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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[X] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition period from _____ to _____
COMMISSION FILE NUMBER 0-14039
NUCLEUS, INC.
(Name of small business issuer in its charter)
NEVADA 11-2714721
(State of incorporation) (I.R.S. Employer Identification No.)
401 NORTH MICHIGAN AVENUE, SUITE 745
CHICAGO, ILLINOIS 60611
(Address of principal executive offices) (Zip Code)
(312) 683-9000
(Registrant telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
Check whether the issuer (l) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB.[ ]
The issuer's revenues for its most recent fiscal year. $10,779,000.
As of April 10, 2000, the market value of the issuer's common stock held by
non-affiliates was $19,993,923.
As of April 10, 2000, the number of outstanding shares of common stock was
11,639,141 shares.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
None.
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NUCLEUS, INC.
FORM 10-KSB
TABLE OF CONTENTS
Page
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ITEM 1 DESCRIPTION OF BUSINESS..............................................1
ITEM 2 DESCRIPTION OF PROPERTIES............................................9
ITEM 3 LEGAL PROCEEDINGS....................................................9
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................9
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS............9
ITEM 6 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................10
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA..........................22
ITEM 8 CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE............................................23
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..........23
ITEM 10 EXECUTIVE COMPENSATION..............................................25
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.....................26
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................26
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K....................................26
SIGNATURES....................................................................27
INDEX TO FINANCIAL STATEMENTS................................................F-1
EXHIBIT INDEX................................................................A-1
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Some of the statements contained in this Form 10-KSB under the captions
"Business" and "Management Discussion and Analysis of Financial Condition and
Results of Operations" and in other places are "forward-looking statements."
Forward-looking statements include statements that relate to our beliefs or
expectations as to future events and statements that are not historical facts.
When used in this Form 10-KSB, the words "anticipate," "believe," "estimate,"
"intend" and similar expressions generally identify forward-looking statements.
Although we believe that the assumptions upon which these forward-looking
statements are based on are reasonable, we cannot assure you that the
assumptions will prove to be correct. Because forward-looking statements involve
this risk, there are important factors that could cause actual results to differ
materially and adversely from those expressed or implied by the forward-looking
statements. These factors, which should be carefully considered by you, include,
among other things:
o continuing development of our eNucleus Platform Solution services,
o successful build out of out distribution channels,
o general economic and business condition, both nationally and
regionally,
o competition,
o the experience level of our management team,
o changes in our business strategy or growth plans,
o our ability to integrate the businesses we have or will acquire,
o our ability to attract and retain qualified personnel,
o the availability and terms of capital to finance our operations, and
o other factors discussed under "Management Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting
Future Operations."
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
GENERAL
We deliver the building blocks for e-business to middle market companies.
Our eNucleus Platform Solution (eNPS) provides an integrated environment which
delivers high speed Internet transport, licensed e-business enabling software
and hosting.
We concentrate our marketing efforts on middle market companies. These
companies are migrating to Internet-based business models and, due to size and
budget constraints, rely heavily upon outsourcing to satisfy their requirements.
We work with our clients in identifying how effective deployment of
Internet-based technology can have the maximum impact on executing business
strategies and optimizing core business processes. We market our services at the
local level and cultivate long-term relationships with our clients.
We are pursuing an aggressive strategy to deliver our products and services
on a national scale. We acquired five companies in 1999 to increase our revenue
and geographic presence, expanding from one to five operating locations. The
primary services offered by these businesses include traditional IT solutions
including client premise equipment sales. These initial acquisitions have
provided us with a client base, a sales force and an operating framework and
infrastructure. During February 2000, these businesses began offering our eNPS
services on an integrated basis. We may acquire other companies to augment our
eNPS services.
We have 52 employees operating out of six locations in Illinois, Colorado,
Washington and Oregon. We are headquartered in Chicago, Illinois. Our common
stock is publicly traded on the OTC Bulletin Board under the symbol NCLS.
Our principal executive offices are located at 401 North Michigan Avenue,
Suite 745, Chicago, Illinois 60611, and our telephone number is (312) 683-9000.
PROPOSED ACQUISITION
We are currently negotiating the acquisition of WebNet.com, Inc. WebNet is
an Atlanta-based provider of dedicated Internet access and hosting solutions to
middle market companies. As acquisition consideration, we have proposed to issue
661,000 shares of our common stock to WebNet's shareholders and an additional
300,000 shares if the WebNet operation meets certain revenue targets. If closed,
the WebNet operation will serve as the foundation for the expansion of our
Atlanta branch. We expect to close the WebNet acquisition in the second quarter
of 2000.
During March 2000, we agreed to lease 39,000 square feet of office and data
center space located in Atlanta, Georgia. Approximately 27,000 square feet of
this space will be served as a platform to initiate our network and hosting
operations, with the remainder of the space being utilized by the sales and
marketing operations of our Atlanta branch. The monthly cost of the lease
approximates $30,000, with escalation features. The lease expires in 2007.
BUSINESS DEVELOPMENT
Nucleus began business operations in 1984 in Colorado Springs, Colorado, as
a provider of computer systems and componentry. We adopted the name Nucleus,
Inc. in December 1998 and reorganized in April 1999 when Nucleus merged with
Nucleus Holding Corporation, a privately-held Illinois corporation based in
Chicago, Illinois. At that time, we installed a new management team and
formulated new goals and operating strategies. We now maintain our
headquarters in Chicago.
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During 1999, we have acquired five IT service providers. These businesses
form the platform for delivering our eNPS services. The businesses we acquired
include:
o Innovative Technology Solutions, Inc. ITS was a provider of
multifaceted technology solutions to middle market companies
throughout the Pacific Northwest. The key areas in which ITS offered
technical solutions included client premise equipment, strategic IT
consulting, project services and network installation and support
services. ITS maintained its primary offices in Seattle, Washington,
with additional offices in Portland, Oregon and Spokane, Washington.
o Nucleus, Inc. Nucleus, which included Nucleus Holding on a combined
basis, provided desktop and PC trouble-shooting and help desk services
and marketed computers and peripherals mainly in Chicago. Nucleus also
provided cellular and land-line long distance telecommunication,
website development and Internet access services.
o Telos Distributing, Inc. Telos, operating out of Denver, Colorado,
conducted business under the name EDW Computers. EDW designed,
configured and integrated computer networks for small and middle
market companies.
o Young Data Systems. YDS, based in Orland Park, Illinois, custom
designed and assembled computer networks and provided cabling,
equipment and network configuration for its clients. YDS also provided
small businesses with accounting and finance solutions, including
software, training and support.
o Comp Pro Computers. Comp Pro, located in Palos Heights, Illinois, was
a professional services firm providing computer maintenance and
upgrade services. Comp Pro also designed and installed network systems
for small and middle market companies.
BUSINESS STRATEGY
We believe the evolution of the Internet as a cost effective and efficient
medium to deploy mission critical applications presents our current and
potential clients with an opportunity to improve core business processes,
strengthen relationships with clients and suppliers and broaden their market
reach. Through our eNPS services, we provide our customers with comprehensive
Internet-based technology solutions to capitalize on this opportunity. The
principal components of our business strategy are:
o Create value for our customers. We are focused on delivering Internet-
based solutions to help our clients reduce costs, shorten product and
service cycle times and increase revenues. We believe these companies
will outsource this work to technology partners such as Nucleus whose
core competency is Internet-related technologies.
o Provide leading-edge Internet services. We are focused on offering
our clients a comprehensive Internet-based technology solution that
includes Internet-enabled applications, hosting and connectivity as
opposed to technology solutions tied to traditional legacy systems.
Internet systems are more efficient, cost effective and offer greater
reach. We intend to enhance the skill sets of our professionals and
add leading edge technologies that allow us to deliver valuable
solutions, lower our clients' cost of technology, reduce technological
obsolescence and increase competitiveness.
o Expand through strategic acquisitions. We have acquired, and on a
selective basis may seek to acquire, complementary Internet and IT
service companies. IT service firms serving middle market businesses
have traditionally functioned as outsourced IT departments for their
clients. They have a skilled employment set, a strong and loyal client
base, and significant influence over their client's technology
purchase decisions. Our initial acquisitions have provided us with an
operating framework and infrastructure. We intend to focus any
additional acquisition efforts on companies offering higher margin
technology and Internet-based consulting services.
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In addition to acquisitions, we may seek to form strategic
relationships with business partners to share technical and industry
knowledge and pursue joint marketing opportunities. These
relationships may provide access to training, product support and new
technologies.
o Leverage our client base. IT service firms serving middle market
companies, including the companies we have acquired, have historically
focused on providing limited products and services to their client
base. These products and services include systems development and
integration services, computer maintenance and upgrade service, long
distance service, Internet access, or computer and peripheral
equipment. We intend to complement these fragmented product and
service offerings by concentrating our sales efforts on providing our
eNPS services.
o Achieve economies of scale by combining corporate, administrative and
marketing functions. We expect to improve our operating performance by
combining corporate, administrative and marketing functions and
leveraging certain scale economies with regard to the companies we
have acquired or will acquire. We believe we can achieve reductions in
cost of goods, business and liability insurance, and employee benefits
among our companies. We also expect to realize additional operating
efficiencies by combining certain corporate, administrative, client
service, and other support functions.
o Create an attractive work culture. We seek to employ highly skilled,
educated, and motivated professionals. Our employees will be incented
through stock ownership and stock option programs. We intend to
create a culture that fosters creativity, individuality and a shared
sense of purpose in a positive workplace. We want to be perceived as
an aggressive, cutting-edge and growth-oriented organization
dedicated to delivering significant value to our clients.
MARKET OPPORTUNITY
Demand for the basic tools of the Internet--infrastructure, access and
hosting--is increasing dramatically. According to Morgan Stanley Dean Witter,
total Internet infrastructure spending is expected to grow from $19 billion in
1999 to $69 billion by 2003. Banc Boston Robertson Stephens expects Internet
access and hosting revenue to grow from $15 billion in 2000 to $36 billion in
2001.
Our target market customer does not employ a skill set to design and/or
integrate a strategy that will enable their core systems to leverage the
Internet. We believe these companies will actively seek assistance to create and
maintain effective, scalable, and secure Internet solutions.
We believe trends within our target market offer an attractive growth
opportunity for us because we focus on providing turnkey Internet-based
solutions. These trends include:
o Dependence on the digital economy. Businesses of all sizes have
become dependent on technology to drive mission-critical business
processes. We believe middle market companies will rely more and more
on information and transaction systems functioning across diverse
geographic locations. The Internet offers businesses a faster and
lower cost alternative to traditional IT systems.
o Outsourced technology. As technology becomes more complex and
pervasive, our target market will rely on service providers to create
and integrate scalable information, communication and operating
systems, enabling them to concentrate on their core competencies.
o Converging technologies. Data, telephony, video, Internet, software
and hardware are being integrated into unified and seamless systems.
Our customers are increasingly seeking an integrated technology
solution.
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o Single source for e-business solutions. Middle market companies are
frustrated with contracting and managing multiple vendors in the
implementation of their digital platform. Businesses have a strong
preference for Internet and IT service providers that can offer one-
stop services.
ENUCLEUS EBUSINESS NETWORK
We believe that middle market companies will actively seek a solution that
integrates traditional computer and communication platforms in order to
consolidate capacity to increase bandwidth, decrease cost and increase operating
efficiencies. A typical office environment currently requires the use of a
variety of independent, underutilized network connections--with each supported
by a dedicated infrastructure.
We plan to consolidate these network architectures into one of the
first fully functional national voice, video and data IP networks. Our eNucleus
eBusiness Network (eBN) will deliver a single expandable network connection
attaching clients to a fully integrated platform delivering voice, video and
data communications over the Internet. Local, long distance and private line
service will also be included.
Network traffic will be delivered to our switching point-of-presence (PoP)
sites for Internet or local and long distance network routing as necessary. We
also plan to incorporate additional licensed software applications into our eBN
to deliver a turnkey plug and play ebusiness enabling solution.
We believe businesses will require a high level of bandwidth in terms of
equipment investment and personnel resources. We believe middle market companies
will actively seek an avenue to access and capitalize on the advantages offered
by the digital economy. We are developing our eBN to fill this void.
ENUCLEUS PLATFORM SOLUTION
Our eNucleus Platform Solution (eNPS) provides an integrated environment,
which delivers high speed Internet transport, licensed e-business enabling
software and a secure hosting environment. The Internet, IT, software and
telecommunications industries continue to evolve as the needs of businesses
change. Leveraging technology has become critical for businesses to remain
competitive. We offer tailored Internet solutions designed to enable our clients
to migrate their business processes to an Internet-based solutions platform. The
eNPS is built on speed, security, scalability, redundancy, reliability,
optimization and performance.
eBOA
The process for discovering, defining, understanding and internalizing our
client's e-business "vision" begins with an eBusiness Opportunity Assessment
(eBOA). Our consultants meet a potential client's management, key employees, and
key customers and suppliers to understand business goals, strategies, processes,
infrastructure, best practices of the market and of the client, and how well the
client is serving their markets and customers. From this analysis, we deliver an
eBOA which includes a high level project plan outlining the quantifiable and
measurable results to be achieved through the implementation of our eNPS, the
timeline for implementation, and the budget. We also assist in implementing the
plan by dedicating project managers and engineers to execute the plan.
eNucleus Solution Centers
The eNucleus Solution Centers (eNSC) are the physical Nucleus locations
and facilities that provide the integrated environment to deliver our products
and services. Strategically located, the eNSC houses the PoP communications
equipment to deliver high speed internet transport, the network operations
center, the managed server environment, security services and the third party
application software for eSuite. Additionally, the facility houses our
regional sales professionals, consultants, project managers and
engineers.
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High Speed Internet Transport
Our eNPS connectivity products and services are comprised of the following:
o Connectivity. Our engineers perform comprehensive telecommunications
and access needs analyses to determine the state of a potential
client's current system and make recommendations and implement local
loop connectivity that ensures that our clients have the best product
for their needs. This approach enables us to present our customers
with cost-effective and creative packages and services.
o eBusiness Network Internet access and routing (eBN). The current
Internet architecture was not designed for today's level of traffic
flows. It is at the interconnection points where downloads can grind
to a halt or be lost entirely--resulting in slow, unreliable
performance for the end user. Fundamental scaling flaws in the design
of the Internet can typically cause latency and data packet loss at
the interconnection points between backbone providers. These scaling
flaws include routing inefficiencies, lack of adequate network
technology, distributed management of public network access points
(NAPs), and lack of economic settlement between network providers
(peering is free).
Nucleus has partnered with InterNAP to alleviate these congestion problems.
InterNAP's proprietary routing techniques are integrated into the eNPS to
optimize Internet traffic flow and local network peering points. Our customers
can bypass the traffic congestion resident on today's Internet by capitalizing
on private network access points (P-NAPs(trademark)). The P-NAP(trademark)
largely bypasses the public network access points, and private peering points,
used by most access providers--sending a customer's voice, video and data along
the shortest, most direct path across the Internet. Connecting through
P-NAPs(trademark) allows customers to have their data optimally routed to and
from destinations on the Internet in a manner that minimizes the use of
congested public network access points and private peering points. This optimal
routing of data traffic over the multiplicity of networks that comprise the
Internet enables higher transmission speed, lower instances of packet loss and
greater quality of service.
Hosting
Nucleus offers web, database and application hosting capacity that's
scalable in every key dimension--network bandwidth, storage volume, transactions
processed per second and more--to meet our clients' needs today and tomorrow.
This solution enables our customers to focus on core competencies, instead of
being distracted by maintaining IT environments.
o Dedicated web hosting--This service is a comprehensive hosting
solution offering powerful connectivity and infrastructure with a wide
range of solutions that expand as requirements grow. We provide
scalable web servers and a selection of dedicated services for web
hosting requirements.
o Database hosting--While some enterprises prefer hands-on management of
their server installations, others prefer to entrust such management
tasks to a trusted third party, allowing them to focus their efforts
on developing content. We provide "turnkey" database hosting services
for content support. Our database hosting is a comprehensive database
service providing high availability solutions and a broad range of
management services.
o Application hosting--e-businesses differentiate their companies and
their products with customized applications that support mission
critical business processes for their customers and business partners.
We offer flex application hosting service for our clients'
applications.
o Co-location hosting--We deliver co-location hosting services to
customers requiring a unique platform or a combination of custom
hosting services. Customers are able to take advantage of these
services by placing a portion or all of their systems within Intel's
hosting facilities, residing at Intel's new IDS-01 Internet service
centers in Santa Clara, California. This center
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meets all the criteria of the Class A Internet service center concept
by delivering state-of-the art reliability, ironclad security,
scalable capacity and exacting control. These facilities were designed
specifically around web technologies and for web hosting applications.
eSuite
We are in the process of developing our Application Services Provider (ASP)
business model. Through strategic partnerships with independent software vendors
and implementation partners, we intend to offer licensed e-business enabling
application software on an outsourced or "rental" basis to our target clients
for whom the initial license fee for mission critical application software is
prohibitive. Through our pre-packaged "eSuite" offering, our clients can access
their software applications over the web via a browser instead of operating and
maintaining them on their own systems. Forrester Research, Cambridge, Mass.,
estimates ASP spending for companies with less than 1,000 employees will grow
from $878 million in 1999 to over $10 billion in the year 2003.
We intend to offer our ASP clients a full application suite with a number
of alternatives, depending on functionality needed, in each application area.
Applications will generally fall into eight main areas:
o e-commerce,
o enterprise resource planning,
o procurement,
o customer relationship management,
o project management,
o human resources,
o email, and
o bundled office suites (word processing, spreadsheets, etc.)
Client Premise Equipment
Our staff performs on-site evaluations of Internet infrastructure and
networking requirements. This process assesses a potential client's operating
environment, organizational readiness, and provides customers with a high-level
implementation plan, including timeline and budget, for implementing the
proposed environment. We assist in implementing the plan through provisioning
the infrastructure and network componentry.
CLIENTS
Our clients include middle market companies utilizing Internet and IT
services. We focus on businesses that typically spend 1% to 2% of annual
revenues on IT budgets. For the year ended December 31, 1999, our top 10 clients
accounted for $5.9 million or approximately 50% of our revenues. Our largest
client accounted for 30% of our revenues in 1999. We believe our relationships
with our ten largest clients to be good.
SALES AND MARKETING
Our target market of companies with annual revenue between $10 million and
$500 million represents approximately 150,000 organizations across the United
States. Our profile client employs between 25 and 1,000 employees, has multiple
locations, and is in the manufacturing/distribution, insurance, legal, real
estate, healthcare, financial services or professional services industry.
We have established sales and professional services teams in four major
metropolitan areas; Chicago, Seattle, Denver and Atlanta. We intend to
aggressively expand our geographic presence over the next two years to include
San Francisco, San Jose, Los Angeles, Orange County and San Diego, California;
Dallas, Texas; Philadelphia, Pennsylvania; Boston, Massachusetts; Baltimore,
Maryland; and Washington, D.C.
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Our sales and marketing efforts are dedicated to increasing the awareness
of our Internet-based solution opportunity and the Nucleus brand. We are
implementing a brand development program designed to portray us as a national
company with a local presence that can provide an integrated, single source
solution.
Through our direct sales force we market and sell our services to clients.
We focus our sales and marketing efforts around the following principal goals:
o Expand existing sales and marketing efforts at the local level,
o Cross-sell complementary capabilities across our client base, and
o Establish Nucleus as a nationally recognized provider of ebusiness
environments.
Our sales and marketing group consists of 11 professionals. Senior
management of our regional operations have historically been the primary sales
and marketing leaders for those markets and will continue in this role. We
intend to add sales and marketing personnel to assist senior management in
increasing the number of new clients and the amount of business generated from
existing clients. We employ a team selling approach, whereby our account
executives partner with management to identify prospects, conduct sales and
manage client relationships. Our account executives work extensively with our
consultants to understand the clients business, analyze operations, assess needs
and deliver the most appropriate solution. Due to the strategic nature of our
engagements we typically partner with the senior business and technical
management personnel of our current and potential clients.
We intend to use a mix of programs to deliver our message and create a
demand for our products and services. Marketing programs will include:
o Public relations -- leveraging the experience and reputation of our
senior management team in pursuing public relations opportunities,
speaking engagements and Nucleus-sponsored event management.
o Central lead management programs -- generated by national advertising
programs in industry specific publications and general public media,
o Regional awareness programs -- in which corporate templates are
personalized for local offices and multiple forms of media, including
direct mail and radio advertising, are utilized to drive demand
directly to that office,
o Nucleus marketing materials -- a collection of marketing and sales
materials to be used by account executives in their business
generation efforts. These materials include brochures, reprints of
articles, fact sheets, white papers, client success stories, PR
handbooks, business development guides and client presentation
templates and technologies, and
We intend to implement marketing and advertising campaigns that reinforce
our message and position Nucleus as a leading provider of Internet-based
technology solutions to middle market companies. We believe that these efforts
will help us obtain new clients, retain current clients and attract new
employees.
COMPETITION
The market for IT services and Internet-based technology solutions is
intensely competitive, rapidly evolving and subject to rapid technological
change. We expect competition to persist, intensify and increase in the future.
Competition in this space can be divided into four specific categories:
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o Internet access and bandwidth
UUNet, Qwest, AT&T, Sprint, Cable & Wireless, Exodus, Global
Center, PSINet, Mindspring, Level 3, Broadwing, traditional ISP's
o Professional services
IBM, CSC, Big Five, Tier Two Consulting, Regional and Local
Professional Services Organizations
o Hosting
Shared server hosting
Verio, Concentric, Earthlink, AT&T, UUNet, IBM, Qwest
Dedicated server hosting
GTE, IBM, Digix, UUNet, Qwest, Exodus, Global Center, AT&T
Co-location
Exodus, Global Center, UUNet, PSINet, Qwest, IBM, AT&T,
Dell, Mindspring
o Application services providers
USInternetworking, Breakaway Solutions, Interliant, Pandesic,
Corio
We believe that the principal competitive factors in our market are single
source, strategic expertise, technical knowledge, creative skills, brand
recognition, reliability of the delivered solution, client service and price.
Most of our current and potential competitors have longer operating histories,
larger installed client bases, longer relationships with clients and
significantly greater financial, technical, marketing and public relations
resources than us and could decide at any time to increase their resource
commitments to our market. In addition, the market for Internet solutions is
relatively new and subject to continuing definition, and, as a result, the core
business of certain of our competitors may better position them to compete in
this market as it matures. Competition of the type described above could
materially adversely affect our ability to realize our goals.
There are relatively low barriers to entry into our business. There can be
no assurance that existing or future competitors will not develop or offer
services that provide significant performance, price, creative or other
advantages over those offered by us, which could have a material adverse effect
on our business, results of operations and financial condition.
HUMAN RESOURCES
Our success depends in large part upon our ability to attract, develop,
motivate and retain highly skilled technical employees. Qualified technical
consultants and employees are in great demand and are likely to remain a limited
resource for the foreseeable future. We cannot assure you that Nucleus will be
able to recruit or retain the technical personnel necessary to execute our
business and growth strategy.
Hiring is conducted at the local level through our regional consulting
offices. We maintain a formal recruiting function within our corporate offices.
Interviewees are typically screened by our senior management at our regional
locations.
As incentive for our employees, we plan to issue options to our employees
under our stock plans. In addition to incentive programs, we plan to maintain an
environment that fosters creativity and recognizes technical excellence.
EMPLOYEES
We employ 52 employees, of whom approximately 15 are engineering personnel.
None of our employees is represented by a collective bargaining agreement.
Although most consultants are employees, we do engage consultants as independent
contractors from time to time. We consider our relationships with our employees
to be good.
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ITEM 2 DESCRIPTION OF PROPERTIES
Nucleus' executive offices are located in a 7,000 square foot leased
facility in Chicago, Illinois. In addition to our headquarters, as of April 10,
2000 we lease other offices and operating facilities as follows:
LOCATION SQ. FT. TYPE
-------- ------- ----
Denver, Colorado 5,600 Branch office
Seattle, Washington 2,300 Branch office
Portland, Oregon 2,300 Branch office
Spokane, Washington 1,400 Branch office
Atlanta, Georgia 39,000 Branch office and data facility
The leases for our facilities expire at various times between 2000 and
2007.
ITEM 3 LEGAL PROCEEDINGS
We are from time to time a party to various legal actions arising in the
normal course of business. We believe that there is no proceeding threatened or
pending against us which, if determined adversely, would have a material adverse
effect on the financial condition of results of operations of Nucleus.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The following table sets forth, for the periods indicated, the range of
high and low bid quotations per share of common stock as reported by NASD on the
OTC Bulletin Board. Our common stock trades under the symbol NCLS. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. Prior to December 8,
1999, Nucleus, Inc. was known as American General Ventures, Inc. and traded
under the symbol AMGV.
COMMON STOCK
-----------------------
PERIOD LOW BID HIGH BID
- ------ ------- --------
1998
1st Quarter............................... $1.25000 $3.43750
2nd Quarter............................... 1.25000 5.40000
3rd Quarter............................... 1.87500 4.60000
4th Quarter............................... 0.62500 2.70000
1999
1st Quarter............................... 0.62500 0.68750
2nd Quarter............................... 0.62500 4.75000
3rd Quarter............................... 2.00000 4.37500
4th Quarter............................... 2.37500 4.28125
2000
1st Quarter (through April 10, 2000)...... 2.56250 5.12500
The approximate number of record holders of our common stock on December
31, 1999 was 1,310.
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We have paid no dividends on our common stock. There are no contractual
restrictions on our ability to pay dividends. We have not had earnings that
indicate an ability to pay cash dividends. We do not expect to pay dividends in
the foreseeable future.
Recent Sales of Unregistered Securities. We made the following sales of
unregistered securities during the year ended December 31, 1999:
On June 2, 1999, we issued 696,667 shares of common stock and 348,333
warrants to purchase common stock to sophisticated investors in a transaction
not involving a public offering for an aggregate amount of $1,045,000. The sale
was exempt from registration under Section 4(2) of the Securities Act. The
recipients of securities represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof. In each instance, offers and sales were made without any
public solicitation. The securities were placed with the services of a
broker-dealer, which was paid a cash fee equal to 10% of the offering amount.
All recipients had adequate access to information about Nucleus. All of these
shares and warrants have registration rights.
In various transactions, not involving public offerings, between April 15,
1999 and December 31, 1999, we issued 897,668 shares of our common stock and
124,999 warrants to purchase common stock to sophisticated investors for an
aggregate amount of $1,406,000. The sales were exempt from registration under
Section 4(2) of the Securities Act. The recipients of securities represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof. In each
instance, offers and sales were made without any public solicitation. No
underwriter or broker-dealer was involved in the transactions and no commissions
were paid. All recipients had adequate access to information about Nucleus. Of
the shares and warrants issued, 375,000 of them have registration rights.
At various times from April 15, 1999 through June 30, 1999, we issued
6,877,942 shares of our common stock to sophisticated investors to consummate
our merger with Nucleus Holding and our acquisitions of ITS, Telos, YDS and
Comp-Pro.
At various times from April 15, 1999 through December 31, 1999, Mr.
Paulsen, our President and Chief Executive Officer, sold 327,500 shares of
common stock at prices ranging from $1.00 to $2.00 per share to sophisticated
investors in private resale transactions not involving a public offering.
ITEM 6 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of Nucleus appearing later in this Form 10-KSB. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including,
but not limited to, those set forth under the caption "-- Factors Affecting
Future Results."
INTRODUCTION
We deliver the digital building blocks for businesses to conduct electronic
commerce over the Internet. Our eNucleus Platform Solution (eNPS) provides an
integrated environment which delivers high speed Internet transport, licensed
e-business enabling software and web hosting.
We presently earn revenues from the following product and service
offerings: managed services, professional services, and client premise
equipment.
We recognize revenue for managed and professional services as services are
performed. Clients are billed over the course of an engagement at an hourly rate
or on a recurring fixed-price basis. Billable rates vary by the service provided
and geographical region and typically range from $75 to $275 per hour for
professional services and $100 to $50,000 per month for managed services.
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Client premise equipment revenue is recognized upon shipment of equipment.
Our current strategy is centered on selling higher margin computer equipment and
infrastructure which is more strategic to our customer's ability to leverage the
Internet.
Client premise equipment comprised 82% and 24% of our revenue for fiscal
1999 and 1998, respectively. ITS, acquired in 1999, has historically operated as
a reseller of computer equipment. During February 2000, ITS sales personnel
began marketing our eNPS services.
Cost of revenues includes the costs of services and material directly
related to the revenues, including direct labor and benefits, subcontracted
labor or other outside services, and other direct costs associated with
revenues, as well as an allocation of certain indirect costs, including the cost
to purchase computer and network equipment sold to clients.
Operating expenses consist primarily of salaries, commissions, and benefits
for our marketing, sales and support personnel, advertising costs, consultants'
fees, provision for doubtful accounts and other miscellaneous expenses.
Depreciation and amortization expense consists primarily of the
amortization of intangible assets recorded in connection with our acquisitions
and depreciation of our fixed assets. We expect these expenses to increase in
the future due to our plans to invest significant capital to expand our network.
EXPANSION
We are pursuing an aggressive strategy to deliver our products and services
on a national scale. We initiated our growth strategy by acquiring five
companies in 1999 to decrease our time to market and increase our revenue and
geographic presence, expanding from one to six operating locations. These
initial acquisitions provided us with an installed client base, a highly
motivated sales force and an operating framework and infrastructure. Beginning
in February 2000, these businesses began offering our eNPS services on an
integrated basis. We intend to extend sales of our eNPS services into the client
base we obtained through our acquisitions. Additionally, we intend to foster the
local and regional relationships developed by management of our acquired
businesses into potential sales opportunities within our current product and
sales mix.
Our growth strategy in the future will be primarily based on expanding our
internal capabilities through the additional hiring of personnel, by
aggressively expanding sales into our existing customer base and by penetrating
new customers. We expect to complement our internal growth by continuing to
evaluate acquisition opportunities whose higher margin service offerings can
complement our existing products and services and enable us to offer a more
comprehensive range of Internet-based technology solutions to our clients.
The following table sets forth our results of operations for the periods
indicated.
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YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1999
------------- ------------
Revenue ..................... $ 3,574,572 100.0% $ 10,779,272 100.0%
Cost of revenue ............. (2,517,157) 70.4 (9,277,919) 86.1
------------ ----- ------------ -----
Gross profit ................ 1,057,415 29.6 1,501,353 13.9
Operating expenses .......... (1,384,646) 38.7 (5,346,859) 49.6
Stock based compensation ....
expense .................... (189,700) 5.3 (1,291,561) 12.0
Depreciation and amortization
expense .................... (28,645) 0.8 (724,582) 6.7
------------ ----- ------------ -----
Operating loss .............. (545,576) 15.3 (5,861,649) 54.4
Interest expense ............ (13,902) 0.4 (529,627) 4.9
Other income ................ 110,953 3.1 -- --
------------ ----- ------------ -----
Net loss .................... $ (448,525) (12.5%) $ (6,391,276) (59.3%)
============ ============
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues increased approximately $7.2 million, or 294%, from $3.6
million in 1998 to $10.8 million in 1999. As a percentage of revenue, 14% and
74% was derived from managed services, 4% and 2% was derived from professional
services and 82% and 24% was derived from client premise equipment for 1999
and 1998, respectively. This increase was attributable to additional revenue
resulting from increased sales forces of the acquired companies. Client premise
equipment would comprise 42% of revenue in 1999 if we excluded ITS' revenue.
Cost of revenues. Cost of revenues increased approximately $6.8 million, or
270%, from $2.5 million in 1998 to $9.3 million in 1999. As a percentage of
revenues, cost of revenues increased from 70.4% during 1998 to 86.1% in 1999.
These increases are due to increasing sales volume from client premise equipment
which has lower margins than other service offerings. Cost of revenue as a
percent of revenue would be only 74% of revenue in 1999 if we excluded ITS'
revenue and related cost of revenues.
Operating expenses. Operating expenses increased $3.9 million or 279%, from
$1.4 million in 1998 to $5.3 million in 1999. Operating expenses as a percentage
of revenue increased from 38.7% in 1998 to 49.6% in 1999. Operating expenses
associated with companies acquired in 1999 totaled $1.6 million. Also included
in operating expenses is $500,000 which we wrote off related to the CCI
transaction discussed below. The remaining increase was incurred as part of our
growth strategy in 1999. We increased our employee base, back office support,
and added key executive management to support the growth of the business. We
expect that our growth strategy will continue to require significant sales and
marketing activities, including an expansion of our sales force and further
development of brand name recognition. In addition, we will continue to build
our personnel base to support our growth strategy in the rapidly evolving
industry of managed services. As a result, we believe that our selling, general
and administrative expenses will continue to increase in the future.
Stock based compensation expense. Stock based compensation expense
increased $1.1 million, from $190,000 in 1998 to $1.3 million in 1999. During
1999, we granted stock warrants to attract and retain employees and consultants.
The majority of these options and warrants vest over a three-year period. As a
result, we recorded approximately $1.2 million in non-cash compensation charges
and expect to continue to record such charges in future periods until the
compensation associated with these charges have been fully amortized.
Depreciation and amortization expense. Depreciation and amortization
expense increased $696,000 from $29,000 in 1998 to $725,000 in 1999. The
increase was a result of $673,000 in amortization expense associated with
intangibles recorded in connection with our acquired companies.
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Interest Expense. Interest expense increased $516,000, from $14,000 in 1998
to $530,000 in 1999. The increase includes a $275,000 interest expense charge we
incurred when we elected to extend the ITS note payable as discussed below under
"--Liquidity and Capital Resources."
Net Loss. Net loss increased $5.9 million, from $449,000 in 1998 to $6.4
million in 1999. As more fully discussed above, the increased net loss is
attributable to growth strategy costs in excess of current period revenues,
amortization associated with our acquisitions and noncash stock based
compensation expense.
LIQUIDITY AND CAPITAL RESOURCES
We have used our cash that has been funded by permanent cash contributions
to capital in our operating and investing activities. Such contributions
amounted to $2.3 million and $75,000 in 1999 and 1998, respectively.
Net cash used in operating activities during 1999 totaled $2.6 million and
was primarily the result of operating losses. During 1998, operating activities
generated $312,000 of cash.
During 1999, investing activities provided $66,000 in cash as a result of
receiving $169,000 from acquisitions net of cash paid. Net cash used for
investing activities in 1998 was $26,000 for purchases of fixed assets.
Although we have plans to invest significantly in property and equipment,
we have no material commitments for such items at this time. We anticipate we
will have significant cash requirements for several years as we expand our
network, increase our employee base to support our expanding operations and
invest in our sales and marketing organization.
At various times between April 15, 1999 and December 31, 1999, we issued
approximately 1,594,335 shares of our common stock and approximately 473,000
warrants to purchase our common stock for $2.45 million. As of December 31,
1999, none of the warrants had been exercised.
The satisfaction of our cash requirements hereafter will depend in large
part on our ability to successfully generate revenues from operations and raise
capital to fund operations. There can, however, be no assurance that sufficient
cash will be generated from operations or that unanticipated events requiring
the expenditure of funds within our existing operations will not occur. In
addition, because we intend to continue to aggressively expand our operations
internally and through potential acquisitions, we may encounter competition in
the marketplace. This may result in an increase in the amount of salary or stock
options we will be required to provide to potential employees or an increase in
the purchase price for potential acquisitions. As a result, we expect to
aggressively pursue additional sources of funds, the form of which will vary
depending upon prevailing market and other conditions and may include high-yield
financing vehicles, short or long-term borrowings or the issuance of equity
securities. We cannot assure you that we will be able to obtain such funding, or
if such funding is available, that it will be on favorable terms.
Effective June 30, 1999, in connection with the acquisition of ITS, we
issued 1,000,000 shares of our common stock and a $1,000,000 subordinated note.
The note bears interest at the rate of prime plus one percent, and is secured by
375,000 shares of the common stock owned by our President and Chief Executive
Officer, John C. Paulsen. The note, which was originally due on October 8, 1999,
was extended by ITS shareholders in consideration for 100,000 additional shares
of our common stock. The note is due on June 30, 2000. We retired $600,000 out
of the bridge financing discussed below.
On June 26, 1999, we signed a definitive purchase agreement to acquire
one-hundred percent of the capital stock of Computing Concepts, Inc. (CCI), a
New Jersey based full service value added IT firm. CCI offers customized
help-desk, staff augmentations in most technical areas, training and network
design and implementation. Pursuant to the terms of the agreement, and in order
to prevent CCI from seeking other potential acquirers, we paid a $500,000
non-refundable earnest money deposit to CCI's
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shareholders upon the signing of the agreement and were required to provide
additional non-refundable deposits if the transaction had not been closed by
August 31, 1999. On August 31, 1999, we elected not to provide the additional
deposit monies. Although we continued negotiations to acquire CCI subsequent to
August 31, 1999, we were unable to secure the financing needed for the
acquisition and were unable to restructure the terms of the transaction with
CCI's shareholders. As a result, we ended acquisition discussions and expensed
the non-refundable deposit.
On July 23, 1999, we entered into a $500,000 secured demand loan agreement
with Bank of America. The line of credit is secured by our assets and the assets
of Mr. Paulsen, bears interest monthly at the rate of prime plus one hundred
basis points, and principal is payable on demand. As of December 31, 1999, the
entire amount under the line of credit was outstanding.
On March 12, 1999, ITS entered into an agreement with NationsCredit
Distribution Finance to provide for the financing of inventory purchases.
Payments related to the NationsCredit agreement were guaranteed by the personal
assets of the former shareholders of ITS. On January 14, 2000, NationsCredit
notified us that we were in default in the payment of approximately $400,000
pursuant to the NationsCredit agreement. We have repaid the entire outstanding
balance under the NationsCredit agreement from proceeds of the bridge financing.
On January 24, 2000, we engaged Roth Capital Partners (formerly Cruttenden
Roth Incorporated) to privately place senior bridge notes. The notes provide for
repayment 120 days from the date of issuance, together with interest of 12% per
annum payable in cash on a monthly basis. We may elect to extend the maturity
date of the notes for another 120 days by providing an extension fee to the note
investors. The note investors received common stock equal to 100% of the
principal amount of the notes based on the 21-day average bid price of our
common stock prior to the funding date. If we raise additional equity capital
prior to the maturity date of the notes, the note investors may convert their
notes into permanent equity at the price per share for which such equity is sold
or at the conversion or exercise price per share if convertible securities or
warrants are sold. We concluded this transaction on March 21, 2000 by raising
$6.1 million, for which 1,692,172 shares of common stock have been issued.
Roth Capital Partners received a cash fee of 10.0% of the senior bridge
loan amount and a 5-year warrant to purchase common stock comprising 10.0% of
the proceeds of the bridge financing at an exercise price equal to the market
price of our common stock on the date of closing of the bridge financing.
Pursuant to the terms of the notes, we paid Roth Capital Partners $610,400 and
issued them approximately 170,000 warrants with an exercise price of $3.625 per
share. We have also agreed to engage Roth Capital in connection with future
private or public capital raising activities, for which we have negotiated fees
payable upon the closing of any such financings.
During January and February 2000, we made net working capital
advances totaling $266,000 to certain creditors of SJI Corporation, which had
entered into merger discussions with us. On March 20, we notified SJI of our
intent to discontinue merger negotiations and demanded repayment of the
advances. As of April 10, 2000, $23,000 had been repaid.
In connection with the proposed acquisition of WebNet, WebNet shareholders
would have the right to put 60,000 shares of Nucleus common stock to us at the
end of one year from the closing of the acquisition for $5.00 per share. As part
of our Atlanta expansion, we also recently signed a data center lease. Monthly
lease payments are $30,000, with escalation clauses. The lease expires in 2007.
We currently have no commitments for capital expenditures and no other
lines of credit upon which to borrow.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") as amended by SFAS No. 137. SFAS 133 establishes accounting and reporting
standards requiring that every derivative
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instrument (including derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
SFAS 133, as amended, is effective for fiscal years beginning after June
15, 2000. A company may also implement SFAS 133 as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). SFAS 133 cannot be applied retroactively.
We do not expect the impact of the adoption of SFAS 133 to be material to
our results of operations as we do not currently hold any derivative instruments
or engage in hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 provides specific
guidance on revenue recognition. The Company recognizes revenue based upon the
provisions of SAB No. 101.
FACTORS AFFECTING FUTURE RESULTS
We are in the early stages of implementing our business plan
We have only recently begun to execute on our business plan. We face all of
the risks common to companies in their early stages of development, including:
o undercapitalization and uncertainty of funding sources,
o high initial expenditure levels and uncertain revenue streams,
o an unproven business model,
o difficulties in managing operations offering different products and
services in different geographic locations, and
o difficulties in managing growth.
Because we commenced implementing our plan in April 1999, you have no
relevant operating history upon which you can evaluate our performance or our
ability to achieve our goals.
We have been sustaining losses and have an accumulated deficit
Our revenue to date has not been sufficient to offset the expenses incurred
in our business activities. We had a net loss of $6.4 million for the year ended
December 31, 1999, and net loss of $449,000 for the year ended December 31,
1998, and an accumulated deficit of $9.8 million at December 31, 1999. We cannot
assure you that we will ever achieve profitability.
We may be unable to manage our growth effectively
To manage our anticipated growth, we must be able to implement and improve
our operational and financial systems and train and manage an expanding employee
base. Further, we must be able to manage multiple relationships among various
financial institutions, investors, suppliers, strategic partners, technology
distributors and other third parties. Our systems, procedures, and controls are
not currently sufficient to support current or future operations. Our management
team may be unable to deal with this expansion to achieve the rapid execution
necessary to fully exploit the opportunities we see in our targeted market. We
also cannot assure you that we will be able to successfully compete with the
more extensive and well-funded operations of our competitors. We may be unable
to manage growth, integrate
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operations effectively or achieve the rapid expansion necessary to fully exploit
the market window for our services in a timely and cost-effective manner.
We have not fully integrated the businesses we have acquired
The businesses we have acquired or will acquire have been operating as
separate independent entities. We have not demonstrated that we will be able to
successfully integrate the operations of these businesses or institute the
necessary company-wide systems and procedures to successfully manage the
combined enterprise on a profitable basis. Our core management group has been
assembled only recently, and we cannot assure you that our management group will
be able to successfully manage the combined entity or effectively implement our
growth strategy. We may need to add members to our management group, but we are
uncertain that we can attract and retain additional members of management.
The businesses we have acquired or will acquire offer different services,
utilize different capabilities and technologies and target different geographic
markets and client segments. These differences increase the risk inherent in
successfully completing any integration of these businesses. Further, we cannot
assure you that our strategy to become a premier Internet-based technology
solution company will be successful, or that our potential clients will accept
us as a provider of Internet-based products and services. In addition, we cannot
assure you that our operating results will match or exceed the combined
individual operating results achieved by the businesses we have acquired or will
acquire. Our inability to successfully integrate these businesses will have a
negative effect on our financial performance and business prospects.
We may be unable to integrate businesses we acquire in the future
We may acquire additional Internet and IT service companies. This would
subject us to the risks inherent in assessing the value, strengths and
weaknesses of acquisition candidates, and the operations of the acquired
companies. In recent years, acquisition prices and competition for these types
of companies have increased. To the extent we are unable to acquire companies in
a cost-effective manner, we may be unable to expand our business.
Growth through acquisitions also entails numerous other risks, including:
o difficulties in assimilating the operations, personnel, products,
technologies, and financial, computer, payroll and other systems of
the acquired businesses,
o diversion of resources from existing businesses, including potential
distraction of our management team,
o entering geographical and business markets in which we have little or
no prior experience,
o unanticipated liabilities or contingencies of acquired businesses,
o dilution to existing stockholders if we use stock to acquire
businesses,
o amortization of goodwill from acquired businesses, which will reduce
our earnings per share, and
o the potential loss of key employees or clients of the acquired
businesses.
We cannot assure you that we will be able to integrate successfully any
businesses we might acquire in the future. Our failure to do so is likely to
have a material adverse effect on our financial performance and on the price of
our common stock.
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Our quarterly operating results could vary dramatically
Our revenues, gross profit, operating income and net income are likely to
vary in the future from quarter to quarter, perhaps substantially. Factors that
may affect this quarter-to-quarter variability include:
o disruption or degradation of our network infrastructure and data
centers,
o loss of significant strategic alliances, such as with InterNAP and
Intel,
o the short-term nature of certain client commitments,
o fluctuations in Internet and IT spending and bandwidth used by
clients,
o loss of a major client,
o seasonality that may accompany budget cycles,
o the timing, size and mix of service and product offerings,
o the timing and size of significant software sales,
o the timing and size of new projects,
o the timing and magnitude of required capital expenditures,
o pricing changes and increases in capital expenditures in response to
various competitive factors,
o market factors affecting the availability of network interconnectivity
and bandwidth for our clients and qualified technical personnel,
o timing and client acceptance of new service offerings,
o changes in the trends affecting the outsourcing of Internet-based IT
services,
o additional selling, general and administrative expenses to acquire and
support new business,
o increased levels of technological change in the industry, and
o general economic conditions.
Our operating results will be affected by changes in our network charges,
equipment costs and the margins we earn on reselling equipment, technical
personnel billing and utilization rates. Technical personnel utilization rates
may be adversely affected during periods of rapid and concentrated hiring in
anticipation of future revenues. Gross margin may also be adversely affected if
we are required to use contract personnel rather than our personnel to complete
certain assignments. Operating results may also be materially and adversely
affected by the cost, timing and other effects of acquisitions.
In addition, we may enter into project-based contracts that are terminable
by the client with limited notice, such as within 60 days, and without
significant penalty. The cancellation or significant reduction in the scope of
any large project could have a material adverse effect on our revenues and
operating profits. We may undertake projects billed on a fixed-price basis. The
cancellation of one or more significant contracts or our failure to complete
fixed-bid projects within budget would expose us to risks associated with cost
overruns, which could negatively impact our financial performance.
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Network and data center failures could lead to significant costs
We must protect our network and data center infrastructure and equipment
against damage from human error, physical or electronic security breaches, power
loss and other facility failures, fire, earthquake, flood, telecommunications
failure, sabotage, vandalism and similar events. Despite precautions, a natural
disaster, security breach or other unanticipated problems at one or more of our
telecommunication switches, POP connections or data centers could result in
interruptions in our services or significant damage to our equipment. In
addition, failure of any of our telecommunication or data providers, such as
InterNAP or Intel, to provide consistent communications and data capacity could
result in interruptions in our services. Any damage to or failure of our systems
or service providers could result in reductions in, or terminations of, services
supplied to our clients, which could have a material adverse effect on our
business. We may experience interruptions in specific circuits within our
network resulting from events outside our control, which could lead to
short-term degradation in the level of performance of our network.
Client satisfaction with our services is critical to our success
Our clients demand a very high level of service. Our clients generally
require service on a 24 hours per day, seven days per week basis. If we incur
significant service level commitment obligations in connection with system
downtime, our liability insurance may not be adequate to cover these expenses.
If we do not meet required service levels, we may have to provide credits to our
clients, which could significantly reduce our revenues. As clients outsource
more mission-critical operations to us, we are subject to increased liability
claims and client dissatisfaction if our systems fail or our clients otherwise
become unsatisfied. In the event of any resulting harm to clients, we could be
held liable for damages. Awards for such damages might exceed our liability
insurance by an unknown but significant amount and could seriously harm our
business.
Our ability to implement and expand our network is unproven and will require
substantial financial, operational and managerial resources
To satisfy client requirements, we must implement, expand and adapt our
eNPS infrastructure. We are dependent on InterNAP and other telecommunications
providers and Intel for our network capacity. The expansion and adaptation of
our infrastructure will require substantial financial, operational and
management resources. Our ability to connect and manage a substantially larger
number of clients is unknown. We have yet to prove our infrastructure's ability
to be scaled up to higher client levels while maintaining superior performance.
Furthermore, it may be difficult for us to increase quickly our network capacity
in light of current necessary lead times within the industry to purchase
circuits and other critical items. If we fail to achieve or maintain high
capacity data transmission circuits, client demand could diminish because of
possible degradation of service. In addition, as we upgrade our infrastructure
to increase bandwidth available to our clients, we expect to encounter equipment
or software incompatibility which may cause delays in implementation.
We depend on network interconnections provided by third parties that may raise
their fees or deny access
We rely on a number of public and private network interconnections to allow
our clients to connect to other networks. If the networks with which we
interconnect were to discontinue their interconnections, our ability to exchange
traffic would be significantly constrained. Furthermore, our business will be
harmed if these networks do not add more bandwidth to accommodate increased
traffic. Many of the companies with which we maintain interconnections are our
competitors. There is nothing to prevent any networks, many of which are
significantly larger than we are, from charging high usage fees or denying
access. In the future, networks could refuse to continue to interconnect
directly with us, might impose significant costs on us or limit our clients'
access to their networks. In this event, we may not be able to access
alternative networks to exchange our clients' traffic on a cost-effective basis.
In addition, we may not be able to pass through to our clients any additional
costs of utilizing these networks. In these cases, our business could be harmed.
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If we are unable to manage complications that arise during deployment of our
network infrastructure, we may not succeed in our expansion plans
Any delay in the opening of planned facilities would significantly harm our
plans to expand our business. In our effort to deploy infrastructure facilities,
including identifying and locating facility sites, construction delays, cost
estimation errors or overruns, delays in connecting with local exchanges,
equipment and material delays or shortages, the inability to obtain necessary
permits on a timely basis, if at all, and other factors, many of which are
beyond our control and all of which could delay the deployment of new
infrastructure components. The deployment of new facilities is a key element of
our business strategy.
If we are unable to continue to receive cost-effective service from our backbone
providers, we may not be able to provide our Internet connectivity services on
profitable terms and these backbone providers may not continue to provide
service to us
In delivering our services, we rely on Internet backbones, which are built
and operated by others. In order to be able to provide optimal routing to our
clients through our infrastructure facilities, we must purchase connections from
several Internet backbone providers. We cannot assure you that these Internet
backbone providers will continue to provide service to us on a cost-effective
basis, if at all, or that these providers will provide us with additional
capacity to adequately meet client demand. Furthermore, it is very unlikely that
we could replace our Internet backbone providers on comparable terms.
Our brand is relatively new, and failure to develop brand recognition could hurt
our ability to compete effectively
To successfully execute our strategy, we must create and strengthen our
brand awareness. If we do not build our brand awareness, our ability to realize
our strategic and financial objectives could be hurt. Many of our competitors
have well-established brands associated with the provision of Internet network
services. In order to build our brand awareness, we intend to significantly
increase our marketing efforts, which may not be successful, and we must
continue to provide high quality services. As part of our brand building
efforts, we expect to increase our marketing budget substantially as well as our
marketing activities, including advertising, tradeshows, direct response
programs and new switch and POP site launch events.
Our growth depends on our ability to expand data center capacity to meet
anticipated demand
Expanding data center capacity is critical to achieving our business
strategy. This expansion is likely to include the need to add new hardware and
software, and may include the opening of additional data centers. We intend to
add data center capacity as justified by client demand. Our ability to do so
successfully depends on:
o anticipating and planning for future demand levels,
o having access to sufficient capital, and
o locating and securing satisfactory data center sites and implementing
the build-out of these sites, all of which may require significant
lead time.
If we cannot expand capacity effectively, our growth will suffer and we may
not be able to adequately meet the demands of existing clients.
The work we perform for clients may expose us to liability
The nature of the services and products we offer expose us to risks. Many
of our engagements involve projects that are critical to the operations of our
clients' businesses. Our failure or inability to meet a client's needs or to do
so in the time frame required by such clients could result in a claim for
substantial
19
<PAGE>
damages against us, regardless of our responsibility for such failure. Our
employees are frequently working at our clients' locations. Therefore, we may be
exposed to liability with respect to actions taken by our employees while on
assignment, such as damages caused by employee errors and omissions, misuse of
client proprietary information, misappropriation of funds, discrimination and
harassment, theft of client property, other criminal activity or torts and other
claims. Although we intend to obtain general liability and errors and omissions
insurance coverage, there can be no assurance that such coverage will be
available on reasonable terms or in sufficient amounts to cover one or more
large claims, or that the insurer will not disclaim coverage as to any future
claim. The successful assertion of one or more large claims against us that
exceed available insurance coverage or results in changes to our insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on our business.
We are dependent on continued authorization to resell and provide
manufacturer-authorized services
Our capacity to offer IT services and product sales depends in part on our
continued authorization as a service provider and our continued status as a
certified reseller of certain hardware and software products. Without such sales
and service authorizations, we would be unable to provide the range of services
and products we currently offer. In general, agreements we have or may enter
into include termination provisions, some of which are immediate. There can be
no assurance that manufacturers will continue to authorize us as an approved
reseller or service provider, and the loss of one or more of such authorizations
could have a material adverse effect on our financial performance and business
prospects.
We depend on our suppliers
Although we have not experienced significant problems with our suppliers of
hardware, software and componentry, there can be no assurance that such
relationships will continue or that, in the event of a termination of our
relationships with any given supplier, we would be able to obtain alternative
sources of supply without a material disruption in our ability to provide
products and services to our clients.
We are uncertain as to sources of the additional financing we will need
We may use our common stock to fully or partially finance future
acquisitions. In the event that our common stock does not maintain a sufficient
market value, or potential acquisition candidates are otherwise unwilling to
accept our common stock as part of the consideration for the sale of their
businesses, we may be required to utilize our cash resources, if available, in
order to pursue acquisitions. If we do not have sufficient cash resources, our
growth may be limited unless we are able to obtain additional capital through
debt or equity financings. We presently do not have any immediate source of cash
other than cash generated from operations. We may be unable to obtain a working
capital line of credit or other financing we may need for acquisitions or to
keep operating. If our financial resources are inadequate, we may be unable to
successfully implement our business strategy.
We are dependent on our management team
We are dependent on the continued efforts of our executive officers, in
particular John C. Paulsen, our President and Chief Executive Officer and the
senior management of the companies we have acquired. We will likely be dependent
on the senior management of any businesses we acquire in the future. If any of
these people become unable to continue in his or her role with us, or if we are
unable to attract and retain other qualified employees, our financial
performance and business prospects will probably be negatively impacted.
Although we expect that the individual managers at the companies we have or will
acquire will enter into employment agreements with Nucleus, which will include
confidentiality and non-compete provisions, we cannot assure you that any
individual will continue in his or her present capacity with us for any
particular period of time. Many of these managers received or may receive
significant amounts of cash for their businesses and may not have incentive to
remain with us long term. We do not maintain key person life insurance on any of
our executive officers.
20
<PAGE>
We could be subject to claims of infringement by third parties
We rely upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect our
proprietary rights and the proprietary rights of third parties from whom we
license intellectual property. We enter into confidentiality agreements with our
employees and limit distribution of proprietary information. There can be no
assurance that these steps will be adequate to deter misappropriation of
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights.
We believe that our services do not infringe on the intellectual property
rights of others and that we have all rights necessary to utilize the
intellectual property employed in our business. However, we are subject to the
risk of claims alleging infringement of third-party intellectual property
rights. Any such claims could require us to spend significant sums in
litigation, pay damages, develop non-infringing intellectual property or acquire
licenses to the intellectual property which is the subject of asserted
infringement.
We operate in a relatively new and evolving market with uncertain prospects for
growth
The market for Internet networks and related services has only recently
begun to develop and is evolving rapidly. Although certain industry analysts
project significant growth for this market, their projections may not be
realized. Our future growth, if any, will depend on the continued trend of
businesses migrating toward use of the Internet and our ability to market our
services effectively. There can be no assurance that the market for our services
will grow, that our services will be adopted, or that businesses will use these
Internet-based services to the degree or in the manner that we expect. If we are
unable to react quickly to changes in the market, if the market fails to
develop, or develops more slowly than expected, or if our services do not
achieve market acceptance, then we are unlikely to become or remain profitable.
We face strong competition
The market for the products and services we offer is highly competitive.
Our competitors vary in size and in the scope of the products and new services
that they offer. Primary competitors generally include:
o complete solution providers,
o ISPs (Internet service providers),
o web hosting firms,
o application hosting firms,
o strategic consulting firms,
o in-house IT departments of clients, and
o computer hardware and service vendors.
Traditionally, the largest service providers have principally focused on
providing solutions to international Fortune 500 companies. A large number of
smaller service companies and a growing number of larger companies compete in
the middle market segment.
There are relatively low barriers to entry into our target market. We
expect to face competition from established and new companies. Increased
competition may result in greater pricing pressure, which could adversely affect
our gross margins. In addition, many of our competitors have greater financial,
development, technical, marketing and sales resources than we do. As a result,
our competitors may be
21
<PAGE>
able to adapt more quickly to new or emerging technologies and to changes in
client requirements or to devote greater resources than us for the development,
promotion, sale and support of Internet-based products and services. In
addition, there is a risk that clients may elect to increase their internal IT
resources to satisfy their IT solutions needs. We may also enter new markets and
offer new services, and expect to face intense competition from existing and new
competitors, particularly since barriers of entry in the IT service industry are
relatively low. We cannot assure you that we will continue to provide IT
services and products demanded by our target market or be able to compete
successfully with existing or new competitors. An inability to compete in our
market effectively would negatively impact our financial performance and
business prospects.
We are dependent on hiring and retaining skilled personnel
We must attract, hire and retain personnel who possess the skills and
experience necessary to operate our business and serve our clients. Competition
for individuals with proven skills is intense. In addition, the Internet-based
IT service industry in general experiences a high rate of turnover. We compete
for such individuals with Internet companies, systems integrators, providers of
outsourcing services, temporary personnel agencies, computer systems
consultants, clients and potential clients. Many large competitors have
extensive campaigns to hire additional technical personnel or have full time
recruiters on staff. Competition for quality technical personnel has continued
to intensify, resulting in increased personnel costs for many IT service
providers. There can be no assurance we will be able to recruit or retain the
technical personnel necessary to execute our strategy. Failure to do so would
have a material adverse effect on our financial performance and business.
Our industry is changing rapidly and new solutions are constantly being
introduced
The Internet-based IT service and e-commerce industries are characterized
by rapid technological change, evolving industry standards, changing client
preferences and new product and service introductions. Our success will depend
in part on our ability to develop Internet-based IT solutions that keep pace
with continuing changes in the IT service and e-commerce industries. There can
be no assurance that we will be successful in adequately addressing these
developments on a timely basis or that, if these developments are addressed, we
will be successful in the marketplace. In addition, there can be no assurance
that products or technologies developed by others will not render our services
non-competitive or obsolete. Our failure to address these developments could
have a negative impact on our financial performance and business prospects.
Potential clients may not widely adopt Internet solutions, and, if they do, may
not outsource such projects
The market for our products and services will depend upon the adoption of
Internet, intranet, extranet and web site solutions by clients. If clients and
potential clients choose not to implement such solutions, we will address a
smaller market and our revenues could be adversely affected. Some critical
unresolved issues concerning the use of Internet solutions are security,
reliability, cost, ease of deployment and administration and bandwidth of the
Internet itself. These issues may affect the use of such technologies to solve
business problems. Some entities would have to change significantly the way they
do business to adapt to the Internet. Even if these issues are resolved,
businesses might not elect to outsource the design, development and maintenance
of their Internet, intranet, extranet and web site solutions to firms such as
Nucleus.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following financial statements for Nucleus and independent auditors'
report for the year ended December 31, 1999 are filed as part of this report on
Form 10-KSB beginning on page F-1.
Report of Independent Public Accountants
Balance Sheets as of December 31, 1999 and 1998
Statements of Operations for the years ended December 31, 1999 and 1998
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1999 and 1998
22
<PAGE>
Statements of Cash Flows for the years ended December 31, 1999 and 1998
Notes to the Financial Statements
ITEM 8 CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information with respect to our
directors and executive officers:
NAME AGE POSITION
- ---- --- --------
John C. Paulsen 37 Chairman of the Board, President and Chief
Executive Officer
J. Theodore Hartley 32 Director, Executive Vice President, Chief
Financial Officer and Secretary
Mark Fera 33 Director and Vice President, Corporate Development
Stephen Calk 34 Director
Jeffrey R. Wescott 41 Director
Jeffrey R. Lundal 31 Vice President, Client Services
John C. Paulsen has served as Chairman of the Board, President and Chief
Executive Officer of Nucleus since April 1999. Prior thereto, Mr. Paulsen served
as the President of Nucleus Holding Company. From 1995 to 1997, Mr. Paulsen
served as President and CEO of MetroLink Communications, Inc., a long-distance
carrier. From 1990 to 1995, Mr. Paulsen served as President and CEO of American
Teletronics Long Distance, Inc., a reseller of long-distance telecommunications
services.
J. Theodore Hartley has served as Executive Vice President and Chief
Financial Officer and as a Director since April 1999. Mr. Hartley also currently
serves as Secretary of Nucleus. From 1997 to 1998, Mr. Hartley was an investment
banker with Exvere Investment Banking, a merger and acquisition firm
headquartered in Seattle, Washington. From 1990 to 1997, Mr. Hartley held a
variety of positions with Deloitte & Touche LLP (D&T), an international
accounting and consulting firm. Most recently, he served in D&T's New York
National Office providing merger and acquisition consulting services to private
equity investors and multinational corporations. Mr. Hartley is a certified
public accountant.
Mark Fera has served as Vice President, Corporate Development and as a
Director of Nucleus from April 1999. From 1997 through 1999 Mr. Fera was Manager
Strategic Accounts at i2 Technologies. Prior to his affiliation with i2, from
1993 to 1997 he was with Systems Software Associates. Prior to 1993 he served in
both sales and marketing capacities at American Software and Management
Assistance, Incorporated.
Stephen Calk has served as a Director of Nucleus since April 1999. Since
October 1995, Mr. Calk has served as President of Chicago Bancorp, Chicago's
largest private mortgage bank.
Jeffrey R. Wescott has served as a Director of Nucleus since April 1999.
Mr. Wescott, Vice President, Bank of America, is a marketing executive with 18
years of active involvement in the financial
23
<PAGE>
services industry. Mr. Wescott has worked for a number of financial institutions
including Continental Illinois National Bank, Citicorp North America and Bank of
America.
Jeffrey R. Lundal has served as Vice President, Client Services since
Apirl 1999. From 1997 to 1998 Mr. Lundal was Director of Business Development
for Harrison Marketing Services, a marketing communications firm located in
Chicago, Illinois. From 1995 to 1997, Mr. Lundal was Major Accounts Manager for
Marsh Company, a manufacturer of automated product identification solutions.
From 1990 to 1995, Mr. Lundal held a variety of sales and marketing positions
with Wilton Corporation, an industrial products conglomerate headquartered in
Chicago.
BOARD OF DIRECTORS
The board of directors of Nucleus consists of seven members. Five members
are currently serving. Directors are elected each year at the annual meeting of
stockholders. The board of directors of Nucleus met or took action by written
consent six times during 1999. Each of the directors participated in 75% of such
meetings. The board of directors has established an audit committee, an
executive committee and a compensation committee.
The audit committee recommends the annual appointment of Nucleus' auditors
and reviews the scope and results of the audit and other services provided by
our independent auditors. Messrs. Walker and Wescott served on the audit
committee during 1999. The audit committee did not meet during 1999.
The compensation committee reviews and approves Nucleus' compensation and
benefits for our executive officers, administers our compensation and stock
option plans and makes recommendations to the board of directors regarding such
matters. Messrs. Calk, Paulsen and Wescott served on the compensation committee
in 1999. The compensation committee took action by written consent twice in
1999.
The executive committee manages the business and affairs of Nucleus.
Messrs. Calk, Fera, Hartley and Paulsen served on the executive committee in
1999. The executive committee did not meet in 1999.
In July 1999, the compensation committee approved terms for the
compensation of directors, subject to the approval of the board of directors.
According to these terms, Messrs. Wescott and Calk were awarded stock options to
purchase 60,000 shares of our common stock at $1.50 per share with immediate
vesting. Messrs. Wescott and Calk also received options to purchase 60,000
shares at $1.50 with vesting over a three-year period. No other compensation is
currently being paid to our directors.
Section 16(A) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 requires our directors, executive officers,
and persons who own more than 10% of our equity securities, to file initial
reports of ownership and reports of changes in ownership of our common stock and
other equity securities with the Securities and Exchange Commission. Executive
officers, directors and 10% owners are required by SEC regulation to furnish us
with copies of all Section 16(a) forms they file.
To our knowledge, the following officers, directors and greater than 10%
owners failed to file on a timely basis Form 3s, Form 4s (with respect to the
number of transactions indicated in parentheses), and Form 5s during or with
respect to fiscal year 1999: John C. Paulsen (5), J. Theodore Hartley, Mark
Fera, Jeffrey R. Lundal, Stephen Calk and Jeffrey R. Wescott.
24
<PAGE>
ITEM 10 EXECUTIVE COMPENSATION
The following table summarizes the compensation paid for the years ended
December 31, 1999, 1998 and 1997 to the individuals who served as our chief
executive officer during any part of fiscal year 1999 and those serving as
executive officers at the end of fiscal year 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) WARRANTS (#) COMPENSATION ($)
- --------------------------- ---- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
John C. Paulsen, President and Chief 1999 350,000 -- -- 3,775(3)
Executive Officer (1)
J. Theodore Hartley, Executive Vice 1999 105,590 -- -- --
President (1)
Steven H. Walker, President and Chief 1999 42,000 -- -- --
Executive Officer (2) 1998 63,000 -- $11,900 --
1997 63,000 -- -- --
</TABLE>
- -------------
(1) Commencing April 15, 1999.
(2) From January 1, 1999 to April 15, 1999.
(3) Consists of premiums paid for term life insurance under which Mr. Paulsen
is the beneficiary.
COMPENSATION PURSUANT TO STOCK OPTIONS/WARRANTS
There were no options/warrants granted or issued to our executive officers
during fiscal year 1999.
AGGREGATE OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUES
As of December 31, 1999, warrants to purchase 11,900 shares of common stock
were held by Mr. Walker.
STOCK PLANS
We have a Stock Purchase Plan for non-qualified options and an Incentive
Stock Option Plan for incentive stock options. As of December 31, 1999, we had
granted non-qualified stock options for 423,000 shares of common stock under the
Stock Purchase Plan.
Under the plans, all our employees, together with other persons who perform
substantial services for us or on our behalf, will be eligible to receive
incentive and nonstatutory options to purchase Nucleus common stock. The plans
are administered by the compensation committee. Under the plans, the exercise
price at which the shares of Nucleus common stock covered by each grant may be
purchased will be determined on the date of grant by the committee, but can be
no less than the par value of such shares and, in the case of incentive stock
options, may not be less than the fair market value of such shares on the date
of grant. The number of shares covered under the options granted under the plans
are subject to adjustments for stock splits, mergers, consolidations,
combinations of shares, reorganizations and other recapitalizations.
25
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE
OFFICERS
The following table sets forth the number of shares of common stock
beneficially owned as of April 10, 2000 by (i) each person known by us to
beneficially own more than 5% of the common stock of Nucleus, (ii) each of our
directors, (iii) our executive officers and (iv) all directors and executive
officers as a group. A beneficial owner of a security includes any person who
has the power to vote or sell the shares.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------ --------- -----
John C. Paulsen (1)......................... 4,551,926(2) 39.1%
Stephen Calk................................ 252,807(3) 2.2
Jeffrey R. Wescott.......................... 80,000(3) *
J. Theodore Hartley......................... -- *
Mark Fera................................... -- *
Jeffrey R. Lundal........................... -- *
All directors and executive officers, as a
group (6 persons)........................ 4,884,733 41.3%
- -------------
* Less than 1%.
(1) Mr. Paulsen's mailing address is 401 North Michigan Avenue, Suite 745,
Chicago, Illinois 60611.
(2) Includes shares held directly by Mr. Paulsen and indirectly through a
family trust for which Mr. Paulsen acts as majority general partner.
(3) Includes 80,000 shares that may be purchased upon exercise of options.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999, John C. Paulsen, our President and Chief Executive Officer,
made cash loans to Nucleus and cash payments to Nucleus vendors totaling
$711,000. Nucleus made cash repayments and other cash advances to Mr. Paulsen of
$782,000 during the period. As of December 31, 1999, Nucleus carried a payable
to Mr. Paulsen of $121,000, which represented the balance of the cash provided
net of deferred compensation and interest recorded for Mr. Paulsen for 1999.
During the first quarter of 2000, Mr. Paulsen made cash loans to Nucleus
totaling $154,000. Nucleus made cash repayments to Mr. Paulsen of the payable
outstanding and repurchased from Mr. Paulsen 264,078 shares of Nucleus common
stock for $1.50 per share.
During 1999, Henry Paulsen, John Paulsen's father, made loans to Nucleus of
$216,000 and received repayments and other cash advances from Nucleus of
$311,000. As of December 31, 1999, Nucleus carried a receivable from Henry
Paulsen of $36,000, representing the balance of the cash provided net of
deferred compensation and interest recorded for Henry Paulsen for 1999. During
the first quarter of 2000, Nucleus repurchased from Henry Paulsen 170,480 shares
of Nucleus common stock for $1.50 per share. The amount paid for the stock
included the receivable due from Henry Paulsen carried over from 1999.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
See Exhibit Index beginning on page A-1.
(b) Reports on Form 8-K
None.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
Date: April 14, 2000 By:/s/ John C. Paulsen
-------------------------------------
John C. Paulsen
President and Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John C. Paulsen President, Chief Executive Officer April 14, 2000
- ------------------------- and Chairman
John C. Paulsen (principal executive officer)
/s/ J. Theodore Hartley Executive Vice President, Chief April 14, 2000
- ------------------------- Financial Officer, Secretary and Director
J. Theodore Hartley (principal financial and accounting officer)
/s/ Mark Fera Vice President, Corporate Development April 14, 2000
- ------------------------- and Director
Mark Fera
/s/ Stephen Calk Director April 14, 2000
- -------------------------
Stephen Calk
/s/ Jeffrey R. Wescott Director April 14, 2000
- -------------------------
Jeffrey R. Wescott
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Arthur Andersen LLP, Independent Public Accountants................F-2
Report of James E. Scheifley & Associates, P.C., Independent
Public Accountants......................................................F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998.................F-4
Consolidated Statements of Operations for the Years ended
December 31, 1999 and 1998..............................................F-5
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Years Ended December 31, 1999 and 1998................F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998..............................................F-7
Notes to Consolidated Financial Statements...................................F-8
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Nucleus, Inc.:
We have audited the accompanying consolidated balance sheets of Nucleus,
Inc. (a Nevada corporation) and Subsidiaries (the Company) as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' (deficit) equity, and cash flows for each of the years in the
two-year period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We did not audit the 1998 financial statements of American General
Ventures, Inc., a company that merged with Nucleus, Inc. during 1999 in a
transaction accounted for as a pooling of interests, as discussed in Note 4.
Such statements are included in the consolidated financial statements of
Nucleus, Inc. and Subsidiaries and reflect 16 percent of total assets as of
December 31, 1998 and 21 percent of total revenues for the year ended December
31, 1998, of the related consolidated totals after restating. The financial
statements of American General Ventures, Inc. were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
amounts included for American General Ventures, Inc. is based solely upon the
report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Nucleus, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company's recurring operating losses and
negative working capital raise substantial doubt about its ability to continue
as a going concern. Note 2 also describes how management plans to address these
matters. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Arthur Andersen LLP
Chicago, Illinois
April 13, 2000
F-2
<PAGE>
REPORT OF
INDEPENDENT ACCOUNTANTS
To the Stockholders of
Nucleus, Inc.:
We have audited the consolidated balance sheets of American General
Ventures, Inc. (which merged with Nucleus, Inc., on April 15, 1999) as of
December 31, 1998 and the related consolidated statements of operations, changes
in stockholders' deficit, and cash flows 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 consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Nucleus,
Inc. as of December 31, 1998 and the results of its operations and cash flows
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
JAMES E. SCHEIFLEY & ASSOCIATES, P.C.
Certified Public Accountants
Englewood, Colorado
March 3, 1999
F-3
<PAGE>
NUCLEUS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash ................................................. $ 270,291 $ 25,217
Accounts receivable .................................. 1,704,028 339,288
Inventory ............................................ 46,673 34,808
Prepaids and other current assets .................... 28,530 58,711
------------ ------------
Total current assets ............................... 2,049,522 458,024
------------ ------------
Property and equipment, net .......................... 133,745 67,315
Goodwill and other intangibles, net .................. 6,454,869 20,195
------------ ------------
Total assets ....................................... $ 8,638,136 $ 545,534
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Lines of credit ...................................... $ 534,285 $ --
Notes payable ........................................ 1,474,267 3,310
Accounts payable ..................................... 2,962,731 765,369
Related party payables ............................... 202,709 59,617
Accrued expenses ..................................... 616,693 323,055
------------ ------------
Total current liabilities .......................... 5,790,685 1,151,351
------------ ------------
Notes payable, less current portion .................. -- 9,142
------------ ------------
Total liabilities .................................. 5,790,685 1,160,493
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, no stated value, 8,000,000 shares
authorized, no shares issued and outstanding ........ -- --
Common stock, $0.001 par value, 900,000,000 shares
authorized, shares issued and outstanding (9,610,104
and 6,436,936 in 1999 and 1998, respectively)........ 9,610 6,437
Stock warrants ....................................... 377,069 --
Additional paid-in capital ........................... 12,250,664 2,777,220
Accumulated deficit .................................. (9,789,892) (3,398,616)
------------ ------------
Total stockholders' equity (deficit) ................. 2,847,451 (614,959)
------------ ------------
Total liabilities and stockholders' equity (deficit).. $ 8,638,136 $ 545,534
============ ============
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-4
<PAGE>
NUCLEUS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
------------ ------------
Revenue ....................................... $ 10,779,272 $ 3,574,572
Cost of revenue ............................... 9,277,919 2,517,157
------------ ------------
Gross profit .................................. 1,501,353 1,057,415
Operating expenses ............................ 5,346,859 1,384,646
Stock based compensation expense .............. 1,291,561 189,700
Depreciation and amortization expense ......... 724,582 28,645
------------ ------------
Operating loss ................................ (5,861,649) (545,576)
Interest expense .............................. (529,627) (13,902)
Other income .................................. -- 35,008
------------ ------------
Loss before income taxes and extraordinary item (6,391,276) (524,470)
Income tax benefit ............................ -- 25,820
------------ ------------
Loss before extraordinary item ................ (6,391,276) (498,650)
Extraordinary item (net of tax of $25,820) .... -- 50,125
------------ ------------
Net loss ...................................... $ (6,391,276) $ (448,525)
============ ============
Basic and diluted loss per common share:
Loss before extraordinary item ............... $ (0.80) $ (0.08)
Extraordinary item ........................... -- .01
------------ ------------
Net loss ..................................... $ (0.80) $ (0.07)
============ ============
Weighted average shares outstanding - basic and
diluted ..................................... 7,961,809 6,413,165
============ ============
See accompanying notes to Consolidated Financial Statements.
F-5
<PAGE>
NUCLEUS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN STOCK ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
--------- ------ ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 .... 6,366,476 $6,366 $ 2,438,016 $ -- $(2,950,091) $ (505,709)
Common stock sold for cash .... 40,750 41 74,459 -- -- 74,500
Issuance of common stock for
services ..................... 1,210 1 3,261 -- -- 3,262
Issuance of common stock for
conversion ................... 28,500 29 56,971 -- -- 57,000
Capital contribution by
officer/shareholder .......... -- -- 14,813 -- -- 14,813
Compensation value of common
stock warrants ............... -- -- 141,000 -- -- 141,000
Compensation value of common
stock sales .................. -- -- 43,000 -- -- 43,000
Compensation value of common
stock issued for debt
conversion ................... -- -- 5,700 -- -- 5,700
Net loss ...................... -- -- -- -- (448,525) (448,525)
------ ----------- -------- ----------- -----------
Balance, December 31, 1998 .... 6,436,936 6,437 2,777,220 -- (3,398,616) (614,959)
--------- ------ ----------- -------- ----------- -----------
Common stock and warrants sold
for cash ..................... 1,594,335 1,594 1,935,337 377,069 -- 2,314,000
Common stock issued in exchange
for warrants ................. 8,000 8 19,992 -- -- 20,000
Issuance of common stock for
acquisitions ................. 1,425,000 1,425 5,876,700 -- -- 5,878,125
Issuance of common stock for
conversion of debt ........... 45,833 46 189,015 -- -- 189,061
Common stock issued for
extension of debt agreement .. 100,000 100 274,900 -- -- 275,000
Compensation value of warrants
and options issued ........... -- -- 1,177,500 -- -- 1,177,500
Net loss ...................... -- -- -- -- (6,391,276) (6,391,276)
--------- ------ ----------- -------- -----------
Balance, December 31, 1999 .... 9,610,104 $9,610 $12,250,664 $377,069 $(9,789,892) $ 2,847,451
========= ====== =========== ======== =========== ===========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-6
<PAGE>
NUCLEUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Net loss ......................................................... $(6,391,276) $(448,525)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization .............................. 724,582 28,645
Compensation expenses related to equity issuances .......... 1,291,561 189,700
Interest expense related to equity issuances ............... 275,000 --
Deferred compensation added to office loan ................. -- 60,500
Gain on extinguishment of debt, including tax effect ....... -- (75,945)
Fixed assets exchanged for services ........................ -- 8,527
Stock issued for services .................................. -- 3,262
Loss on disposal of fixed assets ........................... 28,565 --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable ...................................... (868,696) 272,905
Inventory ................................................ 72,182 142,249
Other assets ............................................. 36,262 (17,976)
Accounts payable and accrued expenses .................... 1,927,600 148,213
Related party accruals ................................... 351,855 --
----------- --------
Total adjustments ........................................ 3,838,911 760,080
----------- --------
Net cash from operating activities ......................... (2,552,365) 311,555
----------- ---------
Cash flows from investing activities:
Cash received from acquisitions, net ....................... 168,550 --
Acquisition of fixed assets ................................ (102,449) (26,321)
----------- ---------
Net cash from investing activities ......................... 66,101 (26,321)
----------- ---------
Cash flows from financing activities:
Repayments of borrowings ................................... (106,947) (5,965)
Increase in lines of credit ................................ 504,285 --
Proceeds from sale of common stock and warrants ............ 2,334,000 74,500
Increase in officer loans .................................. -- (331,371)
Book overdraft ............................................. -- (14,887)
----------- ---------
Net cash from financing activities ......................... 2,731,338 (277,723)
----------- ---------
Increase in cash ................................................. 245,074 7,511
Cash, beginning of period ........................................ 25,217 17,706
----------- ---------
Cash, end of period .............................................. $ 270,291 $ 25,217
=========== =========
Supplemental cash flow information:
Cash paid for interest ..................................... $ 29,409 $ 13,902
Cash paid for taxes ........................................ -- --
=========== =========
Non-cash investing and financing activities:
Conversion of debt to common stock ......................... $ 75,000 $ 57,000
Forgiveness of officer loan ................................ -- 14,813
Stock issued for debt extension fee ........................ 275,000 --
Stock issued to affect acquisitions ........................ 5,878,125 --
Debt issued to affect acquisitions ......................... 1,075,000 --
Fair value of tangible assets acquired ..................... 873,514 --
Fair value of liabilities assumed .......................... 840,394 --
Conversion of payable to debt .............................. 568,763 --
=========== =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-7
<PAGE>
NUCLEUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) Description of the Business
Nucleus, Inc. (the "Company") is a provider of Internet system and network
management solutions and technology professional services for enterprises
looking to operate in an Internet-based environment. Through the ongoing
development of the Company's eNucleus Platform Solution, the Company delivers
the digital building blocks for businesses to conduct electronic commerce over
the Internet. The Company's eNucleus Platform Solution provides an integrated
environment which delivers high speed Internet transport, licensed e-business
enabling software and web hosting.
(2) Financial Results and Liquidity
As of December 31, 1999 the Company had a net working capital deficit of
$3.7 million which will require additional financial support. The Company has
only recently begun to execute its business plan and faces all the risks common
to companies in their early stages of development, including:
undercapitalization and uncertainty of funding sources, high initial expenditure
levels and uncertain revenue streams, an unproven business model, difficulties
in managing growth and difficulties in managing operations offering different
products and services in different geographic locations. The Company has
incurred net losses of $6.4 million and $449,000 in 1999 and 1998, respectively.
The Company's recurring losses and negative working capital raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
Subsequent to year end, the Company received net proceeds of approximately
$5.5 million from the issuance of senior bridge notes payable in June, 2000,
subject to a 120-day extension at the Company's option (See Note 12). The
Company will continue to pursue long-term financial support including seeking
strategic investors, lenders and/or technology partners to execute its business
plan. There can be no assurances that management's efforts in these regards will
be successful. Under any of these scenarios, management believes that the
Company's common stock would likely be subject to substantial dilution.
Management believes that, despite the financial hurdles and funding
uncertainties going forward, it has under development a business plan that, if
successfully funded and executed, can significantly improve operating results.
The support of the Company's vendors, customers, lenders, stockholders and
employees will continue to be key to the Company's future success.
(3) Summary of the Company's Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
Revenue Recognition
The Company's revenues consist of managed services, professional services
and the sale of client premise equipment. In 1999, the majority of revenue was
derived from sales of client premise equipment. In 1998, the Company's primary
business was the reselling of long-distance telecommunications which is included
within managed services. Revenues are recognized upon shipment of equipment and
upon rendering of services for professional services and managed services.
Financial Instruments and Concentration of Credit Risk
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, bank borrowings and debt approximates
their fair market value. Financial instruments that potentially expose the
Company to a concentration of credit risk principally consist of accounts
receivable.
The Company's customer base is composed of businesses throughout the United
States. The Company performs ongoing credit evaluations of its customers and
maintains reserves for potential losses. During 1999, two customers accounted
for approximately 40% of total revenue.
Property and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over their respective estimated useful lives, which are
generally three to five years.
Inventory
Inventory is valued at the lower of cost or market on a first-in, first-out
basis and consists primarily of finished goods and spare parts held for
professional service installations.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be recovered.
Stock-Based Compensation
The Company uses the intrinsic value-based method to account for its
employee stock-based compensation grants and provides pro forma disclosures of
net loss as if the fair value method had been applied in measuring compensation
expense. Expense associated with stock-based compensation is being amortized
over the vesting period of the individual options. Charges for non-employee,
stock-based compensation are measured using fair value-based methods.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including goodwill, for
impairment whenever events or change in circumstances indicate that the carrying
amount of such assets or intangibles may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. The
Company has only recently begun to execute on its business plan. If achievement
of the Company's growth strategy is not attained, the value of goodwill and
other long-lived assets may become impaired. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
F-9
<PAGE>
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are comprised of amounts recorded in
business acquisitions and are being amortized on a straight-line basis over
periods ranging from 3 to 7 years. Goodwill and other intangible assets consists
of the following as of December 31, (in thousands):
1999 1998
---------- ----------
Established customer base................ $ 2,600 $ --
Assembled workforce...................... 760 --
Goodwill................................. 3,775 48
---------- ----------
Total ................................ 7,135 48
Less accumulated amortization............ 680 28
---------- ----------
$ 6,455 $ 20
========== ==========
Net Loss Per Share
Basic and diluted net loss per share has been computed by dividing the net
loss attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during the period. Diluted net loss per share
does not include the effect of the following common equivalent shares as the
effect of their inclusion is antidilutive during each period:
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------- ------------
Shares issuable under stock options...... 423,000 0
Shares issuable pursuant to warrants to
purchase common stock................... 2,044,732 367,050
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") as amended by SFAS No. 137. SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument (including derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
SFAS 133, as amended, is effective for fiscal years beginning after June
15, 2000. A company may also implement SFAS 133 as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). SFAS 133 cannot be applied retroactively.
We do not expect the impact of the adoption of SFAS 133 to be material to
our results of operations as we do not currently hold any derivative instruments
or engage in hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 provides specific
guidance on revenue recognition. The Company recognizes revenue based upon the
provisions of SAB No. 101.
F-10
<PAGE>
(4) Business Combinations
On April 15, 1999, Nucleus Holdings Corporation ("NHC") merged with
Nucleus, Inc. ("NI", formerly American General Ventures, Inc.) whereby all of
the outstanding shares of NHC were exchanged for 5,307,109 newly issued NI
shares. The merger qualified as a tax-free reorganization as permitted by the
Internal Revenue Code and was treated as a pooling-of-interests for accounting
and financial reporting purposes. The financial statements presented herein have
been retroactively restated to reflect this transaction. The merged company is
called Nucleus, Inc.
On June 30, 1999, the Company purchased the capital stock of Innovative
Technology Solutions, Inc. ("ITS"). ITS was a provider of client premise
equipment and technology solutions to middle market companies throughout the
Pacific Northwest. Total consideration paid, including direct acquisition costs,
aggregated approximately $5,125,000. The excess of the purchase price over the
fair value of tangible net assets acquired amounted to approximately $5,100,000
and was attributed to an established customer base and goodwill.
On June 15, 1999, the Company purchased the capital stock of Young Data
Systems, Inc. ("YDS"). YDS designed and assembled computer networks and provided
cabling, equipment and network configuration to small and middle market
companies primarily in Illinois. Total consideration paid, including direct
acquisition costs, aggregated approximately $500,000. The excess of the purchase
price over the fair value of tangible net assets acquired amounted to
approximately $500,000 and was attributed to assembled workforce.
On May 21, 1999, the Company purchased the capital stock of Telos
Distributing, Inc. d/b/a EDW Computers ("EDW"). EDW designed, configured and
integrated computer networks to small and middle market companies primarily in
Colorado. Total consideration paid, including direct acquisition costs,
aggregated approximately $1,200,000. The excess of the purchase price over the
fair value of tangible net assets acquired amounted to approximately $1,200,000
and was attributed to goodwill.
On April 30, 1999, the Company purchased the capital stock of Comp-Pro
Computers, Inc. ("Comp-Pro"). Comp-Pro was a professional services firm
providing computer maintenance and upgrade services for small and middle market
companies primarily in Illinois. Total consideration paid, including direct
acquisition costs, aggregated approximately $235,000. The excess of the purchase
price over the fair value of tangible net assets acquired amounted to
approximately $260,000 and was attributed to assembled workforce.
All business combinations, other than American General Ventures, Inc., have
been accounted for using the purchase method of accounting and, therefore, their
operations have been consolidated from the date of their acquisitions. The
following summary, prepared on an unaudited pro forma basis, combines the
Company's consolidated results of operations with the results of operations of
the acquisitions, as if they had been consummated as of January 1, 1998 (dollars
in thousands, except per share data):
YEAR ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
Revenues.................................. $ 21,706 $ 8,235
Net loss.................................. (6,949) (1,730)
Basic and diluted net loss per share...... $ (0.81) $ (0.22)
=========== ===========
Shares used in pro forma per share
calculation.............................. 8,629,618 7,883,998
=========== ===========
The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results and do not
reflect any synergies that might be achieved from combined operations.
F-11
<PAGE>
On June 26, 1999, the Company signed a definitive purchase agreement to
acquire the capital stock of Computing Concepts, Inc. ("CCI"), a New Jersey
based full service value added IT firm. Pursuant to the terms of the agreement,
and in order to prevent CCI from seeking other potential acquirers, the Company
paid a $500,000 non-refundable earnest money deposit to CCI's shareholders upon
the signing of the agreement and were required to provide additional
non-refundable deposits if the transaction had not been closed by August 31,
1999. On August 31, 1999, the Company elected not to provide the additional
deposit monies. Although the Company continued negotiations to acquire CCI, the
Company was unable to secure the financing needed for the acquisition and was
unable to restructure the terms of the transaction with CCI's shareholders. As a
result the Company ended acquisition discussions in 1999 and have expensed the
non-refundable deposit.
(5) Financial Statement Components
Accounts Receivable
Accounts receivables are shown net of the allowances for doubtful accounts of
$138,000 and $17,000 for 1999 and 1998, respectively.
Property and Equipment
Property and equipment consisted of furniture, fixtures, and computer
equipment and are net of accumulated depreciation of $35,877 and $58,132 as of
December 31, 1999 and 1998, respectively.
Accrued Expenses
Accrued expenses consisted of the following:
DECEMBER 31,
-------------------------------
1999 1998
----------- ----------
Accrued penalties on stock
registration rights.............. $ 172,000 $ --
Accrued telephone & billing
expenses......................... -- 161,288
Accrued payroll and
commissions...................... 148,738 108,007
Deferred revenue................. 88,331 --
Other............................. 207,624 53,760
----------- ----------
$ 616,693 $ 323,055
=========== ==========
(6) Bank Borrowings and Debt
In July, 1999 the Company entered into a $500,000 line of credit facility
with a bank which is secured by the assets of the Company and personally
guaranteed by the Company's primary shareholder. The line of credit bears
interest at the rate of prime plus one percent and is payable upon demand. As of
December 31, 1999 approximately $500,000 under the credit facility was
outstanding.
The Company entered into an inventory financing facility with NationsCredit
Distribution Finance ("Nations"). Borrowings under this facility (approximately
$357,000 at December 31, 1999), are included within accounts payable and are
personally guaranteed by the former shareholders of ITS. On January 14, 2000,
Nations notified the Company that it was in default pursuant to the facility
agreement. This facility was paid in full from proceeds of the bridge financing
(see Note 12).
In conjunction with the acquisition of ITS, the Company issued a $1,000,000
subordinated note. The note bears interest at the rate of prime plus one
percent, and is secured by 400,000 shares of common stock of the Company's
majority shareholder. The note, which was originally due on October 10, 1999,
was extended by ITS shareholders in consideration for 100,000 additional shares
of the Company's common stock. The aggregate value of these shares ($275,000)
was recorded as additional interest
F-12
<PAGE>
expense. The note is due on June 30, 2000. Subsequent to year-end, the Company
retired $600,000 of the note with proceeds from the bridge financing.
During 1999, the Company agreed to convert approximately $360,000 of
accounts payable to a vendor into a note payable. The note is payable in monthly
amounts of approximately $22,000 through July, 2001 and bears interest at 10%.
The Company is currently in default on this note and is negotiating a revised
payment schedule. The balance remaining of approximately $343,000 as of December
31, 1999 has been included in notes payable within current liabilities.
(7) Stockholders' Equity
During the year ended December 31, 1999, the Company issued an aggregate of
1,594,335 shares of its common stock to third parties for cash aggregating
$2,314,000 (net of $136,000 in fees) in private sale transactions. The shares
were sold at prices between $1.50 per share and $2.00 per share. Attached to
certain sales of securities were 473,332 warrants to purchase common stock with
an exercise price of $1.50. The warrants were valued under the fair value
methodology and $377,069 of the proceeds received were allocated to those
warrants.
At various dates during 1999 the Company issued warrants to purchase an
aggregate of 1,217,500 shares of the Company's common stock to employees and
consultants at exercise prices ranging from $1.50 per share to $3.875 per share.
Compensation and other expense of $1,177,500 was recognized related to these
grants.
At various dates during 1999, the Company granted options to purchase an
aggregate of 423,000 shares of the Company's common stock to employees and
certain members of the board of directors at exercise prices ranging from $1.50
to $2.25 per share.
During 1998, the Company issued an aggregate of 40,750 shares of its common
stock to third parties for cash aggregating $74,500 in private sale
transactions. The shares were sold at prices between $2.00 per share and $1.50
per share when the Company's common stock had a bid price higher than the sale
price. The excess of the bid price over the sale price for the shares issued
amounted to $43,000 on an aggregate basis and has been recorded as general and
administrative expense.
During 1998 the Company issued 28,500 shares of its common stock for the
conversion of $57,000 of debt owed to its president/shareholder. The shares were
valued at $2.00 per share at the conversion date at which time the Company's
common stock had a bid price of $2.20 per share. The excess of the bid price
over the conversion price for the shares issued ($5,700) has been recorded as
compensation expense.
At December 31, 1998 the Company's former president/shareholder agreed to
reduce the amount of loans due to him by $14,813. This amount has been recorded
as a capital contribution to the Company.
At various dates during 1998 the Company issued warrants to purchase an
aggregate of 327,050 shares of the Company's common stock to employees and
others in recognition of services performed at exercise prices ranging from
$5.00 per share to $1.60 per share. An aggregate difference of $141,000 between
the exercise price and the fair value of the stock signifying the completion of
the services as approved by the Company's board of directors was charged to
compensation expense.
Effective December 11, 1998, the Company approved a 1-for-10 reverse stock
split.
Fair Value Disclosures
The Company uses the intrinsic value method in accounting for its employee
stock-based compensation plans. Had compensation cost been determined in
accordance with SFAS No. 123 for all of the Company's employee stock-based
compensation plans, net loss and net loss per share would have been changed to
the amounts indicated below (in thousands, except per share data):
F-13
<PAGE>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
------------ -----------
Net loss......................................
As reported.................................. $(6,391) $ (499)
Pro forma.................................... (6,594) (624)
Basic and diluted net loss per share:
As reported.................................. (0.80) (0.08)
Pro forma.................................... (0.83) (0.10)
The fair value of each stock option and warrant is estimated on the date of
grant using the Black-Scholes option pricing model with no expected dividends,
expected lives of the contractual term (generally 10 years), risk-free interest
rates of 6% and volatility of 60%.
The following table summarizes information about stock options outstanding as of
December 31, 1999:
WEIGHTED AVERAGE WEIGHTED
NUMBER OF REMAINING AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE
--------------- ------ ---------------- --------------
$1.50 240,000 9.30 $1.50
$2.25 183,000 9.57 2.25
------- -----
423,000 $1.82
======= =====
The weighted average fair value of options granted during the year ended
December 31, 1999 was $1.15. As of December 31, 1999, 120,000 options were
exercisable.
A summary of the Company's warrant activity for the years ended December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998
-------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year .... 367,050 $3.31 40,000 $5.00
Granted ............................. 1,690,832 1.52 327,050 3.10
Expired ............................. (5,150) 3.70 -- --
Exercised ........................... (8,000) 2.50 -- --
--------- ----- ------- -----
Outstanding at the end of the year... 2,044,732 $1.84 367,050 $3.31
========= ===== ======= =====
Exercisable at the end of the year... 2,044,732 $1.84 367,050 $3.31
========= ===== ======= =====
</TABLE>
The weighted average fair value of warrants granted during the years ended
December 31, 1999 and 1998 were $2.14 and $0.36, respectively.
The following table summarizes information about stock warrants outstanding as
of December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES SHARES REMAINING CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ ------ -------------------------- --------------
<S> <C> <C> <C>
$ 1.50 1,673,332 3.40 $ 1.50
$ 1.60 - $5.00 371,400 2.86 3.35
--------- ------
2,044,732 $ 1.84
========= ======
</TABLE>
F-14
<PAGE>
(8) Commitments and Contingencies
Leases
The Company has entered into a number of operating leases extending through
2004. Future minimum lease payments as of December 31, 1999 are as follows:
YEAR ENDING DECEMBER 31,
----------------------------------- ------
2000................................ $303,000
2001................................ 200,000
2002................................ 187,000
2003................................ 163,000
2004................................ 28,000
--------
Total minimum lease payments........ $881,000
========
The Company's rent expense was $140,000 and $126,500 for the years ended
December 31, 1999 and 1998, respectively.
Contingencies
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes that it has adequate legal defenses and
that the ultimate outcome of these actions will not have a material effect on
the Company's financial position and results of operations.
(9) Related-party transactions.
Related party payables represent balances due certain officer/shareholders
for working capital advances and deferred salary. Included in notes payable as
of December 31, 1999 is a note due to a shareholder and former officer of the
Company in the amount of $132,000. This note bears interest of prime plus two
percent and is personally guaranteed by the Company's primary shareholder.
During the first quarter of 2000, the Company agreed to repurchase into
treasury 434,558 shares of common stock from its two shareholders.
During the year ended December 31, 1998, an officer made working capital
advances to the Company of $33,369. The Company accrued the officer's unpaid
salary of $60,500 for the year ended December 31, 1998. During May 1998 $57,000
of the aggregate balance due to the officer was converted into common stock of
the Company and as of December 31, 1998 the officer forgave $14,813 of the loan
balance. This reduction of the loan balance was accounted for as a contribution
of capital to the Company by the officer/shareholder.
(10) Income Taxes
As of December 31, 1999, the Company has generated net operating loss
carryforwards of approximately $9.1 million. The net operating loss
carryforwards expire from 2002 through 2014. The Company has recorded a
valuation allowance for the full benefit of the loss carryforward. The net
change in the valuation allowance was an increase of $5.7 million and $273,000
during the years ended December 31, 1999 and 1998, respectively. Federal and
state tax laws impose significant restrictions on the utilization of net
operating loss carryforwards in the event of a shift in the ownership of the
Company, which constitutes an "ownership change" as defined by Internal Revenue
Code, Section 382.
(11) Segment Information
The Company operates its business and manages financial information
collectively. The Company reports revenues, under the enterprise-wide disclosure
requirements by: managed services,
F-15
<PAGE>
professional services and sales of client premise equipment. The Company has no
separately reportable segments in accordance with SFAS No. 131 and therefore
does not report operations, identify assets and/or other resource related to
business segments. Managed services currently includes the reselling of
long-distance telecommunications. Professional services primarily include
services such as network design, development and implementation.
The following table shows the revenue components for 1999 and 1998:
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998
----------- ----------
Revenues:
Managed services...................... $ 1,583,000 $2,629,000
Professional services................. 401,000 74,000
Client premise equipment.............. 8,795,000 872,000
----------- ----------
Total revenues..................... $10,779,000 $3,575,000
=========== ==========
(12) Subsequent Events
In March, 2000, the Company received proceeds of $6.1 million from senior
bridge notes payable. The bridge notes are payable 120 days from the date of
issuance, subject to a 120-day extension at the option of the Company and bear
interest at 12% payable monthly. Investors in the bridge financing received
1,692,172 shares of common stock (equal to 100% of the principal amount of the
bridge financing divided by the 21-day average bid price of the Company's common
stock prior to the date of funding). The Company paid the placement agent a cash
fee and expenses of approximately $725,000 and issued a 5-year warrant to
purchase approximately 170,000 shares of common stock at an exercise price of
$3.625, the market price of the Company's common stock on the date of closing.
The Company used approximately $2.5 million of the proceeds to satisfy current
liabilities.
During March, 2000, the Company entered into a non-binding letter of intent
to acquire the outstanding common stock of WebNet.com, Inc. ("WebNet"). WebNet
is an Atlanta-based provider of dedicated Internet access and hosting solutions
to middle market companies. As part of the acquisition the Company has proposed
to issue 661,000 shares of its common stock to WebNet's shareholders and an
additional 300,000 shares if the WebNet operation meets certain revenue targets.
The Company intends to have WebNet serve as the foundation for the expansion of
the Company's Atlanta branch and expects to close the acquisition by May 2000.
Effective April 2000, the Company entered into a 38,000 square feet of
office and data center space located in Atlanta, Georgia. Approximately 27,000
square feet of this space is intended to serve as a platform to initiate the
Company's network and hosting operations, with the remainder of the space to be
utilized by the sales and marketing operations. The monthly cost of the lease
approximates $30,000, with escalation features and expires in September, 2007.
During January and February 2000, the Company made net working capital
advances totaling $266,000 to certain creditors of SJI Corporation ("SJI"),
which had entered into merger discussions with the Company. On March 20, the
Company notified SJI of its intent to discontinue merger negotiations and
demanded repayment of the advances. As of April 10, 2000, $23,000 had been
repaid.
(13) QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
1999 QUARTERS FIRST SECOND THIRD FOURTH
- ------------- ----- ------ ----- ------
(in thousands, except for share data)
<S> <C> <C> <C> <C>
Net revenue ............................. $ 632 $ 666 $ 4,657 $ 4,824
Income from operations .................. (227) (667) (955) (4,013)
Net loss ................................ (229) (656) (1,002) (4,504)
Net loss per share (basic & diluted)..... (0.04) (0.10) (0.11) (0.49)
F-16
<PAGE>
1998 QUARTERS FIRST SECOND THIRD FOURTH
- ------------- ----- ------ ----- ------
(in thousands, except for share data)
Net revenue ............................. $ 808 $ 770 $ 1,116 $ 881
Income (loss) from operations ........... (53) (13) 76 (556)
Income (loss) before extraordinary item . (44) (12) 74 (542)
Net income (loss) ....................... (44) (12) 74 (467)
Net income (loss) per share (basic &
diluted)................................. (0.01) (0.00) 0.01 (0.07)
</TABLE>
(14) VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO INCREASE BALANCE
BEGINNING OPERATING DUE TO ACCOUNTS AT END
OF PERIOD EXPENSES ACQUISITIONS WRITTEN-OFF OF PERIOD
--------- -------- ------------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accounts receivable allowance activity for
the year ending December 31, 1999 .......... $ 17 $ 218 $ -- $ (97) $ 138
Accounts receivable allowance activity for
the year ending December 31, 1998........... 97 94 -- (174) 17
</TABLE>
F-17
<PAGE>
PART IV
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
3.1 Certificate of Incorporation, as amended.
3.2 By-Laws (incorporated by reference to Registrant's
Registration Statement (Reg No. 002-95320-NY) filed with
the Commission on January 15, 1985).
4.1 Specimen Common Stock Certificate.
4.2 Form of Securities Purchase Agreement dated June 2, 1999
by and among Registrant and certain purchasers.
4.3 Form of Registration Rights Agreement dated June 2, 1999
by and among Registrant and certain investors.
4.4 Form of Securities Purchase Agreement dated June 30, 1999
by and among Registrant and certain investors.
4.5 Form of Registrant Rights Agreement dated June 30, 1999
by and among Registrant and certain investors.
4.6 Form of Warrant (included as Appendix A to Exhibits 4.2
and 4.4).
4.7 Form of Securities Purchase Agreement for Senior Bridge
Notes.
4.8 Form of Senior Bridge Note.
4.9 Form of Registration Rights Agreement among Registrant
and Senior Bridge Note investors.
10.1 Incentive Stock Option Plan
10.2 Stock Purchase Plan.
10.3 Atlanta Lease.
21.1 Subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of James E. Scheifley & Associates, P.C.
27.1 Financial Data Schedule.
A-1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
APPLIED GENETIC VENTURES, INC.
* * * * *
FIRST. The name of the corporation is APPLIED GENETIC VENTURES, INC.
SECOND. Its principal office in the State of Nevada is located at One East
First Street, Reno, Washoe County, Nevada 89501. The name and address of its
resident agent is The Corporation Trust Company of Nevada, One East First
Street, Reno, Nevada 89501.
THIRD. The nature of the business, or objects or purposes proposed to be
transacted, promoted or carried on are:
To engage in any lawful activity and to manufacture, purchase or
otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer
or otherwise dispose of, trade, deal in and deal with goods, wares and
merchandise and personal property of every class and description.
FOURTH. The amount of the total authorized capital stock of the corporation
is One Hundred Thousand Dollars ($100,000.00) consisting of one hundred million
(100,000,000) shares of Common Stock of the par value of One Mil ($.001) each.
FIFTH. The governing board of this corporation shall be known as directors,
and the number of directors may from time to time be increased or decreased in
such manner as shall be provided by the by-laws of this corporation, provided
that the number of directors shall not be reduced to less than three (3), except
that in cases where all the shares of the corporation are owned beneficially and
of record by either one or two stockholders, the number of directors may be less
than three (3) but not less than the number of stockholders.
1
<PAGE>
The names and post-office addresses of the first board of directors,
which shall be three (3) in number, are as follows:
NAME POST-OFFICE ADDRESS
---- -------------------
HERBERT E. MUSHKAT 45 Brixton Road South
West Hempstead, NY
CHARLES KAHN 966 East 13th Street
Brooklyn, NY
IRVING MALZMAN 5502 15th Avenue
Brooklyn, NY
SIXTH. The capital stock, after the amount of the subscription price, or
par value, has been paid in shall not be subject to assessment to pay the debts
of the corporation.
SEVENTH. The name and post-office address of each of the incorporators
signing the articles of incorporation are as follows:
NAME POST-OFFICE ADDRESS
---- -------------------
VICKI MATSIL 1633 Broadway
New York, NY 10019
VINCENT R. SMITH 1633 Broadway
New York, NY 10019
YVETTE GERENA 1633 Broadway
New York, NY 10019
EIGHTH. The corporation is to have perpetual existence.
NINTH. In furtherance, and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
Subject to the by-laws, if any, adopted by the stockholders, to make, alter
or amend the by-laws of the corporation.
2
<PAGE>
To fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed mortgages and liens
upon the real and personal property of this corporation.
By resolution passed by a majority of the whole board, to designate one (1)
or more committees, each committee to consist of one (1) or more of the
directors of the corporation, which, to the extent provided in the resolution or
in the by-laws of the corporation, shall have and may exercise the powers of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be stated in the by-laws of the corporation or as may be
determined from time to time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a stockholders' meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the board of directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions as its board of directors deem expedient and for the best
interests of the corporation.
TENTH. Meetings of stockholders may be held outside the State of Nevada, if
the by-laws so provide. The books of the corporation may be kept (subject to any
provision contained in the statutes) outside the State of Nevada at such place
or places as may be designated from time to time by the board of directors or in
the by-laws of the corporation.
3
<PAGE>
ELEVENTH. This corporation reserves the right to amend, alter, change or
repeal any provision contained in the Articles of Incorporation, in the manner
now or hereafter prescribed by statute, or by the Articles of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
TWELFTH: At all elections of directors of the corporation each holder of
stock possession voting power is entitled to as many votes as equal the number
of his shares of stock multiplied by the number of directors to be elected, and
he may cast all of such votes for a single director or may distribute them among
the number to be voted for or any two or more of them, as he may see fit.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set our hands this 31st day of October, 1984.
/s/Vicki Matsil
-----------------------------
Vicki Matsil
/s/Vincent R. Smith
-----------------------------
Vincent R. Smith
/s/ Yvette Gerena
-----------------------------
Yvette Gerena
4
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On this 31st day of October, 1984, before me, a Notary Public,
personally appeared VICKI MATSIL, VINCENT R. SMITH and YVETTE GERENA, who
severally acknowledged that they executed the above instrument.
/s/
------------------------------
Notary Public
5
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
APPLIED GENETIC VENTURES, INC.
APPLIED GENETIC VENTURES, INC. ("Company"), a Nevada corporation, by its
President and Secretary does hereby certify:
The Directors of the corporation at a meeting duly held on October 15,
1985, pursuant to shareholder action taken October 10, 1985, passed a resolution
declaring that the following changes and amendments to the Company's Articles of
Incorporation are advisable:
That ARTICLE FOURTH of the Company's Articles of Incorporation may be
amended to read as follows:
The amount of the total authorized capital stock of the corporation is
Three Hundred Thousand Dollars ($300,000.00) consisting of three hundred million
(300,000,000) shares of common stock of the par value of One Mil ($.001) each."
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
its President and its Secretary on October 15, 1985.
APPLIED GENETIC VENTURES, INC.
a Nevada corporation
By /s/Larry Curtis Ward
------------------------------
Larry Curtis Ward, President
ATTEST:
/s/Irving Malzman
- -------------------------
Irving Malzman, Secretary
<PAGE>
STATE OF __________ )
) ss.
COUNTY OF )
On this 30th day of October, 1985, before me, a Notary Public, personally
appeared Larry Curtis Ward, who acknowledged that he is the President of Applied
Genetic Ventures, Inc. and that he executed the above instrument in such
capacity on behalf of Applied Genetic Ventures, Inc.
/s/
------------------------------
Notary Public
On this 30th day of October, 1985, before me, a Notary Public, personally
appeared Irving Malzman, who acknowledged that he is the Secretary of Applied
Genetic Ventures, Inc. and that he executed the above instrument in such
capacity on behalf of Applied Genetic Ventures, Inc.
/s/
------------------------------
Notary Public
SEAL
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
APPLIED GENETIC VENTURES, INC.
---------------------------------------------------------
Name of Corporation
We the undersigned Steven Walker and
-------------------------------------------------
President or Vice President
Katherine Walker of Applied Genetic Ventures, Inc.
- ----------------------------------- -------------------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened, held on the 12th day of February , 1992, adopted a resolution to amend
the original articles as follows:
Article ___ is hereby amended to read as follows:
The name is hereby amended to read American General Ventures, Inc. instead
of Applied Genetic Ventures, Inc.
The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 390 million that the
said change(s) and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/Steven Walker
------------------------------
President or Vice President
/s/Katherine Walker
------------------------------
Secretary or Assistant Secretary
State of COLORADO )
----------------------
) SS.
County of EL PASO )
---------------------
On 3/17/92, personally appeared before me, a Notary Public,
Steven Walker and Katherine Walker, who acknowledged that they
- -----------------------------------------------
Names of Persons Appearing and Signing Document
executed the above instrument.
/s/ Carolyn R. McClain
------------------------------
Signature of Notary
(NOTARY STAMP OR SEAL)
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
APPLIED GENETIC VENTURES, INC.
---------------------------------------------------------
Name of Corporation
We the undersigned Steven Walker and
-------------------------------------------------
President or Vice President
Katherine Walker of Applied Genetic Ventures, Inc.
- ----------------------------------- -------------------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened, held on the 24th day of December, 1985, adopted a resolution to amend
the original articles as follows:
Article III is hereby amended to read as follows:
The authorized common shares of the company stock is increased from
300,000,000 to 500,000,000 shares.
The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 200 Mil.; that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/Steven Walker
------------------------------
President or Vice President
Steven Walker
/s/Katherine Walker
------------------------------
Secretary or Assistant Secretary
Katherine Walker
State of COLORADO )
----------------------
) SS.
County of EL PASO )
---------------------
On April 29, 1992, personally appeared before me, a Notary Public,
--------------
Steven H. Walker and Katherine Walker , who acknowledged that they
- ---------------------------------------------------
Names of Persons Appearing and Signing Document
executed the above instrument.
/s/
------------------------------
Signature of Notary
(NOTARY STAMP OR SEAL)
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
APPLIED GENETIC VENTURES, INC.
---------------------------------------------------------
Name of Corporation
We the undersigned Steven Walker and
-------------------------------------------------
President or Vice President
Katherine Walker of Applied Genetic Ventures, Inc.
- ----------------------------------- -------------------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened, held on the 21st day of July, 1988, adopted a resolution to amend
the original articles as follows:
Article III is hereby amended to read as follows:
The authorized common shares of the company stock is increased from
500,000,000 to 900,000,000 shares.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 200 Mil.; that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/Steven Walker
------------------------------
President or Vice President
Steven Walker
/s/Katherine Walker
------------------------------
Secretary or Assistant Secretary
Katherine Walker
State of COLORADO )
----------------------
) SS.
County of EL PASO )
---------------------
On April 29, 1992, personally appeared before me, a Notary Public,
--------------
Steven H. Walker and Katherine Walker , who acknowledged that they
- ---------------------------------------------------
Names of Persons Appearing and Signing Document
executed the above instrument.
/s/
------------------------------
Signature of Notary
(NOTARY STAMP OR SEAL)
<PAGE>
State of Nevada Telephone 702.687.5203
Office of the Secretary of State Fax 702.687.3471
101 N. Carson St., Ste. 3 Website http://sos.state.nv.us
Carson City, Nevada 89701-4786 Filing Fee:
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
FOR PROFIT NEVADA CORPORATIONS
(PURSUANT TO NRS 78.385 AND 78.390 - AFTER ISSUANCE OF STOCK)
- REMIT IN DUPLICATE-
1. Name of corporation: American General Ventures, Inc., now Nucleus, Inc.
--------------------------------------------------
- --------------------------------------------------------------------------------
2. The articles have been amended as follows (provide article numbers, if
available):
The name has been changed to Nucleus, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or such
greater proportion of the voting power as may be required in the case of a vote
by classes or series, or as may be required by the provisions of the articles of
incorporation have voted in favor of the amendment is: ___________.<F1>
4. Signatures:
/s/Steven H. Walker /s/
- ------------------------------------ -------------------------------------
PRESIDENT OR VICE PRESIDENT SECRETARY OR ASST. SECRETARY
(acknowledgment required) (acknowledgment not required)
State of: Colorado Springs
-------------------------
County of: El Paso
-------------------------
This instrument was acknowledged before me on
November 5 , 1998, by
- -------- -- --
Steven H. Walker (Name of Person)
- -----------------
as President
--------------------------------
as designated to sign this certificate
of Nucleus, Inc.
--------------------------------
(name on behalf of whom instrument was executed)
/s/
- -----------------------------------
Notary Public Signature
<F1>
If any proposed amendment would alter or change any preference or any relative
or other right given to any class of series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class of series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper
fees may cause this filing to be rejected.
<PAGE>
ARTICLES OF MERGER
OF
NUCLEUS HOLDING CORPORATION
INTO
NUCLEUS, INC.
FIRST: The name of the surviving entity is Nucleus, Inc. and the place of its
organization is the jurisdiction of Nevada. The name and place of organization
of the entity being merged into the surviving entity is: Nucleus Holding
Corporation, organized in the jurisdiction of Illinois, the laws of which
permits this merger.
SECOND: A plan of merger was adopted by each entity that is a party to this
merger.
THIRD: The plan of merger was submitted to the owners by Nucleus, Inc. the
entity of directors thereof pursuant to Chapter 78 of the Nevada Revised
Statutes.
FOURTH: The designation, percentage of total vote or number of votes entitled to
be cast and the total number of votes or percentage of owner's interests cast
for and against the plan, by each class of owner's interests of Nucleus, Inc.
entitled to vote separately on the plan is as follows:
DESIGNATION VOTES ENTITLED TO BE CAST
- ----------- -------------------------
Common Stock 1,129,827
- -------------------------------------------------------------------------------
Votes Or Percentage Of Votes Or Percentage Of
Owner's Interest For: 625,472 Owner's Interest Against: 500
FIFTH: The number of votes or percentage of owner's interests cast for the plan
by the owners of each class of interest of Nucleus, Inc. was sufficient for
approval by the owners of that class.
SIXTH: The plan of merger was submitted to the owners by Nucleus Holding
Corporation pursuant to the Business Corporation Act of Illinois.
SEVENTH: The designation, percentage of total vote or number of votes entitled
to be cast and the total number of votes or percentage of owner's interests cast
for and against the plan, by each class of owner's interests of Nucleus Holding
Corporation entitled to vote separately on the plan is as follows:
<PAGE>
DESIGNATION VOTES ENTITLED TO BE CAST
- ----------- -------------------------
Common Stock 1,000
- -----------------------------------------------------------------------------
Votes Or Percentage Of Votes Or Percentage Of
Owner's Interest For: 1,000 Owner's Interest Against: 0
EIGHTH: The number of votes or percentage of owner's interests cast for the plan
by the owners of each class of interests of Nucleus Holding Corporation was
sufficient for approval by the owners of that class.
NINTH: The complete executed plan of merger is on file at the place of business
of Nucleus, Inc. located at 150 North Michigan Avenue, Suite 3610, Chicago,
Illinois 60601 and a copy of the plan will be furnished by Nucleus, Inc., on
request and without cost to any owner of any entity which is a party to this
merger.
TENTH: All entities party to this merger have complied with the laws of their
respective jurisdiction of organization concerning this merger.
NUCLEUS, INC.
/s/ John C. Paulsen
-----------------------------
John C. Paulsen (President)
/s/ J. Theodore Hartley
------------------------------
J. Theodore Hartley (Secretary)
State of Illinois )
)
County of Cook )
On 4/29/99, personally appeared before me, a Notary Public John C.
Paulsen, who acknowledged that they executed the above instrument.
/s/ JoAnn Gibson
- -------------------------------
Signature of Notary Public
(NOTARY STAMP OR SEAL)
<PAGE>
ARTICLES OF MERGER
OF
NUCLEUS, INC.
Pursuant to the provisions of the General Corporation Law of the State of
Nevada, the undersigned corporation hereby adopts the following articles of
merger, providing for the merger into NUCLEUS, INC., a Nevada corporation, as
the surviving corporation, of each of TELOS DISTRIBUTING, INC., a Colorado
corporation, and YOUNG DATA SYSTEMS, INC., an Illinois corporation:
FIRST: A Plan of Merger (the "Plan") has been duly adopted providing for the
merger of NUCLEUS, INC., a Nevada corporation, and TELOS DISTRIBUTING, INC., a
Colorado corporation.
SECOND: The Plan has been adopted by each merging entity.
THIRD: Pursuant to 92A.130, approval of the Shareholders of NUCLEUS, INC., was
not required.
FOURTH: Approval of the Shareholders of TELOS DISTRIBUTING, INC. was duly
obtained.
FIFTH: The Articles of Incorporation of NUCLEUS, INC., as the surviving
corporation, will not differ from its pre-merger Articles of Incorporation.
SIXTH: A copy of the complete executed Plan is on file at the place of business
of Nucleus, Inc. located at 150 North Michigan Avenue, Suite 3610, Chicago, IL
60601 and will be furnished upon request at no cost to any party to the merger.
SEVENTH: The surviving corporation shall remain a corporation organized under
the laws of the State of Nevada and the address of its principal office is 150
North Michigan Avenue, Suite 3610, Chicago, Illinois 60601.
EIGHTH: A Plan of Merger (the "Plan") has been duly adopted providing for the
merger of NUCLEUS, INC., a Nevada corporation, and YOUNG DATA SYSTEMS, INC., an
Illinois corporation.
NINTH: The Plan has been adopted by each merging entity.
TENTH: Pursuant to 92A.130 approval of the Shareholders of NUCLEUS, INC., as the
surviving corporation, was not required.
ELEVENTH: The Plan was approved by unanimous written consent of the Shareholders
of YOUNG DATA SYSTEMS, INC.
TWELFTH: The Articles of Incorporation of NUCLEUS, INC., as the surviving
corporation, will not differ from its pre-merger Articles of Incorporation.
<PAGE>
THIRTEENTH: A copy of the complete executed Plan is on file at the place of
business of Nucleus, Inc. located at 150 North Michigan Avenue, Suite 3610,
Chicago, IL 60601 and will be furnished upon request at no cost to any party to
the merger.
FOURTEENTH: The surviving corporation shall remain a corporation organized under
the laws of the State of Nevada and the address of its principal office is 150
North Michigan Avenue, Suite 3610, Chicago, Illinois 60601.
Dated: June 29, 1999
NUCLEUS, INC., a Nevada corporation
By: /s/ John Paulsen
---------------------------------
Name: John Paulsen
-------------------------------
Its: President
By: /s/ J. Theodore Hartley
---------------------------------
Name: J. Theodore Hartley
-------------------------------
Its: Secretary
<PAGE>
THE STATE OF ILLINOIS )
)
COUNTY OF COOK )
On this 29th day of June, 1999, before me appeared John C. Paulsen and J.
Theodore Hartley, to me personally known, who being by me duly sworn, did say
that they are the President and Secretary of Nucleus, Inc., a Nevada Corporation
and that said instrument was signed on behalf of said corporation by authority
of its Board of Directors and said President and Secretary acknowledged said
instrument to be the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal the day and year last above written.
/s/Flora R. Walsh
------------------------------
Notary Public
My Commission Expires:
May 5, 2002
- -----------
<PAGE>
ARTICLES OF MERGER
OF
INNOVATIVE TECHNOLOGY SOLUTIONS, INC.
INTO
NUCLEUS, INC.
Pursuant to the provisions of the Washington Business Corporation Act, the
undersigned corporation hereby adopts the following articles of merger:
FIRST: A Plan of Merger (the "Plan") has been duly adopted providing for the
merger of NUCLEUS, INC., a Nevada corporation, and INNOVATIVE TECHNOLOGY
SOLUTIONS, INC., a Washington corporation, resulting in NUCLEUS, INC., a Nevada
corporation, being the surviving entity.
SECOND: The Plan is attached hereto as Exhibit "A".
THIRD: Pursuant to 23B.11.030(7), the approval of the merger by the Shareholders
of NUCLEUS, INC., the surviving corporation, was not required.
FOURTH: The approval of the Shareholders of INNOVATIVE TECHNOLOGY SOLUTIONS,
INC., as required by 23B.11.030, was duly obtained by way of written consent of
the Shareholders pursuant to 23B.07.040.
FIFTH: The surviving corporation is a foreign corporation organized under the
laws of the State of Nevada and the address of its principal office is 150 North
Michigan Avenue, Suite 3610, Chicago, Illinois 60601.
Dated: June 30, 1999
-------
NUCLEUS, INC., a Nevada corporation
By:/s/John Paulsen
-----------------------------------
Its: President
Subscribed and Sworn to
before me this 30th day of
June, 1999.
/s/Linda S. Mosley
- ------------------
ATTEST:
By: /s/ J. Theodore Hartley
-----------------------
Its: Secretary
----------------------
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
NUCLEUS, INC.
NUCLEUS, INC., a Nevada corporation, f/k/a Applied Genetic Ventures, Inc.
(the "Company") by its President and Secretary do hereby certify:
The Directors of the Corporation passed a resolution declaring that the
following changes and amendments to the Company's Articles of Incorporation are
advisable; and
At a meeting of the Shareholders of the Corporation, due notice having
been given to all Shareholders entitled to vote in person or by proxy, a
majority of such Shareholders of the Corporation entitled to vote, voted in
favor of the following changes and amendment to the Company's Articles of
Incorporation:
I. That ARTICLE FOURTH be amended in its entirety to read as follows:
FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is Nine Hundred and Eight Million
(908,000,000) divided into two classes as follows: Nine Hundred Million
(900,000,000) of which shall be common stock, $0.001 par value per share
("Common Stock"), and Eight Million (8,000,000) which shall be preferred
stock, no par value per share ("Preferred Stock").
The designations, powers, references and rights, and the
qualifications, limitations or restrictions of the above classes of stock
are as follows:
A. CLASS I: PREFERRED STOCK
1. The Board of Directors is expressly authorized at any time,
and from time to time, to issue shares of Preferred Stock in one or more
series, and for such consideration as the Board of Directors may determine,
with such voting powers, full or limited but not to exceed one vote per
share, or without voting powers, and with such designation, preferences and
relative, participating, option or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated in
the resolution or resolutions providing for the issue thereof, and as are
not stated in this Certificate of Incorporation, or any amendment thereto.
All shares of any one series shall be of equal rank and identical in all
respects.
<PAGE>
2. No dividend shall be paid or declared on any particular
series of Preferred Stock unless dividends shall be paid or declared pro
rata on all shares of Preferred Stock at the time outstanding of each other
series which ranks equally as to dividends with such particular series.
3. Unless and except to the extent otherwise required by law or
provided in the resolution or resolutions of the Board of Directors
creating any series of Preferred Stock pursuant to this Class I, the
holders of the Preferred Stock shall have no voting power with respect to
any matter whatsoever. In no event shall the Preferred Stock be entitled to
more than one vote in respect of each share of stock. Subject to the
protective conditions or restrictions of any outstanding series of
Preferred Stock, any amendment to this Certificate of Incorporation, which
shall increase or decrease the authorized capital stock of any class or
classes may be adopted by the affirmative vote of the holders of a majority
of the outstanding shares of voting stock of the corporation.
4. Shares of Preferred Stock redeemed, converted, exchanged,
purchased, retired or surrendered to the corporation, or which have been
issued and reacquired in any manner, shall, upon compliance with any
applicable provisions of the General Corporation Law of the State of Nevada
have the status of authorized and unissued shares of Preferred Stock and
may be reissued by the Board of Directors as part of the series of which
they were originally a part or may be reclassified into and reissued as
part of a new series or as part of any other series, all subject to the
protective conditions or restrictions of any outstanding series of
Preferred Stock.
B. CLASS II: COMMON STOCK
1. Subject to preferential dividend rights, if any, applicable
to shares of the Preferred Stock and subject to the applicable
requirements, if any, with respect to the setting aside of sums for
purchase, retirement or sinking funds for the Preferred Stock, the holder
of the Common Stock shall be entitled to receive to the extent permitted by
law, such dividends as may be declared from time to time by the Board of
Directors.
2. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the corporation, after
distribution in full of the preferential amounts, if any, to be distributed
to the holders of shares of the Preferred Stock holders of the Common Stock
shall be entitled to receive all the remaining assets of the corporation of
whatever kind available for distribution to stockholders ratably in
proportion to the number of shares of Common Stock held by them
respectively.
3. Except as may be otherwise required by law or this
Certificate of Incorporation, each holder of the Common Stock shall have
one vote in respect of each share of stock held by him or her of record on
the books of the corporation on all matters voted upon by the stockholders.
<PAGE>
C. 1995 RECLASSIFICATION. The following procedures being
implemented in connection with the prior reclassification of the Corporation's
Common Stock, such reclassification becoming effective as of the date voted upon
by the Shareholders of the Corporation being March 24, 1995, reclassifying the
Corporation's Common Stock, $.001 par value ("1995 Old Stock"), to Common Stock,
$.10 par value ("1995 New Stock"):
1. Immediately upon the vote thereon by the Shareholders of the
Corporation, every fifty (50) shares of 1995 Old Stock issued and
outstanding, and each share held in corporate treasury shall be converted
into one (1) share of fully paid and non- assessable 1995 New Stock. The
Corporation shall issue one (1) share of 1995 New Stock for every fifty
(50) shares of 1995 Old Stock. There is no Shareholder who owns fewer than
50 shares of 1995 Old Stock. From and after the time the amendment becomes
effective, certificates representing shares of 1995 Old Stock shall be
deemed to represent shares of 1995 New Stock.
2. No Shareholder shall be required to deliver the certificates
representing their shares of the 1995 Old Stock outstanding immediately
prior to the time the reclassification amendment becomes effective, which
certificate shall continue to represent the 1995 New Stock.
D. 1997 RECLASSIFICATION. The following procedures being
implemented in connection with the prior reclassification of the Corporation's
Common Stock, such reclassification becoming effective as of the date voted upon
by the Shareholders of the Corporation being May 8, 1997, reclassifying the
Corporation's Common Stock, $.001 par value ("1997 Old Stock"), to Common Stock,
$.10 par value ("1997 New Stock"):
1. Immediately upon the vote thereon by the Shareholders of
the Corporation, every ten (10) shares of 1997 Old Stock issued and
outstanding, and each share held in corporate treasury shall be converted
into one (1) share of fully paid and non- assessable 1997 New Stock. The
Corporation shall issue one (1) share of 1997 New Stock for every ten (10)
shares of 1997 Old Stock. There is no Shareholder who owns fewer than 10
shares of 1997 Old Stock. From and after the time the amendment becomes
effective, certificates representing shares of 1997 Old Stock shall be
deemed to represent shares of 1997 New Stock.
2. No Shareholder shall be required to deliver the certificates
representing their shares of the 1997 Old Stock outstanding immediately
prior to the time the reclassification amendment becomes effective, which
certificate shall continue to represent the 1997 New Stock.
<PAGE>
II. That ARTICLE TWELFTH be amended in its entirety to read as follows:
TWELFTH. Each share of common stock shall be entitled to one
vote at Shareholders meetings, either in person or by proxy. Cumulative
voting in elections of directors and all other matters brought before
Shareholders meetings, whether they be annual or special, shall not be
permitted.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Amendment to be signed by its President and its Secretary on August 18, 1999.
NUCLEUS, INC., a
Nevada corporation
By:/s/John Paulsen
--------------------------------
President
ATTEST:
By:/s/ J. Theodore Hartley
------------------------
Secretary
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
On the 18th day of August, 1999, before me, a Notary Public, personally
appeared John C. Paulsen and J. Theodore Hartley, President and Secretary of
Nucleus, Inc., a Nevada corporation, who acknowledged that they are the
President and Secretary, respectively, of said corporation and that each
executed the above instrument in such capacity on behalf of Nucleus, Inc.
/s/
-----------------------------
Notary Public
Commission expires: 8/20/02
--------
EXHIBIT 4.1
Number Shares
- ------ ------
See Reverse Side
for Certain Definitions
CUSIP No. 67034R 10 9
NUCLEUS
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
THIS CERTIFIES THAT is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE OF $.001 PER SHARE, OF
NUCLEUS, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Corporation.
Dated:
____________________________________ ____________________________________
President Secretary
COUNTERSIGNED:
ILLINOIS STOCK TRANSFER
COMPANY, Transfer Agent
By:________________________________
Authorized Officer
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE
CORPORATION OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUESTS SHALL BE MADE TO
THE CORPORATION'S SECRETARY AT THE PRINCIPAL OFFICE OF THE CORPORATION.
________________________________________________________________________________
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______Custodian_______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to
survivorship and not as Minors Act
tenants in common
_______________________
(State)
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For value received ______________________ hereby sell, assign and transfer unto
________________________________________________________________________________
TAXPAYER IDENTIFICATION PLEASE PRINT OR TYPE--NAME AND ADDRESS OF ASSIGNEE
NUMBER
________________________________________________________________________________
SHARES
____________________________________________________________________
________________________________________________________________________________
TAXPAYER IDENTIFICATION PLEASE PRINT OR TYPE--NAME AND ADDRESS OF ASSIGNEE
NUMBER
________________________________________________________________________________
SHARES
____________________________________________________________________
________________________________________________________________________________
of the capital stock represented by the within Certificate and do hereby
irrevocably constitute and appoint______________________________________________
_______________________ Attorney to transfer the said stock on the books of the
within-named Corporation with full power of substitution in the premises.
Dated ________________ 19___
______________________________________
Signature(s)
______________________________________
Signature(s)
<PAGE>
IMPORTANT NOTICE: THE SIGNATURE(S) ON THIS ASSIGNMENT
--------- MUST CORRESPOND WITH THE NAME(S) AS
A NOTARY SEAL IS NOT WRITTEN UPON THE FACE OF THE
ACCEPTABLE. THE SIGNATURE(S) CERTIFICATE IN EVERY PARTICULAR
MUST BE GUARANTEED BY AN WITHOUT ALTERATION OR ENLARGEMENT, OR
ELIGIBLE GUARANTOR INSTITUTION ANY CHANGE WHATEVER.
SUCH AS A COMMERCIAL BANK,
TRUST COMPANY, SAVINGS AND
LOAN, CREDIT UNION OR BROKER
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM. PURSUANT TO SEC RULE
17AD-15.
_______________________________________________
Medallion Signature(s) guarantee:
EXHIBIT 4.2
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
NUCLEUS, INC.
AND THE
PURCHASERS
NAMED HEREIN
JUNE 2, 1999
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE
BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
("REGULATION D") PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE
MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement" or the "Purchase
Agreement") is entered into as of June 2, 1999, by and between NUCLEUS, INC., a
Nevada corporation (the "Company"), and each of the undersigned (each a
"Purchaser" and collectively the "Purchasers").
R E C I T A L S:
WHEREAS, the Company is offering (the "Offering") for sale in a private
placement pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and Regulation D thereunder ("Regulation D"), shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock"); and
WHEREAS, each Purchaser wishes to subscribe for the number of shares of
Common Stock and warrants to purchase shares of Common Stock set forth opposite
each Purchaser's name on Schedule 1.1 hereto in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. SUBSCRIPTION AND CLOSING
1.1 PURCHASE. Subject to the terms and conditions of this
Agreement, the Purchasers hereby agree to purchase from the Company, and the
Company hereby agrees to issue and sell to the Purchasers, _______ shares of
Common Stock (the "Shares") for $____ per share, or an aggregate purchase price
of $_________. As additional consideration for the purchase of the Shares, the
Company grants to the Purchasers warrants to purchase _______ shares of Common
Stock (the "Warrants") upon the terms set forth in the form of warrant attached
as Exhibit A, which terms are incorporated herein by reference and made a part
hereof. The number of Shares and Warrants to be issued or granted to each
Purchaser, and the aggregate purchase price therefor to be paid by each
Purchaser, shall be as indicated on Schedule 1.1 hereto.
1.2 PAYMENT OF PURCHASE PRICE AND DELIVERY OF SHARES AND
WARRANTS. Payment of the purchase price for the Shares by the Purchaser, and
delivery of the Shares and Warrants by the Company (the "Closing"), shall occur
upon the execution hereof or at such other date, time and place as the parties
shall mutually agree in writing. The purchase price for the Shares is payable by
wire transfer of immediately available funds. Certificates for the Shares and
Warrants will be issued in the name of Purchasers.
1.3 MULTIPLE PURCHASES. This Agreement may be executed by one or
more Purchasers. In the event this Agreement pertains to a purchase by a single
Purchaser, all references to the Purchasers or "each Purchaser" shall be deemed
to refer to such single Purchaser.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
The Company represents and warrants to and covenants with the
Purchasers as follows:
2.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority to carry on
its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company
and its subsidiaries taken as a whole.
(b) Each subsidiary of the Company is a corporation
duly organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate power
and authority to carry on its business as now conducted and as
proposed to be conducted. Each such subsidiary is duly qualified to
transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect
on the business or properties of such subsidiary.
2.2 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, and the performance of
all obligations of the Company hereunder and the authorization, issuance and
delivery of the Shares, the Warrants and shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares," and together with the Shares and
Warrants, the "Securities"), has been taken.
2.3 AGREEMENT. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
of this Agreement by the Purchaser, is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
2.4 VALID ISSUANCE OF SHARES. When issued and delivered in
accordance with the terms of this Agreement, the Shares will be duly and validly
issued and outstanding, fully paid and non-assessable, free and clear of any
claims or pre-emptive rights, and (assuming the representations and warranties
of the Purchaser herein are true and correct in all material respects) will have
been issued in compliance with all applicable federal and state securities law.
2.5 SEC REPORTS. The Company has timely filed all forms,
reports and documents with the Securities and Exchange Commission (the
"Commission") since January 1, 1998, required to be filed by it under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), through the date
hereof (collectively, the "SEC Reports"). Such SEC Reports, at the time filed,
complied as to form in all material respects with the requirements of the 1934
Act.
2
<PAGE>
2.6 CURRENT PUBLIC INFORMATION. The Company's Common Stock is
registered under Section 12(b) or 12(g) of the 1934 Act. The Company has
delivered to the Purchaser copies of the Company's most recent annual report on
Form 10-K/SB (the "Annual Report"), each Quarterly Report on Form 10-Q/SB since
the date of its Annual Report, the most recent proxy statement for its Annual
Meeting of Shareholders, and each interim report on Form 8-K filed by the
Company since the date of its Annual Report.
2.7 NO CONFLICTS. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby does not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the Certificate of Incorporation
or bylaws of the Company, or any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any of
its properties or assets are bound, or any existing applicable decree, judgment
or order of any court, federal or state regulatory body, administrative agency
or other governmental body having jurisdiction over the Company or any of its
properties or assets.
2.8 COMPLIANCE WITH LAWS. As of the date hereof, the conduct
of the business of the Company complies in all material respects with all
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto, except for non -compliance which would not have a material
adverse effect on the business, properties, condition (financial or otherwise),
results of operations or prospects of the Company (a "Material Adverse Effect").
The Company has not received notice of any alleged violation of any statute,
law, regulation, ordinance, rule, judgment, order or decree from any
governmental authority, which would have a Material Adverse Effect.
2.9 LITIGATION. Except as disclosed in the SEC Reports, there
is no action, suit or proceeding before or by any court or governmental agency
or body, domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company, or any of its properties, which
could reasonably be expected to result in any material adverse change in the
business, properties, results of operations, condition (financial or otherwise),
or prospects of the Company, or which could reasonably be expected to materially
and adversely affect the properties or assets of the Company or which could
reasonably be expected to interfere with the Company's ability to consummate the
transactions contemplated by this Agreement.
2.10 PRIOR PRIVATE PLACEMENTS. The offer and sale of the
Securities are exempt from registration under Section 5 of the Act. Neither the
Company nor any person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of the Company
under circumstances which would require the integration of such offering with
the offering of the Securities) which would subject the offering or issuance or
sale of the Securities to the registration requirements of Section 5 of the Act.
2.11 COMMISSIONS. Except for a fee payable by the Company to ________
for services rendered to the Company in the amount of $_______, no person, firm
or corporation will be entitled to receive any brokerage fee, commission or
other similar payment from the Company
3
<PAGE>
in connection with the consummation of the transactions contemplated hereby and
the Company shall not make any such payment to any person, firm or corporation.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS; ACCESS TO INFORMATION;
INDEPENDENT INFORMATION; INDEPENDENT INVESTIGATION
Each Purchaser represents and warrants to the Company as follows:
3.1 INDEPENDENT INVESTIGATION. Each Purchaser, in offering to
purchase the Securities hereunder, has, prior to the date hereof, been given
access to and the opportunity to examine all books, records and material
contracts and documents of the Company and to meet with and ask questions of the
Company's management. In making its investment decision to purchase the
Securities, no Purchaser is relying on any oral or written representations or
assurances from the Company or any other person or any representation of the
Company or any other person other than as set forth in this Agreement, the SEC
Reports or in a document executed by a duly authorized representative of the
Company making reference to this Agreement. Each Purchaser has such experience
in business and financial matters that it is capable of evaluating the risk of
its investment and determining the suitability of its investment. Each Purchaser
is a sophisticated investor, as defined in Rule 506(b)(2)(ii) of Regulation D
under the Act, and an "accredited investor" as defined in Rule 501 of Regulation
D under the Act.
3.2 ECONOMIC RISK. Each Purchaser understands and acknowledges
that an investment in the Securities involves a high degree of risk, including a
possible total loss of investment. Each Purchaser represents that it is able to
bear the economic risk of an investment in the Securities.
3.3 NO GOVERNMENT RECOMMENDATION OR APPROVAL. Each Purchaser
understands that no federal or state agency or similar agency of any other
country has passed upon or made any recommendation or endorsement of the
Company, this transaction or the subscription of the Securities.
3.4 NO REGISTRATION. Each Purchaser understands that the
Securities have not been registered under the Act and are being offered and sold
pursuant to an exemption from registration contained in the Act based in part
upon the representations of the Purchasers contained herein. The Shares and
Warrant Shares do, however, carry certain registration rights as set forth in
the Registration Rights Agreement dated the date hereof and executed by the
parties hereto in connection herewith (the "Registration Rights Agreement").
3.5 NO PUBLIC SOLICITATION. Without conducting any independent
investigation, no Purchaser knows of any public solicitation or advertisement of
an offer in connection with the proposed issuance and sale of the Securities.
3.6 INVESTMENT INTENT. Each Purchaser is acquiring the Securities
for its own account, for investment and not with a view to the distribution
thereof. Each Purchaser understands that except as set forth in the Registration
Rights Agreement, the Company has no present intention
4
<PAGE>
of registering any such sale of the Securities. Each Purchaser represents and
warrants to the Company that it has made no predetermined arrangements to sell
the Securities (other than the registration provisions contained in the
Registration Rights Agreement, which pertain only to a potential method of
disposing of the Shares and Warrant Shares).
3.7 INCORPORATION AND AUTHORITY. Each Purchaser has the full
power and authority to execute, deliver and perform this Agreement and to
perform its obligations hereunder. The Agreement has been duly approved by all
necessary action of each Purchaser, including any necessary shareholder
approval, has been executed by persons duly authorized by each Purchaser, and
constitutes a valid and legally binding obligation of each Purchaser,
enforceable in accordance with its terms.
3.8 NO RELIANCE ON TAX ADVICE. Each Purchaser has reviewed
with its own tax advisors the foreign, federal, state and local tax consequences
of this investment, where applicable, and the transactions contemplated by this
Agreement. Each Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that each Purchaser (and not the Company) shall be responsible for
its own income tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
3.9 INDEPENDENT LEGAL ADVICE. Each Purchaser acknowledges that
it has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel. The Purchaser is
relying solely on such counsel and not on any statements or representations of
the Company or any of its agents for legal advice with respect to this
investment or the transactions contemplated by this Agreement, except for the
representations, warranties and covenants set forth herein.
4. LEGENDS; SUBSEQUENT TRANSFER OF SECURITIES
4.1 LEGENDS. The certificate(s) representing the Securities
shall bear a legend substantially as set forth on the cover page of this
Agreement and any other legend, if such legend or legends are reasonably
required to comply with state, federal or foreign law.
5. COVENANTS OF THE COMPANY
5.1 USE OF PROCEEDS. The Company shall use the net proceeds
from the sale of the Securities for general corporate purposes, including
acquisition or merger consideration with respect to any acquisition that may be
consummated by the Company.
5.2 REGISTRATION RIGHTS. The Company will grant the Purchasers
registration rights covering the Shares and Warrant Shares as set forth in the
Registration Rights Agreement. In the event the registration statement
contemplated by the Registration Rights Agreement is not declared effective by
the Commission within ninety days (90) following the Closing contemplated
herein, the Company shall pay to the Purchasers, as liquidated damages and not
as a penalty, the aggregate sum of $1,393 for each day the registration
statement has not been declared effective
5
<PAGE>
following such ninety (90) day period. Any liquidated damages shall be paid in
cash by the Company on a pro rata basis to the Purchasers on the last day of
each calendar month in which a payment obligation arises.
5.3 VALID ISSUANCE OF WARRANT SHARES. When issued and
delivered in accordance with the Warrant, the Warrant Shares will be duly and
validly issued, fully paid and non-assessable, free and clear of any claims or
pre-emptive rights and will have been issued in compliance with all applicable
federal and state securities laws.
6. COVENANTS OF THE PURCHASERS
6.1 NO SALE IN VIOLATION OF THE ACT. Each Purchaser further
covenants that it will not make any sale, transfer or other disposition of the
Securities in violation of the Act or the rules and regulations of the
Commission promulgated thereunder. Each Purchaser acknowledges and agrees that
the Securities may and will only be resold (i) pursuant to a Registration
Statement under the Act; or (ii) pursuant to an exemption from registration
under the Act.
7. CONDITIONS TO CLOSING; DELIVERIES AT CLOSING
7.1 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE. The obligations
of the Purchasers to purchase the Shares and the Warrants offered hereunder are
conditioned on the fulfillment or waiver of the following:
(a) the execution and delivery of this Agreement, the
Warrant and the Registration Rights Agreement by the
Company; and
(b) all the representations and warranties of the
Company in this Agreement as of the date hereof shall be
true and correct at the Closing as if made on such date, and
the Company shall have performed all actions required
hereunder.
7.2 CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE. The obligation
of the Company to sell the Shares offered hereunder are conditioned on the
fulfillment or waiver of the following:
(a) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Purchasers; and
(b) all the representations and warranties of the
Purchasers made in this Agreement as of the date hereof
shall be true and correct at the Closing as if made on such
date, and the Purchasers shall have performed all actions
required hereunder.
6
<PAGE>
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, applicable to agreements made in and wholly
to be performed in that jurisdiction without regards to the choice of law rules
of such state, except for matters arising under the Act or the 1934 Act which
matters shall be construed and interpreted in accordance with such laws. Any
action brought to enforce, or otherwise arising out of, this Agreement shall be
heard and determined in either a federal or state court sitting in the County of
Cook, State of Illinois.
9. ENTIRE AGREEMENT; AMENDMENT
This Agreement, the Registration Rights Agreement, and any other
document delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
10. NOTICES, ETC.
Any notice, demand or request required or permitted to be given by
either the Company or any Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or by
facsimile, with a hard copy to follow by two day courier addressed to the
parties at the addresses of the parties set forth at the end of this Agreement
or such other address as a party may request by notifying the other in writing.
11. CONFIDENTIALITY
Each Purchaser will keep confidential all non-public information
regarding the Company that each receives from the Company unless disclosure of
such information is compelled by a court or other administrative body or
otherwise necessary, in the opinion of Purchasers' counsel, to comply with
applicable law. Neither party shall disclose any information regarding any of
the transactions contemplated hereby without the prior consent of the other
party, unless such disclosure is required in filings made with the Commission.
The Company and its officers and directors have not provided the Purchasers with
any material non-public information.
12. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument. A
facsimile transmission of a signature hereto shall be valid as if an original
and binding on all parties.
7
<PAGE>
13. SEVERABILITY
In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
14. TITLES AND SUBTITLES
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
15. PARTIES IN INTEREST CITED
This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto, other than by operation of law. This Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their respective heirs, executors, administrators, successors and permitted
assigns. All representations, warranties, covenants and agreements of each party
hereto shall survive the Closing contemplated herein for a period of two (2)
years.
The undersigned Purchasers acknowledge that this subscription shall not
be effective unless executed by the Company as indicated below.
[Signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
COMPANY: PURCHASERS:
NUCLEUS, INC. _________________________
150 North Michigan Avenue _________________________
Suite 3610
Chicago, IL 60601 _________________________
By:_____________________________ _________________________
John C. Paulsen, President
9
<PAGE>
SCHEDULE 1.1
PURCHASERS
No. of Shares of
Common No. of Warrants Aggregate
Name Stock Purchased Granted Purchase Price
---- --------------- ------- --------------
10
<PAGE>
EXHIBIT A
WARRANT NO.___
THE WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF
ANY STATE UNDER ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE
MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK OF
NUCLEUS, INC.
_____________ ___, 1999
This certifies that, for value received pursuant to that certain
Securities Purchase Agreement, dated as of ________, 1999, by and among Nucleus,
Inc., _______________________ and certain other purchasers, _____________ (the
"Warrant Holder"), is entitled to purchase from Nucleus, Inc., a Nevada
corporation (the "Company"), at any time prior to 5:00 p.m. Chicago time on the
second anniversary of the date hereof (the "Expiration Date") _______________
( ) fully paid and non-assessable shares of the Company's Common Stock, par
value $.001 per share (the "Common Stock;" the Common Stock purchasable upon
exercise of this Warrant is herein called the "Common Shares"), at a price per
share of Four and 75/100 Dollars ($4.75) (the "Exercise Price"). The number of
Common Shares purchasable hereunder and the Exercise Price are subject to
adjustment as provided below.
If the Expiration Date shall be a holiday in the State of Illinois or a
day on which banks are authorized to close in the State of Illinois, then the
Expiration Date shall be the next following day which in the State of Illinois
is not a holiday or a day on which banks are authorized to close. If this
Warrant is not exercised at or before 5:00 p.m. Illinois time, on the Expiration
Date, it shall become void, and all rights hereunder shall thereupon cease.
1. EXERCISE; FRACTIONAL SHARES.
(a) The Warrant Holder may exercise this Warrant, in whole or
in part, upon surrender of this Warrant with the Exercise Form hereon duly
executed, to the Company at Nucleus Inc., 150 North Michigan Avenue, Chicago,
Illinois 60601, or at such other address as the Company may designate by notice
given to the Warrant Holder in accordance with the terms hereof, together with
payment in full of the Exercise Price in lawful money of the United States, by
wire transfer of immediately available funds or certified check or bank draft
payable in United States Dollars to the
A-1
<PAGE>
order of the Company, for each Common Share to be purchased and upon compliance
with and subject to the conditions set forth herein.
(b) Upon surrender of this Warrant with the Exercise Form duly
executed and accompanied by payment of the aggregate Exercise Price for the
number of Common Shares for which this Warrant is then being exercised, the
Company will cause to be issued certificates for the total number of Common
Shares for which this Warrant is being exercised as are required for delivery,
within fifteen (15) days of such exercise, to the Warrant Holder, and the
Company shall thereupon deliver such certificates to the Warrant Holder. This
Warrant shall be deemed to have been exercised in whole or in part immediately
prior to the close of business on the date this Warrant is surrendered and
payment is made as provided herein.
(c) The Company shall not be required to issue any fractional
Common Shares in connection with the exercise of this Warrant. In any case where
the Warrant Holder would be entitled under the terms of this Warrant to receive
a fraction of a Common Share upon the exercise of this Warrant, the Company
shall, upon the exercise of this Warrant and receipt of the Exercise Price,
issue the largest number of whole shares purchasable upon exercise of this
Warrant unless the Company has subdivided the shares of Common Stock. The
Company shall not be required to make any cash or other adjustment in respect of
such fraction of a Common Share to which the Warrant Holder would otherwise be
entitled and the Warrant Holder, by the acceptance of this Warrant, expressly
waives his right to receive a certificate of any fraction of a Common Share upon
the exercise hereof.
2. ADJUSTMENT.
(a) If prior to the exercise of this Warrant, the Company
shall have effected one or more stock split-ups or other subdivisions or
combinations of Common Stock, the number of Common Shares subject to this
Warrant shall (i) be proportionately increased if a net increase shall have been
effected (in the case of split-up in or subdivision of) the number of shares of
Common Stock; or (ii) be proportionately reduced if a net reduction (in the case
of a combination) shall have been effected in the number of shares in Common
Stock. Upon the occurrence of an event described in this subparagraph (a), the
Exercise Price shall be subject to a proportionate reduction under clause (i) or
a proportionate increase under clause (ii), as the case may be.
(b) In case of any capital reorganization of the Company or of
any reclassification of the Common Stock, or the consolidation or merger of the
Company with any other corporation or entity, after such capital reorganization,
reclassification, or consolidation, this Warrant will be exercisable, upon the
terms and conditions specified in this Warrant, for the number of shares of
Common Stock or other securities or property which the Warrant Holder would have
been entitled to receive upon the capital reorganization, reclassification,
consolidation or merger if this Warrant had been exercised immediately before
the first such capital reorganization, reclassification, or consolidation or
immediately before the effective date of such merger. The subdivision or
combination of Common Shares at any time outstanding into a greater or lesser
number of Common Shares shall not be deemed to be a reclassification of the
Common Shares of the Company for the purposes of this paragraph.
A-2
<PAGE>
(c) Whenever the number of Common Shares are adjusted, the
Company shall compute the adjusted number and the resulting adjustment to the
Exercise Price and shall prepare a certificate signed by its President or a
Vice-President setting forth the adjustment and the facts requiring the
adjustment and upon which the calculation is based, and that certificate shall
forthwith be mailed to the Warrant Holder.
(d) The form of Warrant need not be changed because of any
change in the number of Common Shares purchasable upon exercise of this Warrant
and Warrants issued after such change may state the same Exercise Price and the
same number of Common Shares as are stated in the form of Warrant initially
issued.
3. COMPANY COVENANTS.
(a) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of this Warrant such number of
authorized Common Stock as are sufficient to permit the exercise in full of this
Warrant.
(b) The Company covenants that all Common Shares issued on
exercise of this Warrant will be validly issued, fully paid, nonassessable and
free of preemptive rights.
4. REGISTRATION RIGHTS.
The Common Shares that may be issued to the Warrant Holder upon
exercise of the Warrant are entitled to the registration rights set forth in the
Registration Rights Agreement of even date herewith between the Company and the
Warrant Holder.
5. MISCELLANEOUS.
(a) The Warrant Holder, as such, shall not be entitled to any
rights, including, without limitation, voting rights, as a shareholder of the
Company, until this Warrant shall have been exercised as provided herein.
(b) If this Warrant is lost, stolen, mutilated or destroyed,
the Company may, on such terms as to indemnity or otherwise as it may in its
discretion impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination and tenor as, and
in substitution for, this Warrant.
(c) Prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the Warrant Holder as the absolute
owner of this Warrant (notwithstanding any notation of ownership or other
writing hereon) for the purpose of any exercise hereof and for all other
purposes and the Company shall not be affected by any notice to the contrary.
A-3
<PAGE>
(d) This Warrant and the Common Shares may not be sold,
transferred, assigned, hypothecated or otherwise disposed of except to an entity
or person, who (i) in the opinion of counsel reasonably satisfactory to the
Company, is a person to whom this Warrant or Common Shares may legally be
transferred without registration under any federal or state securities law or
regulation, and (ii) who agrees to comply with the provisions of this Warrant
with respect to any further resale or disposition of such securities.
(e) All of the Company's covenants and provisions of this
Warrant shall bind and inure to the benefit of its successors and assigns
hereunder.
(f) Any notice or demand pursuant to this Warrant to be given
or made by the Warrant Holder to or on behalf of the Company shall be
sufficiently given or made when delivered or sent by registered or certified
mail, postage prepaid, return receipt requested, and addressed, until another
address is designated in writing by the Company, as follows:
Nucleus, Inc.
150 N. Michigan Avenue
Chicago, Illinois 60601
Attention: John C. Paulsen, President
(g) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Warrant.
(h) The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Illinois.
A-4
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
this ___ day of ___________________, 1999.
NUCLEUS, INC.
By: ___________________________
John C. Paulsen, President
A-5
<PAGE>
EXERCISE FORM
-------------
(To be Executed by A Warrant Holder Who Desires
To Exercise The Warrant In Whole Or In Part)
___________________, 19__
Nucleus, Inc.
150 N. Michigan Avenue
Chicago, Illinois 60601
Undersigned:
( )
Please insert Tax Identification
Number Warrant Holder
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, Nucleus, Inc. _________ shares
of Common Stock, no par value $.001 per share, of Nucleus, Inc. ("Common
Shares") provided for therein (or, if adjusted pursuant to Section 3 of the
Warrant, such number of shares calculated pursuant to Section 3 thereof) and
tenders payment herewith to the order of Nucleus, Inc. in the amount of the
product of the Exercise Price, as that term is defined in the Warrant, times the
number of Common Shares purchased. The undersigned requests that certificates
for such Common Shares be issued as follows:
Name: ____________________________
Address: ____________________________
Deliver to: ____________________________
Address: ____________________________
Tax Identification
Number: ____________________________
Signature: ____________________________
Date: ____________________________
NOTE: THE SIGNATURE OF THIS EXERCISE MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS WARRANTY IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
A-6
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of June 2, 1999, by and among NUCLEUS, INC, a Nevada corporation (the
"Company"), and the undersigned investors (each of the undersigned being
singularly referred to as an "Investor" and collectively as the "Investors").
R E C I T A L S:
WHEREAS, pursuant to a Securities Purchase Agreement dated the date
hereof (the "Purchase Agreement") by and between the Company and the Investors,
the Company has agreed to sell and the Investors have agreed to purchase an
aggregate of __________ shares of the Company's Common Stock, par value $.001
per share (the "Common Stock") and warrants to purchase _______ shares of Common
Stock (the "Warrants"); and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investors' agreement to enter into the Purchase Agreement, the Company has
agreed to provide the Investors with certain registration rights with respect to
the shares of Common Stock acquired under the Purchase Agreement and the Common
Stock issuable upon exercise of the Warrants (the "Shares");
NOW THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Purchase
Agreement and this Registration Rights Agreement, the Company and the Investors
agree as follows:
AGREEMENT:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, par value $.001
per share.
"Other Registrable Shares" shall mean those shares (which includes
shares of Common Stock issuable upon exercise of the warrants) of Common Stock
heretofore or hereafter issued pursuant to one or more agreements granting the
purchasers of such securities the right to have the Company register such
securities or include such securities in any other registration of the Company's
equity securities.
"Registrable Shares" shall mean (i) the Shares (which shall include the
shares of Common Stock issuable upon exercise of the Warrants), and (ii) any
Common Stock of the Company issued or issuable in respect of the Shares or upon
any stock split, stock dividend, recapitalization or similar
<PAGE>
event; provided, however, that Registrable Shares or other securities shall no
longer be treated as Registrable Shares if (A) they have been sold to or through
a broker or dealer or underwriter in a public distribution or a public
securities transaction, (B) they have been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon consummation of such sale, or (C) the Shares are available for sale
under the Securities Act (including Rule 144), in the opinion of counsel to the
Company, without compliance with the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions and
restrictive legends with respect thereto may be removed upon the consummation of
such sale.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 2 hereof, including, without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements (not to exceed $10,000) of one counsel for the Investors and any
selling holders of Other Registrable Shares for a limited "due diligence"
examination of the Company incident to such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company, and excluding all underwriting discounts and selling
commissions applicable to the sale of the Registrable Shares or Other
Registrable Shares).
"Registration Statement" shall mean the registration statement filed
with the Commission by the Company at the request of the Investor covering the
Shares pursuant to this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares and all fees and
disbursements of one counsel for the Investors and selling holders of Other
Registrable Shares (other than the fees and disbursements of such counsel
included in Registration Expenses).
"Warrants" shall mean the warrants to purchase shares of Common Stock
granted to the Investors pursuant to the Purchase Agreement.
2. REQUESTED REGISTRATION.
(A) REQUEST FOR REGISTRATION. The Investors hereby request, and the
Company hereby agrees, that (A) within thirty (30) days of the date hereof, the
Company shall cause to be filed with the Commission a Registration Statement on
Form S-1, Form SB-2 or such other form as is then appropriate for use by the
Company under the Securities Act and (B) the Company shall use its best
2
<PAGE>
efforts to cause the Registration Statement to be declared effective by the
Commission (including, without limitation, undertaking the actions described in
Section 4), no later than ninety days (90) days following the date hereof so as
to permit or facilitate the sale and distribution of the Registrable Shares; and
(C) the Company shall cause such Registration Statement to remain effective for
a period of two (2) years (subject to the right of the Company to suspend the
effectiveness thereof for not more than an aggregate of ninety (90) days at no
cost to the Company). In the event the Registration Statement is not declared
effective by the Commission within ninety days (90) following the Closing (as
defined in the Purchase Agreement), the Company shall pay to the Investors, as
liquidated damages and not as a penalty, the aggregate sum of $1,393 for each
day the Registration Statement has not been declared effective following such
ninety (90) day period. Any liquidated damages shall be paid by the Company to
Investors on a pro rata basis on the last day of each calendar month in which a
payment obligation arises.
The Registration Statement filed pursuant to the request of the
Investors hereunder may, subject to the provisions of Section 2.2(b) below,
include Other Registrable Shares, or other securities of the Company which are
held by officers or directors of the Company, and may include securities of the
Company being sold for the account of the Company.
(B) UNDERWRITING. If the Investors intend to distribute the Shares by
means of an underwriting, it shall so advise the Company. The right of any
holder of Other Registrable Shares to have such shares included in the
registration shall be conditioned upon such holder's participation in such
underwriting and the inclusion of such holder's Other Registrable Shares in such
underwriting (unless otherwise mutually agreed by the Investor and such holder
with respect to such participation and inclusion) to the extent provided herein.
(i) If the Company shall request inclusion in any registration
pursuant to Section 2 of securities being sold for its own account, or if
officers or directors of the Company holding other securities of the
Company or holders of Other Registrable Shares, shall request inclusion in
any registration pursuant to Section 2, the Investors shall, on behalf of
all holders of Other Registrable Shares, offer to include Other Registrable
Shares and the securities of the Company, and such officers and directors
in the underwriting and may condition such offer on their acceptance of the
further applicable provisions of this Agreement. The Company shall
(together with all holders of Other Registrable Shares and officers and
directors proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with
the underwriter or representative of the underwriters selected for such
underwriting by the Company, which underwriter(s) shall be reasonably
acceptable to the Investors.
(ii) Notwithstanding any other provision of this Section 2, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company shall so advise the Investors and all holders of
Other Registrable Shares and other shareholders whose securities would
otherwise be underwritten pursuant to such registration, and the number of
Other Registrable Shares and other securities that may be included in the
registration and underwriting shall be allocated in the following manner:
the securities to be offered by the
3
<PAGE>
Company and the securities of the Company held by officers and directors of
the Company shall be excluded from such registration and underwriting to
the extent required by such limitation, and, if a limitation on the number
of shares is still required, the Other Registrable Shares shall be excluded
pro rata with Registrable Shares, unless another method of determining such
exclusion is specified in the agreements governing the Other Registrable
Shares, according to the relative number of Other Registrable Shares
requested to be included in such registration and underwriting, from such
registration and underwriting to the extent required by such limitation,
and, if a limitation on the number of shares is still required, the number
of Registrable Shares that may be included in the registration and
underwriting shall be allocated among all holders of Registrable Shares in
proportion, as nearly as practicable, to the respective amounts of
Registrable Shares which they had requested to be included in such
registration at the time of filing the registration statement. No
Registrable Shares or any other securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall also be included
in such registration.
(iii) If the Company or any officer, director or holder of
Other Registrable Shares who has requested inclusion in such registration
and underwriting as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the underwriter and the Investors. The securities so
withdrawn shall also be withdrawn from registration.
3. EXPENSES OF REGISTRATION. The Company shall bear all Registration Expenses
incurred in connection with any registration, qualification or compliance of the
Registrable Shares pursuant to this Agreement. All Selling Expenses shall be
borne by the holders of the securities so registered pro rata on the basis of
the number of their shares so registered.
4. REGISTRATION PROCEDURES. Pursuant to this Agreement, the Company will keep
the Investors advised in writing as to the initiation of a registration under
this Agreement and as to the completion thereof. At its expense, the Company
will:
(a) Use reasonable efforts to keep such registration effective
for a period of two (2) years (subject to the right of the Company to
suspend the effectiveness thereof for not more than an aggregate of ninety
(90) days during such two (2) year period) or until the Investors have
completed the distribution described in the registration statement relating
thereto or until the securities registered cease to be Registrable Shares,
whichever first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the
prospectus, as the Investors from time to time may reasonably request;
4
<PAGE>
(d) Use reasonable efforts to (i) register and qualify the
Registrable Shares covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investors
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements, (iii)
take such other actions as may be necessary to maintain such registrations
and qualifications in effect until such date set forth in clause (a) above
and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Shares for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or
as a condition thereto to (1) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
4(d), (2) subject itself to general taxation in any such jurisdiction, (3)
file a general consent to service of process in any such jurisdiction, (4)
provide any undertakings that cause more than nominal expense or burden to
the Company or (5) make any change in its charter or by-laws, which in each
case the Board of Directors of the Company determines to be contrary to the
best interests of the Company and its stockholders;
(e) In the event the Investors select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the managing
underwriter of such offering;
(f) As promptly as practicable after becoming aware of such
event, notify the Investors of the happening of any event of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to the Investors as they
may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Investors (or, in the event of an underwritten offering,
the managing underwriters) of the issuance by the Commission of any stop
order or other suspension of effectiveness of the Registration Statement at
the earliest possible time;
(h) Permit a single firm of counsel designated as selling
stockholders' counsel to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to
their filing with the Commission, and shall not file any document in a form
to which such counsel reasonably objects;
(i) Make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act)
5
<PAGE>
covering a twelve-month period beginning not later than the first day of
the Company's fiscal quarter next following the effective date of the
Registration Statement;
(j) At the request of the underwriter in the event the sale of
Registrable Shares is underwritten, furnish on the date that Registrable
Shares are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters; and (ii) an opinion, dated such date, from counsel
representing the Company for purposes of such Registration Statement, in
form and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and any selling stockholders;
(k) Make available for inspection by the Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any such
holder or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties
of the Company (collectively, the "Records"), as shall be reasonably
necessary to enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information which any Inspector may reasonably request for
purposes of such due diligence; provided, however, that each Inspector
shall hold in confidence and shall not make any disclosure (except to the
Investors or a holder of Other Registrable Shares) of any Record or other
information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court or government
body of competent jurisdiction or (iii) the information in such Records has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector
until and unless such Inspector shall have entered into confidentiality
agreements (in form and substance satisfactory to the Company) with the
Company with respect thereto, substantially in the form of this Section
4(k). The Investors agree that they shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and
allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. The Company shall hold in confidence and shall not
make any disclosure of information concerning any Investor provided to the
Company pursuant to Section 5(e) hereof unless (i) disclosure of such
information is necessary to comply with federal or state securities laws,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release
of such information is ordered pursuant to a subpoena or other order from a
court or governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees
that it shall, upon learning
6
<PAGE>
that disclosure of such information concerning any Investor is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;
(l) Use its best efforts to (i) cause all the Registrable
Shares covered by the Registration Statement to be listed on any national
securities exchange on which shares of Common Stock are then listed if the
listing of such Registrable Shares is then permitted under the rules of
such exchange, (ii) secure designation of all the Registrable Shares
covered by the Registration Statement as a National Association of
Securities Dealers Automated Quotations System ("NASDAQ") "national market
system security" within the meaning of Rule 11Aa2-1 of the Commission under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the quotation of the Registrable Shares on the NASDAQ National Market, if
shares of Common Stock are then so quoted or eligible for quotation or
(iii) if the Common Stock is not quoted on or eligible for quotation on the
NASDAQ National Market, secure designation of the Registrable Shares on the
NASDAQ Small Cap Market or the OTC Bulletin Board, where the Common Stock
may then be quoted;
(m) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Shares not later than the effective date
of the Registration Statement and cause such transfer agent to act in
accordance with this Agreement;
(n) Cooperate with the Investors and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing the
Shares sold pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the case may be, as
the managing underwriter or underwriters, if any, or the Investors or may
reasonably request and registered in such names as the managing underwriter
or underwriters, if any, or the Investors may request; and
(o) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the Registrable Shares
pursuant to the Registration Statement.
5. INDEMNIFICATION.
(a) The Company will indemnify the Investors, each of their respective
officers, directors and partners, and each person controlling the Investor, with
respect to which registration has been effected pursuant to this Agreement, and
each underwriter, if any and each person who controls any underwriter, and their
respective counsel against all claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, or other document incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company in connection with
any such registration and will reimburse the Investors, each of
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their respective officers, directors and partners, and each person controlling
the Investors, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses as they are reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided, however, that the indemnity contained in
this Section 5(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected without
the consent of the Company; and provided further that the Company shall not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by any Investor
or underwriter and stated to be specifically for use therein. The foregoing
indemnity agreement is further subject to the condition that insofar as it
relates to any untrue statement, alleged untrue statement, omission or alleged
omission made in a preliminary prospectus, such indemnity agreement shall not
inure to the benefit of the foregoing indemnified parties if copies of a final
prospectus correcting the misstatement, or alleged misstatement, omission or
alleged omission upon which such loss, liability, claim or damage is based is
timely delivered to such indemnified party and a copy thereof was not furnished
to the person asserting the loss, liability, claim or damage.
(b) Each Investor will indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a Registration Statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and the rules and
regulations thereunder and their respective counsel (collectively, the "Company,
Underwriters and Counsel") against all claims, losses, damages and liabilities
(or actions, proceedings or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
relating to such Investor contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein
relating to such Investor or necessary to make the statements therein relating
to such Investor not misleading or any violation by such Investor of any rule or
regulation promulgated under the Securities Act applicable to such Investor and
relating to action or inaction required of such Investor in connection with any
such registration; and will reimburse the Company, directors, officers,
partners, persons, underwriters or control persons for any legal or any other
expense reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) relating to such Investor is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Investor and stated to be specifically for use therein;
provided, however, that such indemnification obligations shall not apply if the
Company modifies or changes to a material extent written information furnished
by such Investor. Each Investor will indemnify the Company, Underwriters and
Counsel against all claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof), arising out of or based on any
sale of Registrable Shares made by such Investor following receipt by the
Investor of written notice from the Company, Underwriters or Counsel that the
registration statement filed with respect to such Registrable Shares contains an
untrue statement of material fact or omits to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Notwithstanding the above, the
indemnification obligations of each
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Investor shall be limited in amount to the net amount of proceeds received by
such Investor from the sale of such Registrable Shares.
(c) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 5 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 5, (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Shares who was
not guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Shares shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Shares.
(d) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed) and the Indemnified Party may participate
in such defense at such Indemnified Party's expense. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
6. AGREEMENTS OF INVESTORS. The Investors shall furnish to the Company such
information regarding the Investors and the distribution proposed by the
Investors as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration referred to in this
Agreement.
7. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the Commission that may at any time permit
the Investors to sell securities of the Company to the public without
registration and without imposing restrictions arising under the federal
securities laws on the purchases thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
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(b) file with the Commission in a timely manner, all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to the Investors so long as the Investors own
Registrable Shares, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other information as may
be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
8. MISCELLANEOUS.
A. GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without giving effect to
conflict of laws of such jurisdiction.
B. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
C. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
D. NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first-class
mail, postage prepaid, or delivered by hand or by messenger or courier delivery
service, addressed (a) if to the Investors at such addresses as the Investors
shall have furnished to the Company in writing, or (b) if to the Company at 150
North Michigan Avenue, Suite 3610, Chicago, Illinois 60601, Attn: President, or
at such other address as the Company shall have furnished to Investor and each
such other holder in writing.
E. DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to the Investor, upon any breach or default of
the Company under this Agreement, shall impair any such right, power or remedy
of the Investors nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereunder occurring, nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of the
Investors of any breach or default under this Agreement, or any waiver on the
part of any party of any provisions of conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to the Investor, shall be cumulative and not alternative.
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F. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
G. SEVERABILITY. In the case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
H. AMENDMENTS. The provisions of this Agreement may be amended at
any time and from time to time, and particular provisions of this Agreement may
be waived, with and only with an agreement or consent in writing signed by the
Company and by the Investors.
I. TERMINATION OF REGISTRATION RIGHTS. This Agreement shall
terminate at such time as the Shares no longer constitute Registrable Shares.
[Signature page follows]
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The foregoing Registration Rights Agreement is hereby executed as of
the date first above written.
COMPANY: INVESTORS:
NUCLEUS, INC. _____________________________
By:_____________________________ _____________________________
John C. Paulsen, President
_____________________________
_____________________________
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EXHIBIT 4.4
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
NUCLEUS, INC.
AND THE
PURCHASERS
NAMED HEREIN
JUNE 30, 1999
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE
BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
("REGULATION D") PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE
MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement" or the "Purchase
Agreement") is entered into as of June 30, 1999, by and between NUCLEUS, INC., a
Nevada corporation (the "Company"), and each of the undersigned (each a
"Purchaser" and collectively the "Purchasers").
R E C I T A L S:
WHEREAS, the Company is offering (the "Offering") for sale in a private
placement pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and Regulation D thereunder ("Regulation D"), shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock"); and
WHEREAS, each Purchaser wishes to subscribe for the number of shares of
Common Stock and warrants to purchase shares of Common Stock set forth opposite
each Purchaser's name on Schedule 1.1 hereto in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. SUBSCRIPTION AND CLOSING
1.1 PURCHASE. Subject to the terms and conditions of this
Agreement, the Purchasers hereby agree to purchase from the Company, and the
Company hereby agrees to issue and sell to the Purchasers, _______ shares of
Common Stock (the "Shares") for $_____ per share, or an aggregate purchase price
of $_______. As additional consideration for the purchase of the Shares, the
Company grants to the Purchasers warrants to purchase ______ shares of Common
Stock (the "Warrants") upon the terms set forth in the form of warrant attached
as Exhibit A, which terms are incorporated herein by reference and made a part
hereof. The number of Shares and Warrants to be issued or granted to each
Purchaser, and the aggregate purchase price therefor to be paid by each
Purchaser, shall be as indicated on Schedule 1.1 hereto.
1.2 PAYMENT OF PURCHASE PRICE AND DELIVERY OF SHARES AND WARRANTS.
Payment of the purchase price for the Shares by the Purchaser, and delivery of
the Shares and Warrants by the Company (the "Closing"), shall occur upon the
execution hereof or at such other date, time and place as the parties shall
mutually agree in writing. The purchase price for the Shares is payable by wire
transfer of immediately available funds. Certificates for the Shares and
Warrants will be issued in the name of Purchasers.
1.3 MULTIPLE PURCHASES. This Agreement may be executed by one or more
Purchasers. In the event this Agreement pertains to a purchase by a single
Purchaser, all references to the Purchasers or "each Purchaser" shall be deemed
to refer to such single Purchaser.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
The Company represents and warrants to and covenants with the Purchasers as
follows:
2.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada
and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material
adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole.
(b) Each subsidiary of the Company is a corporation duly
organized, validly existing and in good standing under the laws of its
state of incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to
be conducted. Each such subsidiary is duly qualified to transact
business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on the
business or properties of such subsidiary.
2.2 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, and the performance of all obligations
of the Company hereunder and the authorization, issuance and delivery of the
Shares, the Warrants and shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares," and together with the Shares and Warrants, the
"Securities"), has been taken.
2.3 AGREEMENT. This Agreement has been duly executed and delivered by
the Company and, assuming due authorization, execution and delivery of this
Agreement by the Purchaser, is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
2.4 VALID ISSUANCE OF SHARES. When issued and delivered in accordance
with the terms of this Agreement, the Shares will be duly and validly issued and
outstanding, fully paid and non-assessable, free and clear of any claims or
pre-emptive rights, and (assuming the representations and warranties of the
Purchaser herein are true and correct in all material respects) will have
been issued in compliance with all applicable federal and state securities law.
2.5 SEC REPORTS. The Company has timely filed all forms, reports and
documents with the Securities and Exchange Commission (the "Commission") since
January 1, 1998, required to be filed by it under the Securities Exchange Act of
1934, as amended (the "1934 Act"), through the date hereof (collectively, the
"SEC Reports"). Such SEC Reports, at the time filed, complied as to form in all
material respects with the requirements of the 1934 Act.
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<PAGE>
2.6 CURRENT PUBLIC INFORMATION. The Company's Common Stock is
registered under Section 12(b) or 12(g) of the 1934 Act. The Company has
delivered to the Purchaser copies of the Company's most recent annual report on
Form 10-K/SB (the "Annual Report"), each Quarterly Report on Form 10-Q/SB since
the date of its Annual Report, the most recent proxy statement for its Annual
Meeting of Shareholders, and each interim report on Form 8-K filed by the
Company since the date of its Annual Report.
2.7 NO CONFLICTS. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby does not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the Certificate of Incorporation
or bylaws of the Company, or any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any of
its properties or assets are bound, or any existing applicable decree, judgment
or order of any court, federal or state regulatory body, administrative agency
or other governmental body having jurisdiction over the Company or any of its
properties or assets.
2.8 COMPLIANCE WITH LAWS. As of the date hereof, the conduct
of the business of the Company complies in all material respects with all
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto, except for non-compliance which would not have a material
adverse effect on the business, properties, condition (financial or otherwise),
results of operations or prospects of the Company (a "Material Adverse Effect").
The Company has not received notice of any alleged violation of any statute,
law, regulation, ordinance, rule, judgment, order or decree from any
governmental authority, which would have a Material Adverse Effect.
2.9 LITIGATION. Except as disclosed in the SEC Reports, there
is no action, suit or proceeding before or by any court or governmental agency
or body, domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company, or any of its properties, which
could reasonably be expected to result in any material adverse change in the
business, properties, results of operations, condition (financial or otherwise),
or prospects of the Company, or which could reasonably be expected to materially
and adversely affect the properties or assets of the Company or which could
reasonably be expected to interfere with the Company's ability to consummate the
transactions contemplated by this Agreement.
2.10 PRIOR PRIVATE PLACEMENTS. The offer and sale of the Securities
are exempt from registration under Section 5 of the Act. Neither the Company nor
any person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with
the offering of the Securities) which would subject the offering or issuance or
sale of the Securities to the registration requirements of Section 5 of the Act.
2.11 COMMISSIONS. No person, firm or corporation will be entitled to
receive any brokerage fee, commission or other similar payment from the Company
in connection with the consummation of the transactions contemplated hereby and
the Company shall not make any such payment to any person, firm or corporation.
3
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS; ACCESS TO INFORMATION;
INDEPENDENT INFORMATION; INDEPENDENT INVESTIGATION
Each Purchaser represents and warrants to the Company as follows:
3.1 INDEPENDENT INVESTIGATION. Each Purchaser, in offering to
purchase the Securities hereunder, has, prior to the date hereof, been given
access to and the opportunity to examine all books, records and material
contracts and documents of the Company and to meet with and ask questions of the
Company's management. In making its investment decision to purchase the
Securities, no Purchaser is relying on any oral or written representations or
assurances from the Company or any other person or any representation of the
Company or any other person other than as set forth in this Agreement, the SEC
Reports or in a document executed by a duly authorized representative of the
Company making reference to this Agreement. Each Purchaser has such experience
in business and financial matters that it is capable of evaluating the risk of
its investment and determining the suitability of its investment. Each Purchaser
is a sophisticated investor, as defined in Rule 506(b)(2)(ii) of Regulation D
under the Act, and an "accredited investor" as defined in Rule 501 of Regulation
D under the Act.
3.2 ECONOMIC RISK. Each Purchaser understands and acknowledges
that an investment in the Securities involves a high degree of risk, including a
possible total loss of investment. Each Purchaser represents that it is able to
bear the economic risk of an investment in the Securities.
3.3 NO GOVERNMENT RECOMMENDATION OR APPROVAL. Each Purchaser
understands that no federal or state agency or similar agency of any other
country has passed upon or made any recommendation or endorsement of the
Company, this transaction or the subscription of the Securities.
3.4 NO REGISTRATION. Each Purchaser understands that the Securities
have not been registered under the Act and are being offered and sold
pursuant to an exemption from registration contained in the Act based in part
upon the representations of the Purchasers contained herein. The Shares and
Warrant Shares do, however, carry certain registration rights as set forth in
the Registration Rights Agreement dated the date hereof and executed by the
parties hereto in connection herewith (the "Registration Rights Agreement").
3.5 NO PUBLIC SOLICITATION. Without conducting any independent
investigation, no Purchaser knows of any public solicitation or advertisement of
an offer in connection with the proposed issuance and sale of the Securities.
3.6 INVESTMENT INTENT. Each Purchaser is acquiring the Securities for
its own account, for investment and not with a view to the distribution thereof.
Each Purchaser understands that except as set forth in the Registration Rights
Agreement, the Company has no present intention of registering any such sale of
the Securities. Each Purchaser represents and warrants to the Company that it
has made no predetermined arrangements to sell the Securities (other than the
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<PAGE>
registration provisions contained in the Registration Rights Agreement, which
pertain only to a potential method of disposing of the Shares and Warrant
Shares).
3.7 INCORPORATION AND AUTHORITY. Each Purchaser has the full
power and authority to execute, deliver and perform this Agreement and to
perform its obligations hereunder. The Agreement has been duly approved by all
necessary action of each Purchaser, including any necessary shareholder
approval, has been executed by persons duly authorized by each Purchaser, and
constitutes a valid and legally binding obligation of each Purchaser,
enforceable in accordance with its terms.
3.8 NO RELIANCE ON TAX ADVICE. Each Purchaser has reviewed with its
own tax advisors the foreign, federal, state and local tax consequences of this
investment, where applicable, and the transactions contemplated by this
Agreement. Each Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that each Purchaser (and not the Company) shall be responsible for
its own income tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
3.9 INDEPENDENT LEGAL ADVICE. Each Purchaser acknowledges that
it has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel. The Purchaser is
relying solely on such counsel and not on any statements or representations of
the Company or any of its agents for legal advice with respect to this
investment or the transactions contemplated by this Agreement, except for the
representations, warranties and covenants set forth herein.
4. LEGENDS; SUBSEQUENT TRANSFER OF SECURITIES
4.1 LEGENDS. The certificate(s) representing the Securities
shall bear a legend substantially as set forth on the cover page of this
Agreement and any other legend, if such legend or legends are reasonably
required to comply with state, federal or foreign law.
5. COVENANTS OF THE COMPANY
5.1 USE OF PROCEEDS. The Company shall use the net proceeds
from the sale of the Securities for general corporate purposes, including
acquisition or merger consideration with respect to any acquisition that may be
consummated by the Company.
5.2 REGISTRATION RIGHTS. The Company will grant the Purchasers
registration rights covering the Shares and Warrant Shares as set forth in the
Registration Rights Agreement.
5.3 VALID ISSUANCE OF WARRANT SHARES. When issued and delivered in
accordance with the Warrant, the Warrant Shares will be duly and validly issued,
fully paid and non-assessable, free and clear of any claims or pre-emptive
rights and will have been issued in compliance with all applicable federal and
state securities laws.
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6. COVENANTS OF THE PURCHASERS
6.1 NO SALE IN VIOLATION OF THE ACT. Each Purchaser further
covenants that it will not make any sale, transfer or other disposition of the
Securities in violation of the Act or the rules and regulations of the
Commission promulgated thereunder. Each Purchaser acknowledges and agrees that
the Securities may and will only be resold (i) pursuant to a Registration
Statement under the Act; or (ii) pursuant to an exemption from registration
under the Act.
7. CONDITIONS TO CLOSING; DELIVERIES AT CLOSING
7.1 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE. The obligations
of the Purchasers to purchase the Shares and the Warrants offered hereunder are
conditioned on the fulfillment or waiver of the following:
(a) the execution and delivery of this Agreement, the Warrant
and the Registration Rights Agreement by the Company; and
(b) all the representations and warranties of the Company in
this Agreement as of the date hereof shall be true and correct at the
Closing as if made on such date, and the Company shall have performed
all actions required hereunder.
7.2 CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE. The obligation
of the Company to sell the Shares offered hereunder are conditioned on the
fulfillment or waiver of the following:
(a) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Purchasers; and
(b) all the representations and warranties of the Purchasers
made in this Agreement as of the date hereof shall be true and correct
at the Closing as if made on such date, and the Purchasers shall have
performed all actions required hereunder.
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, applicable to agreements made in and wholly
to be performed in that jurisdiction without regards to the choice of law rules
of such state, except for matters arising under the Act or the 1934 Act which
matters shall be construed and interpreted in accordance with such laws. Any
action brought to enforce, or otherwise arising out of, this Agreement shall be
heard and determined in either a federal or state court sitting in the County of
Cook, State of Illinois.
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9. ENTIRE AGREEMENT; AMENDMENT
This Agreement, the Registration Rights Agreement, and any other document
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
10. NOTICES, ETC.
Any notice, demand or request required or permitted to be given by
either the Company or any Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or by
facsimile, with a hard copy to follow by two day courier addressed to the
parties at the addresses of the parties set forth at the end of this Agreement
or such other address as a party may request by notifying the other in writing.
11. CONFIDENTIALITY
Each Purchaser will keep confidential all non-public information
regarding the Company that each receives from the Company unless disclosure of
such information is compelled by a court or other administrative body or
otherwise necessary, in the opinion of Purchasers' counsel, to comply with
applicable law. Neither party shall disclose any information regarding any of
the transactions contemplated hereby without the prior consent of the other
party, unless such disclosure is required in filings made with the Commission.
The Company and its officers and directors have not provided the Purchasers with
any material non-public information.
12. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument. A
facsimile transmission of a signature hereto shall be valid as if an original
and binding on all parties.
13. SEVERABILITY
In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
7
<PAGE>
14. TITLES AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
15. PARTIES IN INTEREST CITED
This Agreement may not be transferred, assigned, pledged or hypothecated by
any party hereto, other than by operation of law. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective heirs, executors, administrators, successors and permitted assigns.
All representations, warranties, covenants and agreements of each party
hereto shall survive the Closing contemplated herein for a period of two (2)
years.
The undersigned Purchasers acknowledge that this subscription shall not
be effective unless executed by the Company as indicated below.
[Signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
COMPANY: PURCHASERS:
NUCLEUS, INC.
150 North Michigan Avenue ___________________________________
Suite 3610
Chicago, IL 60601
By:____________________________ ___________________________________
John C. Paulsen, President
___________________________________
9
<PAGE>
SCHEDULE 1.1
PURCHASERS
No. of Shares of
Common No. of Warrants Aggregate
Name Stock Purchased Granted Purchase Price
---- --------------- ------- --------------
10
<PAGE>
EXHIBIT A
WARRANT NO.___
THE WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF
ANY STATE UNDER ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE
MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK OF
NUCLEUS, INC.
_____________ __, 1999
This certifies that, for value received pursuant to that certain Securities
Purchase Agreement, dated as of ________, 1999, by and among Nucleus, Inc.,
_______________________ and certain other purchasers, _____________ (the
"Warrant Holder"), is entitled to purchase from Nucleus, Inc., a Nevada
corporation (the "Company"), at any time prior to 5:00 p.m. Chicago time on the
second anniversary of the date hereof (the "Expiration Date") ______________
( ) fully paid and non-assessable shares of the Company's Common Stock, par
value $.001 per share (the "Common Stock;" the Common Stock purchasable upon
exercise of this Warrant is herein called the "Common Shares"), at a price per
share of _______________($ ) Dollars (the "Exercise Price"). The number of
Common Shares purchasable hereunder and the Exercise Price are subject to
adjustment as provided below.
If the Expiration Date shall be a holiday in the State of Illinois or a day
on which banks are authorized to close in the State of Illinois, then the
Expiration Date shall be the next following day which in the State of Illinois
is not a holiday or a day on which banks are authorized to close. If this
Warrant is not exercised at or before 5:00 p.m. Illinois time, on the Expiration
Date, it shall become void, and all rights hereunder shall thereupon cease.
1. EXERCISE; FRACTIONAL SHARES.
(a) The Warrant Holder may exercise this Warrant, in whole or
in part, upon surrender of this Warrant with the Exercise Form hereon duly
executed, to the Company at Nucleus Inc., 150 North Michigan Avenue, Chicago,
Illinois 60601, or at such other address as the Company may designate by notice
given to the Warrant Holder in accordance with the terms hereof, together with
payment in full of the Exercise Price in lawful money of the United States, by
wire transfer of immediately available funds or certified check or bank draft
payable in United States Dollars to the
A-1
<PAGE>
order of the Company, for each Common Share to be purchased and upon compliance
with and subject to the conditions set forth herein.
(b) Upon surrender of this Warrant with the Exercise Form duly
executed and accompanied by payment of the aggregate Exercise Price for the
number of Common Shares for which this Warrant is then being exercised, the
Company will cause to be issued certificates for the total number of Common
Shares for which this Warrant is being exercised as are required for delivery,
within fifteen (15) days of such exercise, to the Warrant Holder, and the
Company shall thereupon deliver such certificates to the Warrant Holder. This
Warrant shall be deemed to have been exercised in whole or in part immediately
prior to the close of business on the date this Warrant is surrendered and
payment is made as provided herein.
(c) The Company shall not be required to issue any fractional
Common Shares in connection with the exercise of this Warrant. In any case where
the Warrant Holder would be entitled under the terms of this Warrant to receive
a fraction of a Common Share upon the exercise of this Warrant, the Company
shall, upon the exercise of this Warrant and receipt of the Exercise Price,
issue the largest number of whole shares purchasable upon exercise of this
Warrant unless the Company has subdivided the shares of Common Stock. The
Company shall not be required to make any cash or other adjustment in respect of
such fraction of a Common Share to which the Warrant Holder would otherwise be
entitled and the Warrant Holder, by the acceptance of this Warrant, expressly
waives his right to receive a certificate of any fraction of a Common Share upon
the exercise hereof.
2. ADJUSTMENT.
(a) If prior to the exercise of this Warrant, the Company
shall have effected one or more stock split-ups or other subdivisions or
combinations of Common Stock, the number of Common Shares subject to this
Warrant shall (i) be proportionately increased if a net increase shall have been
effected (in the case of split-up in or subdivision of) the number of shares of
Common Stock; or (ii) be proportionately reduced if a net reduction (in the case
of a combination) shall have been effected in the number of shares in Common
Stock. Upon the occurrence of an event described in this subparagraph (a), the
Exercise Price shall be subject to a proportionate reduction under clause (i) or
a proportionate increase under clause (ii), as the case may be.
(b) In case of any capital reorganization of the Company or of
any reclassification of the Common Stock, or the consolidation or merger of the
Company with any other corporation or entity, after such capital reorganization,
reclassification, or consolidation, this Warrant will be exercisable, upon the
terms and conditions specified in this Warrant, for the number of shares of
Common Stock or other securities or property which the Warrant Holder would have
been entitled to receive upon the capital reorganization, reclassification,
consolidation or merger if this Warrant had been exercised immediately before
the first such capital reorganization, reclassification, or consolidation or
immediately before the effective date of such merger. The subdivision or
combination of Common Shares at any time outstanding into a greater or lesser
number of Common Shares shall not be deemed to be a reclassification of the
Common Shares of the Company for the purposes of this paragraph.
A-2
<PAGE>
(c) Whenever the number of Common Shares are adjusted, the
Company shall compute the adjusted number and the resulting adjustment to the
Exercise Price and shall prepare a certificate signed by its President or a
Vice-President setting forth the adjustment and the facts requiring the
adjustment and upon which the calculation is based, and that certificate shall
forthwith be mailed to the Warrant Holder.
(d) The form of Warrant need not be changed because of any
change in the number of Common Shares purchasable upon exercise of this Warrant
and Warrants issued after such change may state the same Exercise Price and the
same number of Common Shares as are stated in the form of Warrant initially
issued.
3. COMPANY COVENANTS.
(a) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of this Warrant such number of
authorized Common Stock as are sufficient to permit the exercise in full of this
Warrant.
(b) The Company covenants that all Common Shares issued on
exercise of this Warrant will be validly issued, fully paid, nonassessable and
free of preemptive rights.
4. REGISTRATION RIGHTS.
The Common Shares that may be issued to the Warrant Holder upon
exercise of the Warrant are entitled to the registration rights set forth in the
Registration Rights Agreement of even date herewith between the Company and the
Warrant Holder.
5. MISCELLANEOUS.
(a) The Warrant Holder, as such, shall not be entitled to any
rights, including, without limitation, voting rights, as a shareholder of the
Company, until this Warrant shall have been exercised as provided herein.
(b) If this Warrant is lost, stolen, mutilated or destroyed,
the Company may, on such terms as to indemnity or otherwise as it may in its
discretion impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination and tenor as, and
in substitution for, this Warrant.
(c) Prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the Warrant Holder as the absolute
owner of this Warrant (notwithstanding any notation of ownership or other
writing hereon) for the purpose of any exercise hereof and for all other
purposes and the Company shall not be affected by any notice to the contrary.
A-3
<PAGE>
(d) This Warrant and the Common Shares may not be sold,
transferred, assigned, hypothecated or otherwise disposed of except to an entity
or person, who (i) in the opinion of counsel reasonably satisfactory to the
Company, is a person to whom this Warrant or Common Shares may legally be
transferred without registration under any federal or state securities law or
regulation, and (ii) who agrees to comply with the provisions of this Warrant
with respect to any further resale or disposition of such securities.
(e) All of the Company's covenants and provisions of this
Warrant shall bind and inure to the benefit of its successors and assigns
hereunder.
(f) Any notice or demand pursuant to this Warrant to be given
or made by the Warrant Holder to or on behalf of the Company shall be
sufficiently given or made when delivered or sent by registered or certified
mail, postage prepaid, return receipt requested, and addressed, until another
address is designated in writing by the Company, as follows:
Nucleus, Inc.
150 N. Michigan Avenue
Chicago, Illinois 60601
Attention: John C. Paulsen, President
(g) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Warrant.
(h) The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Illinois.
A-4
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
this ___ day of __________________, 1999.
NUCLEUS, INC.
_________________________________
John C. Paulsen, President
A-5
<PAGE>
EXERCISE FORM
-------------
(To be Executed by A Warrant Holder Who Desires
To Exercise The Warrant In Whole Or In Part)
___________________, 19__
Nucleus, Inc.
150 N. Michigan Avenue
Chicago, Illinois 60601
Undersigned:
( )
Please insert Tax Identification
Number Warrant Holder
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, Nucleus, Inc. _________ shares
of Common Stock, no par value $.001 per share, of Nucleus, Inc. ("Common
Shares") provided for therein (or, if adjusted pursuant to Section 3 of the
Warrant, such number of shares calculated pursuant to Section 3 thereof) and
tenders payment herewith to the order of Nucleus, Inc. in the amount of the
product of the Exercise Price, as that term is defined in the Warrant, times the
number of Common Shares purchased. The undersigned requests that certificates
for such Common Shares be issued as follows:
Name: ____________________________
Address: ____________________________
Deliver to: ____________________________
Address: ____________________________
Tax Identification
Number: ____________________________
Signature: ____________________________
Date: ____________________________
NOTE: THE SIGNATURE OF THIS EXERCISE MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS WARRANTY IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
A-6
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of June 30, 1999, by and among NUCLEUS, INC., a Nevada corporation (the
"Company"), and the undersigned investors (each of the undersigned being
singularly referred to as an "Investor" and collectively as the "Investors").
R E C I T A L S:
WHEREAS, pursuant to a Securities Purchase Agreement dated the date
hereof (the "Purchase Agreement") by and between the Company and the Investors,
the Company has agreed to sell and the Investors have agreed to purchase an
aggregate of _________ shares of the Company's Common Stock, par value $.001 per
share (the "Common Stock") and warrants to purchase ________ shares of Common
Stock (the "Warrants"); and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investors' agreement to enter into the Purchase Agreement, the Company has
agreed to provide the Investors with certain registration rights with respect to
the shares of Common Stock acquired under the Purchase Agreement and the Common
Stock issuable upon exercise of the Warrants (the "Shares");
NOW THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Purchase
Agreement and this Registration Rights Agreement, the Company and the Investors
agree as follows:
AGREEMENT:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, par value $.001
per share.
"Other Registrable Shares" shall mean those shares (which includes
shares of Common Stock issuable upon exercise of the warrants) of Common Stock
heretofore or hereafter issued pursuant to one or more agreements granting the
purchasers of such securities the right to have the Company register such
securities or include such securities in any other registration of the Company's
equity securities.
"Registrable Shares" shall mean (i) the Shares (which shall include the
shares of Common Stock issuable upon exercise of the Warrants), and (ii) any
Common Stock of the Company issued or issuable in respect of the Shares or upon
any stock split, stock dividend, recapitalization or similar
<PAGE>
event; provided, however, that Registrable Shares or other securities shall no
longer be treated as Registrable Shares if (A) they have been sold to or through
a broker or dealer or underwriter in a public distribution or a public
securities transaction, (B) they have been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon consummation of such sale, or (C) the Shares are available for sale
under the Securities Act (including Rule 144), in the opinion of counsel to the
Company, without compliance with the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions and
restrictive legends with respect thereto may be removed upon the consummation of
such sale.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 2 hereof, including, without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements (not to exceed $10,000) of one counsel for the Investors and any
selling holders of Other Registrable Shares for a limited "due diligence"
examination of the Company incident to such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company, and excluding all underwriting discounts and selling
commissions applicable to the sale of the Registrable Shares or Other
Registrable Shares).
"Registration Statement" shall mean the registration statement filed
with the Commission by the Company at the request of the Investor covering the
Shares pursuant to this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares and all fees and
disbursements of one counsel for the Investors and selling holders of Other
Registrable Shares (other than the fees and disbursements of such counsel
included in Registration Expenses).
"Warrants" shall mean the warrants to purchase shares of Common Stock
granted to the Investors pursuant to the Purchase Agreement.
2. REQUESTED REGISTRATION.
(A) REQUEST FOR REGISTRATION. The Investors hereby request, and the
Company hereby agrees, that (A) within thirty (30) days of the date hereof, the
Company will use its best efforts to file with the Commission a Registration
Statement on Form S-1, Form SB-2 or such other form as is then appropriate for
use by the Company under the Securities Act and (B) the Company shall use
2
<PAGE>
its best efforts to cause the Registration Statement to be declared effective by
the Commission (including, without limitation, undertaking the actions described
in Section 4), so as to permit or facilitate the sale and distribution of the
Registrable Shares; and (C) the Company shall cause such Registration Statement
to remain effective for a period of two (2) years (subject to the right of the
Company to suspend the effectiveness thereof for not more than an aggregate of
ninety (90) days at no cost to the Company).
The Registration Statement filed pursuant to the request of the
Investors hereunder may, subject to the provisions of Section 2.2(b) below,
include Other Registrable Shares, or other securities of the Company which are
held by officers or directors of the Company, and may include securities of the
Company being sold for the account of the Company.
(B) UNDERWRITING. If the Investors intend to distribute the Shares by
means of an underwriting, it shall so advise the Company. The right of any
holder of Other Registrable Shares to have such shares included in the
registration shall be conditioned upon such holder's participation in such
underwriting and the inclusion of such holder's Other Registrable Shares in such
underwriting (unless otherwise mutually agreed by the Investor and such holder
with respect to such participation and inclusion) to the extent provided herein.
(i) If the Company shall request inclusion in any registration
pursuant to Section 2 of securities being sold for its own account, or if
officers or directors of the Company holding other securities of the
Company or holders of Other Registrable Shares, shall request inclusion in
any registration pursuant to Section 2, the Investors shall, on behalf of
all holders of Other Registrable Shares, offer to include Other Registrable
Shares and the securities of the Company, and such officers and directors
in the underwriting and may condition such offer on their acceptance of the
further applicable provisions of this Agreement. The Company shall
(together with all holders of Other Registrable Shares and officers and
directors proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with
the underwriter or representative of the underwriters selected for such
underwriting by the Company, which underwriter(s) shall be reasonably
acceptable to the Investors.
(ii) Notwithstanding any other provision of this Section 2, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company shall so advise the Investors and all holders of
Other Registrable Shares and other shareholders whose securities would
otherwise be underwritten pursuant to such registration, and the number of
Other Registrable Shares and other securities that may be included in the
registration and underwriting shall be allocated in the following manner:
the securities to be offered by the Company and the securities of the
Company held by officers and directors of the Company shall be excluded
from such registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still required,
the Other Registrable Shares shall be excluded pro rata with Registrable
Shares, unless another method of determining such exclusion is specified in
the agreements governing the Other Registrable Shares, according to the
relative number of Other Registrable Shares requested to be
3
<PAGE>
included in such registration and underwriting, from such registration and
underwriting to the extent required by such limitation, and, if a
limitation on the number of shares is still required, the number of
Registrable Shares that may be included in the registration and
underwriting shall be allocated among all holders of Registrable Shares in
proportion, as nearly as practicable, to the respective amounts of
Registrable Shares which they had requested to be included in such
registration at the time of filing the registration statement. No
Registrable Shares or any other securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall also be included
in such registration.
(iii) If the Company or any officer, director or holder of
Other Registrable Shares who has requested inclusion in such registration
and underwriting as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the underwriter and the Investors. The securities so
withdrawn shall also be withdrawn from registration.
3. EXPENSES OF REGISTRATION. The Company shall bear all Registration Expenses
incurred in connection with any registration, qualification or compliance of the
Registrable Shares pursuant to this Agreement. All Selling Expenses shall be
borne by the holders of the securities so registered pro rata on the basis of
the number of their shares so registered.
4. REGISTRATION PROCEDURES. Pursuant to this Agreement, the Company will keep
the Investors advised in writing as to the initiation of a registration under
this Agreement and as to the completion thereof. At its expense, the Company
will:
(a) Use reasonable efforts to keep such registration effective
for a period of two (2) years (subject to the right of the Company to
suspend the effectiveness thereof for not more than an aggregate of ninety
(90) days during such two (2) year period) or until the Investors have
completed the distribution described in the registration statement relating
thereto or until the securities registered cease to be Registrable Shares,
whichever first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the
prospectus, as the Investors from time to time may reasonably request;
(d) Use reasonable efforts to (i) register and qualify the
Registrable Shares covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investors
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements, (iii)
take such other actions as may be necessary to maintain such registrations
and qualifications in effect
4
<PAGE>
until such date set forth in clause (a) above and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Shares
for sale in such jurisdictions; provided, however, that the Company shall
not be required in connection therewith or as a condition thereto to (1)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 4(d), (2) subject itself to
general taxation in any such jurisdiction, (3) file a general consent to
service of process in any such jurisdiction, (4) provide any undertakings
that cause more than nominal expense or burden to the Company or (5) make
any change in its charter or by-laws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of
the Company and its stockholders;
(e) In the event the Investors select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the managing
underwriter of such offering;
(f) As promptly as practicable after becoming aware of such
event, notify the Investors of the happening of any event of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to the Investors as they
may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Investors (or, in the event of an underwritten offering,
the managing underwriters) of the issuance by the Commission of any stop
order or other suspension of effectiveness of the Registration Statement at
the earliest possible time;
(h) Permit a single firm of counsel designated as selling
stockholders' counsel to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to
their filing with the Commission, and shall not file any document in a form
to which such counsel reasonably objects;
(i) Make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement;
(j) At the request of the underwriter in the event the sale of
Registrable Shares is underwritten, furnish on the date that Registrable
Shares are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the
5
<PAGE>
Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters; and (ii) an opinion, dated such date, from counsel
representing the Company for purposes of such Registration Statement, in
form and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and any selling stockholders;
(k) Make available for inspection by the Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any such
holder or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties
of the Company (collectively, the "Records"), as shall be reasonably
necessary to enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information which any Inspector may reasonably request for
purposes of such due diligence; provided, however, that each Inspector
shall hold in confidence and shall not make any disclosure (except to the
Investors or a holder of Other Registrable Shares) of any Record or other
information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court or government
body of competent jurisdiction or (iii) the information in such Records has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector
until and unless such Inspector shall have entered into confidentiality
agreements (in form and substance satisfactory to the Company) with the
Company with respect thereto, substantially in the form of this Section
4(k). The Investors agree that they shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and
allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. The Company shall hold in confidence and shall not
make any disclosure of information concerning any Investor provided to the
Company pursuant to Section 5(e) hereof unless (i) disclosure of such
information is necessary to comply with federal or state securities laws,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release
of such information is ordered pursuant to a subpoena or other order from a
court or governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees
that it shall, upon learning that disclosure of such information concerning
any Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor,
at its expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, such information;
6
<PAGE>
(l) Use its best efforts to (i) cause all the Registrable
Shares covered by the Registration Statement to be listed on any national
securities exchange on which shares of Common Stock are then listed if the
listing of such Registrable Shares is then permitted under the rules of
such exchange, (ii) secure designation of all the Registrable Shares
covered by the Registration Statement as a National Association of
Securities Dealers Automated Quotations System ("NASDAQ") "national market
system security" within the meaning of Rule 11Aa2-1 of the Commission under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the quotation of the Registrable Shares on the NASDAQ National Market, if
shares of Common Stock are then so quoted or eligible for quotation or
(iii) if the Common Stock is not quoted on or eligible for quotation on the
NASDAQ National Market, secure designation of the Registrable Shares on the
NASDAQ Small Cap Market or the OTC Bulletin Board, where the Common Stock
may then be quoted;
(m) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Shares not later than the effective date
of the Registration Statement and cause such transfer agent to act in
accordance with this Agreement;
(n) Cooperate with the Investors and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing the
Shares sold pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the case may be, as
the managing underwriter or underwriters, if any, or the Investors or may
reasonably request and registered in such names as the managing underwriter
or underwriters, if any, or the Investors may request; and
(o) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the Registrable Shares
pursuant to the Registration Statement.
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5. INDEMNIFICATION.
(a) The Company will indemnify the Investors with respect to which
registration has been effected pursuant to this Agreement, and each underwriter,
if any and each person who controls any underwriter, and their respective
counsel against all claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, or other document incident to any such registration, or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company in connection with any such registration
and will reimburse the Investors, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses as they are
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided, however, that the indemnity
contained in this Section 5(a) shall not apply to amounts paid in settlement of
any such claim, loss, damage, liability or action if such settlement is effected
without the consent of the Company; and provided further that the Company shall
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by any Investor
or underwriter and stated to be specifically for use therein. The foregoing
indemnity agreement is further subject to the condition that insofar as it
relates to any untrue statement, alleged untrue statement, omission or alleged
omission made in a preliminary prospectus, such indemnity agreement shall not
inure to the benefit of the foregoing indemnified parties if copies of a final
prospectus correcting the misstatement, or alleged misstatement, omission or
alleged omission upon which such loss, liability, claim or damage is based is
timely delivered to such indemnified party and a copy thereof was not furnished
to the person asserting the loss, liability, claim or damage.
(b) Each Investor will indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a Registration Statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and the rules and
regulations thereunder and their respective counsel (collectively, the "Company,
Underwriters and Counsel") against all claims, losses, damages and liabilities
(or actions, proceedings or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
relating to such Investor contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein
relating to such Investor or necessary to make the statements therein relating
to such Investor not misleading or any violation by such Investor of any rule or
regulation promulgated under the Securities Act applicable to such Investor and
relating to action or inaction required of such Investor in connection with any
such registration; and will reimburse the Company, directors, officers,
partners, persons, underwriters or control persons for any legal or any other
expense reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) relating to such Investor is made in such
registration statement, prospectus,
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offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Investor and stated to be
specifically for use therein; provided, however, that such indemnification
obligations shall not apply if the Company modifies or changes to a material
extent written information furnished by such Investor. Each Investor will
indemnify the Company, Underwriters and Counsel against all claims, losses,
damages and liabilities (or actions, proceedings or settlements in respect
thereof), arising out of or based on any sale of Registrable Shares made by such
Investor following receipt by the Investor of written notice from the Company,
Underwriters or Counsel that the registration statement filed with respect to
such Registrable Shares contains an untrue statement of material fact or omits
to state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
Notwithstanding the above, the indemnification obligations of each Investor
shall be limited in amount to the net amount of proceeds received by such
Investor from the sale of such Registrable Shares.
(c) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 5 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 5, (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Shares who was
not guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Shares shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Shares.
(d) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed) and the Indemnified Party may participate
in such defense at such Indemnified Party's expense. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
6. AGREEMENTS OF INVESTORS. The Investors shall furnish to the Company such
information regarding the Investors and the distribution proposed by the
Investors as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration referred to in this
Agreement.
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7. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the Commission that may at any time permit
the Investors to sell securities of the Company to the public without
registration and without imposing restrictions arising under the federal
securities laws on the purchases thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner, all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to the Investors so long as the Investors own
Registrable Shares, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other information as may
be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
8. MISCELLANEOUS.
A. GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without giving effect to
conflict of laws of such jurisdiction.
B. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
C. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
D. NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first-class
mail, postage prepaid, or delivered by hand or by messenger or courier delivery
service, addressed (a) if to the Investors at such addresses as the Investors
shall have furnished to the Company in writing, or (b) if to the Company at 150
North Michigan Avenue, Suite 3610, Chicago, Illinois 60601, Attn: President, or
at such other address as the Company shall have furnished to Investor and each
such other holder in writing.
E. DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to the Investor, upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
the Investors nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
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thereunder occurring, nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of the
Investors of any breach or default under this Agreement, or any waiver on the
part of any party of any provisions of conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to the Investor, shall be cumulative and not alternative.
F. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
G. SEVERABILITY. In the case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
H. AMENDMENTS. The provisions of this Agreement may be amended at
any time and from time to time, and particular provisions of this Agreement may
be waived, with and only with an agreement or consent in writing signed by the
Company and by the Investors.
I. TERMINATION OF REGISTRATION RIGHTS. This Agreement shall
terminate at such time as the Shares no longer constitute Registrable Shares.
[Signature page follows]
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The foregoing Registration Rights Agreement is hereby executed as of
the date first above written.
COMPANY: INVESTORS:
NUCLEUS, INC.
By:_____________________________ _____________________________
John C. Paulsen, President
_____________________________
_____________________________
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EXHIBIT 4.7
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
NUCLEUS, INC.
AND THE
PURCHASERS
NAMED HEREIN
AS OF MARCH 1, 2000
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE
BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
("REGULATION D") PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE
MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement" or the "Purchase
Agreement") is entered into as of March 1, 2000, by and between NUCLEUS, INC., a
Nevada corporation (the "Company"), and each of the undersigned (each a
"Purchaser" and collectively the "Purchasers").
R E C I T A L S:
WHEREAS, the Company is offering (the "Offering") for sale in a private
placement pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and Regulation D thereunder ("Regulation D"), a maximum of
$6,200,000 principal amount of promissory notes of the Company (the "Senior
Bridge Notes") and shares of the Company's Common Stock, par value $.001 per
share (the "Common Stock"); and
WHEREAS, each Purchaser wishes to subscribe for and receive a Senior
Bridge Note and Common Stock in accordance with the terms and conditions of this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. SUBSCRIPTION AND CLOSING
1.1 PURCHASE. Subject to the terms and conditions of this
Agreement, the Purchasers hereby agree to purchase from the Company, and the
Company hereby agrees to issue and sell to the Purchasers (a) Senior Bridge
Notes upon the terms set forth in the form of Promissory Note attached as
Exhibit A, which terms are incorporated herein by reference and made a part
hereof, and (b) shares of Common Stock (the "Shares"). The aggregate principal
amount of Senior Bridge Notes, the number of Shares and the purchase price
therefor for each Purchaser shall be as indicated on Schedule 1.1 hereto.
Section 5.4 below sets forth the method of calculation of the number of Shares
to be issued to each Purchaser as of the Closing and the potential issuance of
additional shares of Common Stock on the Maturity Date of the Senior Bridge
Notes.
1.2 ESCROW OF FUNDS.
(a) All funds received from Purchasers shall be
deposited in an escrow account with Bank of America (the "Escrow
Agent"). Funds in the escrow account shall only be released to the
Company at Closing if subscription for a minimum of $3,000,000
principal amount of Senior Bridge Notes have been received. Subsequent
to the Closing, the Company may continue to offer Senior Bridge Notes
and Shares until April 1, 2000 or until subscription for a maximum of
$6,200,000 principal amount of Senior Bridge Notes or Shares have been
received.
<PAGE>
(b) In the event that the minimum amount of Senior
Bridges Notes is not subscribed for by the Closing, all funds
collected to date by the Escrow Agent will be returned to the
Purchaser without interest and no Senior Bridge Notes or Shares will
be issued. All funds will be promptly refunded to Purchasers.
(c) Subscriptions held in the escrow account may be
revoked at any time prior to the Closing; provided, that written
notice of the revocation is sent by certified or registered mail,
return receipt requested, and is received by the Company at least two
(2) business days prior to the Closing. In the event any such
revocation is made by a Purchaser, such Purchaser's funds shall be
promptly refunded without interest.
1.3 PAYMENT OF PURCHASE PRICE AND DELIVERY OF SHARES AND SENIOR
BRIDGE NOTES. Payment of the purchase price for the Senior Bridge Notes and
Shares, and delivery of the Senior Bridge Notes and Shares by the Company (the
"Closing"), shall occur upon the execution hereof or at such other date, time
and place as the parties shall mutually agree in writing. The purchase price for
the Senior Bridge Notes shall be the principal amount of Senior Bridge Notes
purchased by each Purchaser and the purchase price for the Shares shall be $.001
per Share. The aggregate purchase price for the Senior Bridge Notes and the
Shares is payable by wire transfer of immediately available funds. Certificates
for the Senior Bridge Notes and Shares will be issued in the name of each of the
Purchasers not later than five (5) Business Days (as defined) from the Closing.
1.4 MULTIPLE PURCHASES. This Agreement may be executed by one or
more Purchasers. In the event this Agreement pertains to a purchase by a single
Purchaser, all references to the Purchasers or "each Purchaser" shall be deemed
to refer to such single Purchaser.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
The Company represents and warrants to and covenants with the
Purchasers as follows:
2.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada
and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material
adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole.
(b) Each subsidiary of the Company is a corporation duly
organized, validly existing and in good standing under the laws of its
state of incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to
be conducted. Each such subsidiary is duly qualified
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to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect
on the business or properties of such subsidiary.
2.2 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, and the performance of all obligations
of the Company hereunder and the authorization, issuance and delivery of the
Senior Bridge Notes, the Shares and shares of Common Stock issuable upon
conversion of the Senior Bridge Notes (the "Convertible Shares," and together
with the Shares, the Additional Shares (as herein defined) and the Senior Bridge
Notes, the "Securities"), has been taken.
2.3 AGREEMENT. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
of this Agreement by the Purchaser, is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
2.4 VALID ISSUANCE OF SENIOR BRIDGE NOTES AND OTHER SECURITIES.
When issued and delivered in accordance with the terms of this Agreement, the
Senior Bridge Notes, the Shares, the Additional Shares and the Convertible
Shares will be duly and validly issued and outstanding, fully paid and
non-assessable, free and clear of any claims or pre-emptive rights, and
(assuming the representations and warranties of the Purchaser herein are true
and correct in all material respects) will have been issued in compliance with
all applicable federal and state securities law.
2.5 SEC REPORTS. The Company has timely filed all forms, reports and
documents with the Securities and Exchange Commission (the "Commission") since
January 1, 1998, required to be filed by it under the Securities Exchange Act of
1934, as amended (the "1934 Act"), through the date hereof (collectively, the
"SEC Reports"). Such SEC Reports, at the time filed, complied as to form in all
material respects with the requirements of the 1934 Act.
2.6 CURRENT PUBLIC INFORMATION. The Company's Common Stock is
registered under Section 12(b) or 12(g) of the Act. The Company has delivered to
the Purchaser copies of the Company's most recent annual report on Form 10-KSB
(the "Annual Report"), each Quarterly Report on Form 10-QSB since the date of
its Annual Report, the most recent proxy statement for its Annual Meeting of
Shareholders, and each interim report on Form 8-K filed by the Company since the
date of its Annual Report. The Company has also delivered to each Purchaser a
Private Placement Memorandum dated February 7, 2000 relating to its Common Stock
(the "Private Placement Memorandum"). The information concerning the Company set
forth in any of the SEC reports and in the Private Placement Memorandum does
not, as of their respective dates, contain a misrepresentation of a material
fact or omit to state any fact required to make the statements contained therein
not misleading in any material respect. Since the date of the Private Placement
Memorandum there has been no Material Adverse Effect (as defined below) in
respect of the Company, except as disclosed on Schedule 2.6 annexed hereto.
2.7 NO CONFLICTS. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby does not and will not
conflict with or result
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in a breach by the Company of any of the terms or provisions of, or constitute a
default under, the Certificate of Incorporation or bylaws of the Company, or any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
or any existing applicable decree, judgment or order of any court, federal or
state regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any of its properties or assets.
2.8 COMPLIANCE WITH LAWS. As of the date hereof, the conduct
of the business of the Company complies in all material respects with all
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto, except for non-compliance which would not have a material
adverse effect on the business, properties, condition (financial or otherwise),
results of operations or prospects of the Company (a "Material Adverse Effect").
The Company has not received notice of any alleged violation of any statute,
law, regulation, ordinance, rule, judgment, order or decree from any
governmental authority, which could have a Material Adverse Effect.
2.9 LITIGATION. Except as disclosed in the SEC Reports, there
is no action, suit or proceeding before or by any court or governmental agency
or body, domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company, or any of its properties, which
could reasonably be expected to result in any Material Adverse Effect or which
could reasonably be expected to interfere with the Company's ability to
consummate the transactions contemplated by this Agreement.
2.10 PRIOR PRIVATE PLACEMENTS. The offer and sale of the Securities
are exempt from registration under Section 5 of the Act. Neither the Company nor
any person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Securities) which would subject the offering or issuance or sale
of the Securities to the registration requirements of Section 5 of the Act.
2.11 COMMISSIONS. Except for the payment to Cruttenden Roth
Incorporated of (i) a cash fee equal to ten percent (10%) of the aggregate
principal amount of Senior Bridge Notes (5% in the case of Purchasers introduced
by the Company) and (ii) warrants to purchase shares of Common Stock equal to
ten percent (10%) (5% in the case of Purchasers introduced by the Company) of
the Shares sold in this offering, with an exercise price equal to the closing
bid price of the Common Stock as of the Closing. No person, firm or corporation
will be entitled to receive any brokerage fee, commission or other similar
payment from the Company in connection with the consummation of the transactions
contemplated hereby and the Company shall not make any such payment to any
person, firm or corporation.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS; ACCESS TO INFORMATION;
INDEPENDENT INFORMATION; INDEPENDENT INVESTIGATION
Each Purchaser represents and warrants to the Company as follows:
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<PAGE>
3.1 INDEPENDENT INVESTIGATION. Each Purchaser, in offering to
purchase the Securities hereunder, has, prior to the date hereof, been given
access to and the opportunity to examine all books, records and material
contracts and documents of the Company and to meet with and ask questions of the
Company's management. In making its investment decision to purchase the
Securities, no Purchaser is relying on any oral or written representations or
assurances from the Company or any other person or any representation of the
Company or any other person other than as set forth in this Agreement, the SEC
Reports or in a document executed by a duly authorized representative of the
Company making reference to this Agreement. Each Purchaser has such experience
in business and financial matters that it is capable of evaluating the risk of
its investment and determining the suitability of its investment. Each Purchaser
is a sophisticated investor, as defined in Rule 506(b)(2)(ii) of Regulation D
under the Act, and an "accredited investor" as defined in Rule 501 of Regulation
D under the Act.
3.2 ECONOMIC RISK. Each Purchaser understands and acknowledges
that an investment in the Securities involves a high degree of risk, including a
possible total loss of investment. Each Purchaser represents that it is able to
bear the economic risk of an investment in the Securities.
3.3 NO GOVERNMENT RECOMMENDATION OR APPROVAL. Each Purchaser
understands that no federal or state agency or similar agency of any other
country has passed upon or made any recommendation or endorsement of the
Company, this transaction or the subscription of the Securities.
3.4 NO REGISTRATION. Each Purchaser understands that the
Securities have not been registered under the Act and are being offered and sold
pursuant to an exemption from registration contained in the Act based in part
upon the representations of the Purchasers contained herein. The Shares and
Convertible Shares do, however, carry certain registration rights as set forth
in the Registration Rights Agreement in the form of Exhibit B annexed hereto,
dated the date hereof and executed by the parties hereto in connection herewith
(the "Registration Rights Agreement").
3.5 NO PUBLIC SOLICITATION. Without conducting any independent
investigation, no Purchaser knows of any public solicitation or advertisement of
an offer in connection with the proposed issuance and sale of the Securities.
3.6 INVESTMENT INTENT. Each Purchaser is acquiring the Securities for
its own account, for investment and not with a view to the distribution thereof.
Each Purchaser understands that except as set forth in the Registration Rights
Agreement, the Company has no present intention of registering any such sale of
the Securities. Each Purchaser represents and warrants to the Company that it
has made no predetermined arrangements to sell the Securities (other than the
registration provisions contained in the Registration Rights Agreement, which
pertain only to a potential method of disposing of the Shares and Convertible
Shares).
3.7 INCORPORATION AND AUTHORITY. Each Purchaser has the full power
and authority to execute, deliver and perform this Agreement and to perform its
obligations hereunder. The Agreement has been duly approved by all necessary
action of each Purchaser, including any
5
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necessary shareholder approval, has been executed by persons duly authorized by
each Purchaser, and constitutes a valid and legally binding obligation of each
Purchaser, enforceable in accordance with its terms.
3.8 NO RELIANCE ON TAX ADVICE. Each Purchaser has reviewed
with its own tax advisors the foreign, federal, state and local tax consequences
of this investment, where applicable, and the transactions contemplated by this
Agreement. Each Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that each Purchaser (and not the Company) shall be responsible for
its own income tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement.
3.9 INDEPENDENT LEGAL ADVICE. Each Purchaser acknowledges that
it has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel. The Purchaser is
relying solely on such counsel and not on any statements or representations of
the Company or any of its agents for legal advice with respect to this
investment or the transactions contemplated by this Agreement, except for the
representations, warranties and covenants set forth herein.
4. LEGENDS; SUBSEQUENT TRANSFER OF SECURITIES
4.1 LEGENDS. The certificate(s) representing the Securities
shall bear a legend substantially as set forth on the cover page of this
Agreement and any other legend, if such legend or legends are reasonably
required to comply with state, federal or foreign law.
5. COVENANTS OF THE COMPANY
5.1 USE OF PROCEEDS. The Company shall use the net proceeds
from the sale of the Shares for general corporate purposes, including
acquisition or merger consideration with respect to any acquisition that may be
consummated by the Company.
5.2 REGISTRATION RIGHTS. The Company will comply in all
respects with its covenants and agreements concerning the registration rights
and other matters covering the Shares, the Additional Shares and Convertible
Shares as set forth in the Registration Rights Agreement.
5.3 VALID ISSUANCE OF CONVERTIBLE SHARES. When issued and
delivered in accordance with the Senior Bridge Notes, the Convertible Shares
will be duly and validly issued, fully paid and non-assessable, free and clear
of any claims or pre-emptive rights and will have been issued in compliance with
all applicable federal and state securities laws.
5.4 METHOD OF CALCULATING NUMBER OF SHARES ISSUED AS OF CLOSING;
INCREASE IN NUMBER OF SHARES.
(a) The Shares issued to each of the Purchasers have
been calculated by dividing (i) 100% of the principal amount of Senior
Bridge Notes purchased by such
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Purchaser(s) hereunder by (ii) the average of the closing prices of
the Company's Common Stock, as traded on the Nasdaq Small Cap Market,
the Nasdaq National Market or any other national securities exchange
(or, if not so traded on the Nasdaq Stock Market or national
securities exchange, as traded on the OTC Electronic Bulletin Board or
on the over-the-counter market) for the twenty one (21) consecutive
Trading Days (the "Average Closing Price") immediately preceding the
Closing. As used herein, the term "Trading Days" shall mean the days
on which the New York Stock Exchange, Inc. and the Nasdaq Stock
Market, Inc. shall be open for trading.
(b) In the event that the Average Closing Price of
the Company's Common Stock immediately preceding the Maturity Date of
the Senior Bridge Notes shall be less than the Average Closing Price
of such Common Stock immediately preceding the Closing, the Company
shall, not later than five (5) Trading Days following the Maturity
Date, issue to the Purchasers additional shares of Company Common
Stock (the "Additional Shares") in an amount equal to:
(i) (x) 100% of the original principal
amount of the Senior Bridge Notes issued to each of the
Purchasers divided by (y) the Average Closing Price immediately
preceding the Maturity Date minus (z) the number of Shares issued
to each of the Purchasers as of the Closing and set forth on
Schedule 1.1 hereof.
(ii) The result of the calculation in clause (i) above shall
be the "Additional Shares" to be issued to each of the
Purchasers, as aforesaid.
(c) As used in this Agreement, the "Maturity Date" of the Senior
Bridge Notes shall be July 7, 2000, subject to extension by the
Company to not later than November 3, 2000, as provided herein and in
the Senior Bridge Notes.
6. COVENANTS OF THE PURCHASERS
6.1 NO SALE IN VIOLATION OF THE ACT. Each Purchaser further
covenants that it will not make any sale, transfer or other disposition of the
Securities in violation of the Act or the rules and regulations of the
Commission promulgated thereunder. Each Purchaser acknowledges and agrees that
the Securities may and will only be resold (i) pursuant to a Registration
Statement under the Act; or (ii) pursuant to an exemption from registration
under the Act.
7. CONDITIONS TO CLOSING; DELIVERIES AT CLOSING
7.1 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE. The obligations
of the Purchasers to purchase the Shares and the Senior Bridge Notes offered
hereunder are conditioned on the fulfillment or waiver of the following:
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<PAGE>
(a) the execution and delivery of this Agreement, the Senior
Bridge Notes, certificates for the Common Stock and the Registration
Rights Agreement by the Company; and
(b) all the representations and warranties of the
Company in this Agreement as of the date hereof shall be true and
correct at the Closing as if made on such date, and the Company shall
have performed all actions required hereunder.
7.2 CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE. The
obligation of the Company to sell the Shares and the Senior Bridge Notes offered
hereunder are conditioned on the fulfillment or waiver of the following:
(a) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Purchasers; and
(b) all the representations and warranties of the Purchasers
made in this Agreement as of the date hereof shall be true and correct
at the Closing as if made on such date, and the Purchasers shall have
performed all actions required hereunder.
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, applicable to agreements made in and wholly
to be performed in that jurisdiction without regards to the choice of law rules
of such state, except for matters arising under the Securities Act of 1933, as
amended (the "1933 Act") or the 1934 Act which matters shall be construed and
interpreted in accordance with such laws. Any action brought to enforce, or
otherwise arising out of, this Agreement shall be heard and determined in either
a federal or state court sitting in the County of Cook, State of Illinois.
9. ENTIRE AGREEMENT; AMENDMENT
This Agreement, the Registration Rights Agreement, and any other
document delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
10. NOTICES, ETC.
Any notice, demand or request required or permitted to be given by
either the Company or any Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or by
facsimile, with a hard copy to follow by two day courier addressed
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to the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
11. CONFIDENTIALITY
Each Purchaser will keep confidential all non-public information
regarding the Company that each receives from the Company unless disclosure of
such information is compelled by a court or other administrative body or
otherwise necessary, in the opinion of Purchasers' counsel, to comply with
applicable law. Neither party shall disclose any information regarding any of
the transactions contemplated hereby without the prior consent of the other
party, unless such disclosure is required in filings made with the Commission.
The Company and its officers and directors have not provided the Purchasers with
any material non-public information.
12. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument. A
facsimile transmission of a signature hereto shall be valid as if an original
and binding on all parties.
13. SEVERABILITY
In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
14. TITLES AND SUBTITLES
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
15. PARTIES IN INTEREST CITED
This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto, other than by operation of law. This Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their respective heirs, executors, administrators, successors and permitted
assigns. All representations and warranties of each party hereto shall survive
the Closing contemplated herein for a period of two (2) years. The covenants and
agreements of the parties contained herein, in the Securities and in the
Registration Rights Agreement shall survive the Closing indefinitely.
The undersigned Purchasers acknowledge that this subscription shall not
be effective unless executed by the Company as indicated below.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
COMPANY: PURCHASERS:
NUCLEUS, INC.
By:_____________________________ _____________________________
John C. Paulsen, President
_____________________________
_____________________________
Address:
401 North Michigan Avenue
Suite 745
Chicago, IL 60611
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SCHEDULE 1.1
PURCHASERS
Principal
Amount No. of Shares
of Senior of Common
Name and Address Bridge Note Stock Purchased Purchase Price<F1>
- ---------------- ----------- --------------- --------------
- --------
<F1>
1 Subject to increase as of the Maturity Date pursuant to Section 5.4 above.
11
EXHIBIT 4.8
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY STATE SECURITIES LAWS. THIS PROMISSORY NOTE MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION, OR THE
AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933
AND APPROPRIATE STATE SECURITIES LAWS. FURTHERMORE, NO OFFER, SALE, TRANSFER,
PLEDGE OR HYPOTHECATION IS TO TAKE PLACE UNLESS THE MAKER RECEIVES, AT THE
HOLDER'S EXPENSE, AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER TO THE EFFECT
THAT SUCH TRANSFER MAY BE EFFECTED WITHOUT VIOLATING ANY SECURITIES LAWS.
NUCLEUS, INC.
PROMISSORY NOTE
$________________ March 9, 2000
FOR VALUE RECEIVED, Nucleus, Inc., a Nevada corporation, having its
principal business office at 401 North Michigan Avenue, Chicago, Illinois 60611
(the "Company"), promises to pay to the order of ________________ with an
address at _______________ (said payee together with any successor holder of
this promissory note is referred to herein as "Payee"), the principal sum of
_______________ ($__________) in lawful money of the United States of America on
July 6, 2000 (the "Maturity Date"), provided that the Maturity Date may be
extended to not later than November 3, 2000 at the option of the Company upon
delivery of written notice of such extension to the Payee by not later than
October 27, 2000 and payment of the Extension Fee (defined below) to Payee. This
Note shall bear interest on the principal balance outstanding from time to at
the rate of twelve percent (12%) per annum, such interest payable monthly in
cash on the twentieth day of each month, commencing April 20, 2000, on the terms
and conditions hereinafter set forth. The principal amount of this Note,
together with accrued interest thereon, shall be payable on the Maturity Date
(as the same may be extended) out of any funds of the Company legally available
therefor. The principal amount of this Note, together with accrued interested
thereon, may, at the sole option of the Payee, be converted into shares of
Company common stock, par value $.001 per share (the "Common Stock") on or prior
to the Maturity Date (as the same may be extended), as provided in Section 5 of
this Note. Interest on this Note shall be calculated on the basis of a 365-day
year and the actual number of days elapsed.
1. The principal sum, interest thereon and all sums due hereunder shall
be payable at the address of Payee set forth in the heading hereof or at such
other place as Payee, from time to time, may designate in writing.
<PAGE>
2. Subject to the Payee's conversion rights set forth in Section 5
below, the Company shall prepay the principal sum hereof and accrued interest
hereon in whole prior to the Maturity Date (as the same may be extended) from
proceeds received by the Company through any public or private offering of any
Common Stock, preferred stock or notes which are convertible into or exercisable
for shares of Common Stock (collectively, "Equity Capital") subsequent to the
date hereof.
3. This Note is one of the duly authorized promissory notes of the
Company issued pursuant to the Securities Purchase Agreement dated as of March
1, 2000 (herein referred to as the "Securities Purchase Agreement") by and
between the Company and the Purchasers thereof pursuant to which the Company has
issued promissory notes in the aggregate principal amount of not more than $6.2
million (this Note together with such other promissory notes are collectively
referred to as the "Senior Bridge Notes").
4. If the Company elects to extend the original July 6, 2000 Maturity
Date of this Note to a later Maturity Date up to and including November 3, 2000,
the Company shall pay to Payee in consideration therefor (the "Extension Fee")
such number of shares of Common Stock as shall equal five percent (5%) of the
outstanding principal balance of this Note divided by the average closing bid
prices of the Common Stock, as traded on the Nasdaq OTC Bulletin Board, the
Nasdaq Small Cap Market, the Nasdaq National Market or any other national
securities exchange (as the case may be), for the twenty-one (21) consecutive
Trading Days (the "21-Day Average Stock Price") immediately prior to November 3,
2000. As used herein, the term "Trading Days" shall mean the days on which the
New York Stock Exchange, Inc. and the Nasdaq Stock Market, Inc. shall be open
for trading.
5. (a) If the Company seeks to raise any additional Equity Capital, the
Payee shall have the option to convert this Note at the closing of any such
Equity Capital financing into a number of whole shares of Common Stock
which shall equal the outstanding principal amount of this Note plus
accrued interest thereon (the "Conversion Amount") divided by the price per
share at which Common Stock is sold in such Equity Capital financing or the
conversion price of any notes or preferred stock sold in such Equity
Capital financing. The Company shall give the Payee not less than thirty
(30) days prior notice of any proposed Equity Capital financing, and copies
of all offering documents. The Payee may condition his or her conversion of
this Note upon completion of the Equity Capital financing.
(b) In the case of any (1) consolidation or merger of the
Company into any entity (other than a consolidation or merger that does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock), (2) sale, transfer, lease or
conveyance of all or substantially all of the assets of the Company as an
entirety or substantially as an entirety, or (3) reclassification, capital
reorganization or change of the Common Stock (other than solely a change in
par value, or from par value to no par value), in each case as a result of
which shares of Common Stock shall be converted into the right to receive
stock, securities or other property (including cash or any combination
thereof), the Payee shall have the option to convert this Note at the
closing of such event into the kind and amount of securities, cash and
other property receivable by a holder of the number of shares
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<PAGE>
of Common Stock into which this Note would have been converted immediately
prior to such event based upon the Conversion Amount divided by the price
per share of Common Stock upon which the transaction was valued or is to be
consummated.
(c) Within ten (10) days of receipt of notice of an Event of
Default (as defined in Section 6 hereof) and prior to any action taken by
Payee under Section 7 hereof, the Payee shall have the option to convert
this Note into a whole number of shares of Common Stock equal to the
Conversion Amount divided by the 21-Day Average Stock Price immediately
prior to the date of the Event of Default.
(d) The Payee may exercise his conversion right, in whole or
in part, upon surrender of this Note to the Company at its address in the
heading hereof. Upon surrender thereof, the Company will cause to be issued
certificates for the total number of shares of Common Stock for which the
Note is being exercised as are required for delivery, within fifteen (15)
days of such exercise, to the Payee.
(e) No fractional shares of Common Stock shall be issued by in
connection with any conversion of this Note and no cash payment shall be
made therefor.
6. The occurrence of any of the following shall constitute an Event of
Default hereunder:
(a) The failure of the Company to pay when due the principal sum
hereof or any accrued interest hereon.
(b) The commencement of any involuntary case or the filing of
a petition against the Company seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the Federal
bankruptcy laws, as now or hereafter constituted, or under any other
applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law, or seeking the appointment of a receiver, liquidator,
custodian, trustee (or similar official) of the Company for any substantial
part of its property, or seeking the winding-up or liquidation of its
affairs (and such involuntary case or petition is not dismissed within
sixty (60) days after the filing thereof), or the commencement by the
Company of a voluntary case or the institution by the Company of
proceedings to be adjudicated a bankrupt or insolvent, or proceedings
against it, under the Federal bankruptcy laws as now or hereafter
constituted, or any other applicable Federal or state bankruptcy or
insolvency or other similar law, or the consent by the Company to the
appointment of or taking possession by a receiver, liquidator, trustee,
custodian (or other similar official) of the Company for any substantial
part of its property, or the making by it of any assignment for the benefit
of creditors or the admission by it in writing of its inability to pay its
debts generally as they become due.
(c) The occurrence of an Event of Default under any Senior
Bridge Notes issued by the Company pursuant to the Securities Purchase
Agreement.
(d) The breach by the Company of any representation or warranty
contained in the Securities Purchase Agreement.
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<PAGE>
(e) The failure by the Company to perform any covenant or
agreement on its part required to be performed under this Note, the Senior
Bridge Notes, the Securities Purchase Agreement or the Registration Rights
Agreement unless such covenant or agreement shall be fully performed within
ten (10) days after notice of default.
(f) The Company shall sell or otherwise dispose of all or
substantially all of its assets or consummate a merger, consolidation or
reorganization with or into one or more other entities, except for any such
transaction in which the holders of shares of capital stock of the Company
on the date hereof, directly or indirectly, continue to own a majority of
the voting securities of the surviving entity having the right under
ordinary circumstances to elect a majority of the Board of Directors or
comparable governing body of such entity.
(g) The Company shall issue any debt obligation senior in
right of payment or security to the Senior Bridge Notes.
7. If there shall occur an Event of Default described in Paragraph 6
hereof, Payee may at his option, by written notice to the Company, declare the
entire unpaid balance of principal with interest accrued thereon and all other
sums due under this Note to be immediately due and payable. If there shall occur
an Event of Default described in subparagraph 6(b), the entire unpaid balance of
principal with interest accrued thereon and all other sums due under this Note
shall be immediately due and payable without notice to the Company. If there
shall occur an Event of Default, Payee shall be entitled to costs of collection,
including reasonable attorneys' fees.
8. The Company hereby waives presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default, or enforcement of the payment of this Note. The Company
agrees that its liability shall be unconditional, without regard to the
liability of any other party, and shall not be affected in any manner by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee.
9. This Note and the obligations of the Company shall be senior in
right of payment to all other debt obligations of the Company (other than Senior
Bridge Notes) arising or incurred subsequent to the date of this Note except for
senior or secured debt obligations assumed by the Company in connection with the
acquisition or purchase of other entities or assets by merger or otherwise.
10. All rights and remedies of Payee under this Note and any applicable
law are separate and cumulative, and the exercise of one shall not limit or
prejudice the exercise of any other such rights or remedies. No delay or
omission by Payee in exercising any right or remedy shall operate as a waiver
thereof. No waiver of any rights and remedies hereunder, and no modification or
amendment of this Note, shall be deemed made by Payee unless in writing and duly
signed by Payee. Any such written waiver shall apply only to the particular
instance specified therein and shall not impair the further exercise of such
right or remedy or of any other right or remedy of Payee, and no
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<PAGE>
single or partial exercise of any right or remedy under this Note shall preclude
any other or further exercise thereof or any other right or remedy.
11. The shares of Common Stock into which this Note is convertible in
accordance with Section 5 hereof are subject to the rights and privileges set
forth in the Registration Rights Agreement of even date herewith among the
Company and the Senior Bridge Note investors.
12. The Company and Payee agree that this Note shall be governed by and
construed according to the laws of the State of Illinois applicable to contracts
wholly performed within such jurisdiction.
13. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS NOTE, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS. EACH OF THE COMPANY AND PAYEE HEREBY EXPRESSLY
AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF
ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH OF THE
COMPANY AND PAYEE FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF ILLINOIS. EACH OF THE COMPANY AND PAYEE HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
14. EACH OF THE COMPANY AND PAYEE HEREBY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
NOTE, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
15. All notices and other communications provided for under this Note
shall be made in writing to the addresses (either of which may be changed by
written notice) of the Company and Payee at their respective addresses in the
heading hereof. Notices shall be deemed to have been duly given when delivered
by hand, or, if mailed, three business days after deposit in the mail, postage
prepaid and return receipt requested.
16. This Note may be amended by an instrument in writing executed by
the Company and the Payees who hold a majority of the aggregate principal amount
of the Senior Bridge Notes and any such amendment shall be binding on all Payees
of the Senior Bridge Notes; provided, however, that no such amendment that
alters the principal amount hereof, the rate of interest payable hereon the
Maturity Date of this Note or the provisions of Section 5 hereof shall be
binding on any Payee without the prior written consent of such Payee.
5
<PAGE>
17. This Note shall be binding upon and shall inure to the benefit of
the Company, Payee and their respective successors, assigns, personal
representatives, heirs or legatees, as the case may be.
[SIGNATURE ON NEXT PAGE]
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note the day and
year first above written.
NUCLEUS, INC.
By:______________________________
Its___________________________
7
EXHIBIT 4.9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of March 1, 2000, by and among NUCLEUS, INC, a Nevada corporation (the
"Company"), and the undersigned investors (each of the undersigned being
singularly referred to as an "Investor" and collectively as the "Investors").
R E C I T A L S:
WHEREAS, pursuant to a Securities Purchase Agreement dated the date
hereof (the "Purchase Agreement") by and between the Company and the Investors,
the Company has agreed to sell and the Investors have agreed to purchase up to
an aggregate principal amount of $6,200,000 in convertible promissory notes of
the Company (the "Senior Bridge Notes") and shares of the Company's Common
Stock, par value $.001 per share (the "Common Stock"); and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investors' agreement to enter into the Purchase Agreement, the Company has
agreed to provide the Investors with certain registration rights with respect to
the shares of Common Stock acquired under the Purchase Agreement (the "Stock")
and the shares of Common Stock issuable upon conversion of the Senior Bridge
Notes (the "Convertible Shares");
NOW THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Purchase
Agreement and this Registration Rights Agreement, the Company and the Investors
agree as follows:
AGREEMENT:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, par value $.001
per share.
"Notes" shall mean up to $6,200,000 aggregate principal amount of
Senior Bridge Notes issued pursuant to the Purchase Agreement.
"Other Registrable Shares" shall mean those shares (which includes
shares of Common Stock issuable upon exercise of warrants) of Common Stock
heretofore or hereafter issued pursuant to one or more agreements granting the
purchasers of such securities the right to have the Company register such
securities or include such securities in any other registration of the Company's
equity securities.
<PAGE>
"Registrable Shares" shall mean (i) the Shares, and (ii) any Common
Stock of the Company issued or issuable in respect of the Shares or upon any
stock split, stock dividend, recapitalization or similar event; provided,
however, that Registrable Shares or other securities shall no longer be treated
as Registrable Shares if (A) they have been sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, (B) they have been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon consummation of such sale, or (c) all of the Shares are available
for public sale under the Securities Act (including Rule 144), in the opinion of
counsel to the Company, without compliance with the registration and prospectus
delivery requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto may be removed upon the
consummation of such sale.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 2 hereof, including, without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements (not to exceed $15,000) of one counsel for the Investors and any
selling holders of Other Registrable Shares for a limited "due diligence"
examination of the Company incident to such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company, and excluding all underwriting discounts and selling
commissions applicable to the sale of the Registrable Shares or Other
Registrable Shares).
"Registration Statement" shall mean the registration statement filed
with the Commission by the Company at the request of the Investors covering the
Shares pursuant to this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares and all fees and
disbursements of one counsel for the Investors and selling holders of Other
Registrable Shares (other than the fees and disbursements of such counsel
included in Registration Expenses).
"Shares" shall mean, collectively, the Stock, the "Additional Shares"
(as that term is defined in Section 5.4 of the Securities Purchase Agreement)
and the Convertible Shares.
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2. REGISTRATION.
(a) DEMAND FOR REGISTRATION. If the Company shall receive, at
any time after 120 days from the date hereof, a written request from one or more
of the Investors holding more than 50% of the total number of Shares held by all
Investors that the Company file a Registration Statement with respect to all the
Shares, then (A) the Company shall use its best efforts to file with the
Commission a Registration Statement on Form S-3, if the Company is then eligible
to use such Form S-3, or if not so eligible, on Form S-1, Form SB-2 or such
other form as is then appropriate for use by the Company under the Securities
Act and (B) the Company shall use its best efforts to cause the Registration
Statement to be declared effective by the Commission (including, without
limitation, undertaking the actions described in Section 4), so as to permit or
facilitate the sale and distribution of the Registrable Shares; and (c) the
Company shall cause such Registration Statement to remain effective for a period
of two (2) years (subject to the right of the Company to suspend the
effectiveness thereof for not more than an aggregate of ninety (90) days;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration pursuant to this Section 2(a) if: (i) counsel to
the Company determines that any such registration violates the federal
securities laws; or (ii) the Company and the Investors determine that such
registration adversely impacts the Company's access to public or private capital
markets. Except as provided in Section 2(b)(ii) below, the demand registration
rights set forth in this Section 2(a) shall be on one occasion only, and the
Company shall, so long as it advises all Investors at least twenty (20) days
prior to filing such registration statement of the exercise of such right, have
no further demand registration obligations hereunder.
The Registration Statement filed pursuant to the request of the
Investors hereunder may, subject to the provisions of Section 2.2(b) below,
include Other Registrable Shares, or other securities of the Company which are
held by officers or directors of the Company, and may include securities of the
Company being sold for the account of the Company.
(b) UNDERWRITING. If the Investors intend to distribute the
Shares by means of an underwriting, it shall so advise the Company. The right of
any holder of Other Registrable Shares to have such shares included in the
registration shall be conditioned upon such holder's participation in such
underwriting and the inclusion of such holder's Other Registrable Shares in such
underwriting (unless otherwise mutually agreed by the Investor and such holder
with respect to such participation and inclusion) to the extent provided herein.
(i) If the Company shall request inclusion in any
registration pursuant to Section 2 of securities being sold for its own
account, or if officers or directors of the Company holding other
securities of the Company or holders of Other Registrable Shares, shall
request inclusion in any registration pursuant to Section 2, the Investors
shall, on behalf of all holders of Other Registrable Shares, offer to
include Other Registrable Shares and the securities of the Company, and
such officers and directors in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this
Agreement. The Company shall (together with all holders of Other
Registrable Shares and officers and directors proposing to distribute their
securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or representative of
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the underwriters selected for such underwriting by the Company, which
underwriter(s) shall be reasonably acceptable to the Investors.
(ii) Notwithstanding any other provision of this
Section 2, if the representative of the underwriters advises the Company in
writing that marketing factors require a limitation on the number of shares
to be underwritten, the Company shall so advise the Investors and all
holders of Other Registrable Shares and other shareholders whose securities
would otherwise be underwritten pursuant to such registration, and the
number of Other Registrable Shares and other securities that may be
included in the registration and underwriting shall be allocated in the
following manner: the securities to be offered by the Company and the
securities of the Company held by officers and directors of the Company
shall be excluded from such registration and underwriting to the extent
required by such limitation, and, if a limitation on the number of shares
is still required, the Other Registrable Shares shall, subject to existing
rights and priority of registration of holders of Other Registrable Shares,
be excluded before any Registrable Shares are excluded, from such
registration and underwriting to the extent required by such limitation,
and, if a limitation on the number of shares is still required, the number
of Registrable Shares that may be included in the registration and
underwriting shall be allocated among all holders of Registrable Shares in
proportion, as nearly as practicable, to the respective amounts of
Registrable Shares which they had requested to be included in such
registration at the time of filing the registration statement. No
Registrable Shares or any other securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall also be included
in such registration. Notwithstanding the foregoing, if and to the extent
that any Registrable Shares are excluded from such registration statement,
the Investors may have one additional non-underwritten demand registration
of such excluded Registrable Shares pursuant to Section 5(a) above.
(iii)If the Company or any officer, director or holder of Other
Registrable Shares who has requested inclusion in such registration and
underwriting as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the underwriter and the Investors. The securities so
withdrawn shall also be withdrawn from registration.
(c) PIGGYBACK REGISTRATION. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its stock or other securities under the Securities Act in connection with
a public offering of such securities (other than a registration on Form S-4 or
Form S-8 or an exchange offering solely to the Company's existing stockholders),
the Company shall, at such time, promptly give each Investor written notice of
such registration. Upon the written request of each Investor given within twenty
(20) days after receipt of written notice from the Company, the Company shall,
subject to the provisions below, cause to be registered under the Securities Act
all of the Registrable Securities that each such Holder has requested to be
registered.
(d) UNDERWRITING REQUIREMENTS. In connection with any offering
initiated by the Company for the underwritten sale of shares being issued and
sold by the Company, the
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Company shall not be required under this Section to include any of the
Investors' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company; provided,
that such underwriting agreement shall not provide for indemnification or
contribution obligations on the part of the Investors greater than the
obligations set forth in Section 5(b). If the total amount of securities,
including Registrable Securities, requested by stockholders of the Company to be
included in such offering exceeds the amount of securities, sold other than by
the Company, that the underwriters reasonably believe is compatible with the
success of the offering, then the number of securities that may be included in
the registration and underwriting shall be allocated in the following manner:
the Other Registrable Shares shall, subject to existing rights of holders of
Other Registrable Shares, be excluded before the Registrable Shares, from such
registration and underwriting to the extent required by such limitation, and, if
a limitation on the number of shares is still required, the number of
Registrable Shares that may be included in the registration and underwriting
shall be allocated among all holders of Registrable Shares in proportion, as
nearly as practicable, to the respective amounts of Registrable Shares which
they had requested to be included in such registration at the time of filing the
registration statement. No Registrable Shares or any other securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
also be included in such registration.
3. EXPENSES OF REGISTRATION. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance of the Registrable Shares pursuant to this Agreement. All Selling
Expenses shall be borne by the holders of the securities so registered pro rata
on the basis of the number of their shares so registered.
4. REGISTRATION PROCEDURES. Wherever required under this Agreement to
effect the registration of Registerable Shares, the Company will:
(a) Use reasonable efforts to keep such registration effective
for a period of two (2) years (subject to the right of the Company to suspend
the effectiveness thereof for not more than an aggregate of ninety (90) days
during such five (5) year period) or until the Investors have completed the
distribution described in the registration statement relating thereto or until
the securities registered cease to be Registrable Shares, whichever first
occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of securities
covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the prospectus,
as the Investors from time to time may reasonably request;
(d) Use reasonable efforts to (i) register and qualify the
Registrable Shares covered by the Registration Statement under such other
securities or blue sky laws of such
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jurisdictions as the Investors reasonably request, (ii) prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect until such date set forth in clause
(a) above and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Shares for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (1) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 4(d), (2)
subject itself to general taxation in any such jurisdiction, (3) file a general
consent to service of process in any such jurisdiction, (4) provide any
undertakings that cause more than nominal expense or burden to the Company or
(5) make any change in its charter or by-laws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders;
(e) In the event the Investors select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering;
(f) As promptly as practicable after becoming aware of such
event, notify the Investors of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to the
Investors as they may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Investors (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission of any stop order or
other suspension of effectiveness of the Registration Statement at the earliest
possible time;
(h) Permit a single firm of counsel designated as selling
stockholders' counsel to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the Commission, and shall not file any document in a form to which such counsel
reasonably objects;
(i) Make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement;
(j) At the request of the underwriter in the event the sale of
Registrable Shares is underwritten, furnish on the date that Registrable Shares
are delivered to an underwriter for sale
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<PAGE>
in connection with the Registration Statement (i) a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters;
and (ii) an opinion, dated such date, from counsel representing the Company for
purposes of such Registration Statement, in form and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and any
selling stockholders;
(k) Make available for inspection by the Investors, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such holder or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to the Investors or a holder of Other Registrable Shares) of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction or (iii) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 4(k). The Investors agree
that they shall, upon learning that disclosure of such Records is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. The Company shall hold in
confidence and shall not make any disclosure of information concerning any
Investor provided to the Company pursuant to Section 5(e) hereof unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning any
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor, at its
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information;
(l) Use its best efforts to (i) cause all the Registrable
Shares covered by the Registration Statement to be listed on any national
securities exchange on which shares of Common Stock are then listed if the
listing of such Registrable Shares is then permitted under the rules of such
exchange, (ii) secure designation of all the Registrable Shares covered by the
Registration Statement
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as a National Association of Securities Dealers Automated Quotations System
("NASDAQ") "national market system security" within the meaning of Rule 11Aa2-1
of the Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Registrable Shares on the NASDAQ
National Market, if shares of Common Stock are then so quoted or eligible for
quotation or (iii) if the Common Stock is not quoted on or eligible for
quotation on the NASDAQ National Market, secure designation of the Registrable
Shares on the NASDAQ Small Cap Market or the OTC Bulletin Board, where the
Common Stock may then be quoted;
(m) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Shares not later than the effective date of
the Registration Statement and cause such transfer agent to act in accordance
with this Agreement;
(n) Cooperate with the Investors and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing the Shares sold
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts as the case may be, as the managing underwriter or
underwriters, if any, or the Investors or may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or the
Investors may request; and
(o) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the Registrable Shares pursuant
to the Registration Statement.
5. INDEMNIFICATION.
(a) The Company will indemnify the Investors with respect to
which registration has been effected pursuant to this Agreement, and each
underwriter, if any and each person who controls any underwriter, and their
respective counsel against all claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, or other document incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company in connection with
any such registration and will reimburse the Investors, each such underwriter
and each person who controls any such underwriter, for any legal and any other
expenses as they are reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided, however,
that the indemnity contained in this Section 5(a) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Company; and provided further
that the Company shall not be liable in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by any Investor or underwriter and stated to be specifically for use
therein. The foregoing indemnity agreement is further subject to the condition
that insofar as it relates to any untrue statement, alleged untrue statement,
omission or alleged omission made in a preliminary prospectus, such indemnity
agreement shall not inure to the benefit of the foregoing indemnified parties if
copies of a final prospectus correcting the
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<PAGE>
misstatement, or alleged misstatement, omission or alleged omission upon which
such loss, liability, claim or damage is based is timely delivered to such
indemnified party and a copy thereof was not furnished to the person asserting
the loss, liability, claim or damage.
(b) Each Investor will indemnify the Company, each of its
directors and officers and each underwriter, if any, of the Company's securities
covered by such a Registration Statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act and the rules and
regulations thereunder and their respective counsel (collectively, the "Company,
Underwriters and Counsel") against all claims, losses, damages and liabilities
(or actions, proceedings or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
relating to such Investor contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein
relating to such Investor or necessary to make the statements therein relating
to such Investor not misleading or any violation by such Investor of any rule or
regulation promulgated under the Securities Act applicable to such Investor and
relating to action or inaction required of such Investor in connection with any
such registration; and will reimburse the Company, directors, officers,
partners, persons, underwriters or control persons for any legal or any other
expense reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) relating to such Investor is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Investor and stated to be specifically for use therein;
provided, however, that such indemnification obligations shall not apply if the
Company modifies or changes to a material extent written information furnished
by such Investor. Each Investor will indemnify the Company, Underwriters and
Counsel against all claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof), arising out of or based on any
sale of Registrable Shares made by such Investor following receipt by the
Investor of written notice from the Company, Underwriters or Counsel that the
registration statement filed with respect to such Registrable Shares contains an
untrue statement of material fact or omits to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Notwithstanding the above, the
indemnification obligations of each Investor shall be limited in amount to the
net amount of proceeds received by such Investor from the sale of such
Registrable Shares.
(c) To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 5 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 5, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Shares who was not guilty of such fraudulent misrepresentation and (c)
contribution by any seller of Registrable Shares shall be limited in amount to
the net amount of proceeds received by such seller from the sale of such
Registrable Shares.
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<PAGE>
(d) Each party entitled to indemnification under this Section 5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed) and the Indemnified Party may participate
in such defense at such Indemnified Party's expense. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
6. AGREEMENTS OF INVESTORS. The Investors shall furnish to the Company
such information regarding the Investors and the distribution proposed by the
Investors as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration referred to in this
Agreement.
7. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the Commission that may at any time permit
the Investors to sell securities of the Company to the public without
registration and without imposing restrictions arising under the federal
securities laws on the purchases thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner, all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to the Investors so long as the Investors own
Registrable Shares, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
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8. MISCELLANEOUS.
(a) GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without giving effect to
conflict of laws of such jurisdiction.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
(c) ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
(d) NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered by hand or by messenger or courier delivery
service, addressed (a) if to the Investors at such addresses as the Investors
shall have furnished to the Company in writing, or (b) if to the Company at 150
North Michigan Avenue, Suite 3610, Chicago, Illinois 60601, Attn.: President, or
at such other address as the Company shall have furnished to Investor and each
such other holder in writing.
(e) DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to the Investor, upon any breach or default of
the Company under this Agreement, shall impair any such right, power or remedy
of the Investors nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereunder occurring, nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of the
Investors of any breach or default under this Agreement, or any waiver on the
part of any party of any provisions of conditions of this Agreement, must be in
writing and
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shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
the Investor, shall be cumulative and not alternative.
(f) COUNTERPARTS. This agreement may be executed in any number
of counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
(g) SEVERABILITY. In the case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(h) AMENDMENTS. The provisions of this Agreement may be amended at
any time and from time to time, and particular provisions of this Agreement may
be waived, with and only with an agreement or consent in writing signed by the
Company and by the Investors.
(i) TERMINATION OF REGISTRATION RIGHTS. This Agreement shall
terminate at such time as the Shares no longer constitute Registrable Shares.
The foregoing Registration Rights Agreement is hereby executed as of
the date first above written.
COMPANY: INVESTORS:
NUCLEUS, INC.
By:_____________________________ _____________________________
John C. Paulsen, President
_____________________________
_____________________________
12
Exhibit 10.1
APPLIED GENETIC VENTURES, INC.
INCENTIVE STOCK OPTION PLAN
ARTICLE I
Purpose of Plan
This INCENTIVE STOCK OPTION PLAN (the "Plan") of APPLIED GENETIC VENTURES,
INC. (the "Company") for executive and other key employees of the Company, is
intended to advance the best interest of the Company by providing those key
employees of the Company, thereby encouraging them to remain in its employ.
Further, the availability and offering of incentive stock options under the Plan
supports and increases the Company's ability to attract and retain individuals
of exceptional managerial talent upon whom, in large measure, the sustained
progress, growth and profitability of the Company depends.
ARTICLE II
Definitions
For Plan Purposes, except where the context might clearly indicate
otherwise, the following terms shall have the meanings set forth below:
"Board" shall mean the Board of Directors of the Company.
"Code," shall mean the Internal Revenue Code of 1954, as amended, and the
rules and regulations promulgated thereunder.
"Committee" shall mean the Compensation Committee, or such other committee
of the Board, which shall be designated by the Board, to administer the Plan.
The Committee shall be composed of one or more persons as from time to time are
appointed to serve by the Board. Each member of the Committee, while service as
such, shall also be a member of the Board.
"Common Shares" shall mean the Company's Common Shares, par value $.0001
per share, or, in the event that the outstanding Common Shares are hereafter
changed into or exchanged for different shares or securities of the Company,
such other shares or securities. The total number of shares under the Agreement
shall be 25,000,000 shares.
"Fair Market Value" shall mean, with respect to the date any given stock
option is granted or exercised, the average of the highest and lowest reported
sales prices of the Common Shares for the previous 12 months, as reported by
such responsible reporting service as the Committee may select, or if there were
no transactions in the Common Shares on such day, then the last preceding day on
which transactions took place. The above notwithstanding, the Committee may
determine the Fair Market Value in such other manner as it may deem more
equitable for Plan purposes or as is required by applicable laws or regulations.
<PAGE>
"Incentive Stock Options" or "ISO" shall mean a stock option which is
intended to meet and comply with the terms and conditions for an incentive stock
option as set forth in Section 422A of the Code.
"Optionee" shall mean an employee of the Company who has been granted one
or more Incentive Stock Options under the Plan.
"Stock Option Agreement" shall mean the agreement between the Company and
the Optionee under which the Optionee may purchase Common Shares hereunder.
"10% Shareholder" shall mean an employee who owns 10% or more of the Common
Shares as such amount is calculated under Section 422A(b)(6) of the Code.
Attribution rules under Section 425(d) of the Code are applicable to determine
whether the 10% ownership rule is satisfied.
ARTICLE III
Administration of the Plan
1. The Committee shall administer the Plan and accordingly, it shall have
full power to grant Incentive Stock Options, construe and interpret the Plan,
establish rules and regulations and perform all other acts, including the
delegation of administrative responsibilities, it believes reasonable and
proper.
2. The determination of those eligible to receive Incentive Stock Options,
and the amount, type and timing of each stock option and the terms and
conditions of the respective stock option agreements shall rest in the sole
discretion of the Committee, subject to the provisions of the Plan.
3. The Committee may cancel any Incentive Stock Options awarded under the
Plan if an Optionee conducts himself in a manner which the Committee determines
to be inimical to the best interest of the Company.
4. The Board, or the Committee, may correct any defect, supply any omission
or reconcile any inconsistency in the Plan, in the manner and to the extent it
shall deem necessary to carry it into effect.
5. Any decision made, or action taken, by the Committee or the Board
arising out of or in connection with the interpretation and administration of
the Plan shall be final and conclusive.
6. Meetings of the Committee shall be held at such times and places as
shall be determined by the Committee. A majority of the members of the Committee
shall constitute a quorum for the transaction of business, and the vote of a
majority of those members present at any meeting shall decide any question
brought before the meeting. In addition, the Committee may take any action
otherwise proper under the Plan by the affirmative vote, taken without a
meeting, of a majority of its members.
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7. No member of the Committee shall be liable for any act or omission of
any other member of the Committee or for any act or omission on his own part,
including, but not limited to, the exercise of any power or discretion given to
him under the Plan, except those resulting from his own gross negligence or
willful misconduct.
8. The Company, through its management, shall supply full and timely
information to the Committee on all matters relating to eligible employees,
their duties and performance, and current information on death, retirement, and
disability or other termination of employment of Optionee, and such other
pertinent information as the Committee may require.
ARTICLE IV
Shares Subject to the Plan
1. The total number of shares of the Company available for grants of
Incentive Stock Options under the Plan shall be 25,000,000 Common Shares,
subject to adjustment in accordance with Article VII of the Plan, which shares
may be either authorized but unissued or reacquired Common Shares of the
Company. If the Company has not reacquired Common Shares, only authorized but
unissued Common Shares will be available for grants of Incentive Stock Options.
2. If an Incentive Stock Option or portion thereof shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares covered by such ISO shall be available for future grants of Incentive
Stock Options.
ARTICLE V
Eligible Employees
1. Consistent with the Plan's purpose, Incentive Stock Options may be
granted to employees of the Company who are performing or who have been engaged
to perform services of special importance to the management, operation or
development of the Company. Included as eligible employees are officers of the
Company, including those who are also members of the Board.
2. Any Incentive Stock Option granted hereunder to a 10% Shareholder shall
meet the terms as set forth in Section 422(c)(8) of the Code.
ARTICLE VI
Stock Option Terms and Conditions
1. All Incentive Stock Options granted under the Plan shall be evidenced by
agreements which shall be subject to applicable provisions of the Plan, and such
other provisions as the Committee may adopt.
2. The option price per unrestricted share shall not be less than 67% of
the Fair Market Value of a Common Share on the date of grant, and the Committee,
in its discretion, may specify a higher price than the Fair Market Value. The
price at which unrestricted shares may be purchased by a 10% Shareholder shall
be not less than 75% of the Fair Market Value of the Common Shares
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<PAGE>
on the date the option is granted. The option price of restricted stock shall
not be less than 30% of the Fair Market Value. The price at which restricted
shares may be purchased by a 10% shareholder shall be not less than 35% of the
Fair Market Value of the Common Shares on the date the option is granted.
3. All Incentive Stock Options granted hereunder must be granted within ten
years from the earlier of the date this Plan is adopted.
4. No Incentive Stock Option granted to any employee or 10% Shareholder
shall be exercisable after the expiration of five years from the date such ISO
is granted. The Committee, in its discretion, may provide that an option shall
be exercisable during such five year period or during any lesser period of time.
The Committee may establish installment exercise terms for an Incentive
Stock Option such that the ISO becomes fully exercisable in a series of
cumulating portions. If an Optionee shall not, in any given installment period,
purchase within such installment period, such Optionee's right to purchase any
Common Shares not purchased in such installment period shall continue until the
expiration or sooner termination of such ISO. The committee may also accelerate
the exercise of any ISO. However, no ISO, or any portion thereof, may be
exercisable until one year following the date of grant ("One-Year Holding
Period").
5. An Incentive Stock option, or portion thereof, shall be exercised by
delivery of (i) a written notice of exercise to the Company specifying the
number of Common Shares to be purchased, and (ii) payment of the full price of
such Common Shares, as fully set forth in paragraph 6 of this Article VI.
No ISO or installment thereof shall be reusable except with respect to
whole shares, and fractional share interests shall be disregarded. Not less than
100 Common Shares may be purchased at one time unless the number purchased is
the total number at the time available for purchase under the ISO are issued to
an Optionee, he shall have none of the rights of a shareholder.
6. The price of an exercised Incentive Stock Option, or portion thereof,
may be paid:
A. In United States dollars, in cash or by cashier's check,
certified check, bank or money order, payable to the order of the company in an
amount equal to the option price; or
B. At the discretion of the Committee, through the delivery of fully
paid and nonassessable Common Shares, with an aggregate Fair Market Value on the
date of the ISO exercise equal to the option price, provided such tendered
Shares have been owned by the Optionee for at least one year prior to such
exercise; or
C. By a combination of both A and B above.
4
<PAGE>
The Committee shall determine acceptable methods for tendering Common
Shares as payment upon exercise of an Incentive Stock Option and may impose such
limitations and prohibitions on the use of Common Shares to exercise an ISO as
it deems appropriate.
7. With the Optionee's consent, the Committee may cancel any Incentive
Stock Option issued under this Plan and issue a new ISO to such Optionee.
8. Except by will or the laws of descent and distribution, no right or
interest in any Incentive Stock Option granted under the Plan shall be
assignable or transferable, and no right or interest of any Optionee shall be
liable for, or Incentive Stock Options shall be exercisable during the
Optionee's lifetime only by the Optionee or the duly appointed legal
representative of an incompetent optionee.
9. In the event an Optionee shall cease to be employed by the Company, die
or become permanently or totally disabled (within the meaning of Section
105(b)(4) of the Code) while he is holding one or more Incentive Stock Options,
each ISO held shall expire at the earlier of the expiration of the Incentive
Stock Option's term or the following:
A. If the Optionee's termination of employment occurs for any reason,
except death, during the one-year holding period described in paragraph 4 of
this Article VI, the Optionee's right to exercise such ISO shall terminate and
all rights shall cease; provided, however, that if during that same period, the
optionee shall (i) retire pursuant to company-approved retirement policies then
in effect, or (ii) become permanently and totally disabled (within the meaning
of Section 105(b)(4) of the Code), such ISO shall become exercisable in full on
the date of such retirement or disability and remain exercisable for three
months after such termination date;
B. If the Optionee's termination of employment occurs for any reason,
except death, after the One-Year Holding Period described in paragraph 4 of this
Article VI, such Optionee shall have the right to exercise the ISO for three
months after such termination date to the extent that it was exercisable on the
date of such termination of employment; or
C. If the Optionee shall die while employed by the Company or within
three months after termination of such employment, the personal representative
or administrator of the Optionee's estate or the person(s) to whom an ISO
granted hereunder shall have been validly transferred by such personal
representative or administrator pursuant to the Optionee's will or the laws of
descent and distribution, shall have the right to exercise the ISO for one year
after the date of the Optionee's death, to the extent (i) such ISO was
exercisable on the date of such termination of employment by death and (ii) such
ISO was not exercised.
No transfer of an Incentive Stock Option by the will of an Optionee or by
the laws of descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer.
5
<PAGE>
In the event of death following termination of employment while any portion
of an ISO remains exercisable, the Committee, in its discretion, may provide for
an extension of the exercise period of up to one year after the Optionee's death
but not beyond the expiration of the term of the Incentive Stock Option.
10. For the purposes of this paragraph, it shall not be considered a
termination of employment when an Optionee is placed by the Company on military
or sick leave or such other type of leave of absence which is considered as
continuing intact the employment relationship of the Optionee. In case of such
leave of absence, the employment relationship shall be continued until the later
of the date when such leave equals 90 days or the date when the Optionee's right
to re-employment with the Company shall no longer be guaranteed either by
statute or contract.
11. Notwithstanding any other provision of the Plan, in the case of any ISO
granted under the Plan, the following provisions will apply:
A. The aggregate Fair Market Value of the Common Shares, determined as
of the time the ISO is granted, for which any Optionee may be granted Incentive
Stock Options under the Plan or any other plan of the Company or of any
corporation which is a parent corporation (as defined in any calendar year)
shall not exceed $100,000 plus any unused limit carryover (or such larger
individual employee maximum as may be in effect from time to time under the Code
at the time the ISO is granted), computed in accordance with Section 422A(c)(4)
of the Code;
B. No ISO shall be exercisable while there is outstanding any other
Incentive Stock Option (including any option qualifying as an ISO by reason of
any election by the Company pursuant to Section 251(c)(1)(B) of the Economic
Recovery Tax Act of 1981) which was granted to the Optionee before the grant of
such option under the Plan or any other plan which gives the right to the
Optionee to purchase stock in the Company or in a corporation which is a parent
corporation (as defined in Section 425(e) of the Code) of the Company, or any
predecessor corporation of any of such corporations at the time of the grant. In
ISO shall be treated as outstanding until it is either exercised in full or
expires by reason of lapse of time; and
C. Any optionee who disposes of Common Shares acquired on the exercise
of an ISO by sale or exchange either (i) within two years after the date of the
grant of the ISO under which the stock was acquired, or (ii) within one year
after the acquisition of such Shares, shall notify the Company of such
disposition and of the amount realized upon such disposition. The transfer of
Common Shares may also be restricted by applicable provisions of the Securities
Act of 1933, as amended.
ARTICLE VII
Adjustments or Changes in Capitalization
1. In the event that the outstanding Common Shares of the Company are
hereafter changed into or exchanged for a different number or kind of Shares
or other securities of the Company by reason of merger, consolidations other
reorganization, recapitalization, reclassification, combination of Shares, stock
split-up, or stock dividend:
6
<PAGE>
A. Prompt, proportionate, equitable, lawful and adequate adjustment
shall be made of the aggregate number and kind of Shares subject to Incentive
Stock Options which may be granted under the Plan, such that the Optionee shall
have the right to purchase such Common Shares as may be issued in exchange for
the Common Shares purchasable on exercise of the ISO had such merger,
consolidation, other reorganization, recapitalization, reclassification,
combination of Shares, stock split-up or stock dividend not taken place;
B. Rights under unexercised Incentive Stock Options or portions
thereof granted prior to any such changes both as to the number or kind of
Shares and the exercise price per Share, shall be adjusted appropriately,
provided that such adjustments shall be made without change in the total
exercise price applicable to the unexercised portion of such ISOs but an
adjustment in the price for each Share covered by such ISOs; or
C. Upon any dissolution of the Company or any merger in which the
Company is not a surviving corporation, each outstanding ISO granted hereunder
shall terminate, but the Optionee shall have the right, immediately prior to
such dissolution or merger to exercise his ISO in whole or in part.
2. The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, whose determination as
to what adjustments shall be made and the extent thereof, shall be final,
binding and conclusive. No fractional Shares shall be issued under the Plan.
ARTICLE VIII
Merger, Consolidation or Tender Offer
1. If the Company shall be a party to a binding agreement to any merger,
reorganization or sale of substantially all the assets of the Company, each
outstanding ISO shall pertain and apply to the securities and/or property which
a shareholder of the number of Common Shares of the Company subject to the ISO
would be entitled to receive pursuant to such merger, consolidation or
reorganization or sale of assets.
2. In the event that:
A. Any person other than the Company shall acquire more than 20% of
the Common Shares of the Company through a tender offer, exchange offer or
otherwise;
B. A change in the "control" of the Company occurs, as such term is
defined in Rule 405 under the Securities Act of 1933;
C. There shall be a sale of all or substantially all of the assets
of the Company;
any then outstanding ISO held by an Optionee, who is deemed by the Committee to
be a statutory officer ("insider") for purposes of Section 16 of the Securities
Exchange Act of 1934 shall be entitled
7
<PAGE>
to receive, subject to any action by the Committee revoking such an entitlement
as provided for below, in lieu of exercise of such ISO, a cash payment in an
amount equal to the difference between the aggregate exercise price of such ISO,
or portion thereof, and, (i) in the event of an offer or similar event, the
final offer price per Share paid for Common Shares, or such lower price as the
Committee may determine to conform an option to preserve its ISO status, times
the number of Common Shares covered by the ISO or portion thereof, of (ii) in
the case of an event by B or C above, the aggregate Fair Market Value of the
Common Shares covered by the ISO as determined by the Committee at such time.
3. Any payment which the Company is required to make pursuant to paragraph
2 of this Article VIII, shall be made within 15 business days, following the
event which results in the Optionee's right to such payment. In the event of a
tender offer in which fewer than all the Shares which are validly tendered in
compliance with such offer are purchased or exchanged, then only that portion of
the Shares covered by an ISO as results from multiplying such Shares by a
fraction, the numerator of which is the number of Common Shares acquired
pursuant to the offer and the denominator of which is the number of Common
Shares tendered in compliance with such offer, shall be used to determine the
payment thereupon. To the extent that all or any portion of an ISO shall be
affected by this provision, all or such portion of the ISO shall be terminated.
ARTICLE IX
Amendment and Termination of Plan
1. The Board, without further approval of the shareholders, may at any
time, and from time to time, suspend or terminate the Plan in whole or in part
or amend it in such respects as the Board may deem appropriate and in the best
interest of the Company; provided, however, that no such amendment shall be made
which would, without approval of the shareholders:
A. Materially modify the eligibility requirements for receiving
Incentive Stock Options;
B. Increase the total number of Common Shares which may be issued
pursuant to Incentive Stock Options, except as is provided for in accordance
with Article VII under the Plan;
C. Reduce the minimum option price per Share;
D. Extend the period of granting Incentive Stock Options; or
E. Materially increases in any other way the benefits accruing to
Optionee.
2. No amendments, suspension or termination of this Plan shall, without the
Optionee's consent, alter or impair any of the rights or obligations under any
ISO theretofore granted to him under the Plan.
8
<PAGE>
3. The Board may amend the Plan, subject to the limitations cited above, in
such manner as it deems necessary to permit the granting of ISOs meeting the
requirements of future amendments or issued regulations, if any to the Code.
4. No ISO may be granted during any suspension of the Plan or after
termination of the Plan.
ARTICLE X
Government and Other Regulations
1. The obligation of the Company to issue, transfer and deliver Common
Shares for ISOs exercised under the Plan shall be subject to all applicable
laws, regulations, rules, orders and approval which shall then be in effect and
required by the relevant stock exchanges on which the Common Shares are traded
and by government entities as set forth below or as the Committee in its sole
discretion shall deem necessary or advisable. Specifically, in connection with
the Securities Act of 1933, upon exercise of any ISO, the Company shall not be
required to issue Common Shares unless the Committee has received evidence
satisfactory to it to the effect that the Optionee will not transfer such Shares
except pursuant to a registration statement in effect under such Act or unless
an opinion of counsel satisfactory to the Company has been received by the
Company to the effect that such registration is not required. Any determination
in this connection by the Committee shall be conclusive.
ARTICLE XI
Miscellaneous Provisions
1. No person shall have any claim or right to be granted an Incentive Stock
Option under the Plan, and the grant of an ISO under the Plan shall not be
construed as giving an Optionee the right to be retained in the employ of the
Company. Furthermore, the Company expressly reserves the right at any time to
dismiss an Optionee with or without cause, free from any liability, or any claim
under the Plan, except as provided herein or in an option agreement.
2. Any expenses of administering this Plan shall be borne by the Company.
3. The payment received from Optionee from the exercise of Incentive Stock
Options under the Plan shall be used for the general corporate purposes of the
Company.
4. The place of administration of the Plan shall be in the State of
Colorado.
5. In addition to such other rights of indemnification as they may have as
members of the Board or the Committee, the members of the Committee shall be
indemnified by the company against all costs and expenses reasonably incurred by
them in connection with any action, suit or proceeding to which they or any of
them may be party by reason of any action taken or failure to act under or in
connection with the Plan or any ISO granted thereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except a
judgment based upon a finding of bad faith; provided that upon the institution
9
<PAGE>
of any such action, suite or proceeding a Committee member shall, in writing,
give the Company notice thereof and an opportunity, at its own expense, to
handle and defend the same before such Committee member undertakes to handle and
defend it on his own behalf.
6. Notwithstanding anything to the contrary in the Plan, if the Committee
finds by a majority vote, after full consideration of the facts presented on
behalf of both the Company and the Optionee, that the Optionee has been engaged
in fraud, embezzlement, theft, commission of a felony or proven dishonesty in
the course of his employment by the company or any subsidiary corporation which
damaged the company or any subsidiary corporation, or for disclosing trade
secrets of the Company or any subsidiary corporation, the Optionee shall forfeit
all unexercised ISOs and all exercised ISOs under which the Company has not yet
delivered the certificates and which have been earlier granted the Optionee by
the Committee. The decision of the Committee as to the cause of an Optionee's
discharge and the damage done to the Company shall be final.
ARTICLE XII
Effective Dates
This Plan shall become effective upon approval of the Shareholders and the
Board of Directors but in no event earlier than January 1, 1987. No stock option
may be granted before January 1, 1987; provided, however, that the Plan and all
outstanding Incentive Stock Options shall remain in effect until such ISOs have
expired or until such options are canceled.
ARTICLE XIII
WRITTEN AGREEMENT
Each ISO granted hereunder shall be embodied in a written ISO Agreement
which shall be subject to the terms and conditions prescribed above and shall be
signed by the Optionee and by any officer of the Company, for and in the name
and on behalf of the Company. Such an ISO Agreement shall contain such other
provisions as the Committee, in its discretion shall deem advisable.
/s/ Steven H. Walker
- ---------------------
Steven H. Walker
President--Chairman
July 22, 1988
10
<PAGE>
Attachment B
(Suggested form of letter to be used for notification of election to exercise.
Please do not use this page, but follow this form in a separately typed letter).
Date: ____________________
Treasurer,
Applied Genetic
Ventures, Inc.
Dear Sir:
In accordance with paragraph 2 of the Stock Option Agreement evidencing the
Option granted to me on _________________ under the Applied Genetic Ventures
Inc. Incentive Stock Option Plan, I hereby elect to exercise this option to the
extend _____________ of Common Shares.
Enclosed is (i) Certificate(s) No.(s) ________________________________
representing fully-paid Common Shares of Applied Genetic Ventures, Inc. endorsed
to the Company with signature guaranteed, and/or a certified check payable to
the order of "Applied Genetic Ventures, Inc." in the amount of $__________ as
the balance of the purchase price of $__________ for the Shares which I have
elected to purchase and (ii) the original Incentive Stock Option Agreement for
endorsement by the Company as to exercise on Schedule I thereof. I acknowledge
that the Common Shares (if any) submitted as part payment for the exercise price
due hereunder will be valued by the Company at their Fair Market Value (as
defined in the Plan) on the date this option exercise is effected by the
company. In the event I hereafter sell any Common Shares issued pursuant to this
option exercise within one year from the date of exercise or within two years
after the Date of Grant of this Option, I agree to notify the Company promptly
of the amount of taxable compensation realized by me by reason of such sale for
Federal income tax purposes.
When the certificate for Common Shares which I have elected to purchase has
been issued, please deliver it to me, along with my endorsed Incentive Stock
Option Agreement in the event there remains an unexercised balance of Shares
under the Option, at the following address:
============================
Address
Very Truly Yours,
------------------------------
Signature of Optionee
------------------------------
Print Name
11
Exhibit 10.2
APPLIED GENETIC VENTURES, INC.
STOCK PURCHASE PLAN
- --------------------------------------------------------------------------------
1. Establishment of Plan. Applied Genetic Ventures, Inc., a Nevada
corporation (the "Company"), intends to grant to selected employees, and
advisers ("Purchaser") of the Company or any of its subsidiaries, options
("Options") to purchase shares of the Company's $.0001 par value common stock
("Common Stock"), with the flexibility to make payments on a deferred basis.
Such purchases shall be made pursuant to this Stock Purchase Plan (the "Plan").
2. Purpose of Plan. The purpose of the Plan is to aid in maintaining
and developing personnel to help assure the success of the Company. The Plan is
designed to help the Company retain the services of executives, advisors and key
employees and attract new personnel when needed for future operations and
growth; to offer such personnel additional incentives to put forth maximum
efforts for the success of the business; and to afford them opportunities to
obtain or increase a proprietary interest in the Company on a favorable basis
and, thereby, to have an opportunity to share in its success.
3. Administration of the Plan. (a) The Plan shall be administered by
the Board of Directors of the Company (the "Board") as such shall exist from
time to time. Subject to authority in its discretion (i) to interpret the Plan
and all purchases made thereunder, (ii) to prescribe, adopt, amend and rescind
rules and regulations relating to the Plan, (iii) to define the terms used in
the Plan and in the purchases granted thereunder, (iv) to determine the
individuals to whom and the time or times at which the right to purchase Common
Stock shall be granted, the number of shares subject to each purchase, the
purchase price, and all other terms and provisions thereof, which may or may not
be identical, and (v) to make all other determinations necessary or advisable
for the administration of the Plan. No member of the Board shall have the power
to vote on any matter which affects solely his own interests as a purchaser or
prospective purchaser of Common Stock hereunder. All determinations made by the
Board shall be binding on all Purchasers and on their legal representatives and
assigns.
(b) On grant of the right to purchase Common Stock, the Company shall
enter into a Stock Purchase Agreement with the Purchaser. The Stock Purchase
Agreement shall contain the terms and conditions of the purchase and sale.
4. Total Number of Shares. Subject to adjustment as provided in Section
12, the total number of shares reserved at the Effective Date (as hereinafter
defined) for purchase and sale under the Plan is 25,000,000 shares of Common
Stock. The shares so reserved may be either authorized but unissued or treasury
shares of the Company.
5. Eligibility. The right to purchase common stock may be granted to
any present or future employee, officer, director, or adviser (including
independent contractors) of the Company and of its subsidiary corporations. In
determining the identity of Purchasers, the number of shares
<PAGE>
available for purchase and the other terms and provisions of each purchase, the
Board may take into account the nature of the services rendered by the
respective Purchaser, their contributions to the success of the Company and such
other factors as the Board in its discretion shall deem relevant.
6. Purchase Price. The purchase price of each share shall be determined
from time to time by the Board in its discretion. In no event shall the
purchase price be less than the par value of the Stock.
7. Issuance of Shares and Payment Therefor. (a) As soon as possible
after receipt of an application from an eligible Purchaser, the Company will
notify him of the total amount due in connection with his purchase, and the
payment amount due in connection with his purchase, and the payment program
available to the Purchaser. The Board is not required to offer a deferred
payment program to any Purchaser, but may do so in its discretion. The stock
certificates will be registered in the name of and delivered to the Purchaser
when full and final payment is made, provided, that the Purchaser shall have the
option to have the respective number of shares registered and delivered to the
Purchaser as the payments are actually made by the Purchaser.
(b) In the case of a Purchaser participating in the Plan through a
deferred payment arrangement, payroll deductions may be made pursuant to the
employee's authorization beginning with the last pay period of the month
in which the employee's application is received by the Company. If a payroll
deduction is not available or not elected, the Purchaser will pay the first
installment 15 days after the date of the notice of the amount due given by the
Company and will pay succeeding payments on the same calendar day of each
succeeding month thereafter until the purchase price had been paid in full. In
no event shall deferred payment extend beyond one year from the purchase date.
(c) The Purchaser will have the right to prepay all or any part of
the purchase price by cash payments made to the Company at any time. No
interest will be charged to the Purchaser on the unpaid balance of the purchase
price.
8. Default in Payment. In the event that a Purchaser shall at any time
default in his agreements under the Plan, including withdraw his authorization
for payroll deductions, or shall fail to pay any installment within five days
after its due date, the Company, without demand and without notice to the
Purchaser, may immediately terminate the defaulting Purchaser's rights under the
Plan and commence an action for damages. Such termination shall not affect any
shares that have been fully paid by the Purchaser.
9. Purchaser's Rights as Shareholder. The Purchaser will only become a
shareholder of record, and will only have the right to vote such shares at any
meeting of the shareholders as and when such shares become fully paid for by the
Purchaser.
10. Rights Not Transferrable. No Purchaser shall be permitted to sell,
assign, transfer, pledge, otherwise dispose of or encumber either his right to
participate in the Plan or his interest in any shares subject to purchase but
not yet fully paid for, and, such right and interest shall not be liable for or
subject to the debts of the Purchaser. If any such action is taken by the
Purchaser, or any
2
<PAGE>
claim is asserted by any other party in respect of such right and interest, such
action or claim will be treated as a default by the Purchaser.
11. Termination of Employment or Association. Upon termination of
employment or association for any reason whatsoever, including retirement or
death, all rights of the Purchaser under the Plan shall immediately terminate,
but such termination shall not affect the Purchaser's rights to shares that have
been fully paid for prior to such termination.
12. Adjustments. (a) If the outstanding shares of the Common Stock of
the Company are increased, decreased, changed into or exchanged for a different
number or kind of securities of the Company, through reorganization,
recapitalization, reclassification, stock dividend, stock split, amendment to
the Company's Articles of Incorporation or other change in corporate structure,
an appropriate and proportionate adjustment shall be made in the numbers and
prices of the Purchases granted under the Plan (but not in the aggregate
purchase price), and in the total number of shares of Common Stock with respect
to which Purchases may be purchased hereunder.
(b) Upon the effective date of the dissolution of the Company,
or of a reorganization or merger of the Company with one or more corporations in
which the Company is not the surviving corporations, or of a transfer of all or
substantially all the assets of the Company or more than fifty percent of the
outstanding shares of Common Stock of the Company to another person (as such
term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934),
unless provision has been made for continuance of the Plan, the Plan and all
deferred payment arrangements shall terminate, but, in case of such termination,
each Purchaser shall have the right to immediately pay in full any deferred
payments remaining pursuant to then existing arrangements with the Corporation.
(c) Adjustments under this Section shall be made by the Board,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final. No fractional shares of stock shall be issued under the
Plan.
13. Term of Plan. The Plan shall become effective upon its adoption by
the Board, which was accomplished at the Board of Directors meeting on December
18, 1986 and by the approval of the majority of the shareholders which was
accomplished July 22, 1988. Except as set forth above, the Plan shall continue
in effect until termination under Section 14 below or until all shares subject
to the Plan shall be issued under the Plan.
14. Termination and Amendment. The Board may at any time suspend or
terminate the Plan. The Board may also at any time amend or revise the terms of
the Plan, including, without limitation, the making of such amendments or
revisions as the Board shall deem advisable in order to conform to any change in
any law or regulation applicable thereto; provided, however, that the Board may
not, without approval by the shareholders of the Company (i) increase the
maximum number of shares which may be sold under the Plan, except as provided in
Section 12, or (ii) permit the purchase of common stock to anyone other than as
provided in Section 5. Any termination, suspension, revision or amendment of the
Plan may, without the consent of the Purchaser making payments under an approved
deferred payment arrangement, adversely affect the rights of such
3
<PAGE>
Purchaser under such arrangement, provided, that the rights of the Purchaser to
shares that have been fully paid for shall not be affected.
15. Indemnification. In addition to such other rights of indemnification
as they may have as shareholders, the Directors of the Board of Directors shall
be indemnified by the Company against all costs and expenses reasonably incurred
by them in connection with any action, suit or proceeding to which they or any
of them may be a party by reason of any action taken or failure to act under or
in connection with the Plan or any purchase granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by legal counsel selected by the Company) or paid by them in satisfaction of a
judgement in any such action, suit or proceeding, except a judgement based upon
the finding of bad faith; provided that upon the institution of any such action,
suit or proceedings, such member of the Board shall in writing give the Company
notice thereof and an opportunity, at its own expense, to handle and defend the
same before such member undertakes to handle and defend it on his/her own
behalf. Each member of the Board and each officer and employee of the Company
shall be fully justified in relying or acting in good faith upon any information
furnished in connection with the administration of the Plan by any person or
persons other than himself. In no case shall any person who is or shall have
been a member of the Board of an officer or employee of the Company, be liable
for any determination made or any action taken or any omission to act in
reliance upon such information, or for any action (including furnishing of
information) taken or any failure to act, if in good faith.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
under the Plan unless the purchase and sale and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including without limitation, the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, and any applicable state securities
laws, and shall be further subject to the approval of counsel for the Company
with respect to such compliance. The counsel for the Company with respect to
such compliance. The Company may require any Purchaser to execute an investment
letter containing such provisions as the Board may deem appropriate pursuant to
the aforementioned relevant provisions of law. The Company may also place any
legend on any certificate issued hereunder which it deems necessary to comply
with any such law.
17. Governing Law. The Plan shall be deemed made in the State of
Colorado and shall be governed by and construed and enforced in accordance with
the laws of such State applicable to contracts made and to be performed in such
State without giving effect to the principles of conflict of laws.
Adopted effective July 22, 1998
APPLIED GENETIC VENTURES, INC.
By: /s/ Steven H. Walker
------------------------------------------
Chairman and President
4
EXHIBIT 10.3
03/08/00
INDUSTRIAL
LEASE AGREEMENT
THIS LEASE is executed this 12th day of April, 2000, by and between
DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited partnership
("Landlord"), and NUCLEUS, INC., a Nevada corporation ("Tenant").
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
-----------------------------
Section 1.01. Basic Lease Provisions and Definitions.
A. Leased Premises (shown outlined on Exhibit A attached hereto): 1250
Northmeadow Parkway, Suite 100, Roswell, Georgia (the "Building"); located
in Northmeadow (the "Park");
B. Rentable Area: approximately 37,835 square feet; Landlord shall use
commercially reasonable standards, consistently applied, in determining the
Rentable Area and the rentable area of the Building. Landlord's
determination of Rentable Area shall conclusively be deemed correct for all
purposes hereunder.
C. Tenant's Proportionate Share: 72.45%;
D. Minimum Annual Rent:
Months 1 - 3 $224,333.01* per year
Months 4 - 30 $359,432.52 per year
Months 31 - 42 $370,404.65 per year
Months 43 - 54 $381,376.80 per year
Months 55 - 66 $392,727.30 per year
Months 67 - 78 $404,456.15 per year
Months 79 - 90 $416,563.35 per year
E. Monthly Rental Installments:
Months 1 - 3 $18,694.42* per month
Months 4 - 30 $29,952.71 per month
Months 31 - 42 $30,867.05 per month
Months 43 - 54 $31,781.40 per month
Months 55 - 66 $32,727.28 per month
Months 67 - 78 $33,704.68 per month
Months 79 - 90 $34,713.61 per month
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*In addition to the payment of base rental, Tenant shall provide to Landlord,
within ten (10) days after the Commencement Date, a warrant for shares of
Tenant's stock equal in value to $33,774.00, exercisable by Landlord at any time
during the Lease term. The term of the warrant shall be ten (10) years and the
strike price shall be equal to the closing price of Tenant's common stock on the
date hereof. The method of determining the number of shares which Landlord may
acquire under the warrant shall be to divide the amount of $33,774.00 by the
value of a warrant to purchase one share using the Black-Scholls Method,
assuming a ten (10) year term and the strike price set forth above, and with
other necessary assumptions as shall be mutually agreed upon by the parties
within thirty (30) days after execution of this Lease. The parties will also
agree on appropriate registration rights.
F. Base Year: N/A;
G. Lease Term: Seven (7) years and six (6) months;
H. Commencement Date: The later of (i) April 1, 2000 or (ii) the date of
substantial completion of the tenant improvements;
I. Security Deposit: $29,952.72; Landlord shall transfer Tenant's security
deposit from Tenant's existing lease (presently $8,643.50) and Tenant shall
deposit the remaining amount necessary to equal the last month's base rent;
J. Guarantor(s): None Required;
K. Broker(s): The Stephen W. Wright Company representing Tenant;
L. Permitted Use: Data centers, general office, warehousing and related
purposes;
M. Address for notices:
Landlord: Duke-Weeks Realty Limited Partnership
4497 Park Drive
Norcross, Georgia 30093
Attn: Elizabeth C. Belden, Esq.
Tenant: Nucleus, Inc.
1250 Northmeadow Parkway, Suite 100
Roswell, Georgia 30076
And Nucleus, Inc.
401 N. Michigan Avenue, Suite 745
Chicago, IL 60611
Attn: President
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With a Copy to:
Tenant's Broker: The Stephen W. Wright Company
3414 Peachtree Road, NE, Suite 720
Atlanta, Georgia 30326-1113
Attn: Stephen W. Wright
Address for rental and other payments:
Duke-Weeks Realty Limited Partnership
P.O. Box 945703
Atlanta, Georgia 30394-5703
Exhibits attached hereto:
Exhibit "A": Site plan of Leased Premises
Exhibit "B": Tenant Improvements
Exhibit "C": Tenant's Acceptance of Premises
Section 1.02. Leased Premises. Landlord hereby leases to Tenant and
Tenant leases from Landlord, under the terms and conditions herein, the Leased
Premises.
ARTICLE 2 - TERM AND POSSESSION
-------------------------------
Section 2.01. Term. The term of this Lease ("Lease Term") shall be for
the period of time and shall commence on the Commencement Date described in the
Basic Lease Provisions. If delay is longer than three (3) months beyond April 1,
2000, Landlord will continue to permit Tenant to occupy the "Old Premises"
(defined herein), until the Leased Premises can be completed, at no charge to
Tenant. The term of this Lease shall be extended by such delay. Upon delivery of
possession of the Leased Premises to Tenant, Tenant shall execute Landlord's
Tenant's Acceptance of Premises form, attached hereto as Exhibit "C",
acknowledging (i) the Commencement Date of this Lease, and (ii) that Tenant has
accepted the Leased Premises, subject only to Punch List items (as hereinafter
defined) and latent defects. No later than ten (10) days after the Commencement
Date, Tenant and Landlord shall prepare an agreed upon final punch list setting
forth the work, if any, remaining to be done, or requiring correction, on the
Leased Premises ("Punch List"), and Landlord shall promptly commence, and
thereafter with due diligence prosecute to completion within sixty (60) days,
the work required by said Punch List (which shall in no event include, except on
condition Tenant shall pay to Landlord the actual cost thereof plus ten percent
(10%) of such amount, work required as a consequence of injury or damage to the
Leased Premises attributable to Tenant, its agent, employees, contractors or
movers). If the parties cannot agree upon the final Punch List, then the Punch
List shall be determined by an independent professional engineer employed by the
mutual agreement of Landlord and Tenant. Notwithstanding the above Punch List
items, if Tenant takes possession of and occupies the Leased Premises, Tenant
shall be deemed to have accepted the Leased Premises and that the condition of
the Leased Premises and the Building was at the time satisfactory and in
conformity with the provisions of this Lease in all respects. Notwithstanding
the foregoing, Tenant may enter upon the Leased Premises during the construction
of the Leased
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<PAGE>
Premises for purposes of inspecting and reviewing the work, taking measurements,
making plans, installing trade fixtures and telephones, erecting temporary or
permanent signs and doing such other work as may be appropriate or desirable
without being deemed thereby to have taken possession or obligated itself to pay
rent but Tenant agrees that: (a) Landlord shall have no liability for injury to
any person or damage to any property of Tenant stored on the Leased Premises
except for damages caused by the willful act or gross negligence of Landlord or
its employees or agents, (b) Tenant shall not interfere with Landlord's
construction work on the Leased Premises, (c) Tenant shall indemnify, protect
and hold harmless Landlord from and against any and all claims, demands,
damages, losses, costs, expenses, liabilities and actions at law or in equity
based upon any occurrence or condition arising out of or attributable to
Tenant's exercise of such right, and (d) Tenant shall be solely responsible for
the permitting of any such work it performs.
Section 2.02. Construction of Tenant Improvements. Tenant has personally
inspected the Leased Premises and accepts the same "AS IS" without
representation or warranty by Landlord of any kind and with the understanding
that Landlord shall have no responsibility except to perform and complete the
work on the tenant finish improvements designated as Landlord's obligations in
the attached Exhibit B. The rental provided herein, includes the following
tenant improvements to the Leased Premises: (1) repaint the interior with
building standard quality paint; (2) replace existing carpet with building
standard quality carpet, except that area that is currently improved with raised
computer flooring; (3) replace tile in office area with building standard
quality tile, except that area that is currently improved with raised computer
flooring; (4) re-key all exterior doors of Leased Premises; (5) replace all
damaged ceiling tiles in Leased Premises; (6) repair or replace damaged doors in
Leased Premises; (7) install four (4) building standard doors and door hardware
from hallway 145 to Rooms 140, 142, 143 and 144 as shown on Exhibit B; and (8)
make any other repairs or replacements necessary to put the Leased Premises in
leasable condition consistent with Landlord's standard of "finished" space. As
additional consideration, Landlord shall provide to Tenant the sum of One
Hundred Forty Two Thousand Three Hundred Twenty Eight and 00/100 ($142,328.00)
Dollars to be used by Tenant for the construction of additional tenant
improvements and fixtures to the Leased Premises. The Allowance will be paid to
Tenant in no more than three (3) draws.
Each draw shall be paid within fifteen (15) days after Tenant shall provide
to Landlord evidence of the cost of the improvements or fixtures installed or
constructed through the date of the draw request. The form shall be signed by
Tenant and its contractor and shall be accompanied by such documentation as is
reasonably required by Landlord to verify and ensure that the work shown on the
draw request has been completed.
All construction work done by Tenant in the Leased Premises shall be
pursued diligently to completion and shall be performed in a good and
workmanlike manner, and in compliance with all governmental regulations. Tenant
covenants and agrees that all contractors, subcontractors and other persons or
entities performing work for Tenant at the Leased Premises will carry (i)
liability insurance in amounts acceptable to Landlord, in Landlord's reasonable
opinion, and (ii) worker's compensation insurance in the amounts required by
law.
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<PAGE>
Tenant hereby indemnifies Landlord against, and shall keep all portions of
the Leased Premises, the Building and the Land free from liens for any work
performed, material furnished or obligations incurred by Tenant. Should any
liens or claims be filed against all or any portion of the Leased Premises, the
Building or the Land by reason of Tenant's acts, omissions or work performed by
any person or entity on behalf of Tenant, Tenant shall cause same to be
discharged by bond or otherwise within thirty (30) days following notice
thereof. If Tenant fails to cause any such lien or claim to be discharged within
the required time, Landlord may cause same to be discharged and may make any
payment that Landlord, in its reasonable judgment, considers necessary,
desirable or proper in order to do so. All amounts paid by Landlord shall bear
interest at the lower of (i) eighteen percent (18%) per annum, or (ii) the
highest rate permitted under applicable law, from the date of payment by
Landlord and shall be payable by Tenant to Landlord upon written demand.
Notwithstanding the foregoing, Tenant shall be required to obtain
Landlord's prior written consent for any improvements, alterations, additional
or installments upon the Leased Premises as set forth in Section 7.03 herein.
Section 2.03. Surrender of the Premises. Upon the expiration or earlier
termination of this Lease, Tenant shall immediately surrender the Leased
Premises to Landlord in broom-clean condition and in good condition and repair,
ordinary wear and tear and damage by fire or casualty excepted. Tenant shall
also remove its personal property, trade fixtures and any of Tenant's
alterations designated by Landlord at the time of approval, promptly repair any
damage caused by such removal, and restore the Leased Premises to the condition
existing prior to the installation of such items. If Tenant fails to do so,
Landlord may restore the Leased Premises to such condition at Tenant's expense,
Landlord may cause all of said property to be removed at Tenant's expense, and
Tenant hereby agrees to pay all the costs and expenses thereby reasonably
incurred. All Tenant property, excluding the raised computer floor, which is not
removed within ten (10) days following Landlord's written demand therefor shall
be conclusively deemed to have been abandoned by Tenant, and Landlord shall be
entitled to dispose of such property at Tenant's cost without thereby incurring
any liability to Tenant. The provisions of this section shall survive the
expiration or other termination of this Lease. It is expressly understood that
Tenant is leasing the Leased Premises with the raised computer floor installed
by Sunguard and acquired by Tenant from Sunguard. Tenant will be required to
remove said floor within forty five (45) days of lease termination and shall
return the Leased Premises to Landlord in the same condition as when rented to
Tenant, with no damage to the Leased Premises caused by such removal.
Section 2.04. Holding Over. If Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant shall
become a tenant from month to month at twice the Monthly Rental Installment in
effect at the end of the Lease Term, and otherwise upon the terms, covenants and
conditions herein specified, so far as applicable. Acceptance by Landlord of
rent in such event shall not result in a renewal of this Lease, and Tenant shall
vacate and surrender the Leased Premises to Landlord upon Tenant being given
thirty (30) days' prior written notice from Landlord to vacate whether or not
said notice is given on the rent paying date. This Section 2.04 shall in no way
constitute a consent by Landlord to any holding over by Tenant upon the
expiration or earlier termination of this Lease, nor limit Landlord's remedies
in such event.
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ARTICLE 3 - RENT
----------------
Section 3.01. Base Rent. Tenant shall pay to Landlord the Minimum Annual
Rent in the Monthly Rental Installments, in advance, without deduction or
offset, beginning on the Commencement Date and on or before the first day of
each and every calendar month thereafter during the Lease Term. The Monthly
Rental Installment for partial calendar months shall be prorated.
Section 3.02. Additional Rent. In addition to the Minimum Annual Rent
Tenant shall pay to Landlord for each calendar year during the Lease Term, as
"Additional Rent,": (a) Tenant's Proportionate Share of all costs and expenses
incurred by Landlord during the Lease Term for Operating Expenses for the
Building and common areas (collectively "Common Area Charges"); (b) any increase
in insurance premiums payable by Landlord over the base amount of $.02 per
square foot of rentable area in the Building; and (c) the amount by which all
Real Estate Taxes (as herein defined) for each tax year exceeds $73 per square
foot of rentable area in the Building. The rentable area in the Building is
52,224 square feet.
"Operating Expenses" shall mean all of Landlord's expenses for operation,
repair and maintenance to keep the common areas of the Building and Park in good
order, condition and repair (including all additional direct costs and expenses
of operation and maintenance of the common areas of the Building and Park which
Landlord reasonably determines it would have paid or incurred during each year
if the Building had been fully occupied), including, but not limited to, any
increase in management or administrative fees which exceed $.25 per square foot
of rentable area in the Building; utilities; storm water discharge fees;
license, permit, inspection and other fees; fees and assessments imposed by any
covenants or owners' association; security services; and maintenance (including
snow removal) and repair of exterior lighting and landscaped areas, excluding
capital improvement expenses which are reimbursed by third parties (such as
insurance proceeds and other tenants) and other expenses incurred in connection
with leasing or improvement of other tenant space in the Building. The cost of
any capital improvement shall be amortized over the useful life of such
improvement (as reasonably determined by Landlord), and only the amortized
portion shall be included in Operating Expenses.
"Real Estate Taxes" shall include any form of real estate tax or assessment
or service payments in lieu thereof, and any license fee, commercial rental tax,
improvement bond or other similar charge or tax (other than inheritance,
personal income or estate taxes) imposed upon the Building or common areas (or
against Landlord's business of leasing the Building) by any authority having the
power to so charge or tax, together with costs and expenses of contesting the
validity or amount of Real Estate Taxes, provided that Tenant gets the benefit
of any reduction or refund obtained thereby, which at Landlord's option may be
calculated as if such contesting work had been performed on a contingent fee
basis (whether charged by Landlord's counsel or representative; provided,
however, that said fees are reasonably comparable to the fees charged for
similar services by others not affiliated with Landlord, but in no event shall
fees exceed thirty-three percent (33%) of the good faith estimated tax savings).
Additionally, Tenant shall pay, prior to delinquency, all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all personal property
of Tenant contained in the Leased Premises.
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<PAGE>
Section 3.03. Payment of Additional Rent. Landlord shall estimate the
total amount of Additional Rent to be paid by Tenant during each calendar year
of the Lease Term, pro-rated for any partial years. Commencing on the
Commencement Date, Tenant shall pay to Landlord each month, at the same time the
Monthly Rental Installment is due, an amount equal to one-twelfth (1/12) of the
estimated Additional Rent for such year. Within a reasonable time after the end
of each calendar year, Landlord shall submit to Tenant a certified statement of
the actual amount of such Additional Rent and within thirty (30) days after
receipt of such statement, Tenant shall pay any deficiency between the actual
amount owed and the estimates paid during such calendar year. In the event of
overpayment, Landlord shall credit the amount of such overpayment toward the
next installments of Additional Rent or if this Lease has expired or terminated,
refund the amount of such overpayment within thirty (30) days.
Notwithstanding the foregoing, Tenant shall, at its sole cost and expense,
during the term of this Lease, have the option to review Landlord's books and
records relating to the Additional Rent. Such review must be completed within
thirty (30) days of receipt of final statement. In the event of any errors
discovered by such review, the appropriate party shall make a correction payment
in full to the other party within thirty (30) days after the determination and
communication to both parties of the amount of such error.
Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur
certain additional unanticipated administrative and legal costs and expenses if
Tenant fails to timely pay any payment required hereunder. Therefore, in
addition to the other remedies available to Landlord hereunder, if any payment
required to be paid by Tenant to Landlord hereunder shall become overdue by more
than five (5) days, such unpaid amount shall bear interest from the due date
thereof to the date of payment at the annual prime rate (as reported in the Wall
Street Journal) of interest ("Prime Rate") plus six percent (6%) per annum.
ARTICLE 4 - SECURITY DEPOSIT
----------------------------
Upon execution of this Lease, Tenant shall deposit with Landlord an amount
such that Landlord shall have as a security deposit a sum equal to the last
month's Monthly Rental Installment. Landlord shall transfer Tenant's Security
Deposit from the existing lease between Eclipse Computer Systems, Inc. and Weeks
Realty, L.P., predecessor to Landlord, for the space commonly known as 1327
Northmeadow Parkway, Suite 132, Roswell, Georgia ("Old Premises"), as security
for the performance by Tenant of all of Tenant's obligations contained in this
Lease. In the event of a default by Tenant Landlord may apply all or any part of
the Security Deposit to cure all or any part of such default; and Tenant agrees
to promptly, upon demand, deposit such additional sum with Landlord as may be
required to maintain the full amount of the Security Deposit. All sums held by
Landlord pursuant to this section shall be held in an interest bearing account
with a major national or regional bank located in Atlanta, Georgia. All interest
earned thereon shall be the property of Tenant and shall be paid to Tenant upon
termination or expiration of this Lease. At the end of the Lease Term, provided
that there is then no uncured default, Landlord shall return the Security
Deposit to Tenant.
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ARTICLE 5 - USE
---------------
Section 5.01. Use of Leased Premises. The Leased Premises are to be used
by Tenant solely for the Permitted Use and for no other purposes without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned.
Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use and
maintain the Leased Premises and conduct its business thereon in a safe,
careful, reputable and lawful manner, (ii) comply with all laws, rules,
regulations, orders, ordinances, directions and requirements of any governmental
authority or agency, now in force or which may hereafter be in force, including
without limitation those which shall impose upon Landlord or Tenant any duty
with respect to or triggered by a change in the use or occupation of, or any
improvement or alteration to, the Leased Premises, (iii) any protective
covenants applicable to the Park which are in effect and as may hereafter be
adopted and promulgated of which Tenant has received written notice and (iv)
comply with and obey all reasonable directions of the Landlord, including any
reasonable rules and regulations that may be adopted by Landlord from time to
time of which Tenant has received written notice. Tenant shall not do or permit
anything to be done in or about the Leased Premises or common areas which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Building or injure or annoy them. Landlord shall not be responsible to
Tenant for the nonperformance by any other tenant or occupant of the Building of
its lease or of any rules and regulations provided however, that Landlord shall
enforce the rules and regulations in a non-discriminatory fashion. Tenant shall
not overload the floors of the Leased Premises. All damage to the floor
structure or foundation of the Building due to improper positioning or storage
of items or materials shall be repaired by Landlord at the sole expense of
Tenant, who shall reimburse Landlord immediately therefor upon demand. Tenant
shall not use the Leased Premises, or allow the Leased Premises to be used, for
any purpose or in any manner which would invalidate any policy of insurance now
or hereafter carried on the Building or increase the rate of premiums payable on
any such insurance policy unless Tenant reimburses Landlord as Additional Rent
for any increase in premiums charged. On or before the Commencement Date, Tenant
shall take possession of, and, thereafter, continuously occupy the Leased
Premises during the term of this Lease, and operate thereon the normal business
operations of Tenant.
Section 5.03. Landlord's Rights Regarding Use. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the common areas, each of which may
be exercised without notice or liability to Tenant, (a) Landlord may install
such signs, advertisements, notices or tenant identification information as it
shall deem necessary or proper; (b) Landlord shall have the right at any time to
control, change or otherwise alter the common areas as it shall deem necessary
or proper, provided that Landlord shall not reduce the number of tenant parking
spaces; and (c) Landlord or Landlord's agent shall be permitted to inspect or
examine the Leased Premises at any reasonable time upon reasonable notice
(except in an emergency when no notice shall be required), and Landlord shall
have the right to make any repairs to the Leased Premises which are necessary
for its preservation; provided, however, that any repairs made by Landlord shall
be at Tenant's expense, except as provided in Section 7.02 hereof. Landlord
shall incur no liability to Tenant for such entry, nor shall such entry
constitute an eviction of Tenant or a termination of this Lease, or entitle
Tenant to any abatement of rent therefor.
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ARTICLE 6 - UTILITIES AND SERVICES
----------------------------------
Tenant shall obtain in its own name and pay directly to the appropriate
supplier the cost of all utilities and services serving the Leased Premises.
However, if any services or utilities are jointly metered with other property,
Landlord shall make a reasonable determination of Tenant's proportionate share
of the cost of such utilities and services without any premium to Landlord and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement delivered by registered or certified mail.
Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility or other Building service and no such failure or
interruption shall entitle Tenant to terminate this Lease or withhold sums due
hereunder. In the event of utility "deregulation", Landlord shall choose the
service provider.
ARTICLE 7 - MAINTENANCE AND REPAIRS
-----------------------------------
Section 7.01. Tenant's Responsibility. During Lease Term, Tenant shall, at
its own cost and expense, maintain the Leased Premises in good condition,
regularly servicing and promptly making all repairs thereto, including but not
limited to the electrical systems, heating and air conditioning systems, plate
glass, windows and doors, and shall obtain a preventive maintenance contract on
the heating, ventilating and air-conditioning systems serving the Leased
Premises (hereinafter referred to as "HVAC System"), and provide Landlord with a
copy thereof. The preventive maintenance contract shall meet or exceed
Landlord's standard maintenance criteria, and shall provide for the inspection
and maintenance of the HVAC System on not less than a semi-annual basis. In the
event Tenant fails to maintain the Leased Premises in any material respect as
required herein or fails to commence repairs (requested by Landlord in writing)
within thirty (30) days after such request, or fails diligently to proceed
thereafter to complete such repairs, Landlord shall have the right in order to
preserve the Leased Premises or portion thereof, and/or the appearance thereof,
to make such repairs or have a contractor make such repairs and charge Tenant
for the cost thereof as additional rent, together with interest at the rate of
eight percent (8%) per annum from the date of making such payments. Provided
however, at Landlord's sole expense, Landlord agrees to hire Shumate Mechanical
to inspect the HVAC system and to cause it to be in excellent working order at
lease commencement and at its cost and expense make, any repairs or replacements
of the HVAC system required during the first twelve (12) months of the Lease
term, except any repairs necessary because of Tenant's negligent or tortuous
actions or omissions. During the term of the Lease, Tenant agrees to reimburse
Landlord for a fraction of the replacement cost of any compressor equal to the
number of years remaining on the Lease divided by the useful life of the HVAC
compressor.
Section 7.02. Landlord's Responsibility. During Lease Term, Landlord shall
maintain in good condition and repair, and replace as necessary, the roof,
exterior walls, foundation and structural frame of the Building and the parking
and landscaped areas, the costs of which shall not be included in Operating
Expenses; provided, however, that to the extent any of the foregoing items
require repair because of the negligence, misuse, or default of Tenant, its
employees, agents, customers or invitees, Landlord shall make such repairs
solely at Tenant's expense.
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<PAGE>
Section 7.03. Alterations. Tenant shall not permit alterations in or to
the Leased Premises unless and until the plans and the contractor have been
approved by Landlord in writing. As a condition of such approval, Landlord may
require Tenant to remove the alterations and restore the Leased Premises upon
termination of this Lease (if Landlord notifies Tenant of such removal
requirement at the time of Landlord's approval of such alteration); otherwise,
all such alterations shall at Landlord's option become a part of the realty and
the property of Landlord, and shall not be removed by Tenant. Tenant shall
ensure that all alterations shall be made in accordance with all applicable
laws, regulations and building codes, in a good and workmanlike manner and of
quality equal to or better than the original construction of the Building. Upon
completion of the work, Tenant shall provide lien waivers from the
subcontractors or a final affidavit of lien waiver from the general contractor,
and such lien waiver shall be in a form acceptable to Landlord. No person shall
be entitled to any lien derived through or under Tenant for any labor or
material furnished to the Leased Premises, and nothing in this Lease shall be
construed to constitute a consent by Landlord to the creation of any lien. If
any lien is filed against the Leased Premises for work claimed to have been done
for or material claimed to have been furnished to Tenant, Tenant shall cause
such lien to be discharged of record or by bond or other security or title
indemnity within thirty (30) days after filing. Tenant shall indemnify Landlord
from all reasonable costs, losses, expenses and attorneys' fees in connection
with any construction or alteration and any related lien. Landlord hereby
confirms that it has approved the alterations proposed by Tenant to construct a
data center including, without limitation, the installation of additional raised
flooring, upgraded wiring, a security system and a fire safety system and diesel
generators, all of which shall be removed by Tenant upon expiration or earlier
termination of this Lease.
ARTICLE 8 - CASUALTY
--------------------
Section 8.01. Casualty. In the event of total or partial destruction of
the Building or the Leased Premises by fire or other casualty, Landlord agrees
to promptly restore and repair the Leased Premises; provided, however,
Landlord's obligation hereunder shall be limited to the reconstruction of such
of the tenant finish improvements as were originally provided by Landlord, if
any. Rent shall proportionately abate during the time that the Leased Premises
or part thereof are unusable because of any such damage. Notwithstanding the
foregoing, if the Leased Premises are (i) so destroyed that they cannot be
repaired or rebuilt within one hundred eighty (180) days from the casualty date;
or (ii) destroyed by a casualty which is not covered by the insurance required
hereunder or, if covered, such insurance proceeds are not released by any
mortgagee entitled thereto or, together with the amount of any deductible, are
insufficient to rebuild the Building and the Leased Premises; then, in case of a
clause (i) casualty, either Landlord or Tenant may, or, in the case of a clause
(ii) casualty, then Landlord may, upon thirty (30) days' written notice to the
other party, terminate this Lease, effective as of the date of such fire or
other casualty with respect to matters thereafter accruing. Tenant waives any
right under applicable laws inconsistent with the terms of this paragraph and in
the event of a destruction agrees to accept any offer by Landlord to provide
Tenant with comparable space within the project in which the Leased Premises are
located on the same terms as this Lease. Notwithstanding the provisions of this
paragraph, if any such damage or destruction occurs within the final two (2)
years of the term hereof, then Landlord, in its sole discretion, may, without
regard to the aforesaid 180-day period, terminate this Lease by written notice
to Tenant.
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<PAGE>
Section 8.02. All Risk Coverage Insurance. During the Lease Term, Landlord
shall maintain all risk coverage insurance on the Building, but shall not
protect Tenant's property on the Leased Premises; and, notwithstanding the
provisions of Section 9.01, Landlord shall not be liable for any damage to
Tenant's property, regardless of cause, which is covered by Tenant's personal
property insurance, including the negligence of Landlord and its employees,
agents and invitees. Tenant hereby expressly waives any right of recovery
against Landlord for damage to any property of Tenant located in or about the
Leased Premises, which is covered by Tenant's personal property insurance,
however caused, including the negligence of Landlord and its employees, agents
and invitees. Notwithstanding the provisions of Section 9.01 below, Landlord
hereby expressly waives any rights of recovery against Tenant for damage to the
Leased Premises or the Building which is insured against under Landlord's all
risk coverage insurance. All insurance policies maintained by Landlord or Tenant
as provided in this Lease shall contain an agreement by the insurer waiving the
insurer's right of subrogation against the other party to this Lease.
ARTICLE 9 - LIABILITY INSURANCE
-------------------------------
Section 9.01. Tenant's Responsibility. Landlord shall not be liable to
Tenant or to any other person for (i) damage to property or injury or death to
persons due to the condition of the Leased Premises, the Building or the common
areas, or (ii) the occurrence of any accident in or about the Leased Premises or
the common areas, or (iii) any act or neglect of Tenant or any other tenant or
occupant of the Building or of any other person, unless such damage, injury or
death is directly and solely the result of Landlord's negligence; and Tenant
hereby releases Landlord from any and all liability for the same. Tenant shall
be liable for, and shall indemnify and defend Landlord from, any and all
liability for (i) any act or neglect of Tenant and any person coming on the
Leased Premises or common areas by the license of Tenant, express or implied,
(ii) any damage to the Leased Premises, and (iii) any loss of or damage or
injury to any person (including death resulting therefrom) or property occurring
in, on or about the Leased Premises, regardless of cause, except for any loss or
damage covered by Landlord's all risk coverage insurance as provided in Section
8.02 and except for that caused solely and directly by Landlord's or its agent's
or employee's negligence. This provision shall survive the expiration or earlier
termination of this Lease.
Section 9.02. Tenant's Insurance. Tenant shall carry general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Commercial General Liability Insurance, including blanket, contractual
liability, broad form property damage, personal injury, completed
operations, products liability, and fire damage: Not less than $3,000,000
Combined Single Limit for both bodily injury and property damage.
-11-
<PAGE>
C. All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler Leakage
insurance, if applicable, for the full cost of replacement of Tenant's
property.
D. Business interruption insurance.
The insurance policies shall protect Tenant and Landlord as their interests may
appear, naming, Landlord and Landlord's managing agent and mortgagee as
additional insureds, and shall provide that they may not be canceled on less
than thirty (30) days' prior written notice to Landlord. Tenant shall furnish
Landlord with Certificates of Insurance evidencing all required coverages on or
before the Commencement Date. If Tenant fails to carry such insurance and
furnish Landlord with such Certificates of Insurance within fifteen (15) days
after a request to do so, Landlord may obtain such insurance and collect the
reasonable cost thereof from Tenant.
ARTICLE 10 - EMINENT DOMAIN
---------------------------
If all or any substantial part of the Building or common areas shall be
acquired by the exercise of eminent domain, Landlord may terminate this Lease by
giving written notice to Tenant on or before the date that actual possession
thereof is so taken. If all or any part of the Leased Premises or access to the
Leased Premises shall be acquired by the exercise of eminent domain so that the
Leased Premises shall become impractical for Tenant to use for the Permitted
Use, Tenant may terminate this Lease as of the date that actual possession
thereof is so taken by giving written notice to Landlord. All damages awarded
shall belong to Landlord; provided, however, that Tenant may claim dislocation
damages if such amount is not subtracted from Landlord's award.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
------------------------------------
Tenant shall not assign this Lease or sublet the Leased Premises in whole
or in part without Landlord's prior written consent, which consent shall not be
unreasonably withheld, delayed or denied (provided that it shall not be
unreasonable for Landlord to withhold or deny its consent with respect to any
proposed assignment or subletting to a third party that is already a tenant in
the Building or the Park). In the event Landlord consents to the assignment or
sublease, Landlord shall notify Tenant within ten (10) business days of receipt
of written notice by Tenant of its intent to assign or sublease. In the event of
any assignment or subletting, Tenant shall remain primarily liable hereunder,
and any extension, expansion, rights of first offer, rights of first refusal or
other options granted to Tenant under this Lease shall be rendered void and of
no further force or effect. The acceptance of rent from any other person shall
not be deemed to be a waiver of any of the provisions of this Lease or to be a
consent to the assignment of this Lease or the subletting of the Leased
Premises. Without in any way limiting Landlord's right to refuse to consent to
any assignment or subletting of this Lease, Landlord reserves the right to
refuse to give such consent if in Landlord's opinion (i) the Leased Premises are
or may be in any way materially adversely affected; (ii) the business reputation
of the proposed assignee or subtenant is unacceptable; or (iii) the financial
worth of the proposed assignee or subtenant is insufficient to meet the
obligations hereunder. Landlord further expressly reserves the right to refuse
to give its consent to any subletting if the proposed rent is to be less than
the then current rent for similar premises in the Park. In the event that Tenant
sublets greater than 33% of the Leased Premises, or assigns this Lease and at
any time receives rent
-12-
<PAGE>
and/or consideration which exceeds that which Tenant would at that time be
obligated to pay to Landlord, Tenant shall pay to Landlord 100% of the gross
excess in such rent as such rent is received by Tenant and 50% of the "net
excess" (as hereinafter defined) of any other consideration received by Tenant
from such subtenant in connection with and solely for such sublease or, in the
case of any assignment of this Lease by Tenant, Landlord shall receive 50% of
any consideration paid to Tenant by such assignee in connection and solely for
with such assignment. Tenant agrees to reimburse Landlord for reasonable
accounting and attorneys' fees incurred in conjunction with the processing and
documentation of any such requested assignment, subletting or any other
hypothecation of this Lease or Tenant's interest in and to the Leased Premises
not to exceed $500.00 per transaction. "Net excess" shall mean gross rent as
reduced by all reasonable expenses of such assignment including commissions,
tenant improvement costs or re-leasing and rent paid by Tenant while the Leased
Premises was unoccupied. Landlord hereby acknowledges that the business to be
conducted by Tenant in the Leased Premises requires the installation of certain
equipment owned by customers of Tenant and third party telecommunications
providers (collectively "Collocators") in order for such Collocators to
interconnect with Tenant's telecommunications facilities in the Leased Premises.
Notwithstanding anything to the contrary contained in the Lease, to expedite
access to the Leased Premises, Landlord agrees that Tenant may license use of a
portion of the Leased Premises to such Collocators, or enter into, Collocation
Agreements with the Collocators without Landlord's prior consent. Collocation
shall not be considered an assignment or sublease for purposes of the Lease and
Landlord shall not have any rights to any portion of Tenant's income therefrom.
Tenant represents and warrants that it will require all Collocators to obtain
appropriate property and general liability insurance covering the full value of
the Collocator's equipment. Tenant agrees to indemnify and hold Landlord
harmless from and against any damage or loss to such Collocator's equipment or
use of the Leased Premises by such Collocators.
ARTICLE 12 - TRANSFERS BY LANDLORD
----------------------------------
Landlord shall have the right to subordinate this Lease to any mortgage
presently existing or hereafter placed upon the Building by so declaring in such
mortgage. In the event of a sale or transfer of such interest (except a mortgage
or other transfer as security for a debt), the "Landlord" named herein, or in
the case of a subsequent transfer, the transferor shall, after the date of such
transfer, be automatically released from all personal liability for the
performance or observance of any term, condition, covenant or obligation
required to be performed or observed by Landlord hereunder after the date of
such transfer, and the transferee shall be deemed to have assumed all of such
terms, conditions, covenants and obligations. Within ten (10) business days
following receipt of a written request from Landlord, Tenant shall execute and
deliver to Landlord, without cost, any instrument which Landlord deems necessary
or desirable to confirm the subordination of this Lease and an estoppel
certificate in such form as Landlord may reasonably request certifying (i) that
this Lease is in full force and effect and unmodified or stating the nature of
any modification, (ii) the date to which rent has been paid, (iii) that there
are not, to Tenant's knowledge, any uncured defaults or specifying such defaults
if any are claimed, and (iv) any other matters or state of facts reasonably
required respecting the Lease. Such estoppel may be relied upon by Landlord and
by any purchaser or mortgagee of the Building. Notwithstanding the foregoing, if
the mortgagee shall take title to the Leased Premises through foreclosure or
deed in lieu of foreclosure, Tenant shall be allowed to
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<PAGE>
continue in possession of the Leased Premises as provided for in this Lease so
long as Tenant shall not be in default after the expiration of any grace or cure
period therefor.
ARTICLE 13 - DEFAULT AND REMEDY
-------------------------------
Section 13.01. Default. The occurrence of any of the following shall be a
"Default":
(a) Tenant fails to pay any Monthly Rental Installment or Additional
Rent within five (5) days after the same is due, or Tenant fails to pay any
other amounts due Landlord from Tenant within ten (10) days after receipt of
notice that the same is due.
(b) Tenant fails to perform or observe any other material term, condition,
covenant or obligation required under this Lease for a period of thirty (30)
days after notice thereof from Landlord; provided, however, that if the nature
of Tenant's default is such that more than thirty days are reasonably required
to cure, then such default shall be deemed to have been cured if Tenant
commences such performance within said thirty-day period and thereafter
diligently completes the required action within a reasonable time.
(c) Tenant shall assign or sublet all or a portion of the Leased Premises
in contravention of the provisions of Article 11 of this Lease.
(d) All or substantially all of Tenant's assets in the Leased Premises
or Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60) days thereafter); a
petition in bankruptcy, insolvency or for reorganization or arrangement is filed
by or against Tenant (and Tenant fails to secure a stay or discharge thereof
within sixty (60) days thereafter); Tenant is insolvent and unable to pay its
debts as they become due; Tenant makes a general assignment for the benefit of
creditors; Tenant takes the benefit of any insolvency action or law; the
appointment of a receiver or trustee in bankruptcy for Tenant or its assets if
such receivership has not been vacated or set aside within thirty (30) days
thereafter; or, dissolution or other termination of Tenant's corporate charter
if Tenant is a corporation.
Section 13.02. Remedies. Upon the occurrence of any Default, Landlord shall
have the following rights and remedies, in addition to those allowed by law or
in equity, any one or more of which may be exercised without further notice to
Tenant:
(a) Landlord may apply the Security Deposit or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as
additional rent for any costs and expenses which Landlord thereby incurs; and
Landlord shall not be liable to Tenant for any loss or damage which Tenant may
sustain by reason of Landlord's action.
(b) Landlord may terminate this Lease or, without terminating this Lease,
terminate Tenant's right to possession of the Leased Premises as of the date of
such Default, and thereafter (i) neither Tenant nor any person claiming under or
through Tenant shall be entitled to possession of the Leased Premises, and
Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants
-14-
<PAGE>
of the Leased Premises by any lawful means and may remove their effects, without
prejudice to any other remedy which Landlord may have. Upon the termination of
this Lease, Landlord may declare the present value (discounted at the Prime Rate
of interest) of all rent which would have been due under this Lease for the
balance of the Lease Term to be immediately due and payable, whereupon Tenant
shall be obligated to pay the same to Landlord, together with all loss or damage
which Landlord may sustain by reason of Tenant's default ("Default Damages"),
which shall include without limitation reasonable expenses of preparing the
Leased Premises for re-letting, demolition, repairs, tenant finish improvements,
brokers' commissions and attorneys' fees, such payment shall not constitute a
penalty, or forfeiture, but shall constitute full liquidated damages due to
Landlord as a result of Tenant's default. Landlord and Tenant acknowledge that
Landlord's actual damages in the event of a default by Tenant under this Lease
will be difficult to ascertain, and that the liquidated damages provided above
represent the parties' best estimate of such damages. The parties expressly
acknowledge that the foregoing liquidated damages are intended not as a penalty,
but as full liquidated damages, as permitted by Section 13-6-7 of the Official
Code of Ga. Annotated it being expressly understood and agreed that the
liabilities and remedies specified in this subsection (b) shall survive the
termination of this Lease.
(c) Landlord may, without terminating this Lease, re-enter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay to Landlord as liquidated damages the
difference between the rent provided for herein and that provided for in any
lease covering a subsequent re-letting of the Leased Premises, for the period
which would otherwise have constituted the balance of the Lease Term, together
with all of Landlord's Default Damages.
(d) Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the Default.
Section 13.03. Landlord's Default and Tenant's Remedies. Landlord shall be
in default if it fails to perform any term, condition, covenant or obligation
required under this Lease for a period of thirty (30) days after written notice
thereof from Tenant to Landlord; provided, however, that if the term, condition,
covenant or obligation to be performed by Landlord is such that it cannot
reasonably be performed within thirty (30) days, such default shall be deemed to
have been cured if Landlord commences such performance within said thirty-day
period and thereafter diligently undertakes to complete the same. Upon the
occurrence of any such default, Tenant may sue for injunctive relief or to
recover damages for any loss directly resulting from the breach, but Tenant
shall not be entitled to terminate this Lease or withhold, offset or abate any
sums due hereunder.
Section 13.04. Limitation of Landlord's Liability. If Landlord shall fail
to perform any term, condition, covenant or obligation required to be performed
by it under this Lease and if Tenant shall, as a consequence thereof, recover a
money judgment against Landlord, Tenant agrees that it shall look solely to
Landlord's right, title and interest in and to the Building for the collection
of such judgment; and Tenant further agrees that no other assets of Landlord
shall be subject to levy, execution or other process for the satisfaction of
Tenant's judgment.
-15-
<PAGE>
Section 13.05. Nonwaiver of Defaults. Neither party's failure or delay in
exercising any of its rights or remedies or other provisions of this Lease shall
constitute a waiver thereof or affect its right thereafter to exercise or
enforce such right or remedy or other provision. No waiver of any default shall
be deemed to be a waiver of any other default. Landlord's receipt of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, nor shall any statement on Tenant's check or any letter
accompanying Tenant's check be deemed an accord and satisfaction. No act or
omission by Landlord or its employees or agents during the Lease Term shall be
deemed an acceptance of a surrender of the Leased Premises, and no agreement to
accept such a surrender shall be valid unless in writing and signed by Landlord.
Section 13.06. Attorneys' Fees. If either party defaults in the performance
or observance of any of the terms, conditions, covenants or obligations
contained in this Lease and the non-defaulting party obtains a judgment against
the defaulting party, then the defaulting party agrees to reimburse the
non-defaulting party for reasonable attorneys' fees incurred in connection
therewith.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT
------------------------------------------------
Landlord shall have the right upon at least ninety (90) days' prior written
notice to Tenant to relocate Tenant and to substitute for the Leased Premises
other space in the Building or in the Park containing at least as much rentable
area as the Leased Premises. Such substituted space shall be improved by
Landlord, at its expense, with improvements at least equal in quantity and
quality to those in the Leased Premises. Landlord shall reimburse Tenant for all
reasonable expenses incurred with and caused by such relocation. In no event
shall Landlord be liable to Tenant for any consequential damages as a result of
any such relocation, including, but not limited to, loss of business income or
opportunity. Such right shall not be exercised more than once during the Lease
term.
ARTICLE 15 - TENANT'S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES
-------------------------------------------
Section 15.01. Definitions.
(a) "Environmental Laws" - All present or future federal, state and
municipal laws, ordinances, rules and regulations applicable to the
environmental and ecological condition of the Leased Premises, the rules and
regulations of the Federal Environmental Protection Agency or any other federal,
state or municipal agency or governmental board or entity having jurisdiction
over the Leased Premises.
(b) "Hazardous Substances" - Those substances included within the
definitions of "hazardous substances," "hazardous materials," "toxic substances"
"solid waste" or "infectious waste" under Environmental Laws and petroleum
products.
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<PAGE>
Section 15.02. Compliance. Tenant acknowledges that it has been provided
with a Phase I Environmental Assessment of the Leased Premises, prepared by
Atlanta Testing and Engineering and dated October 19, 1993, and updated on June
2, 1994. Landlord hereby represents and warrants that it has no knowledge that
would suggest that each assessment is not accurate and correct in all material
respects. To the best knowledge of Landlord, the Leased Premises and its
existing and prior uses and activities thereon, including but not limited to the
use, maintenance and operation of the Leased Premises and all activities and
conduct of business related to it, have complied with all federal, state and
local environmental laws, ordinances and regulations. The Landlord has never
received any notice or other communications concerning any alleged material
violation of any environmental laws or regulations affecting the Leased
Premises. Landlord represents and warrants that there are no underground storage
tanks on the Leased Premises. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws including any notice from any source
issued pursuant to the Environmental Laws or issued by any insurance company
which shall impose any duty upon Tenant with respect to the use, occupancy,
maintenance or alteration of the Leased Premises whether such notice shall be
served upon Landlord or Tenant.
Section 15.03. Restrictions on Tenant. Tenant shall operate its business
and maintain the Leased Premises in compliance with all Environmental Laws.
Tenant shall not cause or permit the use, generation, release, manufacture,
refining, production, processing, storage or disposal of any Hazardous
Substances on, under or about the Leased Premises, or the transportation to or
from the Leased Premises of any Hazardous Substances, except as necessary and
appropriate for its Permitted Use in which case the use, storage or disposal of
such Hazardous Substances shall be performed in compliance with the
Environmental Laws and the highest standards prevailing in the industry.
Section 15.04. Notices, Affidavits, Etc. Tenant shall immediately notify
Landlord of (i) any violation by Tenant, its employees, agents, representatives,
customers, invitees or contractors of the Environmental Laws on, under or about
the Leased Premises, or (ii) Tenant's actual knowledge of the presence or
suspected presence of any Hazardous Substances on, under or about the Leased
Premises and shall immediately deliver to Landlord any notice received by Tenant
relating to (i) and (ii) above from any source. Tenant shall execute affidavits,
representations and the like within five (5) days of Landlord's request therefor
concerning Tenant's knowledge and belief without extraordinary inquiry or
investigation regarding the presence of any Hazardous Substances on, under or
about the Leased Premises.
Section 15.05. Landlord's Rights. Landlord and its agents shall have the
right, but not the duty, upon advance notice (except in the case of emergency
when no notice shall be required) to inspect the Leased Premises and conduct
tests thereon to determine whether or the extent to which there has been a
violation of Environmental Laws by Tenant or whether there are Hazardous
Substances on, under or about the Leased Premises. In exercising its rights
herein, Landlord shall use reasonable efforts to minimize interference with
Tenant's business but such entry shall not constitute an eviction of Tenant, in
whole or in part, and Landlord shall not be liable for any interference, loss,
or damage to Tenant's property or business caused thereby.
-17-
<PAGE>
Section 15.06. Tenant's Indemnification. Tenant shall indemnify Landlord
and Landlord's managing agent from any and all claims, losses, liabilities,
costs, expenses and damages, including attorneys' fees, costs of testing and
remediation costs, incurred by Landlord in connection with any breach by Tenant
of its obligations under this Article 15. The covenants and obligations under
this Article 15 shall survive the expiration or earlier termination of this
Lease.
Section 15.07. Landlord's Representation. Notwithstanding anything
contained in this Article 15 to the contrary, Tenant shall not have any
liability to Landlord under this Article 15 resulting from any conditions
existing, or events occurring, or any Hazardous Substances existing or
generated, at, in, on, under or in connection with the Leased Premises prior to
the Commencement Date of this Lease except to the extent Tenant knowingly
exacerbates the same.
ARTICLE 16 - MISCELLANEOUS
--------------------------
Section 16.01. Benefit of Landlord and Tenant. This Lease shall inure to
the benefit of and be binding upon Landlord and Tenant and their respective
successors and assigns.
Section 16.02. Governing Law. This Lease shall be governed in accordance
with the laws of the State where the Building is located.
Section 16.03. Guaranty. Intentionally omitted.
Section 16.04. Force Majeure. Landlord and Tenant (except with respect to
the payment of any monetary obligation) shall be excused for the period of any
delay in the performance of any obligation hereunder when such delay is
occasioned by causes beyond its control, including but not limited to work
stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment,
labor or energy; unusual weather conditions; or acts or omissions of
governmental or political bodies.
Section 16.05. Examination of Lease. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
Section 16.06. Indemnification for Leasing Commissions. The parties hereby
represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are the Brokers and no other person or
entity is entitled, as a result of such party's actions, to a commission or
other fee therefor. Each party shall indemnify the other from any and all
liability for the breach of this representation and warranty on its part and
shall pay any compensation to any other broker or person who may be entitled
thereto. The Brokers shall each be entitled to receive a commission in the
amounts and upon the terms and conditions set forth in a separate agreement
between Landlord and Brokers.
Section 16.07. Notices. Any notice required or permitted to be given under
this Lease or by law shall be deemed to have been given if it is written and
delivered in person or by reputable overnight courier or mailed by certified
mail, postage prepaid, to the party who is to receive such notice at the address
specified in Article 1. If delivered in person, notice shall be deemed given as
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<PAGE>
of the delivery date. If sent by overnight courier, notice shall be deemed given
as of the first business day after sending. If mailed, the notice shall be
deemed to have been given on the date which is three business days after
mailing. Either party may change its address by giving written notice thereof to
the other party.
Section 16.08. Partial Invalidity; Complete Agreement. If any provision of
this Lease shall be held to be invalid, void or unenforceable, the remaining
provisions shall remain in full force and effect. This Lease represents the
entire agreement between Landlord and Tenant covering everything agreed upon or
understood in this transaction. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof or in effect between the
parties. No change or addition shall be made to this Lease except by a written
agreement executed by Landlord and Tenant.
Section 16.09. Financial Statements. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's
most recent financial statements (certified and audited if the Minimum Annual
Rent hereunder exceeds $100,000) prepared as of the end of Tenant's fiscal
year. Such financial statements shall be signed by Tenant who shall attest to
the truth and accuracy of the information set forth in such statements. All
financial statements provided by Tenant to Landlord hereunder shall be prepared
in conformity with generally accepted accounting principles, consistently
applied.
Section 16.10. Signage. Landlord shall have the right to approve the
placing of signs and the size and quality of the same. Tenant shall place no
exterior signs on the Leased Premises without the prior written consent of
Landlord. Any signs not in conformity with the Lease may be immediately removed
by Landlord.
Section 16.11. Consent. Where the consent of a party is required, such
consent will not be unreasonably withheld, delayed or conditioned.
Section 16.12. Parking. Tenant shall be entitled to 2.5 parking spaces per
thousand square feet of Leased Premises and shall park in common with other
tenants of Landlord. Subject to the immediately preceding sentence, Tenant
agrees not to overburden the parking facilities and agrees to cooperate with
Landlord and other tenants in the use of parking facilities. Landlord reserves
the right in its absolute discretion to determine whether parking facilities are
becoming crowded and, in such event, to allocate parking spaces among Tenant and
other tenants. There will be no assigned parking unless Landlord, in its sole
discretion, may deem advisable. No vehicle may be repaired or serviced in the
parking area and any vehicle deemed abandoned by Landlord will be towed from the
project and all costs therein shall be borne by the Tenant. All driveways,
ingress and egress, and all parking spaces are for the joint use of all tenants.
There shall be no parking permitted on any of the streets or roadways located
within the Park.
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<PAGE>
Section 16.13. Time. Time is of the essence of each term and provision of
this Lease.
Section 16.14. Representations and Warranties. The undersigned represent
and warrant that (i) such party is duly organized, validly existing and in good
standing (if applicable) in accordance with the laws of the state under which it
was organized; (ii) the Tenant is authorized to do business in the State where
the Building is located; and (iii) the individual executing and delivering this
Lease has been properly authorized to do so, and such execution and delivery
shall bind such party.
(SIGNATURES CONTAINED ON FOLLOWING PAGE)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
Signed, sealed and delivered LANDLORD:
as to Landlord, in the presence of:
DUKE-WEEKS REALTY LIMITED
PARTNERSHIP, an Indiana limited
partnership
- -----------------------------------
Unofficial Witness By: Duke-Weeks Realty Corporation,
its General Partner
/s/ By: /s/ Eben Hardie III
- ----------------------------------- --------------------------
Notary Public Name: Eben Hardie III
------------------------
Title: Senior Vice President
-----------------------
Signed, sealed and delivered TENANT:
as to Tenant, in the
presence of:
NUCLEUS, INC.
- -----------------------------------
Unofficial Witness
By: /s/ J. Theodore Hartley
--------------------------
Name: J. Theodore Hartley
------------------------
Its: Executive Vice President
/s/ Marlon St. John and Chief Financial
- ----------------------------------- Officer
Notary Public -------------------------
Attest: /s/ Brent Duelm
----------------------
Name: Brent Duelm
------------------------
Title: Vice President of
Finance
-----------------------
(CORPORATE SEAL)
-21-
EXHIBIT 21.1
SUBSIDIARIES
ACI Micro Systems, Inc., a Colorado corporation
Alliance Net, Inc. d/b/a TelOne, an Illinois corporation
Nucleus Data Source, Inc., an Illinois corporation
CompPro Computer, Inc. an Illinois corporation
Your ATTACHE, Inc., a Colorado corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 13, 2000, included in Form 10-KSB for
Nucleus, Inc. (formerly known as American General Ventures) for the year ended
December 31, 1999, into the Company's previously filed Registration Statement on
Form S-8 (File No. 333-35959) and previously filed post-effective amendments
thereto.
Arthur Andersen LLP
Chicago, Illinois
April 14, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 3, 1999, included in Form 10-KSB for
Nucleus, Inc. (formerly known as American General Ventures) for the year ended
December 31, 1998, into the Company's previously filed Registration Statement on
Form S-8 (File No. 333-35959) and previously filed post-effective amendments
thereto.
James E. Scheifley & Associates, P.C.
Englewood, Colorado
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
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0
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