTY,
IN NO EVENT SHALL THE LANDLORD BE LIABLE FOR ANY DEFECT IN SUCH PROPERTY
OR FOR ANY LIMITATION ON ITS USE, EXCEPT AS OTHERWISE PROVIDED IN THIS
LEASE, TENANT SHALL RETURN THE PROPERTY TO LANDLORD UPON EXPIRATION OR
TERMINATION OF THE LEASE, IN PRESENT CONDITION, ORDINARY WEAR AND TEAR
EXCEPTED.
3. TERM.
--------
THE TERM OF THIS LEASE SHALL BE 4 YEARS(S), COMMENCING ON SEPT. 1,
1999 AND ENDING ON APRIL 30, 2003, UNLESS SOONER TERMINATED IN ACCORDANCE
OF THE PROVISIONS HEREOF.
A. HOLD OVER. SHOULD THE TENANT HOLD OVER AND REMAIN IN POSSESSION OF
THE LEASE PROPERTY AFTER THE EXPIRATION OF THIS LEASE WITHOUT THE
LANDLORDS CONSENT, IT SHALL NOT BE DEEMED OR CONSTRUED TO BE A RENEWAL OR
AN EXTENSION OF THIS LEASE BUT SHALL ONLY OPERATE TO CREATE A MONTH TO
MONTH TENANCY WHICH MAY BE TERMINATED BY THE LANDLORD OR TENANT AT THE
END OF ANY MONTH UPON THIRTY DAYS PRIOR WRITTEN NOTICE TO THE OTHER
PARTY.
4. DELIVERY OF POSSESSION.
--------------------------
THE TENANT SHALL BE ENTITLED TO POSSESSION OF THE LEASED PREMISES AT NOON
ON THE DATE OF COMMENCEMENT OF THE LEASE TERM.
5. RENTAL.
----------
TENANT SHALL PAY TO THE LANDLORD, AT SUCH PLACE AS THE LANDLORD MAY
DESIGNATE IN WRITING THE FOLLOWING RENT:
A. BASE RENTAL. BASE RENTAL OF $42,736.93 FOR THE INITIAL TERM OF THIS
LEASE, PAYABLE IN INSTALLMENTS OF $1,235.50 PER MONTH COMMENCING SEPT. 1,
1999 AND CONTINUING UNTIL APRIL 30, 2003, DUE IN ADVANCE ON THE FIRST DAY
OF EACH MONTH. IF THE LEASE TERM INCLUDES ONLY A PART OF ANY MONTH,
RENTAL FOR SUCH PART OF A MONTH SHALL BE PRORATED ACCORDINGLY AND ADDED
TO THE NEXT MONTHLY RENT AND PAID IN ADVANCE.
1 INITIALS MVS
---
<PAGE>
A.1 OTHER PROVISIONS:
LEASE RATE FOR 2ND 12 MONTH PERIOD SHALL BE $15,270.78
LEASE RATE FOR 3RD 12 MONTH PERIOD SHALL BE $15,728,90
LEASE RATE FOR 4TH 12 MONTH PERIOD SHALL BE $4,942,00
*PROMISSORY NOTE, EXHIBIT "A" TO LEASE SHALL BE PART OF THIS CONTRACT
*REVISED COSTS SHEET SHALL BE MADE PART OF THIS CONTRACT
SHOULD TENANT RELOCATE INTO ANOTHER BUILDING CONTROLLED BY LANDLORD OR A
JOINT VENTURE, THE PRINCIPAL AMOUNT REMAINING ON THE TENANT FINISH NOTE
PAYABLE TO LANDLORD PRINCIPAL AMOUNT ( ) SHALL BE PAID IN FULL, SHOULD
A NEW TENANT BE ABLE TO USE ALL OR ANY PORTION OF THE IMPROVEMENTS IN
THEIR OPERATION THAT PORTION OF THE IMPROVEMENTS PRORATA OVER THE LIFE
REMAINING OF THE LEASE WILL BE DEDUCTED FROM THE BALANCE.
TRIPLE NET CHARGES AND CAM CHARGES WILL BE BILLED MONTHLY.
B. LATE CHARGE. TENANT WILL PAY A LATE CHARGE OF $250.00 FOR ANY RENTAL
PAYMENT NOT PAID IN A TIMELY MANNER, ALL LEASE PAYMENTS ARE DUE ON OR
BEFORE THE 1ST DAY OF THE MONTH.
6. USE.
-------
THE TENANT MAY USE AND OCCUPY THE LEASED PROPERTY FOR PURPOSES OF:
OFFICE USE. TENANT SHALL NOT USE OR OCCUPY NOR PERMIT THE LEASED
PROPERTY OR ANY PART THEREOF TO BE USED OR OCCUPIED FOR ANY UNLAWFUL
BUSINESS, USE OR PURPOSE, NOR FOR ANY BUSINESS, USE, OR PURPOSE DEEMED
EXTRAHAZARDOUS, NOR FOR ANY PURPOSE OR IN ANY MANNER WHICH IS IN
VIOLATION OF ANY PRESENT OR FUTURE GOVERNMENTAL ENTITY HAVING
JURISDICTION OVER THE LEASED PREMISES, AT TENANT'S SOLE EXPENSE, TENANT
SHALL NOT ALLOW ANY ODORS, FUMES, OR VIBRATIONS ON THE LEASED PREMISES,
OR ANY NOISE THEREIN WHICH WOULD CAUSE DISRUPTION OF NORMAL ACTIVITIES ON
ADJACENT PREMISES, THE TENANT SHALL INDEMNIFY THE LANDLORD AGAINST ALL
COSTS, EXPENSES, LIABILITIES, LOSSES, DAMAGES, INJUNCTIONS, SUITS, FINES,
PENALTIES, CLAIMS, AND DEMANDS, INCLUDING REASONABLE ATTORNEY'S FEES,
ARISING OUT OF ANY VIOLATION OF OR DEFAULT IN THIS COVENANT BY TENANT.
TENANT SHALL NOT ENGAGE IN ANY BUSINESS WHEREIN HAZARDOUS SUBSTANCES ARE
USED OR ANY HAZARDOUS MATERIALS RELEASED OR THREATENED TO BE RELEASED,
INCLUDING, BUT NOT LIMITED TO, THE BUSINESS OF GENERATING TRANSPORTING,
STORING, TREATING OR DISPOSING OF HAZARDOUS SUBSTANCES OR HAZARDOUS WASTE
EXCEPT IN CONFORMANCE WITH ALL APPLICABLE LAWS AND REGULATIONS CONCERNING
THE USE, STORAGE AND TRANSPORTATION OF HAZARDOUS MATERIAL.
7. POSSESSION AND QUIET ENJOYMENT
---------------------------------
THE TENANT, UPON PAYMENT OF THE RENT HEREIN RESERVED AND UPON THE
PERFORMANCE OF ALL THE TERMS OF THIS LEASE, SHALL AT ALL TIMES DURING THE
LEASE TERM AND DURING ANY EXTENSION OR RENEWAL TERM, PEACEABLY AND
QUIETLY POSSESS AND ENJOY THE LEASED PROPERTY WITHOUT ANY DISTURBANCE
FROM THE LANDLORD OR FROM ANY OTHER PERSON CLAIMING THROUGH THE LANDLORD.
2 INITIALS MVS
---
<PAGE>
8. MAINTENANCE AND REPAIRS.
---------------------------
THE LANDLORD SHALL BE RESPONSIBLE FOR MAINTENANCE AND REPAIRS
REQUIRED TO MAINTAIN THE STRUCTURAL PORTIONS AND THE ROOF OF THE BUILDING
ON THE LEASED PROPERTY, THE EXTERIOR FINISH OF SUCH BUILDING, AND THE
PARKING LOT ON THE SUBJECT PROPERTY; ALL TO BE INCLUDED IN THE CAM
CHARGES AS IN 12A IN THIS LEASE. ALL OTHER MAINTENANCE AND REPAIRS SHALL
BE PERFORMED BY TENANT, AT ITS OWN EXPENSE, INCLUDING ALL NECESSARY
REPAIRS AND REPLACEMENTS TO PIPES, HEATING SYSTEMS, PLUMBING SYSTEMS,
ELECTRICAL SYSTEMS, WINDOW APPLIANCES AND APPURTENANCES BELONGING
THERETO, HOWEVER THAT ALL REPLACEMENT ON MAJOR REPAIRS TO THE PLUMBING,
HEATING OR ELECTRICAL SYSTEMS ON THE LEASED PROPERTY, WHICH ARE NOT
NECESSITATED BY THE NEGLIGENCE OF THE TENANT, LANDLORD SHALL PAY ANY
AMOUNTS OF $500.00 FOR EACH OCCURRENCE. ANY REPAIRS AND REPLACEMENTS,
INTERIOR PROMPTLY, AS AND WHEN NECESSARY. ALL SUCH REPAIRS AND
REPLACEMENTS SHALL BE IN QUALITY AND CLASS AT LEAST EQUAL TO THE ORIGINAL
WORK. ON DEFAULT OF THE TENANT IN MAKING SUCH REPAIRS OR REPLACEMENTS,
THE LANDLORD MAY, BUT SHALL NOT BE REQUIRED TO, MAKE SUCH REPAIRS AND
REPLACEMENTS FOR TENANT'S ACCOUNT, AND THE EXPENSE THEREOF SHALL
CONSTITUTE AND BE COLLECTABLE AS ADDITIONAL RENT, TOGETHER WITH INTEREST
THEREON AT THE RATE OF EIGHTEEN PERCENT PER ANNUM UNTIL PAID. TENANT
SHALL NOT ALLOW OR PERMIT ANY WASTE OF THE LEASED PREMISED, AND SHALL
KEEP THE LEASED GROUND FREE FROM ACCUMULATIONS OF TRASH OR DEBRIS.
9. CONDITION UPON SURRENDER.
----------------------------
THE TENANT SHALL VACATE THE LEASE PROPERTY IN THE SAME CONDITION AND
REPAIR IN WHICH THE PROPERTY NOW IS, ORDINARY WEAR AND TEAR EXCEPTED AND
SHALL REMOVE ALL OF THE TENANT'S PROPERTY THEREFROM SO THAT THE LANDLORD
CAN REPOSSESS THE LEASED PROPERTY NOT LATER THAN NOON ON THE DAY UPON
WHICH THIS LEASE OR ANY EXTENSION THEREOF ENDS, WHETHER UPON NOTICE OR BY
HOLD OVER OR OTHERWISE. THE LANDLORD SHALL HAVE THE SAME RIGHTS TO
ENFORCE THIS BREACH OF ANY OTHER CONDITION OR COVENANT OF THIS LEASE.
EXCEPT AS OTHERWISE PROVIDED HEREIN, THE TENANT MAY AT ANY TIME PRIOR TO
OR UPON THE TERMINATION OF THIS LEASE OR ANY RENEWAL OR EXTENSION
THEREOF, REMOVE FROM THE LEASED PROPERTY ALL MATERIALS, EQUIPMENT, AND
PROPERTY OF EVERY OTHER SORT OF NATURE, INSTALLED BY THE TENANT THEREON,
PROVIDED THAT SUCH PROPERTY IS REMOVED WITHOUT SUBSTANTIAL INJURY TO THE
LEASED PROPERTY. NO INJURY SHALL BE CONSIDERED SUBSTANTIAL IF IT IS
PROMPTLY CORRECTED BY RESTORATION TO THE CONDITION PRIOR TO THE
INSTALLATION OF SUCH PROPERTY. ANY SUCH PROPERTY NOT REMOVED SHALL
BECOME THE PROPERTY OF THE LANDLORD.
10. ALTERATIONS.
----------------
THE TENANT SHALL HAVE THE RIGHT, FROM TIME TO TIME, TO MAKE ALL SUCH
NONSTRUCTURAL ALTERATIONS AND IMPROVEMENTS TO THE LEASED PROPERTY AS MAY
BE REASONABLY NECESSARY OR APPROPRIATE, FOR THE CONDUCT OF THE TENANT'S
BUSINESS, PROVIDED THAT PRIOR TO COMMENCEMENT OF ANY SUCH WORK, THE
LANDLORD SHALL IN EACH CASE HAVE APPROVED IN WRITING THE PLANS AND
SPECIFICATIONS FOR SUCH WORK, IF WITHIN FOURTEEN DAYS AFTER SUCH PLANS
AND SPECIFICATIONS ARE SUBMITTED BY THE TENANT TO THE LANDLORD FOR SUCH
APPROVAL, THE LANDLORD SHALL HAVE NOT GIVEN THE TENANT NOTICE OF
DISAPPROVAL, SUCH PLANS AND SPECIFICATIONS SHALL BE CONSIDERED APPROVED
BY THE LANDLORD. ALL WORK DONE BY TENANT SHALL CONFORM TO ALL APPLICABLE
3 INITIALS MVS
---
<PAGE>
GOVERNMENT REGULATIONS AND REQUIREMENTS WITH ALL REQUIRED PERMITS TO BE
PAID FOR BY TENANT. IF ANY SUCH WORK DONE BY TENANT CAUSED DAMAGE TO THE
STRUCTURAL PORTIONS OR ROOF OF ANY BUILDING ON THE LEASED PREMISES, THEN
THE COSTS OF ALL MAINTENANCE AND REPAIRS TO SUCH DAMAGED PARTS OR ROOF OF
ANY SUCH BUILDING SHALL THEREAFTER BE THE RESPONSIBILITY OF TENANT. NOT
WITHSTANDING THE FACT THAT ALTERATIONS MAY BE MADE BY THE TENANT, DURING
THE LEASE THERM OR ANY RENEWAL OR EXTENSION OF SUCH TERM, THE TENANT
SHALL HAVE THE DUTY TO RETURN THE LEASED PREMISES, UPON TERMINATION OR
EXPIRATION OF THE LEASE, TO THE LANDLORD IN THE SAME CONDITION AS WHEN
RECEIVED BY THE TENANT, ORDINARY WEAR AND TEAR EXCEPTED: PROVIDED,
HOWEVER, THAT LANDLORD SHALL HAVE THE OPTION TO REQUIRE TENANT TO LEAVE
ALL SUCH ALTERATIONS, IMPROVEMENTS AND FIXTURES IN PLACE, IN WHICH THE
SAME SHALL BE AND REMAIN THE PROPERTY OF LANDLORD. FURTHER, IN
CONNECTION WITH ANY IMPROVEMENTS AND ALTERATIONS TO THE LEASED PREMISES,
TENANT SHALL INDEMNIFY THE LANDLORD FROM ANY LIEN ARISING OUT OF ANY SUCH
WORK PERFORMED OR MATERIALS FURNISHED, AND SHALL INDEMNIFY AND HOLD
HARMLESS THE LANDLORD FROM ANY LIABILITY OR LOSS, OF ANY TYPE OR NATURE,
INCLUDING REASONABLE ATTORNEY'S FEES \ ARISING OUT OF ANY LIEN OR CLAIM
BASED ON WORK PERFORMED OR MATERIALS FURNISHED. LANDLORD SHALL HAVE THE
RIGHT TO REQUIRE TENANT TO FURNISH ADEQUATE BOND OR OTHER SECURITY
ACCEPTABLE TO LANDLORD FOR PAYMENT OF ANY SUCH WORK PERFORMED BY TENANT,
AND SHALL HAVE THE RIGHT TO REQUIRE ADEQUATE LIEN WAVES ON ANY SUCH WORK
PERFORMED BY TENANT. LANDLORD SHALL ALSO HAVE THE RIGHT TO POST NOTICE
OF NONLIABILITY FOR ANY SUCH WORK, AT APPROPRIATE PLACES IN THE LEASED
PREMISED.
11. TAXES AND ASSESSMENTS.
--------------------------
A. LANDLORD SHALL BE LIABLE FOR AND AGREES TO PAY ALL THE REAL
PROPERTY TAXES AND ASSESSMENTS THEREOF DURING THE TERM OF THIS LEASE OR
ANY EXTENSION THEREOF. THIS PARAGRAPH IS INTENDED TO INCLUDE ALL REAL
ESTATE TAXES AND ASSESSMENTS OF EVERY KIND AND NATURE WHATSOEVER, WHICH
MAY BE LEVIED, IMPOSED OR ASSESSED BY ANY LEVEL OF GOVERNMENT INCLUDING
MUNICIPAL AND COUNTY GOVERNMENT, OR BY ANY SPECIAL DISTRICT.
A1. TENANT SHALL PAY THEIR PRORATA SHARE OF THE PROPERTY TAX, UPON A
MONTHLY BILLING BY LANDLORD.
B. THE TENANT SHALL BE LIABLE FOR AND AGREES TO PAY ALL OF THE
PERSONAL PROPERTY TAXES AND ASSESSMENTS LEVIED OR ASSESSED AGAINST
PERSONAL PROPERTY AND FIXTURES PLACED IN OR UPON THE LEASED PREMISES BY
THE TENANT. THIS PARAGRAPH IS INTENDED TO INCLUDE ALL THE PERSONAL
PROPERTY TAXES AND ASSESSMENTS OF EVERY KIND AND NATURE WHATSOEVER, WHICH
MAY BE LEVIED, POSED OR ASSESSED BY ANY LEVEL OF GOVERNMENT INCLUDING
MUNICIPAL AND COUNTY GOVERNMENT, OR BY ANY SPECIAL DISTRICT.
12. UTILITIES.
--------------
THE TENANT SHALL PAY ALL CHARGES PRIOR TO DELINQUENCY, FOR GAS,
ELECTRICITY, TRASH AND TELEPHONE OR OTHER COMMUNICATION SERVICES OR OTHER
UTILITIES USED, RENDERED, OR SUPPLIED, UPON IN CONNECTION WITH THE
LIABILITY OR DAMAGES ON ANY SUCH ACCOUNT. TENANT SHALL PAY A PRO RATE
SHARE OF WATER AND SEWER SERVICE MONTHLY UPON RECEIPT, OR IF APPLICABLE
THAT SHARE DETERMINED BY A SUB METER FOR WATER OR ELECTRICAL FOR THE
LEASED SPACE.
4 INITIALS MVS
---
<PAGE>
12A. COMMON AREA MAINTENANCE
----------------------------
THE TENANT SHALL UPON RECEIPT PAY THEIR PRO-RATE SHARE OF SNOW
REMOVAL, LAWN CARE, PROPERTY INSURANCE, PROPERTY TAXES, EXTERIOR
SECURITY, EXTERIOR MAINTENANCE, AND MANAGEMENT COSTS TO INCLUDE PARKING
AREAS AND MINOR REPAIRS. THIS AMOUNT SHALL BE A PERCENTAGE OF SQUARE
FOOTAGE OCCUPIED VS THE TOTAL AREA OF THE COMPLEX OCCUPIED OR 10,500 SF.
THIS LEASE CONTAINS 2100 SF OR 20% OF THE TOTAL COMPLEX.
13. INSURANCE.
--------------
LANDLORD SHALL MAINTAIN PROPERTY INSURANCE ON THE BUILDING
IMPROVEMENTS. THE TENANT SHALL KEEP THE LEASED PROPERTY FULLY INSURED
THROUGHOUT THE TERM OF THIS LEASE AGAINST THE FOLLOWING:
A. LIABILITY. CLAIMS FOR PERSONAL INJURY OR PROPERTY DAMAGE UNDER
A POLICY OF GENERAL PUBLIC LIABILITY INSURANCE, WITH SUCH LIMITS AS MAY
BE REASONABLY REQUESTED BY THE LANDLORD FROM TIME TO TIME, BUT NOT LESS
THAN $300,000.00 $1,000,000.00 IN RESPECT OF BODILY INJURY, AND
$50,000.00 FOR PROPERTY DAMAGE.
B. OTHER. AGAINST SUCH OTHER HAZARDS AND IN SUCH AMOUNTS AS THE
HOLDER OR ANY MORTGAGE OR DEED OR TRUST TO WHICH THIS LEASE IS
SUBORDINATE MAY REQUIRE FROM TIME TO TIME.
14. RIGHT OF ENTRY.
-------------------
THE LANDLORD AND ITS REPRESENTATIVE MAY ENTER THE LEASED PROPERTY AT
ANY REASONABLE TIME FOR THE PURPOSE OF INSPECTING THE LEASED PROPERTY,
PERFORMING ANY WORK WHICH THE LANDLORD ELECTS TO UNDERTAKE MADE NECESSARY
BY REASON OF TENANT'S DEFAULT UNDER THE TERMS OF THIS LEASE, EXHIBITING
THE LEASED PROPERTY FOR SALE, LEASE, OR MORTGAGE FINANCING, OR POSTING
NOTICES OF NONRESPONSIBILITY UNDER ANY MECHANIC'S LIEN LAW.
15. CASUALTY DAMAGE.
--------------------
IN THE EVENT OF DAMAGE TO THE LEASED PROPERTY BY FIRE OR OTHER
CASUALTY, THE LANDLORD SHALL PROMPTLY RESTORE THE LEASED PROPERTY AS
NEARLY AS POSSIBLE TO ITS CONDITION PRIOR TO SUCH DAMAGE. ALL INSURANCE
PROCEEDS RECEIVED BY THE LANDLORD PURSUANT TO THE PROVISIONS OF THIS
LEASE, LESS THE COST OF ANY SUCH RECOVERY, SHALL BE APPLIED BY THE
LANDLORD TO THE PAYMENT OF SUCH RESTORATION, AS SUCH RESTORATION
PROGRESSES. PROVIDED, HOWEVER, THAT IF THE LEASED PROPERTY IS COMPLETELY
DESTROYED OR SO DAMAGED BY FIRE OR OTHER CASUALTY COVERED BY INSURANCE AS
TO RENDER IT UNFIT FOR USE BY TENANT, AND REPAIR OR RESTORATION IS NOT
ECONOMICALLY FEASIBLY, THEN EITHER THE LANDLORD OR TENANT MAY TERMINATE
THIS LEASE ON NOTICE OF AT LEAST TEN DAYS AND NOT MORE THAN THIRTY DAYS.
SUCH NOTICE SHALL BE GIVEN WITHIN SIXTY DAYS AFTER THE DATE OF SUCH
DAMAGE OR DESTRUCTION. IF THIS LEASE SHALL SO TERMINATE, ALL BASE AND
ADDITIONAL RENT SHALL BE APPORTIONED TO THE DATE OF TERMINATION AND ALL
INSURANCE PROCEEDS SHALL BELONG TO THE LANDLORD. IF THE LEASE IS NOT SO
TERMINATED AND THE PROCEEDS OF INSURANCE ARE INSUFFICIENT TO PAY THE FULL
COST OF REPAIR OR RESTORATION THE LANDLORD SHALL PAY THE DEFICIENCY. IF
THE INSURANCE PROCEEDS EXCEED SUCH COST, THE EXCESS SHALL BE PAID TO THE
LANDLORD. ANY DISBURSEMENT OF SUCH INSURANCE
5 INITIALS MVS
---
<PAGE>
PROCEEDS BY A HOLDER OF A DEED OF TRUST OR MORTGAGE SHALL BE DEEMED TO
HAVE BEEN MADE BY THE LANDLORD. EXCEPT AS OTHERWISE PROVIDED IN THIS
ARTICLE, IF THE LEASED PROPERTY OR ANY PART THEREOF SHALL BE DESTROYED OR
DAMAGED, AND IF THIS LEASE SHALL NOT BE TERMINATED PURSUANT TO RIGHTS
GRANTED IN THIS ARTICLE, SUCH DAMAGE OR DESTRUCTION SHALL NOT AFFECT THE
PROVISIONS OF THIS LEASE, AND RULE, LAW, OR REGULATION TO THE CONTRARY
NOTWITHSTANDING, AND THE TENANT'S OBLIGATIONS UNDER THIS LEASE, INCLUDING
THE PAYMENT OF BASIC RENT AND OTHER CHARGES, SHALL CONTINUE WITHOUT
ABATEMENT OF ANY KIND.
16. CONDEMNATION.
-----------------
IF THE WHOLE OF THE LEASE PROPERTY OR SUCH PORTION THEREOF WHICH
WILL MAKE THE LEASED PROPERTY UNSUITABLE FOR THE PURPOSED HEREIN LEASED,
IS CONDEMNED FOR ANY PUBLIC USE OR PURPOSE BY ANY LEGALLY CONSTITUTED
AUTHORITY, THEN IN EITHER OF SUCH EVENTS THIS LEASE SHALL CEASE FROM THE
TIME WHEN POSSESSION IS TAKEN BY SUCH PUBLIC AUTHORITY, AND RENTAL SHALL
BE ACCOUNTED FOR BETWEEN THE LANDLORD AND THE TENANT AS OF THE DATE OF
THE SURRENDER OF POSSESSION. SUCH TERMINATION SHALL BE WITHOUT PREJUDICE
TO THE RIGHTS OF EITHER THE LANDLORD OR THE TENANT TO RECOVER
COMPENSATION FROM THE CONDEMNING AUTHORITY FOR ANY LOSS OR DAMAGE CAUSED
BY SUCH CONDEMNATION. NEITHER THE LANDLORD NOR THE TENANT SHALL HAVE ANY
RIGHTS IN OR TO ANY AWARD MADE TO THE OTHER BY THE CONDEMNING AUTHORITY.
17. ASSIGNMENT AND SUBLETTING.
------------------------------
THE TENANT SHALL NOT ASSIGN, MORTGAGE, OR ENCUMBER THIS LEASE, NOR
SUBLET OR PERMIT THE LEASED PROPERTY OR ANY PART THEREOF TO BE USED BY
OTHER, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LANDLORD IN EACH
INSTANCE, IF THIS LEASE IS ASSIGNED, OR IF THE LEASED PROPERTY OR ANY
PART THEREOF IS SUBLET, OR OCCUPIED BY ANYONE OTHER THAN THE TENANT, THE
LANDLORD MAY;, AFTER DEFAULT BY THE TENANT, COLLECT RENT FROM THE
ASSIGNEE, SUB-TENANT, OR OCCUPANT AND APPLY THE NET AMOUNT COLLECTED
AGAINST ALL RENT HEREIN RESERVED. NO SUCH ASSIGNMENT, SUBLETTING,
OCCUPANCY, OR COLLECTION SHALL BE DEEMED A WAIVER OF THIS COVENANT, OR
THE ACCEPTANCE OF THE ASSIGNEE, SUB-TENANT, OR OCCUPANT AS TENANT, OR A
RELEASE OF TENANT FROM FURTHER PERFORMANCE BY THE TENANT OF THE COVENANTS
IN THIS LEASE. THE CONSENT BY THE LANDLORD TO AN ASSIGNMENT OR
SUBLETTING SHALL NOT BE CONSTRUED TO RELIEVE THE TENANT FROM OBTAINING
THE CONSENT IN WRITING OR THE LANDLORD TO ANY FURTHER ASSIGNMENT OR
SUBLETTING
18 SUBORDINATION TO MORTGAGE
----------------------------
THIS LEASE SHALL BE SUBJECT AND SUBORDINATE AT ALL TIMES TO THE LIEN
OF ANY EXISTING MORTGAGES AND TRUST DEEDS AND MORTGAGES AND TRUST DEEDS
WHICH HEREAFTER MAY BE MADE A LIEN ON THE LEASED PROPERTY. ALTHOUGH NO
INSTRUMENT OR ACT ON THE PART OF THE TENANT SHALL BE NECESSARY TO
EFFECTUATE SUCH SUBORDINATION THE TENANT WILL, NEVERTHELESS, EXECUTE AND
DELIVER SUCH FURTHER INSTRUMENTS SUBORDINATING THIS LEASE TO THE LIEN OF
ANY SUCH MORTGAGES OR TRUST DEEDS AS MAY BE DESIRED BY THE MORTGAGEE OR
HOLDER OF SUCH TRUST DEEDS. THE TENANT HEREBY APPOINTS THE LANDLORD AS
HIS ATTORNEY IN FACT, IRREVOCABLY, TO EXECUTE AND DELIVER ANY SUCH
INSTRUMENT FOR THE TENANT. TENANT FURTHER AGREES AT ANY TIME AND FROM
TIME TO TIME UPON NOT LESS THAN TEN DAYS PRIOR WRITTEN REQUEST BY
LANDLORD, TO EXECUTE
6 INITIALS MVS
---
<PAGE>
ACKNOWLEDGE, AND DELIVER TO LANDLORD A STATEMENT IN WRITING CERTIFYING
THAT THIS LEASE AGREEMENT IS UNMODIFIED AND A STATEMENT IN WRITING
CERTIFYING THAT THIS LEASE AGREEMENT IS UNMODIFIED AND IS IN FULL FORCE
AND EFFECT (OR IF THERE HAVE BEEN MODIFICATIONS, THAT THE LEASE IS IN
FORCE AND EFFECT AS MODIFIED, AND STATING THE MODIFICATIONS); THAT THERE
HAVE BEEN NO DEFAULTS THEREUNDER BY LANDLORD OF TENANT (OR IF THERE HAVE
BEEN DEFAULTS, SETTING FORTH THE NATURE THEREOF), AND THE DATE TO WHICH
THE RENT AND OTHER CHARGES HAVE BEEN PAID IN ADVANCE, IF ANY, IT BEING
INTENDED THAT ANY SUCH STATEMENT DELIVERED PURSUANT TO THIS REQUIREMENT
MAY BE RELIED UPON BY ANY PROSPECTIVE LENDER OR BY ANY PROSPECTIVE
PURCHASER OF ALL OR ANY PORTION OF LANDLORD'S INTEREST THEREIN, OR BY THE
HOLDER OF ANY EXISTING MORTGAGE OR DEED OF TRUST ENCUMBERING THE LEASED
PREMISES. TENANT'S FAILURE TO DELIVER SUCH STATEMENT WITHIN SUCH TIME
SHALL BE CONCLUSIVE UPON TENANT (1) THAT THIS LEASE IS IN FULL FORCE AND
EFFECT, WITHOUT MODIFICATION EXCEPT AS MAY BE REPRESENTED BY LANDLORD;
(2) THAT THERE ARE NO UNCURED DEFAULTS IN LANDLORD'S PERFORMANCE; AND (3)
THAT NOT MORE THAN ONE MONTH'S RENT HAS BEEN PAID IN ADVANCE.
FURTHER, UPON REQUEST, TENANT SHALL SUPPLY TO LANDLORD A CORPORATE
RESOLUTION CERTIFYING THAT THE PARTY SIGNING THIS STATEMENT ON BEHALF OF
TENANT IS PROPERLY AUTHORIZED TO DO SO, IF TENANT IS A CORPORATION.
19. INDEMNITY
------------
THE TENANT SHALL INDEMNIFY AND HOLD HARMLESS THE LANDLORD FROM AND
AGAINST ALL LEGITIMATE LIABILITIES, PENALTIES, DAMAGES, JUDGMENTS, AND
EXPENSES, INCLUDING REASONABLE ATTORNEY'S FEES INCURRED BY LANDLORD IN
DEFENDING OR SATISFYING ANY CLAIM OF ANY TYPE OR NATURE, INCLUDING
PERSONAL INJURY CLAIMS OR PROPERTY DAMAGE CLAIMS, ARISING OUT OF THE USE,
OCCUPANCY, OR CONTROL OF THE LEASED PROPERTY OR ANY OF ITS APPURTENANCES
BY TENANT.
TENANT HEREBY AGREES TO INDEMNIFY LANDLORD AND HOLD LANDLORD
HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES,
LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE JUDICIA
PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTION REQUIREMENTS,
ENFORCEMENT ACTIONS OF ANY KIND AND ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH INCLUDING BUT NOT LIMITED TO ATTORNEY'S FEES AND
EXPENSES, ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, OUT OF THE
PRESENCE ON OR UNDER THE LEASED PREMISES, OF ANY HAZARDOUS MATERIAL (AS
DEFINED HEREIN) OR ANY RELEASES OR DISCHARGES OF ANY HAZARDOUS MATERIALS
BY TENANT OR ANY EMPLOYEE, AGENTS, CONTRACTORS OR SUBCONTRACTORS OF
TENANT OR OTHER PERSONS OCCUPYING OR PRESENT ON THE LEASED PREMISES, IN
CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE,
DECONTAMINATION, CLEANUP, TRANSPORT OR DISPOSAL OF ANY HAZARDOUS
MATERIALS AT ANY FOREGOING INDEMNITY SHALL FURTHER APPLY TO ANY RESIDUAL
CONTAMINATION ON OR UNDER THE LEASED PREMISES OR AFFECTING ANY NATURAL
RESOURCES AND TO ANY CONTAMINATION OF ANY OF THE LEASED PREMISES AND \ OR
NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE,
HANDLING, STORAGE, TRANSPORT OR DISPOSAL OF ANY SUCH HAZARDOUS MATERIALS
AND IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE
UNDERTAKEN IN ACCORDANCE WITH APPLICABLE LAWS, REGULATIONS, CODES AND
ORDINANCES.
7 INITIALS MVS
---
<PAGE>
20. SECURITY.
-------------
THE TENANT HAS DEPOSITED WITH THE LANDLORD THE SUM OF $1235.50 AS
SECURITY FOR THE FULL AND FAITHFUL PERFORMANCE BY THE TENANT OF ALL THE
TERMS OF THIS LEASE REQUIRED TO BE PERFORMED BY THE TENANT. SUCH SUM
SHALL BE RETURNED TO THE TENANT WITHIN 30 DAYS AFTER THE EXPIRATION OF
THIS LEASE, PROVIDED THE TENANT HAS FULLY AND FAITHFULLY CARRIED OUT ALL
OF ITS TERMS. OTHERWISE, THE LANDLORD MAY USE, APPLY, OR RETAIN THE
WHOLE OR ANY PART OF SUCH AMOUNT TO THE EXTENT REQUIRED FOR THE PAYMENT
OF ANY RENT OR OTHER OBLIGATION AS TO WHICH THE TENANT IS IN DEFAULT
UNDER THE TERMS OF THIS LEASE. IN SUCH EVENT TENANT SHALL UPON WRITTEN
DEMAND FROM LANDLORD, FORTHWITH REMIT TO LANDLORD A SUFFICIENT AMOUNT IN
CASH TO RESTORE SUCH DEPOSIT TO ITS ORIGINAL AMOUNT. LANDLORD SHALL HAVE
THE RIGHT TO TRANSFER SUCH SECURITY TO THE PURCHASER TO BE HELD UNDER THE
TERMS OF THIS LEASE, AND THE LANDLORD SHALL THEREUPON BE RELEASED FROM
ALL LIABILITY FOR THE RETURN OF SUCH SECURITY TO THE TENANT, AND THE
TENANT SHALL LOOK SOLELY TO THE NEW LANDLORD FOR THE RETURN OF SUCH
SECURITY. THE TENANT SHALL NOT ASSIGN NOR ENCUMBER THE MONEY DEPOSITED
AS SECURITY, AND NEITHER THE LANDLORD NOR ITS SUCCESSORS OR ASSIGNS SHALL
BE BOUND BY ANY SUCH ASSIGNMENT OR ENCUMBRANCE. THE TENANT SHALL NOT BE
ALLOWED TO USE SUCH SECURITY DEPOSIT AS PAYMENT OF RENTS.
21. DEFAULT.
------------
THE OCCURRENCE OF ANY OF THE FOLLOWING SHALL CONSTITUTE AN EVENT OF
DEFAULT: (1) DELINQUENCY IN THE DUE AND PUNCTUAL PAYMENT OF ANY RENT OR
ADDITIONAL RENT PAYABLE UNDER THIS LEASE WHEN SUCH RENT SHALL BECOME
PAYABLE, FOR A PERIOD OF THREE WORKING DAYS AFTER WRITTEN NOTICE. (2F)
DELINQUENCY BY THE TENANT IN THE PERFORMANCE OF OR COMPLIANCE WITH ANY F
THE CONDITIONS CONTAINED IN THIS LEASE OTHER THAN THOSE REFERRED TO IN
THE FOREGOING SUBPARAGRAPH (1), FOR A PERIOD OF THIRTY DAYS AFTER WRITTEN
NOTICE THEREOF FROM THE LANDLORD TO THE TENANT, EXCEPT FOR ANY DEFAULT
NOT SUSCEPTIBLE OF BEING CURED WITHIN SUCH THIRTY DAY PERIOD, IN WHICH
EVENT THE TIME PERMITTED TO THE TENANT TO CURE SUCH DEFAULT SHALL BE
EXTENDED FOR AS LONG AS SHALL BE NECESSARY TO CURE SUCH DEFAULT, AND
PROVIDED FURTHER THAT SUCH PERIOD OF TIME SHALL NOT BE SO EXTENDED AS TO
JEOPARDIZE THE INTEREST OF THE LANDLORD IN THIS LEASE OR SO AS TO SUBJECT
THE LANDLORD OR THE TENANT TO ANY CIVIL OR CRIMINAL LIABILITIES. (3)
FILING BY THE TENANT IN ANY COURT PURSUANT TO ANY STATUTE, EITHER OF THE
UNITED STATS OR ANY STATE, OF A PETITION IN BANKRUPTCY OR INSOLVENCY, OR
FOR REORGANIZATION, OR FOR THE APPOINTMENT OF A RECEIVER OR TRUSTEE OF
ALL OR A PORTION OF THE TENANT'S PROPERTY, OR AN ASSIGNMENT BY THE TENANT
FOR THE BENEFIT OF CREDITORS. (4) FILING AGAINST THE TENANT IN ANY COURT
PURSUANT TO ANY STATUTE, EITHER OF THE UNITED STATES OR OF ANY STATE OF A
PETITION IN BANKRUPTCY OR INSOLVENCY, OR FOR REORGANIZATION, OR FOR
APPOINTMENT OF A RECEIVER OF TRUSTEE OR ALL OR A PORTION OF THE TENANT'S
PROPERTY, IF WITHIN NINETY DAYS AFTER THE COMMENCEMENT OF ANY SUCH
PROCEEDING AGAINST THE TENANT SUCH PETITION SHALL NOT HAVE BEEN
DISMISSED.
A. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, THE LANDLORD AT ANY
TIME THEREAFTER MAY GIVE WRITTEN NOTICE TO THE TENANT SPECIFYING SUCH
EVENT OF DEFAULT AND STATING THAT THIS LEASE SHALL EXPIRE ON THE DATE
SPECIFIED IN SUCH NOTICE, WHICH SHALL BE AT LEAST THREE DAYS AFTER THE
GIVING OF SUCH NOTICE, AND UPON THE DATE SPECIFIED IN SUCH NOTICE THIS
LEASE AND ALL RIGHTS
8 INITIALS MVS
---
<PAGE>
OF THE TENANT SHALL TERMINATE. UPON THE EXPIRATION OF THIS LEASE
PURSUANT TO THIS ARTICLE, THE TENANT SHALL PEACEFULLY SURRENDER THE
LEASED PROPERTY TO THE LANDLORD, AND THE LANDLORD, UPON OR AT ANY TIME
AFTER ANY SUCH EXPIRATION, MAY WITHOUT FURTHER NOTICE RE-ENTER THE LEASED
PROPERTY AND REPOSSESS IT BY FORCE, AND REMOVE THE TENANT AND ALL OTHER
PERSONS AND PROPERTY FROM THE LEASED PROPERTY AND MAY HAVE, HOLD, AND
ENJOY THE LEASED PROPERTY AND THE RIGHT TO RECEIVE ALL RENTAL INCOME
THEREFROM.
B. AT ANY TIME AFTER ANY SUCH EXPIRATION, THE LANDLORD MAY RELET
THE LEASED PROPERTY OR ANY PART THEREOF, IN THE NAME OF THE LANDLORD OR
OTHERWISE, FOR SUCH TERM (WHICH MAY BE GREATER OR LESS THAN THE PERIOD
WHICH WOULD OTHERWISE HAVE CONSTITUTED THE BALANCE OF THE TERM OF THIS
LEASE) AND ON SUCH CONDITIONS (WHICH MAY INCLUDE CONCESSIONS OR FREE
RENT) AS THE LANDLORD, IN ITS UNCONTROLLED DISCRETION, MAY DETERMINE, AND
MAY COLLECT AND RECEIVE THE RENT THEREFOR. THE LANDLORD SHALL IN NO WAY
BE RESPONSIBLE OR LIABLE FOR ANY FAILURE TO RELET THE LEASED PROPERTY OR
ANY PART THEREOF, OR FOR ANY FAILURE TO COLLECT ANY RENT DUE UPON ANY
SUCH RELETTING.
C. NO SUCH EXPIRATION OF THIS LEASE SHALL RELIEVE THE TENANT OF ITS
LIABILITY AND OBLIGATIONS UNDER THIS LEASE, AND SUCH LIABILITY AND
OBLIGATIONS SHALL SURVIVE ANDY SUCH EXPIRATION. IN THE EVENT OF ANY SUCH
EXPIRATION, WHETHER OR NOT THE LEASED PROPERTY OR ANY PART THEREOF SHALL
HAVE BEEN RELET, THE TENANT SHALL PAY TO THE LANDLORD THE RENT AND
ADDITIONAL RENT REQUIRED TO BE PAID BY THE TENANT UP TO THE TIME OF SUCH
EXPIRATION, AND THEREAFTER THE TENANT, UNTIL THE END OF WHICH WOULD HAVE
BEEN THE TERM OF THIS LEASE IN THE ABSENCE OF SUCH EXPIRATION, SHALL BE
LIABLE TO THE LANDLORD FOR, AND SHALL PAY TO THE LANDLORD, AS AND FOR
LIQUIDATED AND AGREED CURRENT DAMAGES FOR THE TENANT'S DEFAULT: (1) THE
EQUIVALENT OF THE AMOUNT OF THE RENT AND ADDITIONAL RENT WHICH WOULD BE
PAYABLE UNDER THIS LEASE BY THE TENANT IF THIS LEASE WERE STILL IN
EFFECT, LESS (2) THE NET PROCEEDS OF ANY RELETTING EFFECTED PURSUANT TO
THE PROVISIONS OF PARAGRAPH B OF THIS ARTICLE, AFTER DEDUCTING ALL THE
LANDLORD'S EXPENSES IN CONNECTION WITH SUCH RELETTING, INCLUDING, WITHOUT
LIMITATION, ALL REPOSSESSION COSTS, BROKERAGE COMMISSIONS, LEGAL
EXPENSES, REASONABLE ATTORNEY'S FEES, ALTERATION COSTS, AND EXPENSES OF
PREPARATION OF SUCH RELETTING.
D. THE TENANT SHALL PAY SUCH CURRENT DAMAGES, HEREIN CALLED
DEFICIENCY, TO THE LANDLORD MONTHLY ON THE DAYS ON WHICH THE RENT AND
ADDITIONAL RENT WOULD HAVE BEEN PAYABLE UNDER THIS LEASE IF THIS LEASE
WERE STILL IN EFFECT, AND THE LANDLORD SHALL BE ENTITLED TO RECOVER FROM
THE TENANT, AND THE TENANT SHALL PAY TO THE LANDLORD, ON DEMAND, AS AND
FOR LIQUIDATED AND AGREED FINAL DAMAGES FOR THE TENANT'S DEFAULT, AN
AMOUNT EQUAL TO THE DIFFERENCE BETWEEN THE RENT AND ADDITIONAL RENT
RESERVED HEREUNDER FOR THE UNEXPIRED PORTION OF THE LEASE TERM AND THE
THEN FAIR AND REASONABLE RENTAL VALUE OF THE LEASED PROPERTY FOR THE SAME
PERIOD. IN THE COMPUTATION OF SUCH DAMAGES THE DIFFERENCE BETWEEN ANY
INSTALLMENT OF RENT BECOMING DUE HEREUNDER AFTER THE DATE OF TERMINATION
AND THE FAIR AND REASONABLE RENTAL VALUE OF THE LEASED PROPERTY FOR THE
PERIOD FOR WHICH SUCH INSTALLMENT WAS PAYABLE SHALL BE DISCOUNTED TO THE
DATE OF
9 INITIALS MVS
---
<PAGE>
TERMINATION AT THE RATE OF FOUR PERCENT PER ANNUM. IF THE LEASED
PROPERTY OR ANY PART THEREOF IS RELET BY THE LANDLORD FOR THE UNEXPIRED
TERM OF THIS LEASE, OR ANY PART THEREOF, BEFORE PRESENTATION OF PROOF OF
SUCH LIQUIDATED DAMAGES TO ANY COURT, COMMISSION, OR TRIBUNAL, THE AMOUNT
OF RENT RESERVED UPON SUCH RELETTING SHALL BE DEEMED PRIMA FACIE TO BE
THE FAIR AND REASONABLE RENTAL VALUE FOR THE PART OR THE WHOLE OF THE
LEASED PROPERTY SO RELET DURING THE TERM OF THE RELETTING, NOTHING HEREIN
CONTAINED SHALL LIMIT OR PREJUDICE THE RIGHT OF THE LANDLORD TO PROVE FOR
AND OBTAIN AS LIQUIDATED DAMAGES BY REASON OF SUCH TERMINATION AN AMOUNT
EQUAL TO THE MAXIMUM ALLOWED BY ANY STATUTE OR RULE OF LAW IN EFFECT AT
THE TIME WHEN, AND GOVERNING THE PROCEEDINGS IN WHICH, SUCH DAMAGES ARE
TO BE PROVED, WHETHER OR NOT SUCH AMOUNT BE GREATER, EQUAL TO, OR LESS
THAN THE AMOUNT OF THE DIFFERENCE REFERRED TO ABOVE.
E. THE TENANT HEREBY EXPRESSLY WAIVES, SO FAR AS PERMITTED BY LAW,
THE SERVICE OF ANY NOTICE OF INTENTION TO REENTER PROVIDED FOR IN ANY
STATUTE, OR OF THE INSTITUTION OF LEGAL PROCEEDINGS TO THAT END. THE
TENANT, FOR AND ON BEHALF OF ITSELF AND ALL PERSONS CLAIMING THROUGH OR
UNDER THE TENANT, ALSO WAIVES ANDY RIGHT OF REDEMPTION OR REENTRY OR
REPOSSESSION OR TO RESTORE THE OPERATION OF THIS LEASE INCASE THE TENANT
SHALL BE DISPOSSESSED BY A JUDGMENT OR BY WARRANT OF ANY COURT OR JUDGE
OR IN CASE OF REENTRY OR REPOSSESSION BY THE LANDLORD. IN CASE OF ANY
LITIGATION UNDER THIS LEASE, THE LANDLORD AND THE TENANT, SO FAR AS
PERMITTED BY LAW, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON
ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, THE TENANT, USE OF OCCUPANCY OF THE
LEASED PROPERTY, OR; ANY CLAIM OF INJURY OR DAMAGE; AND FURTHER AGREE
THAT THE PARTY NOT IN DEFAULT SHALL BE ENTITLED TO RECOVER, FROM THE
PARTY IN DEFAULT, ALL COSTS AND REASONABLE ATTORNEY'S FEES INCURRED BY
THE NON DEFAULTING PARTY IN ENFORCING ITS RIGHTS UNDER THIS LEASE
AGREEMENT.
F. THE TERMS "ENTER", "REENTER", "ENTRY", OR "REENTRY", AS USED IN
THIS LEASE ARE NOT RESTRICTED TO THEIR TECHNICAL LEGAL MEANING.
G. ANY AMOUNTS NOT PAID BY TENANT TO LANDLORD WHEN DUE SHALL DRAW
INTEREST AT THE RATE OF EIGHTEEN PERCENT PER ANNUM FROM DUE DATE UNTIL
PAID. PAYMENT OF SUCH INTEREST SHALL NOT EXCUSE OR CURE ANY DEFAULT BY
TENANT UNDER THIS LEASE.
H. NO ASSENT EXPRESS OR IMPLIED, TO ANY BREACH OF ONE OR MORE OF
THE COVENANTS OR TERMS OF THIS LEASE SHALL BE DEEMED OR CONSTRUED TO BE A
WAIVER OF ANY SUCCEEDING OR OTHER BREACH.
I. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN,
LANDLORD'S LIABILITY UNDER THIS LEASE AGREEMENT SHALL BE LIMITED TO
LANDLORD'S INTEREST IN THE LEASED PREMISES.
22. MISCELLANEOUS PROVISIONS.
------------------------------
THE PARAGRAPH CAPTIONS CONTAINED IN THIS LEASE AGREEMENT ARE FOR
CONVENIENCE ONLY AND SHALL NOT IN AMY WAY LIMIT OR BE DEEMED TO CONSTRUE
OR INTERPRET THE TERMS OR PROVISIONS THEREOF.
10 INITIALS MVS
---
<PAGE>
TIME IS OF THE ESSENCE OF THIS LEASE AGREEMENT AND OF ALL PROVISIONS
HEREIN.
THIS LEASE AGREEMENT SHALL BE CONSTRUE AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE SATE OF COLORADO.
IF ANY PROVISIONS OF THIS LEASE AGREEMENT SHALL BE DECLARED INVALID
OR UNENFORCEABLE, THE REMAINDER OF THE LEASE AGREEMENT SHALL CONTINUE IN
FULL FORCE AND EFFECT.
THE SAID PROPERTY IS ZONED COMMERCIAL/IND IN THE CITY OF FREDERICK, CO.,
BUT ONLY THOSE USES DESCRIBED IN SELECTION 6 OF THIS LEASE SHALL BE
ALLOWED WITHOUT WRITTEN CONSENT OF LANDLORD, AND THESE MUST BE IN
COMPLIANCE WITH USES ALLOWED UNDER THE ZONING, OR WITH SPECIAL PERMISSION
FROM BOTH THE CITY AND LANDLORD.
PARKING, ALL PARKING IS OPEN, NO RESERVED PARKING IS ALLOWED.
SINAGE, APPROVAL MUST BE OBTAINED FROM BOTH THE LANDLORD AND THE
CITY PRIOR TO PLACEMENT AND PROPER PERMITS MUST BE OBTAINED.
FINISHES, SPACE SHALL BE FINISH AS IS CONDITION CLEAN AND READY FOR
USE AS PER DRAWING ATTACHED.
TRASH REMOVAL, TENANT WILL BE ASSIGNED PROPER AND DESIGNATED AREA
FOR TRASH STORAGE, ALL COSTS OF REMOVAL SHALL BE THE SOLE RESPONSIBILITY
OF THE TENANT, AREA MUST BE KEEP LITTER FREE AT ALL TIMES NO PLACEMENT OF
DEBRIS SHALL BE ALLOWED THAT IS NOT IN THE PROPER CONTAINER.
THIS LEASE AGREEMENT, AND ACCOMPANYING NOTE PAYABLE EXHIBIT A,
CONTAINS THE ENTIRE AGREEMENT BETWEEN THE PARTIES, AND ANY EXECUTOR
AGREEMENT HEREAFTER MADE SHALL BE INEFFECTIVE TO CHANGE, MODIFY, OR
DISCHARGE IT IN WHOLE OR IN PART, UNLESS SUCH EXECUTOR AGREEMENT IS IN
WRITING AND SIGNED BY THE PARTY AGAINST WHOM THE ENFORCEMENT OF THE
CHANGE, MODIFICATION OR DISCHARGE IS SOUGHT.
23. NOTICES.
------------
ANY NOTICE FROM ONE PARTY TO ANOTHER, REQUIRED BY THE TERMS OF THIS
LEASE AGREEMENT, MAY BE DELIVERED IN PERSON TO SUCH PARTY (DELIVERY TO
ONE OF TWO OR MORE PERSONS NAMED AS A PARTY SHALL BE EFFECTIVE NOTICE TO
ALL), OR SHALL BE DELIVERED BY CERTIFIED MAIL, POSTAGE PREPAID, AND SHALL
BE DEEMED GIVEN ONE DAY AFTER THE DATE MAILED, ADDRESSED TO THE
RESPECTIVE PARTIES AS FOLLOWS:
11 INITIALS MVS
---
<PAGE>
LANDLORD: 82454 LLC, DAVE PARKER
-------------------------
8393 W I-25 FRONTAGE RD
--------------------------
ERIE, CO. 80516
--------------------------
TENANT: TECHNOLOGY LEARNING SYSTEMS INC, LAB TECHNOLOGIES
----------------------------------------------------
8245 W. I-25 FRONTAGE RD. SUITES #4 & 5
ERIE, CO. 80516
24. INTEGRATION AND AMENDMENT.
------------------------------
THE PARTIES AGREE THAT THIS WRITING REPRESENTS THE ENTIRE AGREEMENT
BETWEEN THEM AND THAT THERE ARE NO ORAL OR COLLATERAL AGREEMENTS OR
UNDERSTANDINGS OF ANY KIND OR CHARACTER EXCEPT THOSE CONTAINED HEREIN.
NEITHER THIS AGREEMENT NOR ANY TERM OR PROVISION HEREOF MAY BE CHANGED,
WAIVED, DISCARDED OR TERMINATED ORALLY, OR IN ANY MANNER OTHER THAN BY
INSTRUMENT IN WRITING SIGNED BY THE PARTIES OR THEIR DULY AUTHORIZED
AGENT. IN THE EVENT THAT ANY PROVISIONS OF THIS LEASE SHALL BE AFFECTED
BY SUCH HOLDING, AND ALL OF THE REMAINING PROVISIONS OF THIS LEASE SHALL
CONTINUE IN FULL FORCE AND EFFECT PURSUANT TO THE TERMS HEREOF.
25. BINDING EFFECT.
-------------------
THIS AGREEMENT SHALL BIND AND EXTEND TO THE HEIRS, REPRESENTATIVES,
SUCCESSORS, AND ASSIGNS OF THE PARTIES HERETO, IF EXECUTED IN DUPLICATE
BY EACH PARTY ON OR BEFORE MARCH 18, 1998.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS LEASE AGREEMENT
ON THE DATE SET FORTH OPPOSITE THEIR RESPECTIVE SIGNATURES.
LANDLORD: TENANT:
DAVE PARKER TECHNOLOGY LEARNING SYSTEMS INC.
- ----------- --------------------------------
8393 W I-25 FRONTAGE RD. dba LAB TECHNOLOGIES
- --------------------------------------------------------
Erie, Co. 80516 8245 W. I-25 FRONTAGE RD. SUITE 4 & 5
- -------------------------------------------------------------------------
ERIE, CO. 80516
- ---------------------------------------------------
/s/ 10/19/99
- ------------------------------ -----------------------------
DATE DATE
/s/ MICHAEL V. SCHRANZ CFO - Treasurer 12/10/99
- ------------------------------ ------------------------
DATE
/s/ ROBERT D. ARNOLD - Chmn. & CEO 12/10/99
- ------------------------------ ------------------------
DATE
12
<PAGE>
AFFIDAVIT
---------
DATE ___________________
I HAVE PHYSICALLY INSPECTED THE PREMISES KNOWN AS 8245 W I-25 SUITE 3
FRONTAGE RD, FREDERICK, CO. ON THE ABOVE DATE AND PRIOR TO OUR MOVE IN
THE FOLLOWING ITEMS WERE NOTICED THAT EXIST AS OF THIS DATE AND IS NOTED:
1. CEILING ITEMS
- -----------------
2. ELECTRICAL ITEMS
- --------------------
3. GLASS ITEMS
- ---------------
4. PLUMBING ITEMS
- ------------------
5. FLOORING ITEMS
- ------------------
6. PAINTING ITEMS
- ------------------
7. OTHERS
- -----------
8. EXTERIOR
- ------------
THESE ITEMS WILL BE NOTED AS EXISTING ON MOVE OUT AND WILL NOT BE
INCLUDED AS ITEMS THAT NEED TO BE REPAIRED BY TENANT
- ---------------------------- --------------------------
LANDLORD TENANT
- ------------------ ---------------
DATE
DATE
<PAGE>
PROMISSORY NOTE
Exhibit "A" to Lease
For value received, the undersigned [borrower] promises to pay; Dave
Parker, or order, 8245 LLC, the principal sum of, TWENTY ONE THOUSAND
SEVEN HUNDRED EIGHTY FOUR DOLLARS, with interest on the unpaid principal
balance from NOV. 1, 1999 UNTIL PAID, at the rate 10 PERCENT per annum.
Principal and interest shall be payable at, Frederick, CO or such other
place as the Note may designate, in FORTY-ONE (41) EQUAL PAYMENTS OF FIVE
HUNDRED THIRTY-ONE & 31 CENTS [U.S. $ 531.31], plus 10% interest due on
the 1st day of each Month beginning Nov. 1, 1999. Such payments shall
continue until the entire indebtedness evidenced by this Note is fully
paid; provided, however, if not sooner paid, the entire principal amount
outstanding and accrued interest thereon, shall be due and payable on
April 30, 2003.
Borrower shall pay to the Note Holder a late charge of 5% of any payment
not received by the Note Holder within 5 days after the payment is due.
Payments received for application to this note shall be first applied to
the payment of late charges, if any, second to the payment of accrued
interest at the rate specified below, if any, to accrued interest first
specified above, and the balance applied in reduction of the principal
amount hereof.
If any payment required by this note is not paid when due, the entire
principal amount outstanding and interest thereon shall at once become
due and payable at the option of the Note Holder. To exercise this
option, the Note Holder shall give the Borrower notice of Acceleration
specifying the amount of the nonpayment. The borrower shall have thirty
days after the notice of Acceleration has been given to reinstate the
terms of this Note, as if they were immediately before such notice, by
paying the amount of nonpayment specified in the notice of Acceleration.
The privilege of reinstatement shall not, however, be available to the
Borrower more than once during any twelve-month period. Unless so
reinstated the indebtedness shall bear interest at the increased rate of
18 percent per annum from the notice of Acceleration is given. The Note
Holder shall be entitled to collect all reasonable costs and expense of
collection and/or suit, including, but not limited to reasonable
attorneys' fees.
Borrower may prepay the principal amount outstanding under this note, in
whole or in part, at any time without penalty.
Any partial prepayment shall be applied against the principal amount
outstanding and shall not postpone the due date of any subsequent
payments or change the amount of such payments.
Presentment, notice of dishonor, and protest are hereby waived by
Borrower and all other makers, sureties, guarantors and endorsers hereof.
This Note shall be the joint and several obligation of Borrower and all
other makers, sureties, guarantors and endorsers, and their successors
and assigns.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon [1] delivery to Borrower or [2]
mailing such notice by certified mail, return receipt requested,
addressed to Borrower the Borrowers address stated below, or to such
other address as Borrower may designate by notice to the Note Holder.
Any notice to the Note Holder shall be in writing and be given and be
effective upon [1] delivery to Note Holder or by [2] by mailing such
notice by certified mail, return receipt requested, to the Note Holder at
the address stated on the first paragraph of this Note, or the such other
address as Note Holder may designate by notice to Borrower.
The indebtedness evidenced by this Note is secured personally and
individually by Borrowers.
Signature: /s/ ROBERT D. ARNOLD
--------------------------------
Personal Guarantor
Date: 12/10/99
-------------------------------------
<PAGE>
OCTOBER 19, 1999
TO; LAB TECHNOLOGIES
FROM: SKYLINE BUILDERS
DAVE PARKER
RE: TENANT FINISH
8245 WEST I-25 FRONTAGE RD. #3
REVISED COSTS
FINISH AS PER LAB TECH SKETCH $26,824.00
ADD 4 WINDOWS - 3' X 10' 4,960.00
TOTAL $31,784.00
DOWN PAYMENT (DUE UPON INVOICE) 10,000.00
BALANCE $21,784.00
$21,784.00 X 10% / 41 MONTHS = $629.53 PER MONTH
$531.31 PRINCIPAL
98.22 INTEREST = $629.53 BILLED PER MONTH ON RENT STATEMENT
EXHIBIT 10.15
LEASE CAPITAL CORPORATION
To: Technology Learning Systems, Inc. dba Lab Technologies
From: Lease Capital Corporation
Re: End of lease title transfer
Gentlemen:
In consideration of the leasing of the following equipment by you as lessee:
See Exhibit A
And pursuant to the Leased Agreement dated DECEMBER 21, 1998, ("Lease")
it is agreed that upon payment of all rental and other payments due
pursuant to the Lease, and successful completion of all other conditions
and terms of the Lease by lessee, Lessor will pass title to the equipment
to Lessee, "as is" & "where is", without warranty by, or recourse to,
Lessor.
Lease Capital Corporation
Lessor
By: /s/
---------------------------
Title: Pres.
------------------------
19590 East Mainstreet * Suite 207 * Parker, Colorado 80138
(303) 840-9221 * Fax (303) 840-8071
<PAGE>
MASTER EQUIPMENT LEASE AGREEMENT
THIS MASTER LEASE ("lease") dated as of the date set forth at the
foot hereof by and between Lease Capital Corporation (Lessor") and the
lessee designated at the foot hereof ("Lessee"). For and in
consideration of the mutual covenants and promises hereinafter set forth,
Lessor and Lessee hereby agree as follows:
1. LEASE. Lessor hereby leases to Lessee and Lessee hereby leases from
lessor all machinery, equipment and other property (individually and
"Item of Equipment" and collectively the "Equipment") described in each
and every schedule now and hereafter executed by the parties hereto and
made a part hereof (individually a "Schedule" and collectively the
"Schedules"). Each and every Schedule in this paragraph is, by this
reference, made a part of this lease agreement as though fully set forth
herein.
2. TERM. The obligations of Lessee under this lease respecting an Item
of Equipment, except the obligation to pay rent with respect thereto
which shall commence as set forth in paragraph 3 below, shall commence
upon the earlier of: 1.) The date a purchase transfers any interest in
such Item of Equipment to Lessor or creates or gives rise to any
obligation or liability on the part of Lessor prior to actual delivery of
such Item, or 2.) The date such Item of Equipment is delivered to Lessee.
The term of this lease with respect to an Item of equipment ends upon the
date designated in the applicable Schedule. This lease is irrevocable
for the full term hereof and, except in the event of a Casualty
Occurrence, for the aggregate rentals reserved in the Schedules.
3. RENT AND OTHER PAYMENTS. Lessee shall pay lessor rent for the
Equipment in the amounts and at the times set forth in the Schedules,
whether or not Lessor has rendered an invoice therefore, at the office of
Lessor set forth at the foot hereof or to such other person and/or such
other place as lessor may from time to time designate in writing. Any
and all other amounts required to be paid Lessor by lessee hereunder
shall be due upon Lessee's receipt of Lessor's invoice therefore.
4. DELIVERY ACCEPTANCE. Lessee shall ensure the Lessor is invoiced for
an Item of Equipment by the manufacturer or other supplier thereof
promptly following delivery and installation thereof. Upon receipt from
Lessor of a Schedule covering the Equipment or any items thereof, Lessee
shall either (a) execute and deliver such Schedule or (b) give Lessor
written notice specifying any defect in or proper objection to the
Equipment covered thereby. Lessee's execution of a Schedule covering the
Equipment or any items thereof shall conclusively establish as between
Lessor and Lessee that such Equipment is acceptable to and has been
accepted by Lessee for all purposes of this lease. If Lessee has not
furnished Lessor with such Schedule or notice within fourteen (14) days
after receipt thereof, Lessee shall, upon Lessor's request, assume all of
Lessor's rights and obligations as purchaser of such Equipment.
5. LOCATION; INSPECTION; USE. Lessee shall keep or permanently garage,
as appropriate, and not remove from the United States, each Item of
Equipment in Lessee's possession and control at the Equipment location
designated in the applicable Schedule, or at such other location to which
such Item may have been moved with the proper written consent of Lessor.
Whenever requested by Lessor, Lessee shall advise lessor as to the exact
location of the Equipment and observe its use during normal business
hours and to enter into and upon the premises where the Equipment may be
located for such purpose. The Equipment shall at all times be used
solely for commercial or business purposes, exclusive of transportation
for hire in the case of the Items of Equipment constituting motor
vehicles, and operated in a careful and proper manner and in compliance
with all applicable laws, ordinances, rules and regulations, all
conditions and requirements of the policy or policies of insurance
required to be carried by Lessee under the term of this lease and all
manufacturer's instructions and warranty requirements. Any modifications
or additions to the Equipment required by any such governmental edict or
insurance policy shall be promptly made by Lessee at its own expense.
6. ALTERATIONS. Without the prior written consent of lessor, Lessee
shall not make any alterations, additions, or improvements to any Item of
Equipment which detract from its economic value or functional utility,
except as may be required pursuant to paragraph 5 above. All additions
and improvements of whatsoever kind or nature made to any Item of
Equipment which cannot be removed without detracting from its economic
value or functional utility shall be deemed accessions thereto, shall
belong to and immediately become the property of Lessor and shall be
returned to Lessor with the Equipment upon the expiration or earlier
termination of this lease.
7. MAINTENANCE. Lessee, at its own expense, shall maintain the
Equipment in good repair, condition and working order and shall furnish
all parts, mechanisms, devices and labor required to keep the Equipment
in such condition reasonable wear and tear excepted.
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8. LOSS AND DAMAGE; CASUALTY VALUE. Lessee hereby assumes and shall
bear the entire risk of loss of, theft of, damage to, or destruction of
the Equipment of any item thereof from any cause whatsoever ("Casualty
Occurrence"). No Casualty Occurrence to the Equipment of any item
thereof shall relieve Lessee from its obligations under this lease,
except as specified in the final sentence of the Paragraph 8. In the
event of a Casualty Occurrence to any item in good repair, condition and
working order (provided, however, that if such item is determined by
Lessor to be lost, stolen, destroyed or damaged beyond repair or suffers
a constructive total loss as defined in any applicable insurance policy
carried by Lessee in accordance with paragraph 12 below) Lessee shall:
(a) replace such item with like equipment in good repair, condition and
working order and transfer clear title to such replacement equipment to
Lessor whereupon such replacement equipmentshall be deemed an item for
all purposes hereof, or (b) pay Lessor the "Casualty Value" of such item
which shall equal the total of (i) all rent and other amounts, if any,
due at the time of such payment, plus (ii) each future rent payment due
with respect to such item discounted on a rule of 78's basis from the
date due to the date of such payment and (iii) the "Residual Value" of
such item as set forth in the applicable Schedule. Upon such replacement
or payment, as appropriate, this lease shall terminate with, and only
with, respect to the item so replaced or paid for, and Lessee shall
become entitled thereto AS-IS-WHERE-IS without any warranty whatsoever,
express or implied. Lessee's option to pay Lessor the Casualty Value and
to discount the future rental payments due shall be applicable only in
the event of a Casualty Occurrence and not otherwise.
9. SURRENDER. Upon the expiration or earlier termination of this lease
with respect to an item of Equipment, Lessee shall (unless Lessee has
paid the Casualty Value thereof pursuant to Paragraph 8 above) promptly
return such item, with freight prepaid, to Lessor at such place and by
such reasonable means as may be designated by Lessor in the same repair,
condition and working order as at the commencement of Lessee's
obligations hereunder with respect thereto, reasonable wear and tear
resulting from the proper use thereof alone excepted. If requested by
Lessor, Lessee shall, prior to returning any item of Equipment to Lessor,
provide suitable and adequate storage space at the Equipment Location
shown in the applicable Schedule or such location to which such item may
have been moved with the written consent of Lessor for a period not to
exceed ninety (90) days during which time Lessee shall remain liable for
all its obligations hereunder with respect thereto, except the obligation
to pay rent on account thereof, and shall ensure that Lessor will be
allowed reasonable access thereto.
10. TITLING; REGISTRATION. Each item of Equipment subject to title
registration laws shall at all times be titled and/or registered by
Lessee, at its own expense, and as Lessor's agent and attorney-in-fact
with full power and authority to register (but without power to affect
title to) the Equipment, in such manner and in such jurisdiction or
jurisdictions as Lessor shall direct. Lessee shall promptly notify
Lessor of any necessary or advisable and/or re-registration of an item of
Equipment in a jurisdiction other that one in which such item is then
title and/or registered. Any and all documents of title shall be
furnished or caused to be furnished Lessor by Lessee within sixty (60)
days of the date any titling or registering or retitling or re-registering,
as appropriate, is directed by Lessor.
11. TAXES. Lessee shall pay as directed by Lessor or reimburse Lessor
for all taxes, including but not limited to, property taxes, sales and
use taxes (exclusive of Federal and State taxes based on Lessor's net
income), fees, charges and assessments whatsoever, however designated,
whether based on the rent or levied, assessed or imposed upon the
Equipment or in respect to the manufacture, purchase, delivery,
ownership, leasing, use, return or other disposition of the Equipment,
now or hereafter levied, assessed or imposed under the authority of a
federal, state or local taxing jurisdiction. Returns required in
connection with the obligations which Lessee has assumed under this
Paragraph 11 shall, at Lessor's option, be prepared and filed by Lessor
or by Lessee in such manner as Lessor may direct. Each party shall upon
request furnish the other a copy of any such filing made or any
governmental invoice received by such party covering such obligations.
12. INSURANCE. Lessee shall procure and continually maintain and pay
for (a) all risk insurance against loss of or damage to the Equipment
from any cause whatsoever for not less than the full replacement value
thereof naming Lessor as Loss Payee and (b) combined public liability and
property damage insurance with a single limit of not less than $500,000
per occurrence. All such insurance shall provide at least ten (10) days
advance written notice to Lessor of cancellation, change or modification
in any term, condition or amount of protection provided therein, shall
provide full breach of warranty protection and shall provide that the
coverage is "primary coverage" for the protection of Lessee and Lessor
notwithstanding any other coverage carried by Lessee or Lessor protecting
against similar risks. Lessee shall provide lessor with a policy or
certificate evidencing such insurance. In the event of an assignment of
this lease by Lessor of which Lessee has notice, Lessee shall cause such
insurance to provide the same protection to the assignee as its interest
may appear. Lessee shall promptly notify any appropriate insurer, such
assignee and Lessor of each and every occurrence which may become the
basis of a claim or cause of action against the insured and provide
Lessor and such assignee with all data pertinent to such occurrence. The
proceeds of such insurance, as appropriate, shall be applied
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<PAGE>
toward (a) the repair or replacement of the appropriate item or Items or
Equipment, (b) payment of the Casualty thereof or (c) payment of, or as
promotion for, satisfaction of any other accrued obligations of Lessee
hereunder excess of such proceeds remaining shall belong to Lessee.
Lessee hereby appoints Lessor as Lessee's attorney with full power and
authority to do all things, including, but not limited to, making claims,
receiving payments under any policy contemplated hereby on account of a
Casualty Occurrence. Notwithstanding the foregoing and with the consent
of Lessor, Lessee may self-insure all such risks in accordance with its
risk management program.
13. LESSOR'S PAYMENT. In the event Lessee fails to pay any amounts due
hereunder or to perform any of this other obligation under this lease,
Lessor may, at its option, but without any obligation to do so, pay such
amounts or perform such obligations and Lessee shall reimburse Lessor the
amount of such payment or cost of such performance.
14. DISCLAIMER OF WARRANTIES. LESSEE ACKNOWLEDGES THAT THE EQUIPMENT IS
OF A SIZE, DESIGN, TYPE AND MANUFACTURER SELECTED BY LESSEE, THAT LESSOR
IS NOT A MANUFACTURER THEREOF OR A DEALER THEREIN, THAT LESSEE LEASES THE
EQUIPMENT AS-IS, AND THAT LESSOR HAS NOT MADE AND DOES NOT HEREBY MAKE
ANY AGREEMENT, REPRESENTATION OR WARRANTY WIT RESPECT TO THE
MERCHANTABILITY, CONDITION, CONNECTION WITH, OR FOR THE PURPOSES AND USES
OF LESSEE, OR ANY OTHER AGREEMENT, REPRESENTATION OR WARRANTY OF ANY KIND
OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BORNE BY LESSEE. Lessor does warrant,
however, that Lessor has whatever quality of title to an Item of
Equipment it obtains from the manufacturer or supplier thereof, subject
to this lease and any liens or encumbrances created by Lessor pursuant to
paragraph 20 hereof or which Lessee is obligated to discharge or satisfy.
Lessor agrees, so long as no event of default has occurred and is
continuing hereunder, that Lessee shall have the right to obtain the
benefit of and enforce in Lessee's own name and at Lessee's sole expense
any supplier's or manufacturer's warranty or agreement in favor of Lessee
with respect to an Item of Equipment to the extent such warranty or
agreement is assignable, and Lessor shall execute and deliver such
instruments as may be reasonably necessary to enable Lessee to obtain
such benefits.
15. INDEMNITY. Lessee does hereby assume liability for and does agree
to indemnify, deed, protect, save and keep harmless Lessor from and
against any and all liabilities, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements, including court costs,
and legal expenses of whatsoever kind and nature, imposed on, incurred by
or asserted against Lessor (whether or not also indemnified against by an
other person) in any way relating to or arising out of this lease or the
manufacture, purchase, ownership, delivery, lease, possession, use,
operation, condition, return or other disposition of the Equipment by
Lessor or Lessee, including, without limitation, any claim alleging
latent and other defects, whether or not discoverable by Lessor or
Lessee; any claim for patent, trademark or copy right infringement; and
any claim arising out of strict liability in tort. Lessee agrees to give
Lessor and Lessor agrees to give Lessee notice of any claim or liability
hereby indemnified against promptly following learning thereof.
16. DEFAULT. Any of the following events or conditions shall constitute
an event of default hereunder: (a) Lessee's failure to pay when due any
rent or other amount due hereunder, which failure shall continue for
twenty (20) days after the due date hereof; (b) Lessee's default in
performing any other obligation, term or condition of this lease or any
other default under any agreement providing security for the performance
by Lessee of its obligations hereunder, provided such default shall have
continued for more than twenty (20) days, except as provided in (c) and
(d) below; (c) any writ or order or attachment or execution or other
legal process being levied on or charged against an item of Equipment and
not being released or satisfied within ten (10) days; (d) Lessee's
failure to comply with its obligations under paragraph 12 above; (e)
death or judicial declaration of incompetency of Lessee, if an
individual; (f) the filing by Lessee of a petition under the Bankruptcy
Act or any amendment thereto or under any other insolvency law or law
providing for the relief of debtors, including, without limitation, a
petition for re-organization, arrangement or extension, or the commission
by Lessee of any act of bankruptcy; (g) the filing against Lessee of any
such petition not dismissed or permanently stayed within thirty (30) days
of filing thereof; (h) the voluntary or involuntary making of an
assignment of a substantial portion of its assets by Lessee for the
benefit of creditors, appointment of a receiver or trustee for Lessee or
for any of Lessee's assets, institution by or against Lessee of any other
type of insolvency proceeding (under the Bankruptcy Act or otherwise) or
of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up the affairs of Lessee or the
making by Lessee of a transfer of all or a material portion or Lessee's
assets or inventory not in the ordinary course of business; (i) the
occurrence of any event described in parts (16), (f), (g), or (h)
hereinabove with respect to any guarantor or other party liable for
payment or performance of this lease; or (j) any certificate, statement,
representation, warranty or audit heretofore or hereafter furnished with
respect hereto by or on behalf of Lessee or any guarantor or other party
liable for payment or performance of this lease proving to have been
false in any material respect at the time as of which the facts therein
set forth were stated or certified or having omitted any substantial
contingent or unliquidated liability or claim against Lessee or any such
guarantor or other party.
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17. REMEDIES. Upon the occurrence of any event of default, Lessor, at
its option, may exercise any one or more of the following remedies: (a)
declare the then Casualty Value immediately due and payable with respect
to any or all items of Equipment without notice or demand to Lessee; (b)
sue for and recover all rent and other payments, then accrued or
thereafter accruing, with respect to any or all items of Equipment; (c)
take possession of and render unusable any or all items of Equipment
without demand or notice, wherever same may be located, without any court
order or other process of law and without liability for any damages
occasioned by such taking of possession (any such taking of possession
shall not constitute a termination of this lease as to any or all items
of Equipment unless Lessor expressly so notifies Lessee in writing); (d)
require Lessee to assemble any or all items of Equipment at the place of
original installation thereof, such location to which such equipment may
have been moved with the proper written consent of Lessor or such other
location in reasonable proximity to either of the foregoing as a Lessor
shall designate; (e) sell or otherwise dispose of any or all items of
Equipment, whether or not in Lessor's possession, in a commercially
reasonable manner at public or private sale and with or without notice to
Lessee and apply the net proceeds of such sale after deducting all costs
of such sale, including, but not limited to, costs of transportation,
repossession, storage, refurbishing, advertising and brokers fees, to the
obligations of Lessee hereunder with Lessee remaining liable for any
deficiency and with any excess being retained by Lessor; (f) retain any
repossessed items of Equipment and credit the reasonable value thereof to
the obligations of Lessee hereunder with Lessee remaining liable for any
deficiency and with Lessor having no obligation to reimburse Lessee on
account of any excess of such reasonable value other such obligations;
(g) terminate this lease as to any or all items of Equipment; or (h)
utilize any other remedy available to Lessor at law or in equity.
A termination hereunder shall occur only upon written notice by
Lessor to Lessee and only with respect to such items of Equipment as
Lessor specifically elects to terminate in such notice. Except as to
such items with respect to which there is a termination, this lease shall
remain in full force and effect and Lessee shall be and remain liable for
the full performance of all its obligations hereunder.
No right or remedy conferred herein is exclusive of any other right
or remedy conferred herein or by law, but all such remedies are
cumulative of every other right or remedy conferred hereunder or at law
or in equity, by statute or otherwise, and may be exercised concurrently
or separately from time to time.
18. LESSOR'S EXPENSES. Lessee shall pay Lessor all costs and expenses,
including attorney's fees and court costs, incurred by Lessor in
exercising any of its rights or remedies hereunder or enforcing any of
the terms, conditions or provisions hereof.
19. ASSIGNMENT. Without the prior written consent of Lessor, Lessee
shall not sublet any item of Equipment or otherwise assign, transfer,
pledge or hypothecate this lease, and item of Equipment or any interest
in this lease or in and to the Equipment or permit its right under this
lease to be subject to any lien, charge or encumbrance of any nature.
Lessee's interest herein is not assignable and shall not be assigned or
transferred by operation of law. Consent to any of the foregoing
prohibited acts applies only in the given instance and is not a consent
to any subsequent like act by Lessee or any other person.
All rights of Lessor hereunder may be assigned, pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without
notice to Lessee but always, however, subject to the rights of Lessee
under this lease. If Lessee is given notice of any such assignment,
Lessee shall acknowledge receipt thereof in writing. In the event Lessor
assigns this Lease or the rent due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Lessor and Lessee, should there be
one, shall excuse performance by Lessee of any provision hereof, it being
understood that in the event of such default or breach by Lessor that
Lessee shall pursue any rights on account hereof solely against Lessor.
An assignment within the meaning of this section 19 shall be deemed
to include one or more sales or transfers, by operation of law or
otherwise, or creation of new stock, by which an aggregate of more than
50% of the Lessee's stock shall be vested in a party or parties who are
non stockholders as of the date hereof. This paragraph shall not apply
if Lessee's stock is listed on a recognized security exchange.
Subject always to the foregoing, this lease inures to the benefit of
and is binding upon, the heirs, legatees, personal representative,
successors and assigns of the parties hereto.
20. OWNERSHIP, PERSONAL PROPERTY. The Equipment is and shall at all
times be and remain the sole and exclusive property of Lessor. Lessee,
notwithstanding any trade-in or down payment made by Lessee or on its
behalf with respect to the Equipment, shall have no right, title or
interest therein or thereto except as to the use thereof subject to the
terms and conditions of this lease. Lessee shall keep the Equipment free
and clear of all liens, encumbrances and charges of any nature except
liens, encumbrances and charges created by Lessor pursuant to paragraph
19 hereof. If at any time during the term hereof Lessor supplies Lessee
with labels, plates, decals or other markings stating that the Equipment
is owned by Lessor, Lessee shall affix and keep the same prominently
displayed on the Equipment or shall otherwise mark the Equipment or
Equipment Location(s), as appropriate, at Lessor's request to indicate
Lessor's ownership of the Equipment. The Equipment is, and at all times
shall remain, personal property, notwithstanding that the
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Equipment or any item hereof may now be, or hereafter become, in any
manner affixed or attached to, or embedded or permanently resting upon
real property or any improvement thereon or attached in any manner to
what is permanent as by means of cement, plaster, nails, bolts, screws or
otherwise. If requested by Lessor prior to or at any time during the
term hereof with respect to any Item of Equipment, Lessee will obtain and
deliver to Lessor waivers of interest and waivers of liens in recordable
form satisfactory to Lessor from all persons claiming an interest in the
real property on which such Item is installed or located.
21. LATE CHARGE. If lessee fails to pay any rent or any other sum to be
paid by Lessee to Lessor hereunder within fifteen (15) days after the due
date thereof, lessee shall pay Lessor the Lessor's internal collection
costs relevant to the collection thereof and interest on such unpaid
installment or other amount at the rate of five (5%) of the unpaid
installment, or $5.00, whichever is greater, but not to exceed the
highest lawful maximum, if any, computed from the date due to the date paid.
22. NON-WAIVER. No covenant or condition of this lease can be waived
except by the written consent of Lessor. Forbearance or indulgence by
lessor in regard to any breach thereunder shall not constitute a waiver
of the related covenant or condition to be performed by Lessee.
23. NET LEASE; OFFSET; SURVIVAL. This lease is a net lease, and Lessee
shall not be entitled to any abatement of rent or other payments due
thereunder or any reduction thereof under any circumstances or for any
reason whatsoever. Lessee hereby waives any and all existing and future
claims, as offsets, against any rent or other payments due hereunder and
agrees to pay the rent and other amounts due hereunder as and when due
regardless of any offset or claim which may be asserted by Lessee or on
its behalf. This lease shall not terminate, or the respective
obligations of Lessor or Lessee be otherwise affected or Lessor have any
liability whatsoever to Lessee, by reason of any failure or delay in
delivery of any or all Items of Equipment, any defect in or damage to or
loss or destruction of any or all Items of Equipment from whatever cause,
the prohibition of Lessee's use of the Equipment or any Item thereof, the
interference with such use by any government, person or corporation, the
invalidity or unenforceability or lack of right, power or authority of
Lessor or Lessee to enter into this lease or any other cause whether
similar or dissimilar to the foregoing. The obligations and liabilities
of Lessee hereunder shall survive the expiration or earlier termination
of this lease.
24. ADDITIONAL DOCUMENTS. If requested by Lessor, Lessee shall procure
and/or execute, have executed, acknowledge, deliver to Lessor, record and
file such documents and showings as Lessor shall deem necessary or
desirable to protect its interest in this lease and the Equipment.
Lessee, without limiting the generality of the first sentence of this
paragraph, gives Lessor the right to file precautionary financing
statements with respect to the Equipment under the Uniform Commercial
Code, as amended, or other similar provisions of law. Lessee further
shall furnish Lessor: (a) a fiscal year end financial statement including
balance sheet and profit and loss statement along with a current personal
financial statement and tax return on all guarantors within one hundred
twenty (120) days of the close of each fiscal year, (b) any other
information normally provided by Lessee to the public and (c) such other
financial data or information relative to this lease and the Equipment as
Lessor may from time to time reasonably request.
25. LESSEE'S WARRANTIES. Lessee certifies and warrants that the
financial data and other information which Lessee has submitted, or will
submit, to Lessor in connection with this lease is, or shall be at the
time of delivery, as appropriate, a true and complete statement of the
matters therein contained. Lessee further certifies and warrants: (a)
this lease has been duly authorized by Lessee and when executed and
delivered by the person signing on behalf of Lessee below shall
constitute the legal, valid and binding obligation contact and agreement
of Lessee enforceable against Lessee in accordance with its respective
terms, and (b) this lease and each and every showing provided by or on
behalf of Lessee in connection herewith may be relied upon by Lessor in
accordance with the terms thereof notwithstanding the failure of Lessee
or other applicable party to ensure proper attestation thereto whether by
absence of a seal or acknowledgement or otherwise. The person executing
this lease on behalf of Lessee warrants that he has been fully authorized
to do so.
26. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
between Lessor and Lessee and shall not be amended, altered or changed
except by a written agreement signed by the parties hereto.
27. NOTICES. Service of all notices under this agreement shall be
sufficient if mailed to the party involved at this respective address set
forth at the foot hereof or at such other address as such party may
provide in writing from time to time. Any such notice mailed to such
address shall be effective when deposited in the United States mail, duly
addressed, with postage prepaid. Lessee shall promptly notify Lessor of
any change in Lessee's address.
28. GENDER; NUMBER; JOINT AND SEVERAL LIABILITY. Whenever the context
of this lease requires, the masculine gender includes the feminine or
neuter and the singular number includes the plural and whenever the word
"Lessor" is
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used herein, it shall include all assignees of Lessor, it being
understood that specific reference to "assignee" in paragraph 12 above is
for further emphasis. If there is more than one Lessee named in this
Lease, the liability of each shall be joint and several.
29. TITLES. The titles to the paragraphs of this lease are solely for
the convenience of the parties and are not an aid in the interpretation
of the instrument.
30. GOVERNING LAW. This lease shall be governed by and construed in
accordance with the law of the State of Colorado. In the event any
provision hereof shall be declared invalid, such provision shall be
deemed severable from the remaining provisions of this lease which shall
remain in full force and effect.
31. TIME. Time is of the essence of this lease and each and all of its
provisions.
32. WARRANTIES. Lessor shall subrogate or pass-through to Lessee any
warranty rights it may acquire from any supplier of equipment hereunder,
and on Lessee's reasonable request, shall permit Lessee, at Lessee's
expense, to enforce such warranties in Lessor's name, if for an reason
Lessee is not permitted to enforce the same in it's own name.
IN WITNESS WHEREOF, the undersigned have executed these presents as
of the 21 day of December, 1998.
Technology Learning Systems, Inc. Lease Capital Corporation
dba Lab Technologies (LESSOR)
(LESSEE)
By: /s/ DONALD GARY NELSON By: /s/
--------------------------- ---------------------------
Title: President Title: Pres.
------------------------ ------------------------
8245 W. I-25 Frontage Rd., Suite 4 19590 East Mainstreet, Suite 207
Erie, CO 80516 Parker, CO 80138
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GUARANTY
--------
For valuable consideration, the receipt of which is hereby
acknowledged, to induce Lessor to enter into the Equipment Lease
described below, and to induce any bank or any other financial
institution ("Bank") to which the following Equipment Lease:
Dated: Dec 21, 1998
--------------------
Equipment Description: See attached Exhibit A
Lessor/Address: Lease Capital Corporation
19590 E. Mainstreet, Suite 207, Parker, CO, 80138
Payment Terms: 36 Monthly Payments of $4,564.00 followed by one (1)
PAYMENT OF $1.00.
by and between Lessor and Technology Learning Systems, Inc. dba Lab
Technologies assigned by Lessor at its option to make a loan or loans, or
otherwise extend credit with or without security, or to disconnect or to
purchase or otherwise acquire any interest in the payment of money or
other obligations of the Customer to Lessor as evidenced or to be
evidenced by the Equipment Lease, the undersigned (jointly and severally
if more than one) ("Guarantor") hereby unconditionally guaranties and
promises to the Lessor, and its successors and assigns.
1. The full and punctual payment of all sums, monies, performance
of all obligations which shall at any time be due or owing or payable to
the Lessor, from the Customer and all liability and/or damages which the
customer has incurred or is under or may incur or be under to the Lessor,
with respect to the Equipment Lease. Guarantor shall pay all of the
foregoing amounts and perform all of the forgoing terms, covenants and
conditions not withstanding that any part of all of the Equipment Lease
or any part or all of the other agreements shall be void or voidable as
against Customer or any of Customer's Creditors, including a trustee in
bankruptcy of Customer, by reason of any fact or circumstance including,
without limiting the generality of the foregoing, failure by any person
to file a document or to take any other action to make the Equipment
Lease or any of the other agreements enforceable in accordance with their
terms.
2. The Guarantor consents that without notice to or further assent
by the Guarantor, the obligation of any party for the liabilities
guaranteed hereby may be extended, modified, prematured, changed or
released by Lessor as it may deem advisable, and that any security or
securities which it may hold, be exchanged, sold or surrendered by it as
it may deem advisable, in which event the guarantor shall nevertheless
remain bound to the full extent hereof.
3. The Guarantor waives any and all notice of the acceptance of
this Guaranty, or of the creation, renewal or accrual of any liabilities
of Customer to Lessor, present or future, or the reliance of Lessor upon
this guaranty, and any and every obligation of Customer to Lessor herein
described shall conclusively be presumed to be created, contracted or
incurred in reliance upon this Guaranty. This Guarantor waives demand of
payment from any party indebted in any manner for the liabilities hereby
guaranteed and also waives the presentment for payment of any dishonor,
to any party thereto and also to the Guarantor, and to take any action
Lessor may elect with respect to any security the Lessor now or hereafter
may hold.
4. This Guaranty shall be construed as an absolute and
unconditional guaranty of payment and performance, without regard to the
validity, regularity or enforceability of any obligation of Customer and
regardless of any law, regulation or decree now or hereafter in effect
which might in any manner effect the obligations of Customer, any rights
of Lessor, or cause or permit to be invoked any alteration of time,
amount, currency, or manner of payment of any of the obligations hereby
guaranteed. This guaranty shall be unaffected and unimpaired by any
change which may arise by reason of the death of the undersigned. Lessor
shall have its remedy under this Guaranty without being obligated to
resort first to any security, marshalling or Customer's assets or to any
other remedy or remedies to enforce the payment or collection of the said
liabilities and may pursue all or any of its remedies at one time or at
different times.
1
<PAGE>
5. Upon the default of Customer or the Guarantor with respect to
any obligations or liabilities to Lessor, or in case the Guarantor shall
become insolvent or in case the Customer or the Guarantor makes an
assignment of the benefit of creditors or in the event of the appointment
of a receiver (either at law or in equity) of the customer or the
Guarantor, or in the event that a writ of attachment is issued against
the Customer or any of the guarantors, all of any part of the obligations
and liabilities of the Customer to the Lessor, whether direct or
contingent, and of every kind and description, shall without notice or
demand become immediately due and payable and shall in any event be taken
up forthwith by the undersigned Guarantor.
6. Guarantor agrees to indemnify Lessor against loss, cost or
expense by reason of the assertion by Customer of any defense to its
obligations to Lessor or the assertion by the Guarantor of any defense to
the obligations hereunder.
7. The Guarantor represents and warrants that is has filed all
federal, state and local tax returns required to be filed by it and has
paid the tax required hereby, that no proceedings in bankruptcy have been
instituted by or against it and that it has not made an assignment for
the benefit of creditors. In addition, in the event Guarantor is a
corporation, Guarantor represents and warrants that it is a corporation
in good standing under the laws of its state of incorporation, and the
person executing this Agreement is authorized to do so on behalf of the
corporation. Guarantor warrants that all applications, statements and
reports are, and all information hereafter furnished by guarantor to
Lessor will be, true and correct in all material respects as of the date
submitted and that no such application, statement or report omits any
material fact which would if included make such application, statement or
report true and correct. Guarantor agrees to obtain and shall obtain,
either simultaneously upon execution of this guaranty or thereafter such
corporation resolutions, opinions of counsel, personal and/or corporate
financial statements and other documents as Lessor shall request from
time to time.
8. The Guarantor covenants and agrees that in any action or
proceeding or counterclaim brought by either Lessor or the Guarantor
against the other on any matter whatsoever, arising out of, under, or by
virtue of the provisions of any agreement of Customer with Lessor, or
this Guaranty, the Guarantor shall and does hereby waive trial by Jury.
Guarantor waives the benefit of any statue of limitations affecting its
liability thereunder or the enforcement thereof. This instrument cannot
be changed or terminated orally.
9. No delay on the part of Lessor in exercising any rights
hereunder or failure to exercise the same shall operate as a waiver of
such rights, no notice to demand on the undersigned shall be deemed to be
a waiver of the obligation of the Guarantor or of the right of Lessor to
take further action without notice or demand as provided herein; nor in
any event shall any notification or waiver of the provisions of this
Guaranty be effective unless in writing nor shall any such waiver be
applicable except in the specific instance for which given.
10. This Guaranty is, and shall be deemed to be, a contract entered
into under and pursuant to the Laws of the State of Colorado and shall be
in all respects governed, construed, applied and enforced in accordance
with the laws of said state; and no defense given or allowed by the laws
of any other state of county shall be interposed in any action hereon
unless such defense is also given or allowed by the laws of the State of
Colorado.
11. This agreement shall, without further reference, pass to and
may be relied upon and enforced by any successor or assignee of Lessor
and any transferee or subsequent holder of said liabilities or
obligations of Customer.
FACSIMILE THE PARTIES AGREE THAT A FACSIMILE TRANSMISSION OF THIS
- --------- SIGNED DOCUMENT AND RELATED DOCUMENTS ATTACHED HERETO
CONSTITUTE AN ORIGINAL AND BINDING AGREEMENT
IN WITNESS WHEREOF, the undersigned Guarantor(s) has duly executed
------------------------------------------------------------------
this Guaranty.
- --------------
Donald G. Nelson
/s/Donald G. Nelson
- -------------------
Whose Home Address is:
1604 Sunset St.
- -------------------
Longmont, CO 80501
- -------------------
- -------------------
2
<PAGE>
SCHEDULE NO. 01
Technology Learning Systems, Inc. dba Lab Technologies, AS LESSEE
and
Lease Capital Corporation, AS LESSOR
DATED AS OF Dec. 21, 1998, 1998. (the "Lease")
-------------
Lessor and Lessee hereby acknowledge that the Items of Equipment
described in this Schedule have been delivered to and are not in the
possession of and have been unconditionally accepted by Lessee for all
purposes of the Lease and that the following is a description of said
Items, the cost hereof, the expiration date of the lease term with
respect thereto, the rent therefor, the location thereof and any other
provisions provided thereto or herein.
1. Equipment Description: See Exhibit A
2. Equipment Cost: $140,000.00
3. Term: Unless sooner terminated as set forth in the Lease, the
term of the Lease respecting each Item of Equipment listed
hereon ends at the expiration of 36 months after the Rent
commencement date set forth in paragraph 4 below.
4. Rent: Except as otherwise provided in the Lease or in this
Schedule, rent shall be paid in advance in 36 installments
commencing on DECEMBER 21, 1998, (the "Rent commencement Date")
as follows: 36 Monthly Payments of $4,564.00.
5. Equipment location: 8245 W. I-25 Frontage Rd., Suite 4, Erie,
CO 80516
6. Other Provisions: First and last payments along with a $125.00
documentation fee due at the signing of this agreement.
ACCEPTED AND APPROVED THIS 21st day of DECEMBER, 1998, as a Schedule
to and made a part of the Master Lease Agreement dated the 21st day of
DECEMBER, 1998.
Technology Learning Systems, Inc. Lease Capital Corporation
dba Lab Technologies Lessor
Lessee
By: /s/ RONALD GARY NELSON By: /s/
-------------------------- -------------------------
Title: President Title: Pres.
----------------------- ----------------------
<PAGE>
ACCEPTANCE OF EQUIPMENT
-----------------------
Technology Learning Systems, Inc. dba Lab Technologies has fully
inspected the property described below:
See Exhibit A
and acknowledges it to be in good condition and to Lessee's complete
satisfaction. Lessee understands that Lease Capital Corporation makes no
warranties, either expressed or implied, as to the condition of the
property or its fitness for any particular purpose.
It is understood that Lease Capital Corporation is not responsible for
machine performance or service of equipment and that lease rental shall
continue regardless of performance or condition of equipment. It is
further understood that Lease Capital Corporation authorizes Lessee to
enforce any warranty given to Technology Learning Systems, Inc. dba Lab
Technologies by the Vendor.
Technology Learning Systems, Inc.
dba Lab Technologies
LESSEE
By: /s/ RONALD GARY NELSON
-----------------------------
Title: President
--------------------------
Date: 12-21-98
---------------------------
<PAGE>
TAX INDEMNITY AGREEMENT
Re: Technology Learning Systems, Inc. dba Lab Technologies
Know all men by these presents:
Whereas, the above mentioned, Technology Learning Systems, Inc. dba Lab
Technologies, hereinafter referred to as Lessee, has heretofore entered
into a Lease Contract(s) with Lease Capital Corporation, (Lessor); and
Whereas, Lessor has leased various items of personal property to Lessee; and,
Whereas, questions have arising regarding the responsibility of the
various parties for the payment of sales, use, personal property and
other tax, if any, which might be owed, and the Lessee has acknowledged
that they are unconditionally obligated to pay any and all such taxes
which may become due as a result of any leases with Lessor or it's
assigns; and,
Now, therefore, for Ten Dollars ($10.00), and other good and valuable
consideration to each in hand paid and received, the receipt and
sufficiency whereof is hereby acknowledged and confessed, the Lessee does
hereby unconditionally agree to indemnify and save harmless Lessor and
it's assigns from and against any and all claims, actions, liabilities,
and obligations, including, but not limited to, reasonable attorneys'
fees, court costs, and other expenses, which then may suffer, incur or
sustain as a result or consequence of Lessee not complying with or paying
any and all sales and/or use taxes which may or might be required by the
State of Colorado, County of Weld or any taxing authority arising from or
growing out of, whether direct or indirect, any lease of personal
property between any of the parties hereto.
Executed this 21 day of December, 1998.
Technology Learning Systems, Inc.
dba Lab Technologies
By: /s/ RONALD GARY NELSON Title: President
- ------------------------------------------------------------------
<PAGE>
EXHIBIT A
---------
Technology Learning Systems, Inc. dba Lab Technologies
By: /s/ RONALD GARY NELSON Dated: 12-21-98
- -----------------------------------------------------------------
DESCRIPTION OF EQUIPMENT AND OTHER PROPERTY:
Equipment Location: 8245 W. I-25 Frontage Rd., Suite 4, Erie, CO 80516
ADVANCE AUDIO
- -------------
1 Onkyo Receiver, Model TXSV646, S/N 2709023858
1 Onkyo Cassette Deck, Model TARW344, S/N 4808021389
1 Pioneer DVD, Model DVD414, S/N 013589
1 JVC VCR, Model HP650, S/N 083E3285
AURORA VISUAL SYSTEMS
- ---------------------
1 Infocus Litepro 730 ZV, S/N 2C7410944
1 Soft Case
DHE COMPUTER SYSTEMS
- --------------------
4 PC100 64MB Sdram
4 32MB SDRAM 10ns Dimm
2 16MB 72-Pin EDO Simm
22 Fujitsu 6.4GB UDMA Hard Drive
18 DHE DV-P2 Pentium II Systems to include
18 Pentium II 400 MHz CPU
18 Enlight ATX Mid Tower Case
18 EDOM Intel 440BX Mainboard
18 Cooltech Pentium II Fan
18 PC100 128MB Sdram 8ns
20 US 36x CD-Rom
20 Mitsumi 3.5" 1.44 MB Floppy Drive
3 Diamond Fire GL Pro 8M AGP
22 3COM 10/100 Fast Ethernet
3 BenWin BWFX1-3D 17 Watt
18 Keytronics Spacesaver PS/2
20 Logitech 3 Button PS/2
5 Microsoft Windows 95
3 Liyama Vis. Master 17"
16 Diamond G460 AGP 8M I740
15 Creative Labs SB 64 AWE
15 Microsoft Windows 98 OEM
15 Viewsonic G771 17" Flat Screen
3 Fujitsu 4.3 GB UDMA Hard Drive
1 Creative Labs SB 16
1 3Com 10/100 24 Port Hub
1 3Com 12 Port AutoSwitch
2 DHE DV-K6 AMD Multimedia
2 Enlight Mid Tower Case
<PAGE>
Technology Learning Systems, Inc. dba Lab Technologies Page 2
2 Quantum 2.5GB UDMA
2 Jayton Trident 9685 2MB EDO
2 Mitsumi 104 Keyboard
GBH DISTRIBUTING, INC.
- ----------------------
22 GN Binaura Headband
22 GN Computer Cord 3.5MM
HEATHIT COMPANY
- ---------------
1 HP Lasterjet 6P Printer
4 Reference Library
3 PC Pentium2 Computers
3 15" Monitors
1 VGA Color Monitors VL-400
1 HP Laser 6P Printer Sytems
INGRAM MICRO
- ------------
2 4MB Smart Media Card
1 RDC-4300 Digital Camera
1 Wavewatcher TV PCI Video Capture with TV Tuner
20 Powermax Six Outlet Strip 6Ft Cords
5 10Ft Length Extension Cords
NEWELL OFFICE PRODUCTS
- ----------------------
2 Eldon Work Managers Desk
PHOENIX OFFICE FURNISHINGS
- --------------------------
24 Gas Lift Ergo Chairs
CEAVCO
- ------
1 Mid Atlantic 12 Space Rack
3 Mid Atlantic 2 Space Utility Shelf
4 Mid Atlanctic 1RU Grill
INTERIOR CONCEPTS
- -----------------
1 Panels for Clssroom Workstations (12) Student (1) Instructor
1 Interior Charcoal Partition
16 CPU Swivel Stands
ROBOTEL ELECTRONIQUE, INC.
- --------------------------
2 M160C Controller Version 2.1 Including Mounting kit and Terminal
Cable
6 Junction Box M160JU Version 11.0
21 M160 I Interface Version 9.8
<PAGE>
Technology Learning Systems, Inc. dba Lab Technologies Page 3
20 M160T Terminal Version 4.4
2 M160 YC Version 1.3
1 12.1" XGA LCD
1 M160B Version 0.1
1 M160Y Version 2.0
13 Camera Video Interface Version 3.0
4 Video Camera Jct Box Version 1.0
1 System Virtual Recorder 1.20
SMART TECHNOLOGIES,INC.
- -----------------------
1 Rear Projection Board, S/N RP1602-1097
ACCESS GRAPHICS
- ---------------
1 DeskJet 710C Color Printer SSG8771X0TD
EXHIBIT 10.16
AUTODESK AUTHORIZED RESELLER AGREEMENT
(United States)
This Autodesk Authorized Reseller Agreement ("Agreement"), effective
on February 1, 1999 ("Effective Date") is made between Autodesk, Inc., a
Delaware corporation ("Autodesk") and reseller set forth below ("Reseller")
DESIGN TECHNOLOGIES
8245 W. 1-25 Frontage Road, #4
Erie, CO 80516
FAX: 303-449-2181
0070001215 01
1. DEFINITIONS
1.1 "AUTHORIZED LOCATION" shall mean each physical location where Reseller
is authorized to market and distribute Autodesk Software Products to End
Users, as identified in the Product Requirements Sheet concerning such
Autodesk Software Products.
1.2 "AUTHORIZED PRODUCTS" shall mean the Autodesk Software Product(s)
which (a) Reseller has procured from Autodesk or an Autodesk Distribution
Partner in accordance with this Agreement, and (b) Reseller is authorized
to market and distribute to End Users only in accordance with the Product
Requirements Sheet which corresponds to such Autodesk Software Product(s).
1.3 "AUTHORIZED TERRITORY" shall mean the United States and any
geographical area, identified in the Product Requirements Sheet, within
which Reseller is authorized to market, distribute, and support the
Authorized Products corresponding to such Product Requirements Sheet.
1.4 "AUTODESK DISTRIBUTION PARTNER" shall mean any entity authorized in
writing by Autodesk to distribute Autodesk Software Products to third
parties other than End Users.
1.5 "AUTODESK SOFTWARE PRODUCTS" shall mean the then-current product
offerings of Autodesk and its subsidiaries and affiliates, and any
Upgrades, Bug Fixes, or Enhancements thereto.
1.6 "CO-OP FUNDS" shall mean funds which are made available to Reseller
for the promotion of Autodesk Software Products, under the terms of this
Agreement.
1.7 "EARNBACKS" shall mean rebates that Reseller shall receive, under the
terms of this Agreement, upon the achievement of Reseller's Target.
1.8 "END USER" shall mean a customer of Reseller who has licensed one or
more Autodesk Software Products for the personal or business use of such
customer and not for transfer or resale.
1.9 "END USER LICENSE" shall mean the then-current license agreement
shipped with, or incorporated in, each Autodesk Software Product, which
sets forth the terms and conditions under which an End User may use such
Autodesk Software Product.
1.10 "PRODUCT REQUIREMENTS SHEET" shall mean a written amendment to the
agreement executed by the parties which sets forth the terms and
conditions under which Reseller is authorized to market, distribute, and
support one or more Autodesk Software Products to End Users. Reseller may
not market or distribute any Autodesk
<PAGE>
Software Product to End Users until the parties have executed a Product
Requirements Sheet corresponding to such Autodesk Software Product.
Reseller must continuously meet the requirements set forth in the Product
Requirements Sheet for each Authorized Location in which Reseller intends
to market, distribute, and support the Autodesk Software Products
corresponding to such Product Requirements Sheet.
1.11 "RESTRICTED AUTHORIZED PRODUCTS" shall mean those Autodesk Software
Products identified on one or more Product Requirements Sheet(s), which
Reseller is prohibited from distributing to End Users outside of the
Authorized Territory.
1.12 "PURCHASE REQUIREMENT" shall mean the minimum purchase requirements as
set forth in the Products Requirement Sheet(s).
1.13 "TARGET" shall mean the revenue target, based upon purchases of
Authorized Products from Autodesk, which Reseller must obtain to receive
Earnbacks.
1.14 "UPDATES, BUG FIXES, AND ENHANCEMENTS" collectively shall mean
additions or corrections to any Autodesk Software Product which (a)
Autodesk designates to be a modified or upgraded version of such Autodesk
Software Product, and (b) requires the End User to whom it is distributed
to have previously licensed the Autodesk Software Product corresponding to
such modified or upgraded version.
All references in this Agreement to the "Sale" of or "selling" or
"purchase" of Software shall mean the sale or purchase of a license to use
such Software or Software Copies.
2. APPOINTMENT
2.1 NONEXCLUSIVE RETAIL RESELLER. Autodesk appoints Reseller as a
nonexclusive retail reseller to market, distribute, and support only the
Authorized Products identified on one or more Product Requirements
Sheet(s), solely to End Users within the United States, pursuant to an End
User License Agreement. Notwithstanding the preceding sentence, Reseller
may market, distribute, and support Restricted Authorized Products to End
Users within the Authorized Territory only.
2.2 RETENTION OF RIGHTS BY AUTODESK. Autodesk reserves the unrestricted
right (a) to market, distribute, and support any Autodesk Software Product
worldwide in any location, including in the Authorized Territory, directly
to End Users or through any other channel, including, but not limited to,
original equipment manufacturers, value added reseller, distributors,
dealers, or retail outlets, and (b) to modify, augment, or otherwise change
the methods in which Autodesk markets, distributes, or supports any
Autodesk Software Product, without any liability to Reseller.
2.3 RESTRICTIONS. Reseller agrees as follows:
(a) Reseller shall use its best efforts to enforce the terms of the End
User License Agreement and to advise Autodesk promptly of any known breach
of the terms of the End User License Agreement. Reseller shall not
distribute copies of any Autodesk Software Product that is marked "Not for
Resale" or otherwise provided to Reseller for demonstration purposes only
("NFR(s)").
(b) Reseller shall not market, distribute, or support any Autodesk
Software Product to or for any third party other than an End User.
Reseller expressly acknowledges and agrees that Reseller is not an Autodesk
Distribution Partner and further acknowledges and agrees that the
distribution rights granted under this Section 2 may not be construed so as
to allow Reseller to market or distribute Autodesk Software Products to any
person or entity other than an End User. This restriction notwithstanding,
Reseller may permit the financing of any Autodesk Software Products by an
End User through a financial institution, approved by Autodesk. Such
financing shall be restricted to a loan arrangement or permitting an End
User to enter into a buy-out lease, provided however, such financial
institution shall not be an End User and shall have no rights to such
product as a licensee thereof. In any event, this consent shall not be
construed to permit short-term rental of Autodesk Software Products.
2
<PAGE>
(c) Reseller shall not purchase, license or otherwise acquire or attempt
to acquire licenses for Autodesk Software Products from (i) an End User,
(ii) an agent acting on behalf of an End User, or (iii) any person or party
other than Autodesk or an Autodesk Distribution Partner.
(d) Reseller shall not attempt to upgrade, exchange, or otherwise procure
an economic benefit from any Autodesk Software Product purchased, licensed,
or otherwise acquired from (i) an End User, (ii) an agent acting on behalf
of an End User, or (iii) any person or party other than Autodesk or an
Autodesk Distribution Partner.
(e) Reseller shall not attempt to mischaracterize an Update, Bug Fix, or
Enhancement as a stand-alone, fully paid-up license to the corresponding
Autodesk Software Product for the purpose of attempting to upgrade,
exchange, or otherwise procure an economic benefit from such Update, Bug
Fix, or Enhancement.
(f) Reseller shall not market, distribute, or support any Autodesk
Software Product (i) to any entity purporting to be an End User but which
is either known to Reseller or known to Autodesk and communicated to
Reseller, to have the intent to, or have attempted to, sublicense such
Autodesk Software Products to bona fide End Users or other third parties,
(ii) or to any End User or other third party who intends to export the
Autodesk Software Products, without authorization from Autodesk.
(g) Reseller shall not attempt to market or distribute Restricted
Authorized Products other than in the Authorized Territory, unless
authorized by Autodesk in writing. Any advertising, including but not
limited to, trade magazine and Web based advertising, which will be seen by
customers outside of Reseller's Authorized Territory, must contain a
disclaimer notifying such customers that Reseller may not sell to customers
outside of Reseller's Authorized Territory. Reseller shall refrain from
marketing or promoting, in any manner, any Autodesk Software Product other
than the Authorized Product(s).
(h) In addition to all other remedies available to Autodesk under law or
equity or this Agreement, in the event that Reseller violates any of the
provisions of subsections 2.3(a)-(f) herein, Reseller shall pay to
Autodesk, as liquidated damages and not as a penalty, an amount equal to
the difference between the then-current Autodesk suggested retail price and
the price Reseller actually paid for the Autodesk Software Product used,
procured or distributed in contravention of this Section 2.3. In the event
that Reseller violates the provisions of subsection 2.3(g), Reseller shall
pay to Autodesk, as liquidated damages and not as a penalty, the sum of
$500.00 for each copy of a Restricted Authorized Product distributed
outside the Authorized Territory. In addition, Autodesk may terminate this
Agreement for numerous or repeated violations of subsection 2.3(h).
2.4 REPORTING. Reseller, at its own expense and in the format requested
by Autodesk, shall provide the following reports:
(a) SELL THROUGH REPORTS. Reseller shall maintain complete and accurate
records concerning each and every Authorized Product distributed to an End
User in accordance with this Agreement, including the name, phone number,
fax number, and address of each such End User, the serial number of each
Autodesk Software Product licensed to such End User, the Authorized
Location from which such product was distributed, the date of the
transaction, and end-of-month inventory for each Authorized Product.
Reseller shall provide the Autodesk sales office with written reports
including the above referenced information within fifteen (15) days of the
end of each calendar month during the term of this Agreement, and shall
also provide Autodesk with such information promptly at other times upon
reasonable request for Autodesk.
(b) FORECASTS. Reseller shall provide Autodesk with monthly forecasts
setting forth the numbers of copies of each Authorized Product held in
inventory by Reseller, and the numbers of copies of each Authorized Product
which Reseller expects to distribute to End Users in the ninety (90) day
period following the date of the report. Reseller also agrees, upon the
request of Autodesk, to provide Autodesk with market research information
regarding competition and changes in the market.
3
<PAGE>
2.5 AUDIT RIGHTS. Autodesk, in its sole discretion, not more than once
each Autodesk fiscal quarter, may conduct an audit of the financial and
other records of Reseller for the purpose of validating or augmenting the
Reseller reports identified in Section 2.4 above and otherwise ensuring
that Reseller is complying with the terms of this Agreement. Such audits
shall be conducted at Reseller's sites during normal business hours upon
reasonable notice to Reseller. Autodesk shall bear the cost of such audit,
unless Autodesk determines that (a) Reseller has underpaid Autodesk by more
than five percent (5%) for any Autodesk fiscal quarter or year, or (b)
Reseller has failed to disclose a material breach of an End User License
Agreement or of this Agreement.
2.6 ADDITIONAL RESELLER DUTIES. Reseller agrees to perform all of the
following obligations in good faith:
(a) PRODUCT REQUIREMENTS SHEETS. Each Authorized Location of Reseller
shall continually comply with the specific requirements ("Product
Requirements") set forth in each Product Requirements Sheet.
(b) APPROVALS. Reseller shall obtain and maintain at its own expense all
approvals, consents, permissions, licenses, and other governmental or other
third party approvals necessary to enable Reseller to market, distribute,
and support the Products for which Reseller is authorized in accordance
with this Agreement. Reseller shall comply with all applicable federal,
state, county, and local laws, statutes, ordinances, and regulations which
apply to the activities of Reseller.
(c) MARKETING ACTIVITIES. Reseller shall use its best efforts to actively
market, promote, and distribute, at Seller's expense, the Authorized
Products only within the Authorized Territory under the terms of this
Agreement and the Product Requirement Sheet(s).
(d) UPDATES, BUG FIXES, AND ENHANCEMENTS. Reseller, at its own expense,
shall be responsible for distribution and support of any updates and/or Bug
Fixes to any Autodesk Software Product which Reseller has licensed to an
End User promptly after delivery to Reseller of such Update or Bug Fix.
Autodesk reserves the right to distribute Updates, Bug Fixes, and
Enhancements to End Users directly or through alternative channels,
including, but not limited to, electronic distribution. Reseller shall
promptly notify Autodesk of any defect in any Autodesk Software Produce
which is discovered by or reported to Reseller.
(e) CSC RESELLER POLICY AND PROCEDURE MANUAL. Reseller shall comply with
all terms and conditions as set forth in the then current CSC Reseller
Policy and Procedure Manual. Repeated failure to abide by such policies
and procedures shall be considered a material breach of this Agreement.
Autodesk reserves the right to modify such policies and procedures at
anytime.
(f) FULFILLMENT OF REBATE COUPONS. From time to time Autodesk may run a
promotion whereby End Users may receive a rebate offer for Authorized
Products. Autodesk appoints Reseller as a non-exclusive agent for the
fulfillment of rebate claims ("Rebate Claims") submitted by End Users for
the various promotions ("Promotions"). Reseller shall pay to an End User
who has submitted a Rebate Claim the specified dollar amount as set forth
on the Rebate Coupon, according to the terms and conditions stated on the
Rebate Coupon. Reseller shall only pay End User for Rebate Claims which
have been received for the Promotions for which Reseller has been
Authorized by Autodesk. Reseller shall pay a rebate to End User only if
the Rebate Coupons have been completely filled out by the End User, if all
required documentation is attached, and the Rebate Claim was postmarked or
received prior to the expiration date printed on the Rebate Coupon, unless
otherwise instructed by Autodesk. After submission of all required End
User documentation by Reseller to Autodesk. Autodesk shall credit
Reseller's account for the amount of the Rebate Coupon.
(g) RESELLER'S OFFICE. Reseller shall maintain an office within a
commercial facility that is suitable to adequately represent Autodesk
Software Products to End Users. Such office may not be a home-office.
Reseller shall submit to Autodesk photographs of Reseller's office along
with this Agreement. Reseller shall have until April 1, 1999 to comply
with this requirement. Failure to comply after this date shall be material
breach of this Agreement and may result in its termination by Autodesk. In
the event that Reseller loses its commercial office after April 1, 1999,
Reseller shall have thirty (30) days in which to establish a new office as
defined above. The establishment of a new office which is more than five
miles from the location listed at the beginning of this Agreement is
subject to approval by Autodesk.
4
<PAGE>
(h) UPDATED FINANCIAL STATEMENTS. Reseller shall be required to submit
updated financial statements to Autodesk prior to the acceptance of this
Agreement by Autodesk.
3. RESELLER ORDERS AND PAYMENT TERMS.
3.1 PRICES AND ORDERS. The prices applicable to Reseller shall be the
prices reflected on the then-current Reseller Price List based upon
Reseller's discount level, as set forth in the AUTODESK FY2000 VAR VALUE
PROPOSITION. The AUTODESK VAR VALUE PROPOSITION may be revised by Autodesk
upon written notice to Reseller. Autodesk may change prices at any time
effective thirty (30) days after publication of a new Reseller Price List
or other similar notice to Reseller. All prices are F.O.B. or Free Carrier
Autodesk's manufacturing plant. Purchase orders must be in writing
(including facsimile, telex, telecopy or electronic communication such as
email, but only if such form of electronic communication has been
previously agreed to by Autodesk) and must request a delivery date during
the term of this Agreement. Autodesk reserves the right to accept or
reject orders, in whole or in part, and shall make reasonable commercial
efforts to advise Reseller promptly of any order rejected hereunder. Upon
acceptance by Autodesk. purchase orders shall be binding as to the products
and services ordered and place of delivery, but not as to any other term
appearing on such purchase order. Autodesk reserves the right to reject
any order or to cancel any order previously accepted if Autodesk determines
that Reseller is in default under this Agreement.
3.2 TAXES. Reseller shall be responsible for the payment of all federal,
state, county, or local taxes, fees, and other charges, including all
applicable income and sales taxes, including penalties and interest, with
respect to the Autodesk Software Products.
3.3 PAYMENT. Payment shall be in advance of or upon delivery unless
credit has been arranged with Autodesk, in which case Autodesk shall submit
an invoice to Reseller upon shipment of an order or partial order. If
Autodesk elects to grant credit to Reseller, all invoiced amounts shall be
due and payable net thirty (30) days from the date of invoice. If Reseller
fails to pay any invoiced amounts when due, Autodesk may at its discretion,
and in addition to any other remedies, revoke or suspend Reseller's credit
terms, require further assurances from Reseller that such invoiced amounts
shall be paid, or require Reseller to prepay for all Authorized Products
ordered. Overdue amounts shall be subject to a late payment charge of one
and one-half percent (1.5%) per month, or the legal maximum, whichever is less.
3.4 SHIPMENT. Autodesk will ship orders to the address designated in
Reseller's purchase order F.O.B. or Free Carrier Autodesk's manufacturing
plant, at which time risk of loss shall pass to Reseller. All freight,
insurance, customs duties, and other shipping expenses shall be paid by
Reseller.
3.5 VAR SALES TOOL KIT CHARGE. Reseller shall purchase from Autodesk at
the then current price, each year this Agreement is in force, one VAR Sales
Took Kit per authorized location which includes not for resale copies of
the certain Authorized Products and certain marketing material as deemed
appropriate by Autodesk.
4. COMMISSIONS, EARNBACKS AND CO-OP FUNDS
4.1 COMMISSIONS. Reseller may receive a commission on direct sales of
Authorized Products to End Users by Autodesk, provided that Reseller is
authorized to sell such products and Reseller complies with all terms and
conditions for receiving a commission, as set forth in the then current
documentation (including but not limited to Premier Program manuals, VIP
Subscription manuals, GSA manuals and relevant information published on the
Autodesk Partner section of the Autodesk website) provided by Autodesk.
4.2 EARNBACK FUNDS. Reseller shall receive Earnbacks pursuant to the U.S.
Commercial Discount Structure in the AUTODESK FY2000 VAR VALUE PROPOSITION,
in the event Reseller achieves its quarterly Target. Earnbacks due shall
be credited to Reseller's account with Autodesk thirty (30) days after the
last day of the Autodesk fiscal quarter. Targets shall be assigned to
Reseller by Autodesk for each quarter. Targets shall be based upon actual
sales by Reseller to End Users only. In the event that Reseller has
returns of Autodesk Software Products in excess of the allowable percentage
of returns for that quarter, Reseller shall not be entitled to Earnbacks
for such quarter
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and any Earnbacks credited to Reseller's account shall be debited.
Reseller shall be notified, in writing, of the allowable return percentage
for any quarter at least thirty (30) days prior to the end of that quarter.
4.3 CO-OP FUNDS. Reseller shall receive Co-op Funds pursuant to the
AUTODESK CO-OP MANUAL AND CLAIM FORM which shall be distributed separately
from this Agreement, but which terms are hereby incorporated by reference.
5. TRADEMARKS. During the term of this Agreement, Reseller shall have a
nonexclusive, nontransferable right to indicate to the public that it is an
Autodesk authorized reseller and to advertise the Autodesk Software
Products within the United States under the trademarks and slogans adopted
by Autodesk from time to time ("Trademarks"). Reseller's use of the
Trademarks in any literature, promotion, or advertising shall be in
accordance with Autodesk guidelines for such usage. Reseller shall not
contest, oppose, or challenge Autodesk's ownership of the Trademarks. All
presentations of Autodesk Trademarks that Reseller intends to use shall be
exact copies of those used by Autodesk, or shall first be submitted to the
appropriate Autodesk personnel for approval of design, color, and other
details, and such approval shall not be unreasonably withheld. If any of
the Autodesk Trademarks are to be used in conjunction with another
trademark on or in relation to the Software, then the Autodesk Trademarks
shall be presented equally legibly, equally prominently, but nevertheless
separated from the other so that each appears to be a trademark in its own
right, distinct from the other mark. Effective upon the termination of
this Agreement, Reseller shall cease all usage of Autodesk Trademarks and
shall remove all such Trademarks.
6. TITLE AND PROPRIETARY RIGHTS. The Autodesk Software Products and
other materials included in or incorporated in the Autodesk Software
Products ("Materials") remain at all times the property of Autodesk.
Reseller acknowledges and agrees that Autodesk holds the copyright to the
Autodesk Software Products and, except as expressly provided herein,
Reseller is not granted any other right or license to patents, copyrights,
trade secrets, or trademarks with respect to the Materials. Reseller shall
take all reasonable measures to protect Autodesk's proprietary rights in
the Materials and shall not copy, use or distribute the Materials, or any
derivative thereof, in any manner or for any purpose, except as expressly
authorized in this Agreement. Reseller shall not disassemble, decompile,
or reverse-engineer any Autodesk Software Product, including the Materials,
or otherwise attempt to discover any Autodesk trade secret or other
proprietary information. Reseller acknowledges that Autodesk has an Anti-
Piracy Program and Reseller agrees to review and follow the Anti-Piracy
Program Guidelines as published by Autodesk from time to time. Reseller
shall notify Autodesk promptly in writing upon its discovery of any
unauthorized use of the Autodesk Software Products or infringement of
Autodesk's patent, copyright, trade secret, trademark, or other
intellectual property rights. Reseller shall not distribute any Autodesk
Software Product to any person or entity if Reseller is aware that such
person or entity may be involved in potential unauthorized use of Autodesk
Software Products or other infringement of Autodesk's proprietary rights.
7. CUSTOMER DATABASE. Reseller shall have access to Autodesk's customer
database which is Autodesk confidential information. Reseller access to
such database shall be limited to customers with which Reseller has a pre-
existing business relationship.
8. SECURITY INTEREST. Reseller hereby grants to Autodesk a security
interest in all of Reseller's Inventory purchased from Autodesk, all of
Reseller's accounts receivable evidencing any obligation to Reseller for
payment for Authorized Products sold, and all proceeds of any character,
whether cash or non-cash, arising from the disposition of Reseller's
inventory and accounts.
9. WARRANTY AND LIMITATIONS OF WARRANTY. Autodesk makes certain limited
warranties to the End User in the End User License Agreement and disclaims
all other warranties. RESELLER SHALL NOT MAKE ANY WARRANTY OR
REPRESENTATION ACTUALLY, APPARENTLY OR OSTENSIBLY ON BEHALF OF AUTODESK,.
EXCEPT FOR THE EXPRESS END USER WARRANTY REFERRED TO HEREIN, AUTODESK MAKES
NO OTHER WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, BY STATUTE OR
OTHERWISE, REGARDING THE AUTODESK SOFTWARE PRODUCTS. AUTODESK EXPRESSLY
EXCLUDES ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTABILITY OR NONINFRINGEMENT.
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10. INDEMNITY.
10.1 INFRINGEMENT INDEMNITY BY AUTODESK. Autodesk shall indemnity, hold
harmless, and defend, at its expense, Reseller from any action brought
against Reseller which alleges that any Autodesk Software Product infringes
a United States patent, copyright, or trade secret, provided that Reseller
promptly notifies Autodesk in writing of any claim, gives Autodesk sole
control of the defense and settlement thereof, and provides all reasonable
assistance in connection therewith. If the Software is finally adjudged to
so infringe, Autodesk, in addition to paying any judgment or damages, at
its exclusive option, (a) shall procure for Reseller the right to continue
distribution of such Autodesk Software Product; (b) shall modify or replace
such Autodesk Software Product with a noninfringing product; or (c) shall
accept return of the Autodesk Software Product and refund the purchase
price. Autodesk shall have no liability regarding any claim (i) arising
out of the use of the Autodesk Software Product in combination with other
products, or modification of the Autodesk Software Product, if the
infringement would not have occurred but for such combination,
modification, or usage, or (ii) for use of the Autodesk Software Product
which does not comply with the terms of the End User License Agreement or
this Agreement. THE FOREGOING STATES RESELLER'S SOLE AND EXCLUSIVE REMEDY
WITH RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF
ANY KIND.
10.2 INDEMNITY BY RESELLER. Reseller agrees to indemnify, hold harmless
and defend Autodesk from any cost, loss, liability, or expense, including
court cots and reasonable fees for attorneys or other professionals,
arising out of or resulting from (a) any claim or demand brought against
Autodesk or its directors, employees, or agents by a third party arising
from or in connection with any breach by Reseller of the terms of this
Agreement or any End User License Agreement, or (b) any negligent or
willful act omission by Reseller, Reseller's employees, or Reseller's Sales
Channel including, but not limited to, any act or omission that contributes
to (i) any bodily injury, sickness, disease, or death; (ii) any injury or
destruction to tangible property or loss of use resulting therefrom; or
(iii) any violation of any statute, ordinance or regulation.
11. LIMITATION OF LIABILITY. EXCEPT FOR CLAIMS UNDER THE INDEMNITY
SECTION 10 ABOVE, AUTODESK'S LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR
THE ORDER OR DELIVERY OF ANY SOFTWARE SHALL NOT EXCEED THE PRICE PAID BY
RESELLER FOR THE AUTODESK SOFTWARE PRODUCT(S). IN NO EVENT SHALL AUTODESK
BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR
ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES ARISING OUT OF
THIS AGREEMENT, HOWEVER CAUSED, WHETHER FOR BREACH OF CONTRACT, TORT,
(INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL THEORY, AND WHETHER OR NOT
AUTODESK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FUNDAMENTAL BREACH, BREACH OF
A FUNDAMENTAL TERM OR FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
12. CONFIDENTIALITY
12.1 CONFIDENTIAL INFORMATION. As used in this Agreement, Confidential
Information shall mean any information (a) designated as confidential
orally or in writing by either party hereto, (b) related to any Autodesk
Software Product, (c) related to Autodesk's business, or (d) other
information received by Reseller by virtue of Reseller's relationship with
Autodesk including, but not limited to, product plans, product designs,
product costs, product prices, product names, finances, marketing plans,
business opportunities, personnel, research, development, or know-how.
12.2 LIMITATIONS ON DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION. Each
party shall exercise reasonable care to prevent the unauthorized disclosure
of Confidential Information by employing no less than the same degree of
care employed, by such party to prevent the unauthorized disclosure of its
own Confidential Information. Confidential Information disclosed under
this Agreement shall only be used by the receiving party in the furtherance
of this Agreement or the performance of its obligations hereunder. Neither
party shall disclose the terms of this Agreement to any third party without
the prior written consent of the other, except pursuant to a valid and
enforceable order of a court or government agency.
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12.3 EXCEPTIONS. Confidential Information does not include information
which (a) is rightfully received by the receiving party from a third party
without restriction, (b) is known to or developed by the receiving party
independently without use of the confidential information, (c) is or
becomes generally known to the public by other than a breach of duty
hereunder by the receiving party, or (d) has been approved for release by
written authorization of the receiving party.
13. TERM, RENEWAL, TERMINATION, AND OTHER REMEDIES
13.1 INITIAL TERM AND RENEWAL. This Agreement shall continue for the
period beginning on the Effective Date through January 31, 2000, unless
terminated earlier under the provisions of this Agreement.
13.2 TERMINATION FOR INSOLVENCY. Autodesk may terminate this Agreement if
Reseller becomes the subject of a voluntary or involuntary petition in
bankruptcy or any proceeding relating to insolvency, receivership,
liquidation, or assignment for the benefit of creditors, if that proceeding
is not dismissed with prejudice within sixty (60) days after filing. In
addition to the foregoing, in the event Reseller either voluntarily files
for protection against its creditors under the United States Bankruptcy
Code or is the subject of an involuntary petition in bankruptcy, Reseller
agrees that Autodesk shall be entitled to all rights to retain the benefits
of this Agreement which are set forth in 11 U.S.C. 365(n). No right
granted to Autodesk under 11 U.S.C. 365 shall be deemed to have been waived
either expressly or by implication without a written agreement confirming
such waiver.
13.3 TERMINATION FOR BREACH. Either party may terminate this Agreement
upon notice if the other party breaches any material term or condition of
this Agreement.
13.4 TERMINATION FOR FAILURE TO MEET PURCHASE REQUIREMENTS OR TARGET
(a) PURCHASE REQUIREMENTS. Failure by Reseller to achieve the two (2)
quarter Purchase Requirements may result in the termination of this
Agreement or the applicable Software Product authorization by Autodesk.
(b) TARGET. Failure by Reseller to meet or exceed the yearly Target may
result in Termination of this Agreement by Autodesk.
13.5 BREACH OF OTHER AGREEMENTS WITH AUTODESK. In the event Reseller has
other current reseller or agreements of any other type with Autodesk
("Other Autodesk Agreement"), the Breach of any term of any such Other
Autodesk Agreement may, at Autodesk's option, be deemed a breach of this
Agreement and shall permit Autodesk to terminate this Agreement in the same
manner as if a breach of the terms of this Agreement had occurred. Any
alleged breach by Autodesk of any Other Autodesk Agreement shall not be
deemed a breach of this Agreement by Autodesk and shall not constitute
cause for termination by Reseller or support an allegation by Reseller of
damages under this Agreement.
13.6 TERMINATION FOR CUSTOMER DISSATISFACTION. Autodesk is relying upon
Reseller acting in a professional and upstanding manner in its relationship
with all End Users. Failure to attain a high level of customer
satisfaction shall be considered a material breach of this Agreement and
Autodesk reserves the right to terminate Reseller in the event that
Autodesk receives customer dissatisfaction complaints from End Users,
regarding Reseller.
13.7 TERMINATION FOR CONVENIENCE. Either party may terminate this
Agreement for convenience upon sixty (60) days' written notice to other
party.
13.8 EFFECT OF TERMINATION
(a) MONIES DUE AND PAYABLE. Notwithstanding any credit terms previously
established with Reseller or any other provision of this Agreement, upon
notice of a material breach pursuant to this Agreement or notice of
termination, all monies owed by Reseller to Autodesk shall become due and
Reseller shall remit to Autodesk such monies owed no later than thirty (30)
days after notice. Overdue amounts shall be subject to a late payment
charge of one and one-half percent (1.5%) per month, or the legal maximum,
whichever is less.
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(b) FULFILLMENT OF RESELLER ORDERS. Upon delivery of notice of a material
breach or notice of termination of this agreement, Autodesk shall not be
obligated to fulfill any orders. Autodesk shall not be obligated to
fulfill any orders received by Autodesk subsequent to the effective date of
termination. In Autodesk's sole discretion, Autodesk may continue to
fulfill orders provided that Reseller (i) submits prepayments for any such
order and (ii) pays all outstanding obligations to Autodesk prior to any
shipment by Autodesk.
(c) RETURN OR DEPLETION OF INVENTORY. Subject to the limitations set
forth below, upon termination, Autodesk, at its sole discretion, may either
(i) repurchase all or any part of Reseller's inventory of Autodesk Software
Products at the price paid by Reseller to Autodesk and/or (ii) allow
Reseller to continue to distribute those Autodesk Software Products in
inventory until the inventory is depleted, subject to the terms and
conditions set forth in this Agreement and whatever additional terms and
conditions may be imposed by Autodesk. Except as expressly set forth
above, under no circumstances shall Reseller be entitled to a refund for
all or any portion of the Autodesk Software Products in Reseller's
inventory.
(d) RETURN OF MATERIALS. Within thirty (30) days after the termination of
this Agreement, Reseller shall return to Autodesk at Autodesk's expense all
Autodesk Confidential Information, data, photographs, samples literature
and sales aids, and any other property of Autodesk then in Reseller's
possession.
(e) PARTIAL TERMINATION. Autodesk, at its sole discretion, may exercise
its termination rights under this Section 13 solely with respect to one or
more Product Requirements Sheet(s), Authorized Locations, Authorized
Territories, or Authorized Products, or with respect to any Other Autodesk
Agreement terminated pursuant to Section 13.5 hereof, which partial
termination shall not affect this Agreement's application to the remaining
Product Requirements Sheet(s), Authorized Locations, Authorized
Territories, or Authorized Products, or affect any remaining part of any
Other Autodesk Agreement.
13.9 OTHER REMEDIES. In addition to the right to terminate this Agreement,
Autodesk reserves all rights and remedies available to Autodesk under law
or equity, including the right to seek damages and injunctive relief for
breach or threatened breach of this Agreement by Reseller.
13.10 ATTORNEYS' FEES. In any action brought to enforce the terms and
conditions of this Agreement, the prevailing party shall be entitled to
recover reasonable costs and attorneys' fees incurred in maintaining such
action.
13.11 SURVIVING PROVISIONS. The terms and conditions, which by their
nature should survive, shall survive and continue after termination of the
Agreement.
14. GENERAL PROVISIONS
14.1 Assignment. Reseller acknowledged that Autodesk is relying upon
Reseller's reputation, business standing, and goodwill under Reseller's
present ownership in entering into this Agreement. Accordingly, Reseller
agrees that its rights and obligations under this Agreement may not be
transferred or assigned and its duties may not be delegated directly or
indirectly without the prior written consent of Autodesk. Reseller shall
notify Autodesk promptly in writing of any change of ownership of Reseller
or of any sale of all or substantially all of Reseller's assets. Reseller
acknowledges that any change of ownership, sale of all or substantially all
of Reseller's assets, or attempted assignment by Reseller of this
Agreement, or any part thereof, without Autodesk's prior written consent
may result in immediate termination of this Agreement by Autodesk.
Autodesk may assign or otherwise transfer it rights and obligations to
successors-in-interest (whether by purchase of stock or assets, merger,
operation of law, or otherwise) of that portion of its business related to
the subject matter hereof. Subject to the restrictions set forth in this
Section 14.1, all of the terms and conditions of this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the respective
successors and permitted assigns of the parties hereto.
14.2 VENUE/CHOICE OF LAW. This Agreement shall be construed in accordance
with the laws of the State of California (excluding rules regarding
conflicts of law) and the United States of America. The parties hereby
submit to the exclusive personal jurisdiction of and venue in the Superior
Court of the State of California, County of Marin, and the United States
District Court for the Northern District of California in San Francisco.
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14.3 NOTICES. Any notices required under the terms of this Agreement will
be given in writing either (a) to the persons at the addresses set forth
below, or to such other address as either party may substitute by written
notice to the other in the manner contemplated herein, and will be deemed
served when delivered or, if the delivery was not accomplished by reason or
fault of the addressee, when tendered, or (b) by facsimile, and will be
deemed delivered on the day reflected in the transmission confirmation.
If to Autodesk:
Autodesk, Inc.
111 McInnis Parkway
San Rafael, California 94903
Attn: General Counsel
Facsimile: (415) 507-6126
If to Reseller, to the address and facsimile number identified on the first
page of this Agreement.
14.4 INDEPENDENT CONTRACTORS. In performing their respective duties under
this Agreement, each of the parties will be operating as an independent
contractor. Nothing contained herein will in any way constitute any
association, partnership, or join venture between the parties hereto, or be
construed to evidence the intention of the parties to establish any such
relationship. Neither of the parties will hold itself out in any manner
that would be contrary to the provisions of this Section 14.4.
14.5 ENTIRE AGREEMENT. This document contained the entire Agreement and
understanding concerning the subject matter between Reseller and Autodesk
and supersedes all prior negotiations, proposed agreements, and all other
agreements, whether written or oral, except all prior confidentiality and
nondisclosure agreements to the extent that they are not expressly
superseded by this Agreement. Except as set forth in Section 1.10, this
Agreement may be amended only by a writing signed by authorized individuals
for both Autodesk and Reseller. Any handwritten or typed changes to this
Agreement must be initialed by both parties in order to become effective.
14.6 SEVERABILITY. In the event that it is determined by a court of
competent jurisdiction as a part of a final nonappealable judgment that any
provision of this Agreement or part thereof is invalid, illegal, or
otherwise unenforceable, such provision will be enforced or reformed as
nearly as possible in accordance with the state intention of the parties,
while the remainder of the Agreement will remain in full force and effect.
14.7 CONSTRUCTION. This Agreement has been negotiated by the parties and
their respective counsel. This Agreement will be fairly interpreted in
accordance with its terms and without any strict construction against
either party. Ambiguity will not be interpreted against the drafting
party.
14.8 COUNTERPARTS. This Agreement may be executed in separate counterparts
and shall become effective when the separate counterparts have been
exchanged between the parties.
14.9 FORCE MAJEURE. Except for the failure to make payments, neither party
will be liable for any loss, damage or penalty resulting from delays or
failures in performance resulting from acts of God, supplier delay or other
causes beyond the non-performing party's reasonable control and not caused
by the negligence of the nonperforming party, provided that the
nonperforming party promptly notifies the other party of the delay and the
cause thereof and promptly resumes performance as soon as it is possible to
do so.
14.10 WAIVER. The waiver of any breach or default will not constitute a
waiver of any other right in this Agreement or any subsequent breach or
default. No waiver shall be effective unless in writing and signed by an
authorized representative of the party to be bound. Failure to pursue, or
delay in pursing any remedy for a breach shall not constitute a waiver of
such breach.
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The Undersigned are duly authorized to execute this Agreement on
behalf of their respective parties.
AUTODESK, INC. RESELLER
By: /s/ MIKE SUTTON By: /s/ GARY NELSON
---------------------------- -------------------------
Mike Sutton Gary Nelson
- ------------------------------- ----------------------------
Printed Name Printed Name
Vice President - World Wide
Field Operations President
- ------------------------------- ----------------------------
Title Title
1/29/99 January 13, 1999
- ------------------------------- ----------------------------
Date Date
11
EXHIBIT 10.17
FINANCIAL ADVISORY AGREEMENT
----------------------------
This Agreement is made and entered into as of the ____ day of
________, 2000, between n-Gen Solutions.Com, Inc. (the "Company") and
Barron Chase Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, The Company has engaged the Financial Advisor to act as the
Underwriter in connection with the public offering of the Company's
securities; and
WHEREAS, the Financial Advisor has experience in providing financial
and business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing
to furnish business and financial related advice and services to the
Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties agree as follows:
1. PURPOSE. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render
financial advisory and consulting advice to the Company as an investment
banker relating to financial and similar matters upon the terms and
conditions set forth herein. However, the advisory will only be rendered
if specifically requested in writing by the Chief Executive Officer of the
Company.
2. REPRESENTATIONS OF THE FINANCIAL ADVISOR AND THE COMPANY. The
Financial Advisor represents and warrants to the Company that (i) it is a
member in good standing of the National Association of Securities Dealers,
Inc. ("NASD") and that it is engaged in the securities brokerage business;
(ii) in addition to its securities brokerage business, the Financial
Advisor provides consulting advisory services; and (iii) it is free to
enter into this Agreement and the services to be provided pursuant to this
Agreement are not in conflict with any other contractual or other
obligation to which the Financial Advisor is bound. The Company
acknowledges that the Financial Advisor is in the business of providing
financial services and consulting advice (of the type contemplated by this
Agreement) to others and that nothing herein contained shall be construed
to limit or restrict the Financial Advisor in conducting such business with
respect to others, or rendering such advice to others.
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3. DUTIES OF THE FINANCIAL ADVISOR. During the term of this
Agreement, the Financial Advisor will provide the Company with consulting
advice as specified below at the request of the Company, provided that the
Financial Advisor shall not be required to undertake duties not reasonably
within the scope of the consulting advisory service in which the Financial
Advisor is engaged generally. In performance of these duties, the
Financial Advisor shall provide the Company with the benefits of its best
judgment and efforts. It is understood and acknowledged by the parties
that the value of the Financial Advisor's advice is not measurable in any
quantitative manner, and that the amount of time spent rendering such
consulting advice shall be determined according to the Financial Advisor's
discretion.
The Financial Advisor's duties may include, but will not necessarily
be limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business operations and
investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving securities of
the Company or any subsidiary.
4. TERM. The term of this Agreement shall be for twelve (12) months
commencing on the first day of the month following the Company's receipt of
the proceeds from the contemplated public offering (the "Commencement
Date"); provided, however, that this Agreement may be renewed or extended
upon such terms and conditions as may be mutually agreed upon by the
parties hereto.
5. FEE. The Company shall pay the Financial Advisor a fee of
$108,000 for the financial services to be rendered pursuant to this
Agreement, all of which shall be payable at the Closing Date of the
Company's proposed public offering.
6. USE OF ADVICE BY THE COMPANY; PUBLIC MARKET FOR THE COMPANY'S
SECURITIES. The Company acknowledges that all opinions and advice (written
or oral) given by the Financial Advisor to the Company in connection with
the engagement of the Financial Advisor are intended solely for the benefit
and use of the Company in considering the transaction to which they relate,
and the Company agrees that no person or entity other than the Company
shall be entitled to make use of or rely upon the advice of the Financial
Advisor to be given hereunder, and no such opinion or advice shall be used
for any other purpose or reproduced, disseminated, quoted or referred to at
any time, in any manner or for any purpose, nor may the Company make any
public references to the Financial Advisor, or use the Financial Advisor's
name in any annual reports
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or any other reports or releases of the Company without the prior written
consent of the Financial Advisor.
The Company acknowledges that the Financial Advisor makes no
commitment whatsoever as to making a public trading market in the Company's
securities or to recommending or advising its clients to purchase the
Company's securities. Research reports or corporate finance reports that
may be prepared by the Financial Advisor will, when and if prepared, be
done solely on the merits or judgment and analysis of the Financial Advisor
or any senior corporate finance personnel of the Financial Advisor.
7. COMPANY INFORMATION; CONFIDENTIALLY. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and
other information furnished to the Financial Advisor by the Company. The
Company acknowledges and agrees that in performing its services under this
engagement, the Financial Advisor may rely upon the data, material and
other information supplied by the Company without independently verifying
the accuracy, completeness or veracity of same. In addition, in the
performance of its services, the Financial Advisor may look to such others
for such factual information, economic advice and/or research upon which to
base its advice to the Company hereunder as the Financial Advisor shall in
good faith deem appropriate.
Except as contemplated by the terms hereof or as required by
applicable law, the Financial Advisor shall keep confidential all non-public
information provided to it by the Company, and shall not disclose
such information to any third party without the Company's prior written
consent, other than such of its employees and advisors as the Financial
Advisor determines to have a need to know.
8. INDEMNIFICATION. The Company shall indemnify and hold harmless
the Financial Advisor against any and all liabilities, claims, lawsuits,
including any and all awards and/or judgments to which it may become
subject under the Securities Act of 1933, (the "Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act") or any other federal or
state statute, at common law or otherwise, insofar as said liabilities,
claims and lawsuits (including costs, expenses, awards and/or judgments)
arise out of or are in connection with the services rendered by the
Financial Advisor or any transactions in connection with this Agreement,
except for any liabilities, claims and lawsuits (including awards and/or
judgments), arising out of willful misconduct or willful omissions of the
Financial Advisor. In addition, the Company shall also indemnify and hold
harmless the Financial Advisor against any and all reasonable costs and
expenses, including reasonable counsel fees, incurred relating to the
foregoing.
The Financial Advisor shall give the Company prompt notice of
3
<PAGE>
any such liability, claim or lawsuit which the Financial Advisor contends
is the subject matter of the Company's indemnification and the Company
thereupon shall be granted the right to take any and all necessary and
proper action, at its sole cost and expense, with respect to such
liability, claim and lawsuit, including the right to settle, compromise and
dispose of such liability, claim or lawsuit, excepting therefrom any and
all proceedings or hearings before any regulatory bodies and/or
authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the
1934 Act or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including costs,
expenses, awards and/or judgments) arise out of or are based upon willful
misconduct or willful omissions of the Financial Advisor. In addition, the
Financial Advisor shall also indemnify and hold the Company harmless
against any and all reasonable costs and expenses, including reasonable
counsel fees, incurred relating to the foregoing.
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject
matter of the Financial Advisor's indemnification and the Financial Advisor
thereupon shall be granted the right to take any and all necessary and
proper action, at its sole cost and expense, with respect to such
liability, claim and lawsuit, including the right to settle, compromise or
dispose of such liability, claim or lawsuit, excepting therefrom any and
all proceedings or hearings before any regulatory bodies and/or authorities.
9. THE FINANCIAL ADVISOR AS AN INDEPENDENT CONTRACTOR. The
Financial Advisor shall perform its services hereunder as an independent
contractor and not as an employee of the Company or an affiliate thereof.
It is expressly understood and agreed to by the parties hereto that the
Financial Advisor shall have no authority to act for, represent or bind the
Company or any affiliate thereof in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
10. MISCELLANEOUS.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto,
and supersedes any and all previous agreements and understandings, whether
oral or written, between the parties with respect to the matters set forth
herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently
4
<PAGE>
given if hand-delivered or sent by facsimile and postage prepaid by
certified or registered mail, return receipt requested, to the respective
parties as set forth below, or to such other address as either party may
notify the other in writing:
If to the Company: Robert D. Arnold, Chairman
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, CO 80202
Copy to: John B. Wills, Esq.
Berenbaum, Weinshienk & Eason, P.C.
370 Seventeenth Street, Suite 2600
Denver, Colorado 80202-5626
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts,
each of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida applicable to contracts made and to
be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with
any rights or obligations arising out of this Agreement shall be instituted
properly in a federal or state court of competent jurisdiction with venue
only in the Fifteenth Judicial Circuit Court in and for Palm Beach County,
Florida or the United States District Court for the Southern District of
Florida, West Palm Beach Division. A party to this Agreement named as a
Defendant in any action brought in connection with this Agreement in any
court outside of the above named designated county or district shall have
the right to have the venue of said action changed to the above designated
county or district or, if necessary, have the case dismissed, requiring the
other party to refile such action in an appropriate court in the
5
<PAGE>
above designated county or federal district.
(g) This Agreement has been duly authorized, executed and delivered
by and on behalf of the Company and the Financial Advisor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
Very truly yours,
n-Gen Solutions.Com, Inc.
BY:__________________________________________
Robert D. Arnold, Chairman
BARRON CHASE SECURITIES, INC.
BY:__________________________________________
Robert T. Kirk, President
6
EXHIBIT 10.18
____________, 2000
Robert D. Arnold, Chairman
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, CO 80202
RE: MERGER AND ACQUISITION AGREEMENT
--------------------------------
Dear Mr. Arnold:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may
act as a non-exclusive finder or financial consultant in various
transactions in which n-Gen Solutions.Com, Inc. (the "Company") may be
involved, including but not limited to, mergers, acquisitions, business
combinations, joint ventures, debt or equity placements or other on-balance
sheet or off-balance sheet corporate transactions (the "Transaction"). The
Company hereby agrees that in the event that the Finder shall first
introduce to the Company another party or entity, and that as a result of
such introduction, a Transaction between such entity and the Company is
consummated ("Consummated Transaction"), then the Company shall pay to the
Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the consideration
paid in such transaction;
b. Four percent (4%) of the consideration in excess of $1,000,000
and up to $2,000,000;
c. Three percent (3%) of the consideration in excess of $2,000,000
and up to $3,000,000;
d. Two percent (2%) of the consideration in excess of $3,000,000 and
up to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed
between the Company and the Finder, without regard to whether the
Consummated Transaction involves payments in cash, in stock, or a
combination of stock and cash, or is made on an installment sale basis. By
way of example, if the Consummated Transaction involves securities of the
acquiring entity (whether securities of the Company, if the Company is the
acquiring party, or securities of another entity, if the Company is the
selling party) having a value of $5,000,000, the finders fee to be paid by
the Company to the Finder at closing shall be $150,000.
<PAGE>
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder
from the date when first due through and including that date when actually
collected by the Finder, at a rate equal to two (2) points over the prime
rate of Citibank, N.A. in New York, New York, computed on a daily basis and
adjusted as announced from time to time.
This agreement shall be effective on the date hereof and shall expire
on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year
period provided above, conclude a Consummated Transaction with any party
introduced by the Finder to the Company prior to the termination of said
five year period, the Company shall also pay the Finder the fee determined
above.
The Company represents and warrants to the Finder that the engagement
of the Finder hereunder has been duly authorized and approved by the Board
of Directors of the Company and this letter agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to
the conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it
will constitute our mutually binding agreement with respect to the matters
contained herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:_____________________________________
Robert T. Kirk, President
Agreed to and Accepted:
n-Gen Solutions.Com, Inc.
BY:____________________________
Robert D. Arnold, Chairman
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 30, 1999 accompanying the
financial statements of n-Gen Solutions.Com, Inc. contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption "Experts."
GORDON, HUGHES & BANKS, LLC
Denver, Colorado
March 27, 2000
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<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-START> OCT-01-1999 JAN-01-1999
<PERIOD-END> DEC-31-1999 SEP-30-1999
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<INCOME-PRETAX> (187,582) (850,954)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (187,582) (850,954)
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