FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20524
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 33-19598-D
SUNLIGHT SYSTEMS, LTD.
(Exact name of registrant as specified in its charter)
Nevada 84-0992908
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
820 S. Colorado Blvd., Denver, CO 80222
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-691-1900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON $0.001
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No__
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of August 31, 1996, there were Nine Million, Sixty-Four (9,000,064)
common shares outstanding, Two million, Five Hundred and Ninety-One
Thousand, Forty-Two (2,591,042) of which were held by non-affiliates.
No market existed as of that date for the common stock of the
Registrant. Therefore, the aggregate market value of the non-affiliated
common shares, as of that date, was approximately $0.00.
DOCUMENTS INCORPORATED BY REFERENCE
Financial Statements for the Company's fiscal year ended June 30, 1995,
included in the Company's Annual Report on Form 10K, dated October 11, 1995.
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PART I
ITEM 1.
BUSINESS
(a) General Development of Business
-------------------------------
Sunlight Systems, Ltd. (the "Company") is a Nevada corporation. It was
formerly known as Mendell-Denver Corporation. The Company was incorporated on
June 25, 1996 as a Nevada corporation in order to change the corporate domicile
of the former Mendell-Denver Corporation, a Colorado corporation, and to effect
a corporate reorganization with Mendell-Denver Corporation.
On July 17, 1996, the Company became a wholly owned subsidiary of
Mendell-Denver Corporation ("Mendell"). Pursuant to shareholder approval,
Mendell merged into the Company on July 22, 1996, pursuant to the laws of the
State of Nevada, with the Company being the surviving entity.
As a result of the Merger, the Company exchanged one (1) share of its
common stock for each five (5) shares of the issued and outstanding common stock
of Mendell, on the effective date of the Merger. As a result of this exchange,
the Company, as the surviving entity of the Merger, had Two Million,
Ninety-Eight Thousand, Three Hundred and Twelve (2,098,312) shares issued and
outstanding.
Subsequent to the Merger, the Company issued an additional Six Million,
Nine Hundred and One Thousand, Seven Hundred and Fifty-Two (6,901,752)
restricted shares to subscribers. As a result of both the Merger and the
issuance of the additional restricted shares, the Company, as of the date of
this Report has approximately Nine Million, Sixty-Four (9,000,064) shares issued
and outstanding.
Because of the material significance of events subsequent to the fiscal
year ended June 30, 1996, the Company elected to obtain and provide herein
Audited Financial Statements through August 31, 1996. See Financial Statements
Item 7 and Item 13 Certain Relationships and Related Transactions.
From May 1, 1992 to June 30,1996, Mendell was essentially inactive and its
activities were primarily devoted to "winding up" operations as a result of the
sale of its oil and gas properties. The former Mendell operated, from its
inception on July 22, 1985, as an independent oil and gas company engaged in the
business of developing and producing crude oil and natural gas reserves in the
United States, primarily in the Watenberg Field, Denver Julesburg Basin, Weld
County, Colorado, until May 1,1992 when it sold all of its oil and gas
properties and effectively ceased operations.
Since the former Mendell has not been engaged in any significant,
operational activities for the past three (3) years; and since the principal
business activities of the Company, as described in this Item are materially
different from the prior activities, any disclosure relating to the prior
historical activities of Mendell is consider immaterial and irrelevant to an
informed understanding of the Company and therefore, is omitted. Persons
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interested in such previous historical information should consult prior filings
made by Mendell-Denver Corporation with the Securities Exchange Commission.
In connection with the Merger, the Company also has elected new officers
and directors. (See Item 10.)
4
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(b) Financial Information About Industry Segments
---------------------------------------------
The Company is involved in one industry segment and line of business,
namely the sale and distribution of a skylight, known as the Sun Tunnel(R) in
the natural lighting industry. The Sun Tunnel is primarily utilized in the
residential housing industry. (See Narrative Description of Business and
Financial Statements.)
(c)(1) Narrative Description of Business
---------------------------------
The Company's principal business is the marketing and sale of a skylight,
known as the Sun Tunnel(R). The Company has two (2) Dealer Agreements with Sun
Tunnel Systems, Inc., a California corporation. The Company's Dealer Agreement
for the State of Colorado covers the counties of Larimer, Boulder, Jefferson,
Weld, Adams, Arapahoe, Douglas, El Paso, Fremont, Pueblo, Pitkin, Eagle, Summit
and Lake. The Company's Dealer Agreement for the State of Nevada, relates to
Clark County, Nevada, in which Las Vegas is located.
The counties in the states of Colorado and Nevada covered by the Company's
Dealer Agreements demographically contain the largest concentration of the
population of these two states. Accordingly, the Company considers these Dealer
Agreements to have considerable value.
The Company also has a Distributorship Agreement with Sun Tunnel, Inc. for
the states of Indiana, Illinois, Ohio and Michigan. The Distributorship
Agreement covers a four state area which contains, to the knowledge of
Management, the single largest population concentration in the United States.
Accordingly, the Company considers this Distributorship Agreement to be
beneficial to its business activities.
The Company's business activities to date have been largely organizational.
Following its acquisition of the Dealer and Distributorship Rights, the Company
has spent the last several months retaining marketing and sales personnel,
locating and opening sales offices, planning marketing strategies and acquiring
the equipment and inventory necessary to suitably conduct business. (For further
information relating to the Company's facilities, see Item 2 Properties.)
The Company has initiated an aggressive marketing and advertising campaign
and expects, based upon preliminary indications, that its product will receive a
favorable market response.
The Company's activities to date have only generated limited sales of
approximately $2,278.00.
(i) The Principal Products Produced and Services Rendered
-----------------------------------------------------
The Company is currently marketing only one product line in both it's
Dealer and Distributorship offices.
The Company's "Sun Tunnel(R)" product is a circular skylight, utilizing the
patented "Flexi-Tube", which was developed, designed and is manufactured by Sun
Tunnel Systems, Inc. The Company has no patent rights or licenses relating to
the product.
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The skylight is an uncomplicated product consisting of: a transparent UV-
stabilized grade 1 acrylic dome, mounted using double sealed roof flashing, on
the roof of the house, which is then connected to either a fourteen or twenty
inch diameter tube made from Sola-Film, a highly reflective, ultra-violet-proof,
quadruple laminate, that is routed through the attic and around attic
obstructions, if any, and then connected to a prismatic acrylic diffuser, which
is mounted in the ceiling of the room where the light is desired. The product,
can be installed within two to three hours by a trained employee. The Company
currently has five (5) individuals trained to install the skylight. Any
qualified roofer or contractor, with minimal instruction, can be quickly trained
to properly install the skylight.
The product is designed to fit into standard rafter spacing. The double
sealed roof flashing combined with its circular design provides for a water
tight installation on any roof type. Because it eliminates the need for such
costly procedures as: framing, drywall, painting and texturing, the product can
be installed at far less cost than a traditional skylight.
The Company is currently marketing two different size products. There is
the fourteen inch diameter Series 350 Model and the twenty inch diameter Series
500 Model skylight available. The fourteen inch model is designed for usage in
older homes, where there is less space between rafters, in order to eliminate
substantial alteration of the roof and rafters. The twenty inch model is
designed to be applied to current housing designs where there is a typical
twenty inch spacing between rafters. The product can be installed in any style
of roof, whether roofed with composite or cedar shake shingles or clay or steel
tile.
The Manufacturer represents, that when the unit is properly installed, due
to its circular design it is leakage proof. The historical experience of the
manufacturer, based upon approximately Fifteen Thousand (15,000) units installed
in the United States to date, has indicated insignificant complaints relating to
leakage.
The Company primarily concentrates its sales efforts on firms already in
the residential construction industry, primarily roofers and general
contractors. These firms already have available the skilled personnel, necessary
equipment, contacts and the public recognition, which are conducive to sales.
The Company does not intend to sell its product primarily to the general public
as a retail item. The policy decision has been made that this would not be
advantageous, since persons lacking the proper skills may not install the
product properly, thereby causing complaints and dissatisfaction, which could
eventually create a negative image for the Company and its product.
The Company's promotional activities are largely devoted to: advertising in
the public media, heavy attendance at home and residential improvement trade
shows, state and local fairs, construction industry conventions, seminars and
other similar types of organized activities.
(ii) Sources and Availability of Raw Materials
-----------------------------------------
The Company is currently supplied its products by the Manufacturer. The
Company, as a distributor, also has the prerogative of assembling and purchasing
the components of the skylight from the manufacturer. The Company's
Distributorship Office in Indianapolis is equipped to and is assembling
inventory, which it purchases from the Manufacturer. The office is equipped to
assemble approximately Four Hundred (400) fourteen inch and Two Hundred (200)
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twenty inch units. The materials from which the product is constructed are
readily available from numerous sources throughout the United States. The
Company does not anticipate experiencing or encountering any substantial
difficulty relating to the sources or availability of materials with which to
conduct its primary business operations.
(iii) Patents, Trademarks, Licenses, Franchises and Concessions Held
--------------------------------------------------------------
The Company has no intellectual property rights relating to its product. As
previously stated, it does have in full force and effect two Dealer Agreements
and one Distributorship Agreement. The Manufacturer of the product, Sun Tunnel
Systems, Inc., has the intellectual property rights to the Sun Tunnel System.
The Company does have the right pursuant to its Dealer and Distributorship
Agreements to utilize the name Sun Tunnel in its advertising and promotional
materials.
The name "The Sun Tunnel(R)" is a registered trademark of Sun Tunnel
Systems, Ltd. The flexible tubing which connects the roof dome and the prismatic
diffuser, is patented under United States Patents No. 4, 339, 900 and 5,435,780.
In addition, the product has received ICBO approval, No. ER-5185.
(iv) Seasonal Nature of Business
---------------------------
The business of the Company is not deemed to be significantly seasonal in
nature. The installation of the product on a roof obviously cannot be done in
adverse weather conditions. However, it can be accomplished under less than
optimum weather conditions due to the installation method. However, in those
geographic regions of the United States where the winter months may limit sales
and installation of the Company's product, management believes such limitation
will be offset by sales and installations made in other geographic areas of the
United States where winter/seasonal weather has no significant influence on
construction.
(v) Working Capital Items
---------------------
The Company is not required to carry significant amounts of inventory in
order to meet rapid delivery requirements for customers or to ensure itself of a
continuous allotment of goods from suppliers or any other special practices
relating to working capital items.
(vi) Major Customers
---------------
The Company is not dependent upon any one or a few specific customers,
where the loss of any one or more would have an adverse material effect on the
Company. The Company's customer base consists mainly of firms engaged in the
roofing and construction business in the United States. Based upon information
published by the Chamber of Commerce, the United States Government and Industry
Sources, there are approximately Twenty-Seven Thousand, Five Hundred and
Sixty-Nine (27,569) roofing firms in the United States and Five Hundred and
Seventy-Two Thousand, Eight Hundred and Fifty-One (572,851) construction
companies in the United States which are potential customers of the Company. In
the Company's geographic areas, covered by its Distributorship and Dealer
Agreements, the Company estimates that there are approximately Ninety-Nine
Thousand, Eight Hundred and Thirty-Nine (99,839) firms engaged in the
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roofing/construction business, which are prospective customers. The Company is
currently negotiating a large contract with one of the principal home builders
in Las Vegas, Nevada.
(vii) Renegotiation or Termination of Government Contracts
----------------------------------------------------
No portion of the Company's business, in its current state, is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the Government.
(viii) Competitive Conditions
----------------------
The Company is engaged in a narrow segment of the construction and home
improvement industry. The Company is a one product company and therefore is
subject to all of the risks inherent in a company focusing on one product.
There are other competitors offering similar products to the public. The
primary competitors to the knowledge of the Company is Sola-Tube, Inc. and
Flextube, Inc. The Company encounters competition for its skylight with
custom-made skylights, which must be installed by highly skilled carpenters.
There is no assurance that other products may not be introduced in the future
into the market which would be directly competitive with the Company.
The Company believes its chief competitive advantages over existing
products in the market consist of: the patented flexible tubular design of its
unit, its pricing, the ease and efficiency of installation and when properly
installed, its virtually leak proof design. Further, the Company is attempting
to distinguish itself from competitors by responsive service and customer
satisfaction guarantee, if there is any product complaint originating from the
customers.
The Manufacturer, provides a certificate, upon installation, to each
customer, furnishing a seven (7) year warranty against manufacturing defects,
rust, corrosion and deterioration.
(ix) Research and Development Activities
-----------------------------------
The Company does not engage in any research and development activities and
does not contemplate engaging in such activities in the future.
(x) Environmental Compliance
------------------------
The Company in its business is not subject to any federal, state and local
material provisions which have been enacted or adopted regulating the discharge
of materials into the environment or otherwise relating to the protection of the
environment which require capital expenditures or which would have an impact on
the earnings or competitive portion of the Company.
(xi) Employees
---------
As of August 31, 1996, the Company has eight (8) employees. These employees
consisted of Patricia E. Johnston, President and Chief Executive Officer of the
Company, and other managerial persons staffing the Denver, Las Vegas and
Indianapolis offices. The Company also hires on a part-time basis, personnel to
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install its product when and as required. The Company pays such personnel
prevailing industry rates for equivalent labor and skills.
(d) Financial Information About Foreign and Domestic Operations and Export Sales
----------------------------------------------------------------------------
The Company does not have sales to customers outside of the United States.
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ITEM 2.
PROPERTIES
Office Facilities
- -----------------
The principal executive offices of the Company are located at 820 S.
Colorado Blvd., Denver, Colorado 80222. The phone number for such offices is
303-691-1900. These premises are leased pursuant to a Sublease Agreement, dated
July 1, 1996 with an independent unaffiliated third party. The monthly rental is
$1,000.00 per month. The term of the Sublease is for three (3) years and eight
(8) months beginning July 1, 1996 through February 28, 2000. These premises are
deemed suitable for the Company's present plans.
The Company also has offices, show rooms and storage facilities leased in
the cities of Indianapolis, Indiana and Las Vegas, Nevada. The facility in
Indianapolis is located at 5330 West 38th Street, Indianapolis, Indiana 46254,
the phone number is 888-899-7869. This facility is located in space rented under
a three (3) year Lease Agreement dated July 15, 1996 and expiring July 14, 1999,
at a monthly rent of $1,666.33 per month. These facilities are considered
sufficient for the business purposes of the Company at this time.
The facility in Las Vegas is located at 5617 S. Valley View, Las Vegas,
Nevada 89118, the phone number for such office is 702-740-4500. This office is
located in space leased under a one (1) year Lease Agreement commencing August
1, 1996 until September 1, 1997, at a monthly rental of $575.00 per month. These
facilities are considered suitable for the business purposes of the Company at
this particular time.
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ITEM 3.
LEGAL PROCEEDINGS
No legal proceedings to which the Company (or any officer or director of
the Company, or any affiliate or owners of record or beneficially of more than
5% of the common stock) to Management's knowledge, is a party or to which the
property of the Company is subject, is pending and no such proceedings are known
by Management of the Company to be contemplated.
11
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ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no meetings of security holders during the period covered by
this report.
The shareholders of the former Mendell-Denver Corporation and
Mendell-Denver Corporation as the sole shareholder of the Company prior to the
Merger, described in Item 1 convened a meeting on July 18, 1996 to vote upon or
consent to the Merger. The Merger was approved by the necessary vote and consent
of the shareholders of both corporations.
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PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The common stock of the Company has only recently been approved for trading
and consequently trading activity is extremely limited. The Company's common
stock is traded on the NASDAQ Bulletin Board, under the symbol "SUNY". While a
limited market did exist for the Company's common stock under its former name of
Mendell-Denver Corporation, it was so insignificant as to not be a true market.
Accordingly, any information relating to former market activity is deemed
immaterial and irrelevant.
The Company has paid no dividends on its common stock and does not expect
to pay dividends in the foreseeable future. All revenues received by the Company
will be reinvested into the business.
As of August 31, 1996, the Company had eighty-one (81) record shareholders
of the Nine Million, Sixty-Four (9,000,064) shares of its common stock.
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ITEM 6
SELECTED FINANCIAL DATA
1996 1995 1994 1993
---- ---- ---- ----
For the year:
Oil and gas sales $-0- $-0- $-0- $-0-
Earnings (loss) (3,577) (12,316) (33,320) 54,956
Earnings (loss)
per common share (.0007) (.0022) (.0061) .01
At June 30:
Total Assets $407 $ 6,229 $28,450 $83,486
Stockholders' Equity 407 3,884 16,200 49,520
Working Capital $ 3,884 16,200 49,520
The Company has no long term debt.
ADVISORY NOTE
For purposes of Items 6 and 7, financial information for the fiscal year
ended June 30, 1995 and prior years can be obtained from the Financial
Statements which have been incorporated herein by reference, see Cover Page.
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ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(See Advisory Note in Item 6)
Fiscal Year 1996 Compared to Fiscal Year 1995.
- ---------------------------------------------
(a) Liquidity.
---------
At June 30, 1996, the Company had positive working capital of $407.00. This
positive position is accounted for by the receipt of option revenue, interest
income and a tax refund. At June 30, 1995, the Company had a positive working
capital of $3,884.00. This position was accounted for by the receipt of
severance payments in 1994 in the amount of $2,084.00
Cash Flow from Operations was ($1,777.00) in 1996 as compared to
($26,366.00) in 1995.
(b) Capital Resources.
-----------------
Total assets of the Company as of June 30, 1996 were $407.00 as compared to
$6,279.00 at June 30, 1995. The decrease in the assets reflects the further
discontinuance of the Company's oil and gas operations.
Stockholder's equity of $407.00 at June 30, 1996, as compared to
stockholder's equity of $3,884.00 at June 30, 1995, is accounted for by
continuing operational losses. The Company had no capital commitments at June
30, 1996. The Company was continuing to liquidate and close its corporate
affairs as of June 30, 1996.
(c) Results of Operations.
---------------------
The Company had no revenues from the sale of oil and gas for the fiscal
year ended June 30, 1996. Revenues as previously mentioned were derived from
option revenues, interest income and a tax refund. The funds realized from such
revenues were used to pay general administrative costs and to fund the buy-out
of an option. Total expenses were $12,570.00 resulting in a net loss for the
fiscal year ended June 30, 1996 of ($2,464.00).
At June 30, 1996, the Company had substantially finished the
discontinuation of its oil and gas activities. There were no Production Costs in
1996. There was no Depreciation, Depletion and Amortization Expense in 1996,
since the Company owned no oil and gas properties, real estate of any type,
furniture or equipment.
Fiscal Year 1995 compared to Fiscal Years 1994 and 1993.
- -------------------------------------------------------
(a) Liquidity.
---------
At June 30, 1995, the Company had positive net working capital of
$3,884.00. This positive position was accounted for by the receipt of severance
payments in 1994 to $2,084.00 in 1995. The decrease in Cash of $26,366.00 was
15
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primarily attributable to the payment of Income Taxes Payable, and the expenses
of liquidation, including but not limited to accounting and consulting fees. The
Escrow Receivable is related to the settlement and closing of the Escrow account
set up as a result of the sale of Mendell's oil and gas properties to Prima Oil
and Gas in 1992. Accounts Payable of $2,345.00 relates to commitments now
resolved regarding the Escrow Account and the Victor E. Goodhard Well. Income
Tax Refund Receivable relates to the carryback of the Company's net operation
loss to prior years and subsequent filing of an amended return. At September 30,
1994, all income taxes had been paid.
Cash flow from operations was ($26,366.00) in 1995.
(b) Capital Resources.
-----------------
Total Assets at June 30, 1995, were $6,229.00, which consisted of Cash, the
Escrow Receivable and income Tax Receivable offset by Accounts Payable of
$2,345.00. At July 14, 1995, the Escrow Receivable had been received and the
Accounts Payable had been paid.
Stockholder's Equity decreased form $16,200.00 in 1994 to $3,884.00 in
1995. Most of the decrease was a result of a Net Loss of $12,316.00 for the
fiscal year 1995 reflected in Retained Earnings.
The Company had no capital commitments at June 30, 1995. The Company had
continued with plans to liquidate and market its corporate structure to
interested investors.
(c) Results of Operations.
---------------------
Revenues from the sale of oil and gas was -0- for the years ended June 30,
1995, 1994, and 1993 due to the sale of all of the Company's oil and gas
properties in May of 1992.
The Company did not drill or complete any wells in 1995, 1994 or 1993.
Interest Income decreased to $385.00 in 1995 versus $2,274.00 in 1994 and
$3,354.00 in 1993 reflecting smaller cash balances as a result of the sale of
all of the Company's oil and gas properties, subsequent dividend and liquidation
expenses.
Miscellaneous Income in 1993 was $88,015.00, $485.00 in 1994 and $6,487.00
in 1995. The increase in 1995 from 1994 was primarily attributable to the
receipt of severance and income tax refunds. The large Deposit's used in lieu of
surface damage and plugging bonds required by the State of Colorado and refunds
of conservation, severance and al valorem taxes. The receipt of the refunds was
accounted for as a decrease in Miscellaneous Income in 1994 to $485.00 reflects
the fact that all refunds from the State of Colorado had been received by June
30, 1993.
There were no Production Costs in 1996, 1995, 1994 or 1993 due to the sale
of the properties in 1992.
There was no Depreciation, Depletion and Amortization Expense in 1995, 1994
or 1993 as the Company owned no oil and gas properties, real estate, furniture
or equipment.
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General and Administrative costs declined to $16,332.00, in 1995 and
$43,194.00 in 1994. Payment of most state and federal income taxes occurred in
1994. Audit and accounting fees declined by over fifty percent (50%) due to the
lessening of transactions and the simplification of financial statements as a
result of the liquidation. Part of the increase in 1994 to $43,194.00 from
$21,112.00 in 1993 is attributable to significant accounting fees for data
processing, audit and tax consulting services, and income taxes paid in addition
to liquidation expenses.
Interest Expense of $3,969.00 in 1995 was primarily related to income taxes
paid. There was no interest expense in 1994 or 1993.
Average finding costs in 1995, 1994 and 1993 were not calculated as Company
did not complete any wells in those years.
The Net Loss 1995 of $12,316.00 was primarily attributable to General and
Administrative Costs of $16,332.00, plus the Interest Expense related to income
taxes of $3,969.00 being offset only by Miscellaneous Income consisting of
refunds of taxes and a small amount of Interest Income totaling $6,872.00. Since
the Company ceased oil and gas operations in 1992, there was no revenue from
operations. The Net Loss in 1994 amounted to $33,320.00. There was no oil and
gas income in 1994 and lower Interest Incomes coupled with the increase in
General and Administrative costs of $22,082.00 caused the loss. Net Income in
1993 amounted to $54,956.00. With the absence of Oil and Gas revenue in 1993,
the only income was Interest Income of $3,254.00 and Miscellaneous Income of
$88,015.00. As stated previously, Miscellaneous Income consisted of maturing
CD's used in lieu of bonds and refunds of conservation , severance and ad
valorem taxes. Interest Income declined by $3,905.00 as a result of having
substantially less cash as a result of the sale of Mendell's oil and gas
properties, subsequent dividend distribution and transfer of tax accounts to
Prima Oil and Gas, the purchaser.
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ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUNLIGHT SYSTEMS, LTD.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Independent Auditors' Reports F-1
Table of Contents F-1.01
Balance Sheets - August 31, 1996 and June 30, 1996 F-2
Statements of Operations - For the Two Months Ended August 31, 1996
and For the Year Ended June 30, 1996 F-3
Statements of Changes in Stockholders' Equity -
For the Two Months Ended August 31, 1996
and For the Year Ended June 30, 1996 F-4
Statements of Cash Flows - For the Two Months Ended August 31, 1996
and For the Year Ended June 30, 1996 F-5, F-6
Notes to Financial Statements F-7 to F-12
The schedules for which provision is made in
Regulation S-X are not required under the
instructions contained therein, are inapplicable, or
the information required is in the financial
statements or footnotes.
The Company's Financial Statements, for the fiscal
year ended June 30, 1995 and prior years are in the
Company's Annual Report on Form 10K, dated October
11, 1995 and have been incorporated herein by
reference. See Cover Page.
18
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LARRY O'DONNELL, CPA, P.C.
Office 745-4545 Office
Residence 755-7182 2851 South Parker Road, Suite 1040
Aurora, Colorado 80014
Residence
2383 South Sedalia Circle
Aurora, Colorado 80013
Board of Directors
Sunlight Systems, Ltd.
Denver, Colorado
Independent Auditor's Report
I have audited the accompanying balance sheet of Sunlight Systems Ltd. as of
August 31, 1996 and the related statements of operations, changes in
stockholders' equity and cash flows for the two months then ended and the
accompanying balance sheet of Mendell-Denver Corporation as of June 30, 1996 and
the related statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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 their accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a resonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sunlight Systems, Ltd. as of August
31, 1996 and the results of its operations and its cash flows for the two months
then ended and the financial position of Mendell-Denver Corporation as of June
30, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Larry O'Donnell, CPA, P.C.
September 14, 1996
F-1
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Financial Statements
August 31 and June 30, 1996
Table of Contents
Page
Independent Auditors Report F-1
Financial Statements
Balance Sheets F-2
Statement of Operation F-3
Statements of Changes in Stockholder's Equity F-4
Statement of Cash Flows F-5 to F-6
Notes to Financial Statements F-7 to F-12
F-1.01
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Balance Sheets
Assets
August 31, June 30,
1996 1996
Current assets
Cash ........................................ $ 56,997 $ 407
Accounts receivable ......................... 636
Stock subscriptions note receivable 87,233
Inventory ................................... 92,361
Prepaid expenses ............................ 638
---------- ------
Total current assets ........................ 237,865 407
---------- ------
Property and equipment, net of
accumulated depreciation of $2,163 .......... 67,320
----------
Other assets
Investment in oil and gas properties ........ 300,000
Available for sale securities of
Energy Corporation common stock,
Restricted .......................... 500,000
Unrestricted, including allowance for
increase in market value of $13,891 263,891
Start-up costs, net of accumulated
amortization of $1,021 ................. 29,606
Dealer and distributor costs, net of
accumulated amortization of $1,667 ..... 28,333
Deposits .................................... 4,590
---------- ------
1,126,420 407
---------- ------
$1,431,605 $ 407
========== ======
See Notes to Financial Statements
F-2
<PAGE>
Liabilities and Stockholders' Equity
August 31, June 30,
1996 1996
Current liabilities
Accounts payable ............................... $ 20,761
Loan payable ................................... 35,129
Payroll and sales taxes ........................ 4,725
--------
Total current liabilities ...................... 60,615
--------
Commitments
Stockholder's equity
Sunlight Systems, Ltd. ................................
Preferred stock, $.0001 par value
5,000,000 shares authorized, none issued
Common stock, $.0001 par value
45,000,000 shares authorized, 9,000,064
issued and outstanding ....................... 900
Additional paid in capital 1,439,509
Unrealized gain on securities
available for sale............................ 13,891
Accumulated deficit ............................ (83,310)
Stockholders' Equity
Mendell-Denver Corporation
Preferred stock, $0.01 par value,
1,000,000 shares authorized, none issued
Common stock, $0.001 par value,
25,000,000 shares authorized, 10,471,558
shares issued and outstanding ................ $ 5,592
Accumulated deficit ............................ (5,185)
-------
1,370,090 407
---------- -------
$1,431,605 $ 407
========== =======
See Notes to Financial Statements
F-2
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Statements of Operations
Two Months
Ended Year Ended
August 31, 1996 June 30, 1996
Sales ...................................... $ 2,278
Cost of sales .............................. 1,202
-----------
Gross Profit ............................... 1,076
Revenues ................................... $ 8,993
General and administrative expenses ........ 84,326 12,570
----------- -----------
Net loss .................................. $ (83,310) $ (3,577)
=========== ===========
Net loss per common share .................. ($.0093) ($.0007)
=========== ===========
Weighted average number of common
shares outstanding .................... 9,000,064 5,491,558
=========== ===========
See Notes to Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Statement of Changes in Stockholders' Equity
Sunlight Systems, Ltd. Mendell-Denver Corporation
------------------------------------------------------ --------------------------------
Common Stock Paid-In Gain On Accumulated Common Stock Accumulated
Shares Amount Capital Securities Deficit Shares Amount Deficit
---------- -------- --------- ---------- ----------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 .......... 5,491,558 $5,492 ($1,608)
Sale of common stock ............ 5,000,000 100
Net loss for the year ended
June 30, 1996 ................ (3,577)
-------------------------------
Balance, June 30, 1996 .......... 10,491,558 5,592 ($5,185)
Exchange of Mendell-Denver
Corporation stock for
Sunlight Systems, Ltd. .......
stock at 5 for 1 ............. 2,098,312 $210 $ 197 (10,491,558) (5,592) 5,185
Issuance of common stock
for cash and other property .. 6,901,752 690 1,439,312
Net loss for two months ended
August 31, 1996 .............. (83,310)
Unrealized gain on securities ... 13,891
---------------------------------------------------- --------------------------------
Balance, August 31, 1996 ........ 9,000,064 $900 $1,439,509 $13,891 ($83,310) $0 $0 $0
==================================================== ================================
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Statements of Cash Flows
Two Months
Ended Year Ended
August 31, 1996 June 30, 1996
Cash flows from operating activities
Net loss .................................... $(83,310) $ (3,577)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization ...... 4,851
Change in assets and liabilities:
(Increase) decrease in:
Accounts and escrow receivable ..... (636) 3,032
Inventory ......................... (92,361)
Prepaid expenses ................ (638)
Deposits ........................ (4,590)
Income tax refunds receivable ... 1,113
Increase (decrease) in:
Accounts payable ................ 20,763 (2,345)
Payroll and sales taxes ........... 4,725
--------- ---------
Net cash used by operating activities ....... (151,196) (1,777)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment ..... (69,483)
Purchase of distribution and
dealerships .......................... (30,000)
Increase in start-up costs ............. (30,627)
---------
Net cash used by investing activities ....... (130,110)
---------
Cash flows from financing activities
Proceeds from sale of common stock ..... 302,767 100
Increase in loan payable .............. (35,129)
--------- ---------
Net cash flows from financing activities .... 337,896 100
--------- ---------
Net increase in cash flows .................. 56,590 (1,677)
Cash, beginning ............................. 407 2,084
--------- ---------
Cash, ending ................................ $ 56,997 $ 407
========= =========
F-5
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Statements of Cash Flows (continued)
Two Months
Ended Year Ended
August 31, 1996 June 30, 1996
Supplemental disclosure of cash flow information
Cash received during the period for:
Income taxes .............................. $ 1,113
========
Noncash investing and financing activities:
Assets acquired by issuance of
common stock:
Stock subscription note receivable ........ $ 87,233
Investment in oil and gas property ........ $300,000
Marketable equity securities of
Energy Corporation .................... $750,000
See Notes to Financial Statements
F-6
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Notes to Financial Statements
1. Organization, Business and Merger of Mendell-Denver Corporation with
Sunlight Systems, Ltd.
Mendell-Denver Corporation (Mendell) was formed on July 22, 1985 for
the purpose of acquiring, exploring and developing oil and gas
properties. On May 1, 1992, Mendell sold all of its interests in oil
and gas properties and has since had no business operations.
Sunlight Systems, Ltd. (Sunlight) was formed on June 22, 1996. On July
17, 1996 it became a wholly-owned subsidiary of Mendell. Mendell was
merged with and into Sunlight with Sunlight being the surviving
corporation . Shareholders of Mendell received one common share of
Sunlight for five shares of Mendell.
Sunlight is a dealer in Colorado and Nevada and a distributor in
Illinois, Ohio, Michigan and Indiana of skylights manufactured or
imported by Sun Tunnel Systems, Inc.
2. Significant Accounting Policies
Inventories - Inventories are valued at the lower of cost or market
using the first-in, first-out (FIFO) method for determining cost.
Inventories consist of skylights and components.
Property and Equipment - Property and equipment are carried at cost.
Major additions and betterments are capitalized while replacements and
maintenance and repairs that do not improve or extend the life of the
respective assets are expenses. When property is retired or otherwise
disposed of, the related costs and accumulated depreciation and
amortization are removed from the accounts and any gain or loss is
reflected in operations.
Depreciation and amortization of property and equipment are calculated
on the straight-line method over the estimated useful lives of three to
seven years.
Intangible Assets - Intangible assets subject to amortization include
start-up costs and dealer and distributor costs. Start-up costs are
being amortized on a straight- line basis over five years. Dealer and
distributor costs are being amortized over the life of the dealer and
distributor agreements of three years.
F-7
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Investment in Marketable Securities - The Company classifies its
marketable equity securities as "available for sale". Securities
classified as "available for sale" are carried in the financial
statements at fair value unless they are restricted from trade.
Restricted securities are carried at cost. Realized gains and losses,
determined using the first-in, first-out method, are included in
earnings; unrealized holding gains and losses are reported as a
separate component of stockholders' equity.
Oil and Gas Properties - The Company followed the successful efforts
method of accounting for its oil and gas activities. Under this method,
costs associated with the acquisition, drilling, and equipping of
successful exploratory wells are capitalized and amortizated ratably
over the life of production from related proved reserves. Geological
and geophysical costs, delay rentals, and drilling costs of
unsuccessful exploratory wells are charged to expense as incurred.
Costs of drilling, both successful and unsuccessful development wells,
are also capitalized and amortized ratably over the life of production
from related proved reserves. Undeveloped properties are assessed
periodically to determine whether the properties have been impaired,
and when impairment occurs, a loss is recognized.
Property acquisition costs for unproved oil and gas properties are
initially capitalized. The acquisition costs for unproved properties
are assessed at least annually, and if necessary, an impairment in
value recognized. Proceeds from sales of partial interests in unproved
leases are accounted for as a recovery of cost without recognizing any
gain or loss. Costs of properties abandoned are expensed on the date of
abandonment.
Loss Per Common Share - Loss per common share is computed on the basis
of the weighted average number of common shares outstanding during the
respective periods.
Cash Equivalents - For purposes of reporting cash flow, the Company
considers cash and certificates of deposit with original maturity of
three months or less to be cash equivalents.
F-8
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Income Taxes - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related when there are differences
between the bases of certain assets and liabilities for financial and
tax reporting. The deferred taxes represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Property and equipment
August 31,
1996
Vehicles $51,346
Office furniture and equipment 9,434
Leasehold improvements 8,703
-------
69,483
Less accumulated depreciation 2,163
-------
$67,320
=======
4. Investment in Energy Corporation
The Company owns One Hundred and Sixty-Six Thousand, Six Hundred and
Sixty Seven (166,667) restricted shares of Energy Corporation. Energy
Corporation is a public company whose stock, as a result of it's
decision to implement a voluntary Plan of Liquidating Dissolution, is
not currently trading. As a result of the sale of all it's assets to
Intercell Corporation (NASDAQ;INCE) on July 7, 1995, Energy Corporation
received Five Million, Four Hundred and Twelve Thousand, Three Hundred
and Fifty Five (5,412,355) restricted shares of Intercell Corporation
in exchange for such assets. Energy Corporation and Intercell
Corporation have agreed to register and distribute to the shareholders
F-9
<PAGE>
Sunlight Systems, Ltd.
(formerly Mendell-Denver Corporation)
Notes to Financial Statements
4. Investment in Energy Corporation (continued)
of Energy Corporation the Five Million, Four Hundred and Twelve
Thousand, Three Hundred and Fifty-Five (5,412,355) shares held by
Energy Corporation. All beneficial owners of common stock of Energy
Corporation, as of July 8, 1996 will be entitled, over a three (3) year
period, in six (6) equal, installments, payable in January and April of
each year commencing 1997 through 1999, to receive for each share of
Energy Corporation such holder owns, one (1) registered share of
Intercell Corporation. Intercell Corporation is currently preparing the
Registration Statement for filing with the Securities and Exchange
Commission.
Unrealized gains and losses of marketable securities available for sale
as of August 31, 1996 are as follows:
Gross
Realized Fair
Shares Cost Gains Value
Shares with restrictions
lasting more than one year 111,111 $500,000 $27,777 $527,777
Shares with restrictions
lasting less than one year 55,556 $250,000 $13,891 $263,891
The unrealized gain on shares with restrictions lasting for more than
one year is not being recognized in the financial statements.
5. Operating Lease Commitments
The Company leases its office, warehouse and assembly facilities in
Colorado, Nevada and Indiana under noncancellable operating leases
through February, 2000. The leases generally require the Company pay
for insurance, common area maintenance and utilities. Two of the leases
include annual adjustments to reflect increases in the consumer price
index. Rent expense for the period ended August 31, 1996 was $4,800.
Future minimum lease payments for each of the years ended June 30 are
as follows: 1997 $29,000; 1998 $29,000; 1999 $28,000; 2000 $11,000.
F-10
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Notes to Financial Statements (continued)
6. Income Taxes
Deferred income taxes arise from the temporary differences between
financial statement and income tax recognition of net operating losses
and unrealized gain and losses of marketable securities.
The components of deferred taxes in the accompanying balance sheets are
summarized below:
Deferred tax assets (liabilities) arising from:
Net operating loss carryover $20,000
Unrealized gains on securities (4,000)
Less valuation allowance (16,000)
---------
Deferred taxes - net $ -
=========
At August 31, 1996, the Company has approximately $80,000 of unused
Federal net operating loss carryforwards, which expire in the year
2012.
7. Stockholders' Equity
Sunlight Systems, Ltd. issued stock as follows.
Shares Value
Exchange for 10,491,558 shares
of Mendell-Denver Corporation
at five shares for one 2,098,312 $ 407
Cash 2,083,960 300,000
Oil and gas property 2,083,896 300,000
166,667 shares of Energy
Corporation plus $90,000 cash 2,733,896 840,002
--------- ----------
9,000,064 $1,440,409
========= ==========
F-11
<PAGE>
Sunlight Systems, Ltd.
(Formerly Mendell-Denver Corporation)
Notes to Financial Statements (continued)
7. Stockholders' equity (continued)
The Company has a stock subscription note receivable which bears
interest at 8% and collateralized by common stock Intercell
Corporation. The note is due July 18, 1997 but the shareholder intends
to liquidate the Intercell Corporation common stock and pay the note by
September 30, 1996.
8. Dealer agreement with Sun Tunnel Systems, Inc.
The Company currently buys all of its products from Sun Tunnel Systems,
Inc under a dealer agreement.
The Company is required by its dealer agreement to meet quotas. If the
quotas are not met, this could invalidate the dealer agreement. The
total cost of meeting the quotas could be $800,000. The quotas are as
follows:
Year ended Colorado Nevada
June 30 (in units)
1997 500 150
1998 1,000 300
1999 2,000 500
Management believes that should it not meet the above quotas, it may be
able to retain its dealers status through negotiations. Management also
believes that should its relationship with Sun Tunnel Systems, Inc.
cease it would be able to pursue other business activities though the
disruption would adversely affect operating results.
9. Related Party Transactions
The Company pays a management fee to Zenith Petroleum Corporation whose
president and a stockholder is the President and a beneficial
stockholder of the Company. Management fees of $14,000 were paid for
the period ended August 31, 1996.
The president of Energy Corporation is a minority stockholder of the
Company.
F-12
<PAGE>
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 31, 1995, the former Mendell-Denver Corporation reported that L.K.
Denton & Co., P.C., had been dismissed as its principal independent accountant
to audit its financial statement and Larry O'Donnell, C.P.A., P.C. had been
engaged as its principal independent accountant to audit its financial
statements, commencing with its fiscal year ending June 30, 1995. The Company
has again retained Larry O'Donnell, C.P.A., P.C. to perform the audit for the
fiscal year ended June 30, 1996.
L.K. Denton & Co., P.C.'s report on the Company's financial statements for
the years ended June 30, 1994 and 1993, contained no adverse opinion or a
disclaimer and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
The decision to change principal accountants was recommended and approved
by the Company's Board of Directors. During the Company's fiscal years ended
June 30, 1994 and 1993 there were no disagreements between the Company and L.K.
Denton & Co., P.C., on any matter of accounting principles or practice,
financial statement disclosure, or auditing scope or procedure.
During the Company's two most recent fiscal years it did not consult with
Larry O'Donnell, C.P.A., P.C., regarding the application of accounting
principles to a specified transaction or the type of audit opinion that might be
rendered on its financial statements.
19
<PAGE>
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
NAME AND AGE POSITION PERIOD OF SERVICE
Patricia E. Johnston (38) President, Chief Executive June 1996 to Present
Officer, Chief Financial
Officer, Treasurer & Director
Cheri L. Perry (48) Secretary June 1996 to Present
The directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The officers are
elected by the Board of Directors at its annual meeting, immediately following
the shareholders annual meeting and hold office until their death or until they
seek an earlier resignation or are removed from office. No current director has
any arrangement or understanding whereby they are or will be selected as a
director or nominee. There are no written or other contracts providing for the
election of directors or term of employment for executive officers. No family
relationship exists between any director, executive officer, significant
employee or person nominated or chosen by the Company to become a director or
executive officer. The Company has not established an executive committee of the
Board of Directors or any committee that would serve similar functions such as
audit, incentive compensation, or nominating committees.
Biographical Information on Officers and Directors.
- --------------------------------------------------
PATRICIA E. JOHNSTON. Ms. Johnston has been the President, Chief Executive
Officer, Chief Financial Officer, Treasurer and a Director of the Company since
its incorporation on June 25, 1996. From 1991 to the present, Ms. Johnston has
been a licensed real estate agent with Perry & Butler Realty, Inc., she serves
specifically as a residential Realtor. She has been given the distinction for
four consecutive years of the President Club - "Gold" (Perry & Butler Realty,
Inc. recognition of Top Sale Producers). Prior to that time, she held various
top executive positions with numerous publicly traded and private companies in
the oil and gas investment, mineral exploration and development industries and
was involved in other business activities in the real estate and investment
industries.
Ms. Johnston graduated from the University of Wisconsin, Madison in 1982 where
she received her Bachelor of Science degree.
Ms. Johnston is the sole officer, director and shareholder of Zenith Petroleum
Corporation, the beneficial owner of more than ten percent (10%) of the issued
and outstanding stock of the Company.
The Company believes, because of Ms. Johnston's professional expertise and
background in the real estate industry that she enjoys a significant knowledge
20
<PAGE>
of features and products considered attractive to home owners and the
construction industry. The Company's primary product is designed for the
residential home market and is a product which she as, the President of the
Company, is an unique position to sponsor and market with people actively
engaged in the real estate industry and whose opinions carry significant weight
with homeowners, builders, remolding and renovation firms and others catering to
the huge housing market industry.
CHERI L. PERRY. Ms. Perry has served as the Secretary of the Company since
its inception. From February 1993 to May 1996, Ms. Perry was employed as a
Product Manager with Automatic Data Processing at its Denver, Colorado office.
From January 1, 1984 to February 1993, she was employed by Securities Industry
Software, Inc., as a Conversion Services and Product Manager in its Denver,
Colorado offices.
Prior to that time Ms. Perry was employed by various brokerage firms located in
the Denver, Colorado area. She was Operations Manager at Morris Bridger
Securities, Inc. from January 1983 until January 1984. From September 1995 to
January 1983, she was employed as the Treasurer/Controller of E.J. Pittock &
Co., Incorporated. From May 1968 to September 1975, she was employed by
Bosworth, Sullivan & Co., in numerous positions.
Prior to the change in control, which became unconditionally effective on
July 22, 1996, management of the company consisted of the following individuals
in the capacities indicated.
PAUL E. MENDELL. Mr. Mendell was Chairman of the Board, President, Chief
Executive Officer and a Director of the Company from inception on July 22, 1985
to July 22, 1996.
CHARLES R. RAYMAN. Mr. Rayman was Vice President, Secretary, Treasurer,
Chief Financial Officer and Director of the Company from April 1, 1989 to July
22, 1996.
DAVID M. HEDGES. Mr. Hedges was a Director of the Company from December 8,
1987 to July 22, 1996.
21
<PAGE>
ITEM 11
EXECUTIVE COMPENSATION
No compensation has been paid to any Executive Officer or Director or to
them as a group during the fiscal year ended June 30, 1996. All officers and
Directors of the Company prior to the change in control have resigned their
positions and consequently no compensation will be paid to them by the Company
in the future.
Present members of Management are currently serving without any
compensation on behalf of the Company. However, Zenith Petroleum Corporation was
paid $14,000.00 for consulting fees as of August 31, 1996. See Note 9 to Notes
to Financial Statements.
The Company does intend when operating or other funds are available, to
compensate its Executive Officers and key employees in a manner equivalent with
the size of the Company and for comparable services rendered for similar type of
services. The Company further contemplates creating a Compensatory Stock Option
Plan which it intends to register under Form S-8 for the benefit of officers,
directors, key employees, consultants and advisors and others entitled to the
benefit of such plan. At the current time, no options have been granted.
Any amount which may have been paid by the Company in the past fiscal year
or which in the future may be paid, may obviously have certain personal benefits
for the individual concerned, but are not paid in any connection with any
personal matters but solely in connection with the conduct of the Company's
business. Such payments are made to facilitate job performance and to reduce
work related expenses. Although the amount of such personal benefits and the
extent to which they are related to job performance can not be specifically
ascertained, the Company has concluded that the aggregate amount of such
personal benefits will not exceed 5% of cash compensation for any person or
group named.
22
<PAGE>
ITEM 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Based upon information which has been made available to the Company by its
Stock Transfer Agent, the following tables sets forth, as of September 3, 1996,
the common shares owned by each person, known by the Company to own more the 5%
of the outstanding common stock of the Company and for each officer and
director, and the officers and directors as a group.
Name & Address of 1
Beneficial Owner Number of Shares Percentage
- ------------------ ---------------- -----------
2
Zenith Petroleum Corporation 2,230,619 24.61%
5222 S. Holly 3
Greenwood Village, CO 80111
3
Bert Roosen 2,263,117 24.97%
4-4909 32nd Avenue
Surrey, B.C. Canada V4P 1A4
3
Cheri L. Perry 1,979,222 21.84%
3236 Jellison Street
Wheat Ridge, CO 80033
_____________________
1 Based upon 9,000,064 shares issued and outstanding on September 3, 1996.
2 Patricia E. Johnston, President, Chief Executive Officer, Chief Financial
Officer, Treasurer and a Director of the Company is the Sole Officer,
Director and Shareholder of Zenith Petroleum Corporation.
3 Each person named has record and/or beneficial ownership of the shares
indicated and sole voting and dispositive rights.
23
<PAGE>
(b) EXECUTIVE OFFICERS AND DIRECTORS
1
Name & Address Number of Shares Percentage
-------------- ---------------- -----------
2
Patricia E. Johnston 2,230,6196 24.61%
5222 S. Holly 3
Greenwood Village, CO 80111
3
Cheri L. Perry 1,979,222 21.84%
3236 Jellison Street
Wheat Ridge, CO 80033
All Officers and Directors 4,209,841 46.45%
as a Group (2)
_____________________
1 Based upon 9,000,064 shares issued and outstanding on September 3, 1996.
2 Patricia E. Johnston, President, Chief Executive Officer, Chief Financial
Officer, Treasurer and a Director of the Company is the Sole Officer,
Director and Shareholder of Zenith Petroleum Corporation.
3 Each person named has record and/or beneficial ownership of the shares
indicated and sole voting and dispositive rights.
24
<PAGE>
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the corporate reorganization disclosed in Item 1, the
Company's existing officers, directors and principal stockholders acquired their
controlling interests in the Company as a result of such reorganization.
Following the acquisition of control, certain subscribers consisting of: Zenith
Petroleum Corporation and Cheri L. Perry, each acquired Two Million,
Eighty-Three Thousand, Eight Hundred and Ninety-Six (2,083,896) restricted
shares of the Company's common stock at an effective per share price of $0.1439
per share. Cheri L. Perry paid the sum of Three Hundred Thousand Dollars
($300,000.00) in cash or cash equivalent for her shares. Zenith Petroleum
Corporation purchased its shares for oil and gas properties valued at Three
Hundred Thousand Dollars ($300,000.00). Bert Roosen purchased One Million,
Eighty-Three Thousand, Eight Hundred and Ninety-Six (1,083,896) in exchange for
restricted securities of Energy Corporation valued at Three Hundred Thousand
Dollars ($300,000.00). The evaluation of the securities and the transferred oil
and gas properties was arbitrarily determined by Management and there is no
specific relationship to any recognized criteria of value. Cheri L. Perry,
gifted Two Hundred and Eighty-Three Thousand, Six Hundred and Ninety (283,690)
restricted shares to seven (7) persons (the children, godchildren and an
employee of her husband) reducing her ownership to One Million, Eight Hundred
Thousand (1,800,000) shares. She subsequently purchased One Hundred and
Seventy-Nine Thousand, Two Hundred and Twenty-Two (179,222) shares from
nonaffiliates of the Company, bringing her ownership to One Million, Nine
Hundred and Seventy-Nine, Two Hundred and Twenty-Two (1,979,222) shares. Bert
Roosen and Zenith Petroleum Corporation subsequently purchased One Hundred and
Seventy-Nine Thousand, One Hundred and Fifty-Seven (179,157) and One Hundred and
Forty-Six Thousand, Six Hundred and Fifty-Nine (146,659) shares from
nonaffiliates. All shares purchased from nonaffiliates were purchased at $0.20
per share.
Except as disclosed herein, there are no other arrangements or transactions
from which related parties may receive a benefit to the best knowledge of
Management. See also Note 9 to Notes to Financial Statements.
25
<PAGE>
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND
REPORTS OF FORM 8-K
a) The following documents and reports have been filed as a part of this
report.
1. Financial Statements.
(a) Independent Auditors' Reports
(b) Balance Sheets - August 31, 1996 and June 30, 1996
(c) Statements of Operations - For the Two Months Ended August 31, 1996
and For the Year Ended June 30, 1996
(d) Statements of Stockholder's Equity -
For the Two Months Ended August 31, 1996 and
For the Year Ended June 30, 1996
(e) Statements of Cash Flows - For the Two Months Ended August 31, 1996
and For the Year Ended June 30, 1996
(f) Notes to Financial Statements
2. Financial Statement Schedules
Schedules are omitted as the are not required or are not applicable,
or the required information is shown in the Financial Statements or
notes thereto.
3. Exhibits required by Item 601:
Exhibit 10.01 Sample Dealer Agreement between Sun Tunnel Systems, Inc.
and Sunlight Systems, Ltd., dated June 12, 1996
Exhibit 10.02 Sample Distributorship Agreement between Sun Tunnel
Systems, Inc. and Sunlight Systems, Ltd., dated
August 30, 1996.
Exhibit 13.1 Registrant's financial statements for the fiscal year
ended June 30, 1995 and prior years contained in the
Registrant's Annual Report on Form 10-K, dated October
11, 1995, and incorporated by reference
Exhibit 27.1 Financial Data Schedule
4. Reports on Form 8-K: No Current Report on Form 8-K was filed in the last
quarter of the Fiscal Year Ended June 30, 1996.
However, a Current Report on Form 8-K reporting under
Item 1 Changes in Control of the Registrant was filed
on August 13, 1996, by Sunlight Systems, Ltd.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUNLIGHT SYSTEMS, LTD.
(Registrant)
/S/ Patricia E. Johnston
Date: September 23, 1996 By: ___________________________________________
Patricia E. Johnston,
Chief Executive Officer, President,
Chief Financial Officer, Treasurer, &
Director
27
DEALER AGREEMENT
PREAMBLE
- --------
This Dealer Agreement (this "Agreement") is entered into between Sun Tunnel
Systems, Inc., a California corporation ("Seller"), and the person or entity
identified as the dealer on the signature page of this Agreement ("Dealer").
This Agreement will become effective as of the date it is signed by the last
party to sign (the "Effective Date").
BACKGROUND
- ----------
Under the terms and conditions of this Agreement, Dealer will purchase
skylights from Seller, known as "Sun Tunnel"(TM) Skylights, for resale.
AGREEMENT
- ---------
Based upon the mutual covenants below, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 TERRITORY. The term "Territory" shall mean that geographic area described on
Exhibit A attached to this Agreement.
1.2 PRODUCT. The term "Product" shall mean the skylights imported or
manufactured by the Seller known as "Sun Tunnel" skylights.
1.3 ORDERS. The term "Orders" shall mean all purchase orders placed by Dealer
for shipment of Products to Dealer which have been accepted by Seller pursuant
to Section 5.1 and are in accordance with the terms of this Agreement.
ARTICLE II
APPOINTMENT AS DEALER
2.1 APPOINTMENT. Subject to the terms and conditions of this Agreement, during
the term of this Agreement, Seller grants to Dealer the right to purchase the
Products from Seller and the exclusive right to resell them in the Territory.
ARTICLE III
TERM OF AGREEMENT
3.1 TERM. The term of this Agreement shall begin on the Effective Date and shall
continue for an initial period of three (3) years from the Effective Date (the
"Initial Term"). Thereafter, this Agreement shall be automatically renewed
indefinitely for additional one (1) year periods ("Renewals"), unless notice of
non-renewal is given in accordance with Section 10.1. Notwithstanding the above,
this Agreement is subject to termination according to the provisions of Article
X.
<PAGE>
ARTICLE IV
OBLIGATIONS OF DEALER AND SELLER
4.1 DEALER'S DUTIES. Throughout the term of this Agreement:
(a) INDEPENDENT SALES EFFORT. Dealer shall promote, sell, and otherwise
create a market for the Product within the Territory in any manner the
Dealer deems appropriate. The parties acknowledge and agree that the
Dealer shall determine its own prices for the Product, may advertise
the Product in any manner desired, and shall determine its own prices
for the Product, any advertise the Product in any manner desired, and
shall determine its own site design, appearance, hours of operation,
accounting practices, and personnel policies and procedures. The
parties acknowledge and agree that this Agreement does no constitute a
franchise, and that Seller will not assist Dealer in connection with
the marketing of the Product.
(b) ASSUME NO OBLIGATIONS ON BEHALF OF SELLER. The parties acknowledge
that they are independent contractors and Dealer will assume no
obligation or liability on behalf of Seller in connection with the sale
or use of the Products by Dealer.
(c) QUARTERLY STATUS REPORTS. Dealer shall submit reports to Seller on
a quarterly basis containing good faith sales forecasts and such other
information about the distribution of the Products as Seller shall
reasonably request to enable Seller to fill Dealer's orders more
efficiently.
(d) ADDITIONAL REPORTS. Dealer shall immediately advise Seller of any
legal notices served on Dealer concerning the Products and refer to
Seller all sales inquiries for the Products outside the Territory.
(e) NO COMPETING PRODUCTS. Dealer shall not sell, distribute, design,
or manufacture any products which are deemed, in the reasonable
judgment of Seller, to compete with the Product without written
authorization from Seller. For these purposes, any skylights which
include rigid or flexible tubes, shafts, or ductwork for channeling
light from the skylights shall be deemed to compete with the Product,
but skylights without any such feature shall not be deemed to compete
with the Product.
(f) TECHNICAL SERVICES. If Dealer does not install the Products, Dealer
will provide technical advice and support for customers in the
Territory concerning installation procedures, maintenance, repair, and
such other matters as may be required by customers.
(g) NO SALES OUTSIDE TERRITORY. Dealer shall not sell the Product
directly to customers outside the Territory. Dealer shall also not sell
the Product to customers inside the Territory who Dealer has reason to
know intend to resell the Product to customers outside the Territory
without Seller's written consent. If given by Seller, such consent may
be revoked at any time upon notice to Dealer.
(h) INITIAL DEPOSIT AND ANNUAL RENEWAL FEE. Upon the signing of this
Agreement, Dealer agrees to pay to Seller the Initial Deposit set forth
EXHIBIT 10.01
<PAGE>
on Exhibit A. The initial deposit is paid in consideration of Seller
entering into this Agreement and is not a credit toward any other
amounts to become due under this Agreement. In addition, each year
during the term of this Agreement, Dealer agrees to pay to Seller the
Annual Renewal Fee (the "Renewal Fee") set forth on Exhibit A. Each
Renewal Fee shall be due within thirty (30) days after each yearly
anniversary of the Effective Date of this Agreement, beginning with the
first yearly anniversary.
4.2 SELLER'S DUTIES. Throughout the term of this Agreement:
(a) FILL ORDERS. Seller agrees to use its best efforts to accept all
orders for purchase of the Product placed by Dealer and to fill all
Orders within the time specified in the delivery schedule accepted. In
this context, best efforts shall mean that Seller shall give orders
placed by Dealer at least as favorable treatment with respect to
delivery schedules as Seller affords other comparable dealers of the
Product.
(b) TRAINING AND ASSISTANCE. Seller shall provide to Dealer, at no cost
to Dealer, initial orientation and training concerning the installation
and repair of the Product. Such training will be conducted through
written materials or by telephone or, at the option of Dealer, at
Seller's facility in California. If Dealer elects to have training
provided at Seller's facility, Dealer will pay all costs or its travel
and stay. From time to time, Seller will also provide Dealer with such
additional advice and assistance concerning the installation and repair
of the Product as Dealer shall reasonably require. If any such
additional assistance requires Seller to send personnel to Dealer's
facility, Dealer will pay for Seller's travel, meals and lodging.
(c) REFERRING INQUIRIES. Seller will refer to Dealer all inquiries
received by Seller concerning the purchase of the Product in the
Territory.
ARTICLE V
ORDERS AND PRICES
5.1 TERMS OF SALE. All purchase orders shall be in writing and shall be subject
to and governed by the provisions of this Agreement. Orders shall specify
requested delivery dates and shipping instructions, and shall be subject to
written acceptance by Seller. In the event of any conflict between the
provisions of this Agreement and Dealer's purchase order, the provisions of this
Agreement shall be controlling. No additional or supplemental term contained in
Dealer's purchase orders shall be applicable unless approved by Seller in
writing.
5.2 PRICES. Seller shall invoice Dealer for all Products shipped to Dealer at
the prices listed on Exhibit A. Such prices may, however, be changed by Seller
at its discretion at any time. Seller will use its best efforts to give Dealer
at least thirty (30) days notice of any such price changes. In the event of a
price increase, Seller shall honor the price previously in effect for any order
placed within thirty (30) days before such increase if the Dealer's price
quotation to the customer was based upon the previous price.
Seller's prices are F.O.B. point of shipping and are exclusive of shipping
and handling charges, insurance, duties, and all taxes of any kind. All of such
charges and taxes shall be borne by Dealer (other than Seller's taxes based upon
EXHIBIT 10.01
<PAGE>
Seller's income) and, if paid by Seller, shall be invoiced to and paid by
Dealer.
5.3 CANCELLATION CHARGE. In the event Dealer cancels all or part of an Order
that has been accepted by Seller, within thirty (30) days prior to the first
scheduled delivery date, Dealer agrees to pay Seller, as a cancellation charge,
five percent (5%) of the price of the portion of the Order canceled. Such charge
has been agreed upon not as a penalty but as a result of the difficulty of
computing actual damages. Dealer may not cancel any order or part of any order
after delivery.
5.4 INITIAL ORDER. By signing this Agreement, Dealer places an initial order for
the quantity of Products indicated on Exhibit A, quantity for initial inventory.
Dealer will pay sixty percent (60%) of the purchase price of such Products upon
signing this Agreement, and the remaining forty percent (40%) at the time of
Dealer's receipt of the Products.
ARTICLE VI
PACKING, PAYMENT, TITLE AND DELIVERY
6.1 PACKING. Seller shall cause the Products to be packed according to its
standard commercial practice in effect from time to time, and shall deliver them
to Dealer or its designee, F.O.B. Seller's warehouse or other point of shipment.
Any non-standard packing and charges shall be agreed upon by the parties.
6.2 PAYMENT. The terms of payment for Products ordered by Dealer shall be sixty
percent (60%) of the purchase price upon placement of the order, with the
remaining forty percent (40%) to be paid at the time of Dealer's receipt of the
Products. Seller may, however, extend credit to Dealer at Seller's discretion,
by agreeing to do so in writing. If credit is extended to Dealer, amounts unpaid
after thirty (30) days from the date of receipt of the Product will be subject
to a finance charge of one and one-half percent (1 1/2%) per month. In addition
to any other remedies permitted by law or this Agreement, if any amount remains
unpaid after forty-five (45) days from the date of receipt of the Product,
Seller may refuse to ship any outstanding order and/or require Dealer to make
payment in full at the time any subsequent order is placed and/or delivered.
6.3 DELIVERY, TITLE AND RISK OF LOSS. Delivery shall occur and title and risk or
loss, damage and destruction and right of possession to all Products shall pass
to Dealer upon tender of the Products to Dealer or its designee at Seller's
warehouse or other point of shipment. Seller is hereby granted a security
interest in all Products sold to Dealer under this Agreement, and all products
and proceeds thereof, to secure payment of Seller's invoices for Products and
all other amounts due or to become due to Seller under this Agreement. Dealer
agrees at Seller's request to execute a UCC-1 financing statement, or such other
documents as may be requested by Seller, to confirm and record such security
interest.
6.4 DELAY. Seller shall not be liable for loss or damage caused by delay or
inability to fill or complete Orders. Seller reserves the right to allocate
orders among its customers in periods of short supply.
6.5 INSTALLMENT DELIVERIES. Upon Dealer's consent, which consent shall not be
unreasonably withheld, Seller may make deliveries in installments with
appropriate partial invoicing.
EXHIBIT 10.01
<PAGE>
6.6 SHIPPING INSTRUCTIONS When adequate shipping, packing, or other instructions
do not accompany an Order, Seller may select a carrier and package, and ship to
dealer freight collect. Seller may insure such Products while in transit and
charge the Dealer accordingly, and Dealer hereby agrees to pay such charge.
6.7 NO CONSEQUENTIAL OR INCIDENTAL DAMAGES. Upon acceptance of orders placed by
Dealer, Seller will exercise reasonable efforts to ship in accordance with such
orders, but if, for any cause, Seller should fail to make such shipments or fail
to make them within the time specified in the orders, Seller shall not be liable
for any damages by reason of such failure or delay. IN NO EVENT SHALL SELLER BE
LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES DUE TO DELAYS IN DELIVERY,
HOWEVER CAUSED.
6.8 INSPECTION. Dealer agrees to examine, or cause to be examine, all Products
shipped by Seller promptly upon receipt, and to immediately file, or cause to be
filed, a claim with the carrier upon delivery for any damage to or shortage in
the Products, and to notify Seller within thirty (30) days after receipt of the
Products of any such claim pertaining to such damage or shortage. Unless Seller
is notified within such period, Products shall be deemed to have been accepted
by Dealer.
6.9 PRODUCT RETURNS. Dealer may return Products to Seller only with Seller's
written consent, which consent shall not be unreasonably withheld. All Products
to be returned must be in good condition, suitable for restocking. Dealer will
pay all costs of shipping for returned Products. For any returned Products,
Dealer will receive a credit toward its outstanding balance, or toward future
purchases, equal to the price paid by Dealer for the returned Products, minus a
twenty-five percent (25%) restocking fee.
6.10 DROP SHIPMENT. Seller will drop ship to Dealer's customers if so instructed
by Dealer.
ARTICLE VII
WARRANTY
7.1 DEFECTS. Seller warrants to Dealer that all Products sold to Dealer shall be
free from defects in material and workmanship under normal use and service for a
period of seven (7) years from the date of their delivery by Seller to Dealer.
7.2 REMEDY. Dealer agrees to service all warranty claims on Products sold by
Dealer. Seller's sole obligation and Dealer's sole remedy under this warranty
shall be that Seller, at Seller's option shall repair, replace, or refund
Dealer's purchase price of any Products which do not conform to the above
warranty. This warranty shall apply only if (a) Dealer notifies Seller of the
Defect in writing during the warranty period, promptly after discovery of the
defect, and provides documentation sufficient to establish the date of delivery
of the Product to Dealer, (b) Dealer has obtained a Return Materials
Authorization number ("RMA") from Seller which RMA Seller agrees to provide
Dealer promptly upon request, (c) Dealer promptly returns the defective Product
to Seller, freight prepaid, and (d) upon Seller's inspection of the Product,
Seller in its reasonable judgment determines that the Product does not conform
to the warranty. Seller will pay transportation charges back to Dealer and shall
reimburse in connection with the return to Seller of properly rejected Products.
Otherwise, Dealer shall pay transportation charges in both directions as well as
any other damages incurred by Seller as a result of improper rejection. Service
labor performed by Dealer or others in connection with the removal of defective
EXHIBIT 10.01
<PAGE>
Products, or reinstallation of repaired or replacement Products, and related
expenses (such as travel, meals, and lodging) shall not be reimbursed to Dealer
by Seller.
7.3 EXCLUSIONS. Seller shall not be responsible for failure of the Products, or
any part thereof, and the foregoing warranty shall not apply, if:
(a) the Product fails as a result of improper installation,
modifications, or repairs; or
(b) the Product is subject to accident (including damage during
shipment ) or abuse, or is exposed to conditions more severe than those
contemplated by Seller as described in Seller's brochures and manuals.
7.4 NO UPGRADE DUTY. It is understood that Seller shall have no responsibility
to upgrade the Product, under its warranty obligation or otherwise, through the
installation or provision of new or improved goods, except such engineering
improvements introduced by Seller during the respective warranty period for such
Products as Seller, in its sole discretion, determines to constitute a mandatory
retrofit.
7.5 NO IMPLIED OR OTHER EXPRESS WARRANTIES. THE FOREGOING WARRANTY IS EXPRESSLY
IN LIEU OF ANY OTHER WARRANTIES, EXPRESS, IMPLIED, BY OPERATION OF LAW, OR
OTHERWISE, AND ANY OTHER OBLIGATION ON THE PART OF SELLER IN THIS REGARD, AND
SHALL CONSTITUTE THE DEALER'S SOLE RIGHT AND REMEDY UNDER THIS AGREEMENT WITH
RESPECT TO DEFECTIVE PRODUCTS. SELLER DISCLAIMS ANY IMPLIED WARRANTIES,
INCLUDING WARRANTIES OF MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.6 WARRANTY ON REPAIRS AND REPLACEMENTS. Replacement Products, and repairs
which Seller makes pursuant to the above warranty, shall carry the greater of a
thirty day warranty period or the balance of the original warranty period.
ARTICLE VIII
LIMITATION OF LIABILITY
8.1 HOLD HARMLESS. DEALER EXPRESSLY SAVES AND HOLDS SELLER AND ITS AFFILIATES
AND AGENTS HARMLESS FROM ANY AND ALL LIABILITY OF ANY KIND OR NATURE WHATSOEVER
TO CUSTOMERS AND TO OTHER THIRD PARTIES AND FROM CLAIMS ASSERTED BY CUSTOMERS
AND THIRD PARTIES TO THE EXTENT THAT SUCH LIABILITY OR CLAIM ARISES FROM ACTS OR
OMISSIONS OF DEALER, INCLUDING BUT NOT LIMITED TO ANY BREACH OF THIS AGREEMENT
OR ANY UNAUTHORIZED REPRESENTATIONS OR UNDERTAKINGS BY Dealer REGARDING THE
PRODUCTS OR ANY OTHER ITEM FURNISHED UNDER THIS AGREEMENT.
8.2 LIMITATION. IN NO EVENT AND UNDER NO LEGAL THEORY, WHETHER TORT, CONTRACT,
STATUTORY, OR OTHERWISE, SHALL SELLER OR ITS AFFILIATES OR AGENTS BE LIABLE FOR
ANY LOST PROFITS OR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR THE EXISTENCE, FURNISHING,
FUNCTIONING OR DEALER'S OR ANY THIRD PARTY'S USE OF ANY PRODUCTS OR SERVICES
PROVIDED FOR IN THIS AGREEMENT. DEALER'S SOLE REMEDY FOR SELLER'S LIABILITY OF
ANY KIND, INCLUDING NEGLIGENCE, WITH RESPECT TO ANY ITEM FURNISHED UNDER THIS
EXHIBIT 10.01
<PAGE>
AGREEMENT, SHALL BE LIMITED TO THE REMEDIES PROVIDED IN SECTIONS 7.2 AND 9.5 OF
THIS AGREEMENT. IN NO EVENT SHALL THE LIABILITY OF SELLER ARISING IN CONNECTION
WITH ANY PRODUCTS SOLD UNDER THIS AGREEMENT EXCEED THE ACTUAL AMOUNT PAID BY
DEALER TO SELLER FOR SUCH PRODUCTS.
8.3 INSURANCE. During the term of this Agreement, Dealer will maintain product
liability insurance with commercially reasonable limits covering personal injury
and property damage attributable to the Products. Dealer will provide Seller
with proof of such coverage upon request.
ARTICLE IX
CONFIDENTIALITY AND PROPRIETARY RIGHTS
9.1 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Dealer acknowledges that, in the
course of selling the Products and performing its duties under this Agreement,
it may obtain and develop information relating to the Product and to Seller's
business which is of a confidential and proprietary nature. The term
"Confidential Information" shall mean all information which has been either
characterized in writing as confidential at the time of its disclosure, or
orally characterized as confidential at the time of disclosure and confirmed in
writing as being confidential following such oral disclosure. However, the
following information shall not be considered to be "Confidential Information"
under this Agreement: (a) information previously known to Dealer, as
demonstrated by written records, (b) information which is or becomes, from no
act or failure to act on Dealer's part, generally known in the relevant
industry, or (c) information which is disclosed to Dealer by a third party as a
matter of right and without restriction on disclosure. Dealer shall have the
burden of proving by clear and convincing evidence that one of the foregoing
three exceptions applies.
Confidential Information may include, but is not necessarily limited to,
trade secrets, know-how, inventions, techniques, processes, customer lists and
data (including those developed by Dealer) financial information, and business,
product development, sales and marketing plans. Dealer agrees to promptly
disclose to Seller any Confidential Information developed by Dealer.
At all time during the term of this Agreement, and for a period of five (5)
years after its termination, Dealer shall keep in confidence all such
Confidential Information, and shall not use such Confidential Information except
in the performance of its duties under this Agreement, nor shall Dealer disclose
any of such Confidential Information to any third party without the written
consent of Seller. Dealer shall disclose Confidential Information only to such
of its employees and consultants who have the need to know such information to
perform work for Dealer and who have signed an agreement with Dealer to maintain
the confidentiality of the Confidential Information.
9.2 RETURN OF MATERIALS UPON TERMINATION. Upon termination of this Agreement at
any time, for any reason, Dealer shall, as directed by Seller, immediately
return to Seller or destroy all Confidential Information (including all copies
thereof) and all manuals and literature relating to the Product then in the
possession or control of Dealer.
9.3 OWNERSHIP OF PROPRIETARY RIGHTS. It is expressly agreed that the ownership
and all right, title and interest in and to the trademark "Sun Tunnel" and any
EXHIBIT 10.01
<PAGE>
other trademark, trade name, patent, copy right or other proprietary rights
relating to the Product is and shall remain vested solely in Seller. However, to
the extent permitted by this Agreement, Dealer may use any existing or future
trademark, trade name, patent, copyright or other proprietary rights relating to
the Product is and shall remain vested solely in Seller. However, to the extent
permitted by this Agreement, Dealer may use any existing or future trademark,
trade name, patent, copyright or to the proprietary right relating to the
Product in Dealer's promotion, sales, installation or maintenance of the
Product.
Dealer shall not use, directly or indirectly, in whole or in part, Seller's
name or any other trade name or trademark that is owned or used by Seller, in
connection with any product other than Seller's Products, without the prior
written consent of Seller.
All use by Dealer of Seller's trademarks shall inure exclusively to the
benefit of Seller and Seller shall retain the exclusive right to apply for and
obtain registration of such trademarks in all jurisdictions. Dealer shall, and
hereby does assign to Seller any and all proprietary interests it may obtain
under the law of any jurisdiction in the Territory in the names and/or
trademarks or words associated with Seller or the Products, due to use or
registration by Dealer of such names, trademarks or words in the Territory.
Unless otherwise agreed to in writing by Seller, Dealer shall sell Products only
under Seller's trademarks and will not remove any such trademarks or notices
affixed to the Products. Notwithstanding the above, Dealer is authorized to, but
shall not be required to, identify itself as the Dealer of the Products for
Seller in the territory by affixing a notice to that effect to the Products or
packages or in its promotional materials. Dealer shall not, however, adopt a
trade name containing the phrase "Sun Tunnel," or any confusingly similar
phrase.
9.4 OWNERSHIP OF IMPROVEMENTS. All rights to any modifications, design changes
or improvements to the Product (collectively "Improvements") developed by Dealer
or suggested by any customer, employee, consultant or agent of Dealer shall be
and remain the sole exclusive property of Seller. Dealer agrees to execute all
documents necessary to perfect or protect Seller's rights thereto. In the case
of employees, consultants, and agents, Dealer shall obtain Improvements. Dealer
may not modify the Product in any way without the prior written consent of
Seller.
9.5 WARRANTY AGAINST INFRINGEMENT.
(a) THE WARRANTY. Seller hereby agrees to indemnify and hold Dealer
harmless against any and all claims which may be asserted against
Dealer by any other person alleging that the sale of the Product by
Dealer, as delivered to Dealer and sold under Seller's trademarks,
infringes any patent, trademark, trade name, or copyright of such
person.
(b) CONTROL OF CLAIMS. Seller's obligation to indemnify under the
previous paragraph shall apply provided Dealer gives Seller written
notice of such claim within ten days of Dealer's notice of such claim,
cooperate in the defense of such claims at Seller's expense, gives
Seller the control of the defense of such claim (including, without
limitation, the selection of attorneys, forums, and strategies), and
does not settle such claim without Seller's prior written consent.
(c) SUBSTITUTE PRODUCTS. In the event of a claim covered by Subsection
(a) above, Seller, at its option, may provide Dealer with a substitute
EXHIBIT 10.01
<PAGE>
product reasonably satisfactory to Dealer to replace those Products
then in Seller's inventory or then on order by Dealer.
(d) EXCEPTIONS TO WARRANTY. Seller will not be liable under the
indemnification obligations of this Section if the infringement arises
(i) out of Seller's compliance with Dealer's written instructions for
the marking, or labeling of the Product, or (ii) out of Dealer's
activities after Seller has notified Dealer that Seller believes in
good faith that Dealer's activities will result in such infringement.
In such cases, Dealer agrees to indemnify Seller to the same extent as
Seller is otherwise obliged hereunder to indemnify Dealer.
(e) LIMITATION ON INDEMNIFICATION. Seller's liability to Dealer under
the indemnification obligations of this Section shall be limited to the
amount paid to Seller by Dealer for the Product causing the
infringement giving rise to the indemnification obligation.
9.6 LICENSING OF PATENT. The parties acknowledge and agree that Seller may
license to third parties ("Licensees") the right to make, use and sell products
incorporating features covered by Seller's patent on the Product. Dealer
consents to such licensing of the patent by Seller, and agrees not to sue or
otherwise seek damages, injunctive relief, or other redress against any such
Licensee. If any such Licensee sells any of such Products in Dealer's Territory
during the term of this Agreement, Seller shall pay Dealer 20% of any royalty or
other fee Seller receives from such Licensee on account of such sales. Dealer
shall not be entitled to share in any royalties paid by Licensees for sales
outside the Territory. Within 60 days after the end of each calendar quarter
during the term of this Agreement, Seller shall make such payments to Dealer for
sales by Licensees during such quarter. Such payments shall be accompanied by a
report indicating the total royalties paid by Licensees for sales of such
products in the Territory. Dealer shall not be obligated to service warranty
claims on any products sold by Licensees. Any up-front or advance license fee
paid by a Licensee shall not be deemed to be a payment on account of sales in
the Territory.
9.7 INFRINGEMENT BY THIRD PARTIES. Dealer will promptly notify Seller of any
suspected infringement by any third party of Seller's patents, trademarks, or
other proprietary rights relating to the Product, of which Dealer becomes aware.
Seller shall have the first option to bring any action against third parties for
such infringement. If Seller notifies Dealer in writing that Seller declines to
bring any such action, or if Seller fails to take affirmative steps to resolve
such infringement within six (6) months after notification of the infringement
from Dealer, the Dealer shall be entitled to bring an action for infringement in
any case in which Dealer has standing to sue. In such event, Dealer agrees to
cooperate with any other Dealers of Seller's Products who may also have standing
to sue, to determine who will bring the action and the manner in which any
damages awarded will be shared. If, under the terms of this Agreement, either
Seller or Dealer brings an action against any third party for infringement of
Seller's proprietary rights relating to the Product, the (a) the party bringing
the action shall bear the costs and expenses of such action, (b) the other party
will cooperate in such action at the expense of the party bringing the action,
(c) the party bringing the action shall be entitled to retain any award of
damages for such infringement, and (d) if Seller grants a license to such third
party under Seller's proprietary rights relating to the Product, the provisions
of Section 9.6 above shall; govern the division of royalty income under such
license.
EXHIBIT 10.01
<PAGE>
ARTICLE X
TERMINATION
10.1 NON-RENEWAL. This Agreement will terminate at the end of the Initial Term,
or at the end of any Renewal, if either party gives the other party notice of
non-renewal at least thirty (30) days prior to the end of such term.
10.2 MUTUAL CONSENT. This Agreement may be terminated at any time upon mutual
written consent of the parties.
10.3 FOR CAUSE. Either party may terminate this Agreement upon written notice to
the other party if the other party materially breaches any term of this
Agreement and such breach continues uncorrected for a period of thirty (30) days
after notice in writing thereof to such other party.
10.4 FAILURE TO MEET QUOTAS. Seller may terminate this Agreement upon written
notice to Dealer, if Dealer fails to meet a quota set forth in Exhibit A
attached to this Agreement.
10.5 UPON MERGER. This Agreement shall terminate upon the occurrence of any of
the following events, unless Seller has provided its prior written consent to
such event:
(a) Dealer is acquired by, merged into, or consolidated with another
corporation or organization;
(b) Dealer sells or otherwise transfers all or any substantial part of
its assets; or
(c) A change in control of Dealer occurs, which shall be defined as the
transfer of equity, or issuance of equity, constituting more than 50%
of the outstanding stock of Dealer.
10.6 AUTOMATIC TERMINATION. This Agreement shall terminate automatically and
without notice if:
(a) Dealer becomes insolvent; makes an assignment for the benefit of
creditors; has a receiver appointed; files a petition of bankruptcy; or
initiates reorganization proceedings; or
(b) Seller no longer has the right to sell the Product to Dealer.
ARTICLE XI
PROCEDURE UPON TERMINATION
Upon the effective date of termination of this Agreement, neither party
shall have any further or other obligation to the other, except as follows:
11.1 PROCESSING ACCEPTED ORDERS. If termination has occurred pursuant to Section
10.1 or 10.2, Seller shall process and complete all Orders received and accepted
prior to the notice of such termination. If termination has occurred for any
other reason, Seller may but shall not be obligated to process such Orders.
EXHIBIT 10.01
<PAGE>
11.2 PAYMENT OF SUMS DUE. Dealer shall pay any and all sums then owing to Seller
hereunder, including all sums payable on account of Orders Completed under
Section 11.1 above. No refunds of the Initial Deposit of Marketing Fees will be
due.
11.3 NONUSE OF NAME AND TRADEMARKS. Except and only to the extent permitted in
Section 11.5 below, Dealer shall immediately discontinue the use of the name,
trade name, trademark, signs, symbols, advertising or anything else that might
make it appear that Dealer is still handling, selling or promoting the Product.
11.4 NONCONSEQUENTIAL DAMAGES. It is agreed and understood that neither Dealer
nor Seller shall be liable to the other in the event of termination of this
Agreement in accordance with its terms, or any failure to agree upon any
extension of the term of this Agreement, for compensation, reimbursement or
damages on account of the loss of prospective profits, or anticipated sales, or
on account of expenditures, investments, leases or other commitments.
11.5 DEALER'S INVENTORY. If, on the effective date of termination of this
Agreement, Dealer has Products remaining in its inventory acquired under this
Agreement, then Dealer shall notify Seller of the quantity and description of
such Products, and shall offer to sell or return such inventory to Seller at the
price dealer paid to Seller for such inventory. If Seller declines to repurchase
all of such inventory within thirty (30) days after such notice from Dealer,
then Dealer may for six (6) months sell such Products to customers in the
Territory. If, however, Dealer proposes to sell such Products to customers at a
price less than the price paid by Dealer to Seller, Dealer shall again notify
Seller and Seller shall again have the option to purchase such Products at such
price.
11.6 WARRANTY. Seller shall continue to honor the warranty provided for in
Article VII and service warranty claims, either by dealing with Dealer's
customers directly or through a new Dealer, representative, or dealer.
ARTICLE XII
MISCELLANEOUS
12.1 INDEPENDENT CONTRACTOR. Dealer and Seller are, at all times shall remain,
independent contractors as to each other, and neither shall be deemed to be the
agent of the other. No joint venture, partnership, agency or other relationship
shall be created or implied by this Agreement. Except as otherwise specifically
provided in this Agreement, each party shall bear their own expenses,
liabilities, costs, and the like.
12.2 ASSIGNMENT. Neither party may assign this Agreement without the prior
written consent of the other party, except that Seller shall be entitled to
assign this Agreement to any person acquiring more than 50% of its assets or
stock.
12.3 BINDING EFFECT. This Agreement shall be binding upon and shall inure to the
benefit of the parties, their successors and permitted assigns.
12.4 SEVERABILITY. If the application of any provision of this Agreement shall
be held to be invalid or unenforceable by any court of competent jurisdiction,
EXHIBIT 10.01
<PAGE>
then the validity and enforceability of other provisions of this Agreement shall
not in any way be affected or impaired thereby.
12.5 GOVERNING LAW AND DISPUTES. Except for that body of law governing choice of
law, this Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California. The parities agree that any dispute or
controversy arising out of or relating to this Agreement shall be arbitrated in
San Jose, California under the rules of the American Arbitration Association,
and the decision of such arbitration proceedings shall be binding and conclusive
upon the parties hereto. As a part of the arbitration decision, the arbitrator
shall award costs and reasonable attorney fees to the prevailing party. Each
party waives the right to jury trial.
12.6 AMENDMENT. This Agreement may be modified or amended only by an instrument
in writing, signed by an authorized officer or representative of each party.
12.7 NOTICES. Any notice, request, demand, or other communication required or
permitted under this Agreement shall be deemed to be given (a) upon personal
delivery to the addressee, or (b) three days after being deposited in the mail,
postage prepaid, and sent registered or certified mail to a party at its address
indicated on the signature page of this Agreement, or such other address of
which a party shall notify the other.
12.8 SECTION HEADINGS. The article and section headings of this Agreement are
solely for convenience and shall not be considered in its interpretation.
12.9 FORCE MAJEURE. If the performance of any obligation under this Agreement
(except payment of money) by either party is prevented, restricted, or delayed
by reason of fire, accident, casualty, strikes, labor disputes, inability to
procure raw materials or supplies, or any other act or condition beyond the
reasonable control of a party, shall be excused from such performance to the
extent of such prevention, restriction or interference.
12.10 WAIVER. A waiver by either party of any term or condition of this
Agreement, in any one instance, shall not be deemed or construed to be a waiver
of any other term or condition or any subsequent breach thereof. All waivers
must be in a signed writing.
12.11 ENTIRE AGREEMENT. This instrument contains the entire integrated agreement
between the parties with respect to its subject matter, and supersedes all prior
negotiations, representations or agreements, whether written or oral.
EXHIBIT 10.01
<PAGE>
AUTHORIZED SIGNATURES
- ---------------------
DEALER: SUN TUNNEL SYSTEMS, INC.
SUNLIGHT SYSTEMS, LTD.
/s/ Jack Johnston /s/ G. Blackburn
By: ________________________ By: _______________________________
Jack Johnston, Manager G. Blackburn, President
Date: 6-12-96 Date: 6-12-96
Address: Address:
820 So. Colorado Blvd. 786 McGlincey Lane
Denver, CO 80222 Campbell, CA 95008
EXHIBIT 10.01
<PAGE>
SUN TUNNEL DEALERS AGREEMENT
EXHIBIT A
Name of Dealer: Jack Johnston
Territory: Larimer, Boulder, Jefferson, Weld, Adams, Arapahoe, Douglas,
El Paso, Fremont, Pueblo, Pitkin, Eagle, Summit and Lake
Counties, Colorado.
Prices: Initial Prices will be as follows:
$159.00 for each 14-inch unit
$205.00 for each 20-inch unit
Each Order: A minimum of 125 units order is effective upon signature of
this Agreement.
Quotas:
In order to meet the quotas, during the time period indicated below,
Dealer must order and pay for at least the following quantities of
product from seller. Quantities ordered and paid for during one quota
period in excess of the minimum may not be carried forward or applied
to subsequent quota periods.
TIME PERIOD MINIMUM UNITS
----------- -------------
During the first year of this Agreement 500 units
During the second year of this Agreement 1000 units
During the third year of this Agreement 2000 units
During every year thereafter To Be Determined
Initial Deposit:
Dealer's Initial Deposit is: $22,000.00
Amount Received: 0
Balance Due: $22,000.00
Annual Renewal Fee:
Dealer's Annual Renewal Fee is: $3,000.00
EXHIBIT 10.01
<PAGE>
SUN TUNNEL DEALERS AGREEMENT
EXHIBIT A
Name of Dealer: Jack Johnston
Territory: Clark County Nevada
Prices: Initial Prices will be as follows:
$159.00 for each 14-inch unit
$205.00 for each 20-inch unit
Each Order: A minimum of 40 units order is effective upon signature of
this Agreement.
Quotas:
In order to meet the quotas, during the time period indicated below,
Dealer must order and pay for at least the following quantities of
product from seller. Quantities ordered and paid for during one quota
period in excess of the minimum may not be carried forward or applied
to subsequent quota periods.
TIME PERIOD MINIMUM UNITS
----------- -------------
During the first year of this Agreement 150 units
During the second year of this Agreement 300 units
During the third year of this Agreement 500 units
During every year thereafter To Be Determined
Initial Deposit:
Dealer's Initial Deposit is: $8,000.00
Amount Received: 0
Balance Due: $8,000.00
Annual Renewal Fee:
Dealer's Annual Renewal Fee is: $1,000.00
EXHIBIT 10.01
DISTRIBUTORSHIP AGREEMENT
PREAMBLE
- --------
This Distributorship Agreement (this "Agreement") is entered into between
Sun Tunnel Systems, Inc., a California corporation ("Seller"), and the person or
entity identified as the Distributor on the signature page of this Agreement
("Distributor"). This Agreement will become effective as of the date it is
signed by the last party to sign (the "Effective Date").
BACKGROUND
- ----------
Under the terms and conditions of this Agreement, Distributor will purchase
skylights from Seller, known as "Sun Tunnel"(TM) Skylights, for resale.
AGREEMENT
- ---------
Based upon the mutual covenants below, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 TERRITORY. The term "Territory" shall mean that geographic area described on
Exhibit A attached to this Agreement.
1.2 PRODUCT. The term "Product" shall mean the skylights imported or
manufactured by the Seller known as "Sun Tunnel" skylights.
1.3 ORDERS. The term "Orders" shall mean all purchase orders placed by
Distributor for shipment of Products to Distributor which have been accepted by
Seller pursuant to Section 5.1 and are in accordance with the terms of this
Agreement.
ARTICLE II
APPOINTMENT AS DISTRIBUTOR
2.1 APPOINTMENT. Subject to the terms and conditions of this Agreement, during
the term of this Agreement, Seller grants to Distributor the right to purchase
the Products from Seller and the exclusive right to resell them in the
Territory.
ARTICLE III
TERM OF AGREEMENT
3.1 TERM. The term of this Agreement shall begin on the Effective Date and shall
continue for an initial period of three (3) years from the Effective Date (the
"Initial Term"). Thereafter, this Agreement shall be automatically renewed
indefinitely for additional one (1) year periods ("Renewals"), unless notice of
non-renewal is given in accordance with Section 10.1. Notwithstanding the above,
this Agreement is subject to termination according to the provisions of Article
X.
EXHIBIT 10.02
<PAGE>
ARTICLE IV
OBLIGATIONS OF DISTRIBUTOR AND SELLER
4.1 DISTRIBUTOR'S DUTIES. Throughout the term of this Agreement:
(a) INDEPENDENT SALES EFFORT. Distributor shall promote, sell, and
otherwise create a market for the Product within the Territory in any
manner the Distributor deems appropriate. The parties acknowledge and
agree that the Distributor shall determine its own prices for the
Product, may advertise the Product in any manner desired, and shall
determine its own prices for the Product, any advertise the Product in
any manner desired, and shall determine its own site design,
appearance, hours of operation, accounting practices, and personnel
policies and procedures. The parties acknowledge and agree that this
Agreement does no constitute a franchise, and that Seller will not
assist Distributor in connection with the marketing of the Product.
(b) ASSUME NO OBLIGATIONS ON BEHALF OF SELLER. The parties acknowledge
that they are independent contractors and Distributor will assume no
obligation or liability on behalf of Seller in connection with the sale
or use of the Products by Distributor.
(c) QUARTERLY STATUS REPORTS. Distributor shall submit reports to
Seller on a quarterly basis containing good faith sales forecasts and
such other information about the distribution of the Products as Seller
shall reasonably request to enable Seller to fill Distributor's orders
more efficiently.
(d) ADDITIONAL REPORTS. Distributor shall immediately advise Seller of
any legal notices served on Distributor concerning the Products and
refer to Seller all sales inquiries for the Products outside the
Territory.
(e) NO COMPETING PRODUCTS. Distributor shall not sell, distribute,
design, or manufacture any products which are deemed, in the reasonable
judgment of Seller, to compete with the Product without written
authorization from Seller. For these purposes, any skylights which
include rigid or flexible tubes, shafts, or ductwork for channeling
light from the skylights shall be deemed to compete with the Product,
but skylights without any such feature shall not be deemed to compete
with the Product.
(f) TECHNICAL SERVICES. If Distributor does not install the Products,
Distributor will provide technical advice and support for customers in
the Territory concerning installation procedures, maintenance, repair,
and such other matters as may be required by customers.
(g) INVENTORY. Distributor will maintain an appropriate inventory of
Products, and parts and supplies for the Product, to ensure prompt
delivery of Products to customers, and prompt maintenance and repair
service.
(h) NO SALES OUTSIDE TERRITORY. Distributor shall not sell the Product
directly to customers outside the Territory. Distributor shall also not
sell the Product to customers inside the Territory who Distributor has
reason to know intend to resell the Product to customers outside the
EXHIBIT 10.02
<PAGE>
Territory without Seller's written consent. If given by Seller, such
consent may be revoked at any time upon notice to Distributor.
(i) INITIAL DEPOSIT AND ANNUAL RENEWAL FEE. Upon the signing of this
Agreement, Distributor agrees to pay to Seller the Initial Deposit set
forth on Exhibit A. The initial deposit is paid in consideration of
Seller entering into this Agreement and is not a credit toward any
other amounts to become due under this Agreement. In addition, each
year during the term of this Agreement, Distributor agrees to pay to
Seller the Annual Renewal Fee (the "Renewal Fee") set forth on Exhibit
A. Each Renewal Fee shall be due within thirty (30) days after each
yearly anniversary of the Effective Date of this Agreement, beginning
with the first yearly anniversary.
(j) PROBLEMS WITH INDIVIDUAL DEALERS. Distributor agrees that, if a
problem should arise in Distributor's relationship with an individual
dealer, or in Distributor's ability to fill an order in a timely manner
to the satisfaction of the dealer, Distributor will consult with and
cooperate with Seller to reach a solution to the problem which could
include, for example, arranging for Seller to service such dealer
account or fill such order directly.
4.2 SELLER'S DUTIES. Throughout the term of this Agreement:
(a) FILL ORDERS. Seller agrees to use its reasonable best efforts to
accept all orders for purchase of the Product placed by Distributor and
to fill all Orders within the time specified in the delivery schedule
accepted. In this context, best efforts shall mean that Seller shall
give orders placed by Distributor at least as favorable treatment with
respect to delivery schedules as Seller affords other comparable
Distributors of the Product.
(b) TRAINING AND ASSISTANCE. Seller shall provide to Distributor, at no
cost to Distributor, initial orientation and training concerning the
installation and repair of the Product. Such training will be conducted
through written materials or by telephone or, at the option of
Distributor, at Seller's facility in California. If Distributor elects
to have training provided at Seller's facility, Distributor will pay
all costs or its travel and stay. From time to time, Seller will also
provide Distributor with such additional advice and assistance
concerning the installation and repair of the Product as Distributor
shall reasonably require. If any such additional assistance requires
Seller to send personnel to Distributor's facility, Distributor will
pay for Seller's travel, meals and lodging.
(c) REFERRING INQUIRIES. Seller will refer to Distributor all inquiries
received by Seller concerning the purchase of the Product in the
Territory.
ARTICLE V
ORDERS AND PRICES
5.1 TERMS OF SALE. All purchase orders shall be in writing and shall be subject
to and governed by the provisions of this Agreement. Orders shall specify
requested delivery dates and shipping instructions, and shall be subject to
written acceptance by Seller. In the event of any conflict between the
provisions of this Agreement and Distributor's purchase order, the provisions of
this Agreement shall be controlling. No additional or supplemental term
contained in Distributor's purchase orders shall be applicable unless approved
by Seller in writing.
5.2 PRICES. Seller shall invoice Distributor for all Products shipped to
Distributor at the prices listed on Exhibit A. Such prices may, however, be
EXHIBIT 10.02
<PAGE>
changed by Seller at its discretion at any time. Seller will use its best
efforts to give Distributor at least thirty (30) days notice of any such price
changes. In the event of a price increase, Seller shall honor the price
previously in effect for any order placed within thirty (30) days before such
increase if the Distributor's price quotation to the customer was based upon the
previous price.
Seller's prices are F.O.B. point of shipping and are exclusive of shipping
and handling charges, insurance, duties, and all taxes of any kind. All of such
charges and taxes shall be borne by Distributor (other than Seller's taxes based
upon Seller's income) and, if paid by Seller, shall be invoiced to and paid by
Distributor.
5.3 CANCELLATION CHARGE. In the event Distributor cancels all or part of an
Order that has been accepted by Seller, within thirty (30) days prior to the
first scheduled delivery date, Distributor agrees to pay Seller, as a
cancellation charge, five percent (5%) of the price of the portion of the Order
canceled. Such charge has been agreed upon not as a penalty but as a result of
the difficulty of computing actual damages. Distributor may not cancel any order
or part of any order after delivery.
5.4 INITIAL ORDER. By signing this Agreement, Distributor places an initial
order for the quantity of Products indicated on Exhibit A, quantity for initial
inventory. Distributor will pay sixty percent (60%) of the purchase price of
such Products upon signing this Agreement, and the remaining forty percent (40%)
at the time of Distributor's receipt of the Products.
ARTICLE VI
PACKING, PAYMENT, TITLE AND DELIVERY
6.1 PACKING. Seller shall cause the Products to be packed according to its
standard commercial practice in effect from time to time, and shall deliver them
to Distributor or its designee, F.O.B. Seller's warehouse or other point of
shipment. Any non-standard packing and charges shall be agreed upon by the
parties.
6.2 PAYMENT. The terms of payment for Products ordered by Distributor shall be
sixty percent (60%) of the purchase price upon placement of the order, with the
remaining forty percent (40%) to be paid at the time of Distributor's receipt of
the Products. Seller may, however, extend credit to Distributor at Seller's
discretion, by agreeing to do so in writing. If credit is extended to
Distributor, amounts unpaid after thirty (30) days from the date of receipt of
the Product will be subject to a finance charge of one and one-half percent (1
1/2%) per month. In addition to any other remedies permitted by law or this
Agreement, if any amount remains unpaid after forty-five (45) days from the date
of receipt of the Product, Seller may refuse to ship any outstanding order
and/or require Distributor to make payment in full at the time any subsequent
order is placed and/or delivered.
6.3 DELIVERY, TITLE AND RISK OF LOSS. Delivery shall occur and title and risk or
loss, damage and destruction and right of possession to all Products shall pass
to Distributor upon tender of the Products to Distributor or its designee at
Seller's warehouse or other point of shipment. Seller is hereby granted a
security interest in all Products sold to Distributor under this Agreement, and
all products and proceeds thereof, to secure payment of Seller's invoices for
Products and all other amounts due or to become due to Seller under this
Agreement. Distributor agrees at Seller's request to execute a UCC-1 financing
EXHIBIT 10.02
<PAGE>
statement, or such other documents as may be requested by Seller, to confirm and
record such security interest.
6.4 DELAY. Seller shall not be liable for loss or damage caused by delay or
inability to fill or complete Orders. Seller reserves the right to allocate
orders among its customers in periods of short supply.
6.5 INSTALLMENT DELIVERIES. Upon Distributor's consent, which consent shall not
be unreasonably withheld, Seller may make deliveries in installments with
appropriate partial invoicing.
6.6 SHIPPING INSTRUCTIONS When adequate shipping, packing, or other instructions
do not accompany an Order, Seller may select a carrier and package, and ship to
Distributor freight collect. Seller may insure such Products while in transit
and charge the Distributor accordingly, and Distributor hereby agrees to pay
such charge.
6.7 NO CONSEQUENTIAL OR INCIDENTAL DAMAGES. Upon acceptance of orders placed by
Distributor, Seller will exercise reasonable efforts to ship in accordance with
such orders, but if, for any cause, Seller should fail to make such shipments or
fail to make them within the time specified in the orders, Seller shall not be
liable for any damages by reason of such failure or delay. IN NO EVENT SHALL
SELLER BE LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES DUE TO DELAYS IN
DELIVERY, HOWEVER CAUSED.
6.8 INSPECTION. Distributor agrees to examine, or cause to be examine, all
Products shipped by Seller promptly upon receipt, and to immediately file, or
cause to be filed, a claim with the carrier upon delivery for any damage to or
shortage in the Products, and to notify Seller within thirty (30) days after
receipt of the Products of any such claim pertaining to such damage or shortage.
Unless Seller is notified within such period, Products shall be deemed to have
been accepted by Distributor.
6.9 PRODUCT RETURNS. Distributor may return Products to Seller only with
Seller's written consent, which consent shall not be unreasonably withheld. All
Products to be returned must be in good condition, suitable for restocking.
Distributor will pay all costs of shipping for returned Products. For any
returned Products, Distributor will receive a credit toward its outstanding
balance, or toward future purchases, equal to the price paid by Distributor for
the returned Products, minus a twenty-five percent (25%) restocking fee.
6.10 DROP SHIPMENT. Seller will drop ship to Distributor's customers if so
instructed by Distributor.
ARTICLE VII
WARRANTY
7.1 DEFECTS. Seller warrants to Distributor that all Products sold to
Distributor shall be free from defects in material and workmanship under normal
use and service for a period of seven (7) years from the date of their delivery
by Seller to Distributor.
7.2 REMEDY. Distributor agrees to service all warranty claims on Products sold
by Distributor. Seller's sole obligation and Distributor's sole remedy under
this warranty shall be that Seller, at Seller's option shall repair, replace, or
refund Distributor's purchase price of any Products which do not conform to the
EXHIBIT 10.02
<PAGE>
above warranty. This warranty shall apply only if (a) Distributor notifies
Seller of the Defect in writing during the warranty period, promptly after
discovery of the defect, and provides documentation sufficient to establish the
date of delivery of the Product to Distributor, (b) Distributor has obtained a
Return Materials Authorization number ("RMA") from Seller which RMA Seller
agrees to provide Distributor promptly upon request, (c) Distributor promptly
returns the defective Product to Seller, freight prepaid, and (d) upon Seller's
inspection of the Product, Seller in its reasonable judgment determines that the
Product does not conform to the warranty. Seller will pay transportation charges
back to Distributor and shall reimburse in connection with the return to Seller
of properly rejected Products. Otherwise, Distributor shall pay transportation
charges in both directions as well as any other damages incurred by Seller as a
result of improper rejection. Service labor performed by Distributor or others
in connection with the removal of defective Products, or reinstallation of
repaired or replacement Products, and related expenses (such as travel, meals,
and lodging) shall not be reimbursed to Distributor by Seller.
Distributor shall be entitled to delegate its duties with respect to
servicing of warranty claims under this Section, in specific territories, to
Distributor's dealers assigned to such territories. In the event of any such
assignment and delegation, however, Distributor shall remain principally
responsible for the fulfillment of its obligations under this Agreement with
respect to servicing of warranty claims.
7.3 EXCLUSIONS. Seller shall not be responsible for failure of the Products, or
any part thereof, and the foregoing warranty shall not apply, if:
(a) the Product fails as a result of improper installation,
modifications, or repairs; or
(b) the Product is subject to accident (including damage during
shipment ) or abuse, or is exposed to conditions more severe than those
contemplated by Seller as described in Seller's brochures and manuals.
7.4 NO UPGRADE DUTY. It is understood that Seller shall have no responsibility
to upgrade the Product, under its warranty obligation or otherwise, through the
installation or provision of new or improved goods, except such engineering
improvements introduced by Seller during the respective warranty period for such
Products as Seller, in its sole discretion, determines to constitute a mandatory
retrofit.
7.5 NO IMPLIED OR OTHER EXPRESS WARRANTIES. THE FOREGOING WARRANTY IS EXPRESSLY
IN LIEU OF ANY OTHER WARRANTIES, EXPRESS, IMPLIED, BY OPERATION OF LAW, OR
OTHERWISE, AND ANY OTHER OBLIGATION ON THE PART OF SELLER IN THIS REGARD, AND
SHALL CONSTITUTE THE DISTRIBUTOR'S SOLE RIGHT AND REMEDY UNDER THIS AGREEMENT
WITH RESPECT TO DEFECTIVE PRODUCTS. SELLER DISCLAIMS ANY IMPLIED WARRANTIES,
INCLUDING WARRANTIES OF MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.6 WARRANTY ON REPAIRS AND REPLACEMENTS. Replacement Products, and repairs
which Seller makes pursuant to the above warranty, shall carry the greater of a
thirty day warranty period or the balance of the original warranty period.
EXHIBIT 10.02
<PAGE>
ARTICLE VIII
LIMITATION OF LIABILITY
8.1 HOLD HARMLESS. DISTRIBUTOR EXPRESSLY SAVES AND HOLDS SELLER AND ITS
AFFILIATES AND AGENTS HARMLESS FROM ANY AND ALL LIABILITY OF ANY KIND OR NATURE
WHATSOEVER TO CUSTOMERS AND TO OTHER THIRD PARTIES AND FROM CLAIMS ASSERTED BY
CUSTOMERS AND THIRD PARTIES TO THE EXTENT THAT SUCH LIABILITY OR CLAIM ARISES
FROM ACTS OR OMISSIONS OF DISTRIBUTOR, INCLUDING BUT NOT LIMITED TO ANY BREACH
OF THIS AGREEMENT OR ANY UNAUTHORIZED REPRESENTATIONS OR UNDERTAKINGS BY
Distributor REGARDING THE PRODUCTS OR ANY OTHER ITEM FURNISHED UNDER THIS
AGREEMENT.
8.2 LIMITATION. IN NO EVENT AND UNDER NO LEGAL THEORY, WHETHER TORT, CONTRACT,
STATUTORY, OR OTHERWISE, SHALL SELLER OR ITS AFFILIATES OR AGENTS BE LIABLE FOR
ANY LOST PROFITS OR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR THE EXISTENCE, FURNISHING,
FUNCTIONING OR DISTRIBUTOR'S OR ANY THIRD PARTY'S USE OF ANY PRODUCTS OR
SERVICES PROVIDED FOR IN THIS AGREEMENT. DISTRIBUTOR'S SOLE REMEDY FOR SELLER'S
LIABILITY OF ANY KIND, INCLUDING NEGLIGENCE, WITH RESPECT TO ANY ITEM FURNISHED
UNDER THIS AGREEMENT, SHALL BE LIMITED TO THE REMEDIES PROVIDED IN SECTIONS 7.2
AND 9.5 OF THIS AGREEMENT. IN NO EVENT SHALL THE LIABILITY OF SELLER ARISING IN
CONNECTION WITH ANY PRODUCTS SOLD UNDER THIS AGREEMENT EXCEED THE ACTUAL AMOUNT
PAID BY DISTRIBUTOR TO SELLER FOR SUCH PRODUCTS.
8.3 INSURANCE. During the term of this Agreement, Distributor will maintain
product liability insurance with commercially reasonable limits covering
personal injury and property damage attributable to the Products. Distributor
will provide Seller with proof of such coverage upon request.
ARTICLE IX
CONFIDENTIALITY AND PROPRIETARY RIGHTS
9.1 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Distributor acknowledges that, in
the course of selling the Products and performing its duties under this
Agreement, it may obtain and develop information relating to the Product and to
Seller's business which is of a confidential and proprietary nature. The term
"Confidential Information" shall mean all information which has been either
characterized in writing as confidential at the time of its disclosure, or
orally characterized as confidential at the time of disclosure and confirmed in
writing as being confidential following such oral disclosure. However, the
following information shall not be considered to be "Confidential Information"
under this Agreement: (a) information previously known to Distributor, as
demonstrated by written records, (b) information which is or becomes, from no
act or failure to act on Distributor's part, generally known in the relevant
industry, or (c) information which is disclosed to Distributor by a third party
as a matter of right and without restriction on disclosure. Distributor shall
have the burden of proving by clear and convincing evidence that one of the
foregoing three exceptions applies.
Confidential Information may include, but is not necessarily limited to,
trade secrets, know-how, inventions, techniques, processes, customer lists and
data (including those developed by Distributor) financial information, and
EXHIBIT 10.02
<PAGE>
business, product development, sales and marketing plans. Distributor agrees to
promptly disclose to Seller any Confidential Information developed by
Distributor.
At all time during the term of this Agreement, and for a period of five (5)
years after its termination, Distributor shall keep in confidence all such
Confidential Information, and shall not use such Confidential Information except
in the performance of its duties under this Agreement, nor shall Distributor
disclose any of such Confidential Information to any third party without the
written consent of Seller. Distributor shall disclose Confidential Information
only to such of its employees and consultants who have the need to know such
information to perform work for Distributor and who have signed an agreement
with Distributor to maintain the confidentiality of the Confidential
Information.
9.2 RETURN OF MATERIALS UPON TERMINATION. Upon termination of this Agreement at
any time, for any reason, Distributor shall, as directed by Seller, immediately
return to Seller or destroy all Confidential Information (including all copies
thereof) and all manuals and literature relating to the Product then in the
possession or control of Distributor.
9.3 OWNERSHIP OF PROPRIETARY RIGHTS. It is expressly agreed that the ownership
and all right, title and interest in and to the trademark "Sun Tunnel" and any
other trademark, trade name, patent, copy right or other proprietary rights
relating to the Product is and shall remain vested solely in Seller. However, to
the extent permitted by this Agreement, Distributor may use any existing or
future trademark, trade name, patent, copyright or other proprietary rights
relating to the Product is and shall remain vested solely in Seller. However, to
the extent permitted by this Agreement, Distributor may use any existing or
future trademark, trade name, patent, copyright or to the proprietary right
relating to the Product in Distributor's promotion, sales, installation or
maintenance of the Product.
Distributor shall not use, directly or indirectly, in whole or in part,
Seller's name or any other trade name or trademark that is owned or used by
Seller, in connection with any product other than Seller's Products, without the
prior written consent of Seller.
All use by Distributor of Seller's trademarks shall inure exclusively to
the benefit of Seller and Seller shall retain the exclusive right to apply for
and obtain registration of such trademarks in all jurisdictions. Distributor
shall, and hereby does assign to Seller any and all proprietary interests it may
obtain under the law of any jurisdiction in the Territory in the names and/or
trademarks or words associated with Seller or the Products, due to use or
registration by Distributor of such names, trademarks or words in the Territory.
Unless otherwise agreed to in writing by Seller, Distributor shall sell only
under Seller's trademarks and will not remove any such trademarks or notices
affixed to the Products. Notwithstanding the above, Distributor is authorized
to, but shall not be required to, identify itself as the Distributor of the
Products for Seller in the territory by affixing a notice to that effect to the
Products or packages or in its promotional materials. Distributor shall not,
however, adopt a trade name containing the phrase "Sun Tunnel," or any
confusingly similar phrase.
9.4 OWNERSHIP OF IMPROVEMENTS. All rights to any modifications, design changes
or improvements to the Product (collectively "Improvements") developed by
Distributor or suggested by any customer, employee, consultant or agent of
Distributor shall be and remain the sole exclusive property of Seller.
Distributor agrees to execute all documents necessary to perfect or protect
Seller's rights thereto. In the case of employees, consultants, and agents,
EXHIBIT 10.02
<PAGE>
Distributor shall obtain Improvements. Distributor may not modify the Product in
any way without the prior written consent of Seller.
9.5 WARRANTY AGAINST INFRINGEMENT.
(a) THE WARRANTY. Seller hereby agrees to indemnify and hold
Distributor harmless against any and all claims which may be asserted
against Distributor by any other person alleging that the sale of the
Product by Distributor, as delivered to Distributor and sold under
Seller's trademarks, infringes any patent, trademark, trade name, or
copyright of such person.
(b) CONTROL OF CLAIMS. Seller's obligation to indemnify under the
previous paragraph shall apply provided Distributor gives Seller
written notice of such claim within ten days of Distributor's notice of
such claim, cooperate in the defense of such claims at Seller's
expense, gives Seller the control of the defense of such claim
(including, without limitation, the selection of attorneys, forums, and
strategies), and does not settle such claim without Seller's prior
written consent.
(c) SUBSTITUTE PRODUCTS. In the event of a claim covered by Subsection
(a) above, Seller, at its option, may provide Distributor with a
substitute product reasonably satisfactory to Distributor to replace
those Products then in Seller's inventory or then on order by
Distributor.
(d) EXCEPTIONS TO WARRANTY. Seller will not be liable under the
indemnification obligations of this Section if the infringement arises
(i) out of Seller's compliance with Distributor's written instructions
for the marking, or labeling of the Product, or (ii) out of
Distributor's activities after Seller has notified Distributor that
Seller believes in good faith that Distributor's activities will result
in such infringement. In such cases, Distributor agrees to indemnify
Seller to the same extent as Seller is otherwise obliged hereunder to
indemnify Distributor.
(e) LIMITATION ON INDEMNIFICATION. Seller's liability to Distributor
under the indemnification obligations of this Section shall be limited
to the amount paid to Seller by Distributor for the Product causing the
infringement giving rise to the indemnification obligation.
9.6 LICENSING OF PATENT. The parties acknowledge and agree that Seller may
license to third parties ("Licensees") the right to make, use and sell products
incorporating features covered by Seller's patent on the Product. Distributor
consents to such licensing of the patent by Seller, and agrees not to sue or
otherwise seek damages, injunctive relief, or other redress against any such
Licensee. If any such Licensee sells any of such Products in Distributor's
Territory during the term of this Agreement, Seller shall pay Distributor 20% of
any royalty or other fee Seller receives from such Licensee on account of such
sales. Distributor shall not be entitled to share in any royalties paid by
Licensees for sales outside the Territory. Within 60 days after the end of each
calendar quarter during the term of this Agreement, Seller shall make such
payments to Distributor for sales by Licensees during such quarter. Such
payments shall be accompanied by a report indicating the total royalties paid by
Licensees for sales of such products in the Territory. Distributor shall not be
obligated to service warranty claims on any products sold by Licensees. Any
EXHIBIT 10.02
<PAGE>
up-front or advance license fee paid by a Licensee shall not be deemed to be a
payment on account of sales in the Territory.
9.7 INFRINGEMENT BY THIRD PARTIES. Distributor will promptly notify Seller of
any suspected infringement by any third party of Seller's patents, trademarks,
or other proprietary rights relating to the Product, of which Distributor
becomes aware. Seller shall have the first option to bring any action against
third parties for such infringement. If Seller notifies Distributor in writing
that Seller declines to bring any such action, or if Seller fails to take
affirmative steps to resolve such infringement within six (6) months after
notification of the infringement from Distributor, the Distributor shall be
entitled to bring an action for infringement in any case in which Distributor
has standing to sue. In such event, Distributor agrees to cooperate with any
other Distributors of Seller's Products who may also have standing to sue, to
determine who will bring the action and the manner in which any damages awarded
will be shared. If, under the terms of this Agreement, either Seller or
Distributor brings an action against any third party for infringement of
Seller's proprietary rights relating to the Product, the (a) the party bringing
the action shall bear the costs and expenses of such action, (b) the other party
will cooperate in such action at the expense of the party bringing the action,
(c) the party bringing the action shall be entitled to retain any award of
damages for such infringement, and (d) if Seller grants a license to such third
party under Seller's proprietary rights relating to the Product, the provisions
of Section 9.6 above shall; govern the division of royalty income under such
license.
ARTICLE X
TERMINATION
10.1 NON-RENEWAL. This Agreement will terminate at the end of the Initial Term,
or at the end of any Renewal, if either party gives the other party notice of
non-renewal at least thirty (30) days prior to the end of such term.
10.2 MUTUAL CONSENT. This Agreement may be terminated at any time upon mutual
written consent of the parties.
10.3 FOR CAUSE. Either party may terminate this Agreement upon written notice to
the other party if the other party materially breaches any term of this
Agreement and such breach continues uncorrected for a period of thirty (30) days
after notice in writing thereof to such other party.
10.4 FAILURE TO MEET QUOTAS. Seller may terminate this Agreement upon written
notice to Distributor, if Distributor fails to meet a quota set forth in Exhibit
A attached to this Agreement.
10.5 UPON MERGER. This Agreement shall terminate upon the occurrence of any of
the following events, unless Seller has provided its prior written consent to
such event:
(a) Distributor is acquired by, merged into, or consolidated with
another corporation or organization;
(b) Distributor sells or otherwise transfers all or any substantial
part of its assets; or
(c) A change in control of Distributor occurs, which shall be defined
as the transfer of equity, or issuance of equity, constituting more
than 50% of the outstanding stock of Distributor.
EXHIBIT 10.02
<PAGE>
10.6 AUTOMATIC TERMINATION. This Agreement shall terminate automatically and
without notice if
(a) Distributor becomes insolvent; makes an assignment for the benefit
of creditors; has a receiver appointed; files a petition of bankruptcy;
or initiates reorganization proceedings; or
(b) Seller no longer has the right to sell the Product to Distributor.
ARTICLE XI
PROCEDURE UPON TERMINATION
Upon the effective date of termination of this Agreement, neither party
shall have any further or other obligation to the other, except as follows:
11.1 PROCESSING ACCEPTED ORDERS. If termination has occurred pursuant to Section
10.1 or 10.2, Seller shall process and complete all Orders received and accepted
prior to the notice of such termination. If termination has occurred for any
other reason, Seller may but shall not be obligated to process such Orders.
11.2 PAYMENT OF SUMS DUE. Distributor shall pay any and all sums then owing to
Seller hereunder, including all sums payable on account of Orders Completed
under Section 11.1 above. No refunds of the Initial Deposit of Marketing Fees
will be due.
11.3 NONUSE OF NAME AND TRADEMARKS. Except and only to the extent permitted in
Section 11.5 below, Distributor shall immediately discontinue the use of the
name, trade name, trademark, signs, symbols, advertising or anything else that
might make it appear that Distributor is still handling, selling or promoting
the Product.
11.4 NON CONSEQUENTIAL DAMAGES. It is agreed and understood that neither
Distributor nor Seller shall be liable to the other in the event of termination
of this Agreement in accordance with its terms, or any failure to agree upon any
extension of the term of this Agreement, for compensation, reimbursement or
damages on account of the loss of prospective profits, or anticipated sales, or
on account of expenditures, investments, leases or other commitments.
11.5 DISTRIBUTOR'S INVENTORY. If, on the effective date of termination of this
Agreement, Distributor has Products remaining in its inventory acquired under
this Agreement, then Distributor shall notify Seller of the quantity and
description of such Products, and shall offer to sell or return such inventory
to Seller at the price Distributor paid to Seller for such inventory. If Seller
declines to repurchase all of such inventory within thirty (30) days after such
notice from Distributor, then Distributor may for six (6) months sell such
Products to customers in the Territory. If, however, Distributor proposes to
sell such Products to customers at a price less than the price paid by
Distributor to Seller, Distributor shall again notify Seller and Seller shall
again have the option to purchase such Products at such price.
11.6 WARRANTY. Seller shall continue to honor the warranty provided for in
Article VII and service warranty claims, either by dealing with Distributor's
customers directly or through a new Distributor, representative, or Distributor.
EXHIBIT 10.02
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.1 INDEPENDENT CONTRACTOR. Distributor and Seller are, at all times shall
remain, independent contractors as to each other, and neither shall be deemed to
be the agent of the other. No joint venture, partnership, agency or other
relationship shall be created or implied by this Agreement. Except as otherwise
specifically provided in this Agreement, each party shall bear their own
expenses, liabilities, costs, and the like.
12.2 ASSIGNMENT. Neither party may assign this Agreement without the prior
written consent of the other party, except that Seller shall be entitled to
assign this Agreement to any person acquiring more than 50% of its assets or
stock.
12.3 BINDING EFFECT. This Agreement shall be binding upon and shall inure to the
benefit of the parties, their successors and permitted assigns.
12.4 SEVERABILITY. If the application of any provision of this Agreement shall
be held to be invalid or unenforceable by any court of competent jurisdiction,
then the validity and enforceability of other provisions of this Agreement shall
not in any way be affected or impaired thereby.
12.5 GOVERNING LAW AND DISPUTES. Except for that body of law governing choice of
law, this Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California. The parities agree that any dispute or
controversy arising out of or relating to this Agreement shall be arbitrated in
San Jose, California under the rules of the American Arbitration Association,
and the decision of such arbitration proceedings shall be binding and conclusive
upon the parties hereto. As a part of the arbitration decision, the arbitrator
shall award costs and reasonable attorney fees to the prevailing party. Each
party waives the right to jury trial.
12.6 AMENDMENT. This Agreement may be modified or amended only by an instrument
in writing, signed by an authorized officer or representative of each party.
12.7 NOTICES. Any notice, request, demand, or other communication required or
permitted under this Agreement shall be deemed to be given (a) upon personal
delivery to the addressee, or (b) three days after being deposited in the mail,
postage prepaid, and sent registered or certified mail to a party at its address
indicated on the signature page of this Agreement, or such other address of
which a party shall notify the other.
12.8 SECTION HEADINGS. The article and section headings of this Agreement are
solely for convenience and shall not be considered in its interpretation.
12.9 FORCE MAJEURE. If the performance of any obligation under this Agreement
(except payment of money) by either party is prevented, restricted, or delayed
by reason of fire, accident, casualty, strikes, labor disputes, inability to
procure raw materials or supplies, or any other act or condition beyond the
reasonable control of a party, shall be excused from such performance to the
extent of such prevention, restriction or interference.
EXHIBIT 10.02
<PAGE>
12.10 WAIVER. A waiver by either party of any term or condition of this
Agreement, in any one instance, shall not be deemed or construed to be a waiver
of any other term or condition or any subsequent breach thereof. All waivers
must be in a signed writing.
12.11 ENTIRE AGREEMENT. This instrument contains the entire integrated agreement
between the parties with respect to its subject matter, and supersedes all prior
negotiations, representations or agreements, whether written or oral.
EXHIBIT 10.02
<PAGE>
AUTHORIZED SIGNATURES
- ---------------------
DISTRIBUTOR: SUN TUNNEL SYSTEMS, INC.
SUNLIGHT SYSTEMS, LTD.
By: ________________________ By: _______________________________
_____________________________ _______________________________
Printed Name & Title Printed Name & Title
_____________________________ ______________________________
Date Date
Address: Address:
____________________________ 786 McGlincey Lane
Campbell, CA 95008
____________________________
EXHIBIT 10.02
<PAGE>
SUN TUNNEL DISTRIBUTORS AGREEMENT
EXHIBIT A
Name of Distributor: Sunlight Systems, Ltd.
Territory: The States of Indiana, Illinois, Ohio and Michigan
Prices: Initial Prices will be as follows (1 container minimum
purchase):
$110.00 for each 14-inch unit
$ N/A for each 16-inch unit
$149.00 for each 20-inch unit
Initial Order (effective upon signature of Agreement):
Total of six hundred Units.
Quotas:
In order to meet the quotas, during the time period indicated below,
Distributor must order and pay for at least the following quantities of
Products from Seller. Quantities ordered and paid for during one quota
period in excess of the minimum may not be carried forward or applied
to subsequent quota periods.
TIME PERIOD MINIMUM UNITS
----------- -------------
During the first year of this Agreement 1200 units
During the second year of this Agreement 3000 units
During the third year of this Agreement 4800 units
During every year thereafter 6000 units
Initial Deposit:
Distributor's Initial Deposit is: N/A
Annual Renewal Fee:
See section 4.1 (i).
Existing Dealers: (check one box below)
/X/ Seller has existing dealers in the Territory and an Addendum
is attached to this Agreement concerning the assignment to the
Distributor of the contracts with such existing dealers.
/ / There are no existing dealers in the Territory.
EXHIBIT 10.02
<PAGE>
ADDENDUM TO DISTRIBUTORSHIP AGREEMENT
CONCERNING EXISTING DEALERS
This is and Addendum to the Distributorship Agreement (the "Agreement")
entered into between Sun Tunnel Systems, Inc. ("Seller") and the distributor
identified below ("Distributor").
The parties acknowledge that Seller has entered into Dealer Agreements
with certain person (the "Dealers"), under which the Dealers have been given the
exclusive right to resell the Product in certain smaller territories within
Distributor's Territory. The parties agree that, notwithstanding the other
provisions of the Agreement, the Agreement will not become effective in any
territory which is subject to an existing Dealer Agreement until such Dealer has
executed a copy of the Assignment of Dealer Agreement form attached to this
Addendum. Upon signature of this Addendum, Seller will furnish Distributor with
a list of such existing Dealers in the Territory, and a signed master copy of
such Assignment of Dealer Agreement, and Seller authorizes Distributor to obtain
the signatures of such Dealers on copies of such Agreement.
AUTHORIZED SIGNATURES
- ---------------------
DISTRIBUTER: SUN TUNNEL SYSTEMS, INC.
SUNLIGHT SYSTEMS, LTD.
By: __________________________ By: _________________________
Jack Johnston, Manager G. Blackburn, President
Date: 8-30-96 Date: 8-27-96
EXHIBIT 10.02
<PAGE>
ASSIGNMENT OF DEALER AGREEMENT
Sun Tunnel Systems, Inc., a California corporation ("Sun Tunnel") and
the dealer identified below (the "Dealer") have entered into a Dealer Agreement,
under which the Dealer has been appointed as Sun Tunnel's exclusive dealer, in a
certain territory, of the skylights sold by Sun Tunnel, known as "Sun
Tunnel"(TM) skylights. Under the terms of this Agreement, the Dealer Agreement
will be assigned to Sunlight Systems, Ltd. (the "Distributor").
The parties agree that the Dealer Agreement is hereby assigned from Sun
Tunnel to the Distributor. The Distributor agrees to sell skylights to the
Dealer under the terms of the Dealer Agreement, and to perform all other
covenants, duties and obligations of Sun Tunnel under the Dealer Agreement. The
parties agree that Sun Tunnel is hereby released from all of its covenants,
duties and obligations to the Dealer under the Dealer Agreement whether past,
present, or future, but that Sun Tunnel shall be a third-party beneficiary of
the Dealer's covenants and agreements in the Dealer Agreement.
In addition, the parties agree that the term "Seller" in the following
sections of the Dealer Agreement shall be deemed to continue to refer to Sun
Tunnel rather than to the Distributor: Sections 9.3, 9.4 and 9.7 (titled
"OWNERSHIP OF PROPRIETARY RIGHTS," "OWNERSHIP OF IMPROVEMENTS," and
"INFRINGEMENT BY THIRD PARTIES"), and in the first two sentences of Section 9.6
(titled "LICENSING OF PATENT,") but not in the remainder of Section 9.6.
SIGNATURES
- ----------
DISTRIBUTOR: SUN TUNNEL SYSTEMS, INC.
SUNLIGHT SYSTEMS, LTD.
By: ____________________________ By: ______________________________
Jack M. Johnston, Manager G. Blackburn, President
Date: 8-30-96 Date: 8-27-96
DEALER:
_________________________________
By: ____________________________
_________________________________
Printed Name & Title
Date: ___________________________
EXHIBIT 10.02
<PAGE>
SUN TUNNEL DEALERS AGREEMENT
EXHIBIT A
Name of Distributor: Peak Construction
Territory: Sangamon, Logan, Morgan Counties, Illinois
Prices: Initial Prices will be as follows:
$159.00 for each 14-inch unit
$189.00 for each 20-inch unit
Each Order: A minimum of 10 units; order is effective upon signature of this
Agreement.
Quotas:
In order to meet the quotas, during the time period indicated below,
Distributor must order and pay for at least the following quantities of
Products from Seller. Quantities ordered and paid for during one quota
period in excess of the minimum may not be carried forward or applied
to subsequent quota periods.
TIME PERIOD MINIMUM UNITS
----------- -------------
During the first year of this Agreement 75 units
During the second year of this Agreement 150 units
During the third year of this Agreement 250 units
During every year thereafter To Be Determined
Initial Deposit:
Distributor's Initial Deposit is: $2,500.00
Amount Received: $4,150.00
Balance Due:
Annual Renewal Fee:
Dealer's Annual Renewal Fee is: $1,000.00
EXHIBIT 10.02
<PAGE>
SUN TUNNEL SKYLIGHTS
FIRST RIGHT OF REFUSAL
This addendum gives you the Dealer mentioned below first right of refusal to
acquire Dealership rights within the additional territory mentioned below.
Seller will notify Dealer of any bona fide offer to acquire Dealer rights within
any mentioned territory. Dealer will have ten days from the time of notification
to exercise his right to obtain the territory.
THE TERMS OF THIS AGREEMENT ARE AS FOLLOWS:
1) The first right of refusal is valid for 6 months (180 days).
2) If there is another interested party you will be notified, and have 10 days
from the time of notification to exercise your rights to obtain the additional
territory.
3) The additional territory must be directly adjacent to your present territory.
FIRST RIGHT OF REFUSAL TERRITORY IS:
Christian , Macon, Tazwell, Illinois
____________________________________ ___________________________________
Dan Peak Brian Edwards
Peak Construction Sun Tunnel Systems, Inc.
Date: 9-27-95 Date: 10-2-95
EXHIBIT 10.02
LARRY O'DONNELL, CPA, P.C.
Office 745-4545 Office
Residence 755-7182 2851 South Parker Road, Suite 1040
Aurora, Colorado 80014
Residence
2383 South Sedalia Circle
Aurora, Colorado 80013
Board of Directors
Mendell-Denver Corporation
Denver, Colorado
Report of Independent Auditor
I have audited the accompanying balance sheet of Mendell Denver Corporation as
of June 30, 1995 and the related statements of operations, retained earnings and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a resonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Mendell-Denver Corporation as of
June 30, 1995 and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Larry O'Donnell, CPA, P.C.
August 23, 1995
II-6
<PAGE>
L. K. DENTON + Co., P.C.
+ Certified Public Accountants
+ Englewood, Colorado
Board of Directors
Mendell-Denver Corporation
Englewood, Colorado
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Mendell-Denver Corporation,
Englewood, Colorado, as of June 30, 1994, and the related statements of
operations, retained earnings, and cash flows for each of the years then ended
June 30, 1994 and 1993. 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 requires that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mendell-Denver Corporation, as
of June 30, 1994, and the results of its operations and its cash flows for each
of the years ended June 30, 1994 and 1993 in conformity with generally accepted
accounting principles.
L. K. Denton & Co., P.C.
Englewood, Colorado
August 23, 1994
II-7
<PAGE>
MENDELL-DENVER CORPORATION
Englewood, Colorado
Balance Sheet
as of June 30,
ASSETS 1995 1994
- ------
Current Assets:
- ------- ------
Cash $2,084 $28,450
Escrow Receivable 3,032
Income Tax Refund Received 1,113
------ -------
Total Current Assets 6,229 28,450
------ -------
Total Assets $6,229 $28,450
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
- ------- -----------
Accounts Payable $2,345 $ 4,164
Income Taxes Payable 8,086
------ -------
Total Current Liabilities 2,345 12,250
------ -------
Stockholders' Equity
- ------------- ------
Preferred Stock - $0.10 Par Value
1,000,000 Shares Authorized,
None Issued
Common Stock - $0.001 Par Value,
25,000,000 Shares Authorized;
5,491,558 Issued and Outstanding 5,492 5,492
Retained Earnings (Deficit) (1,068) 10,708
------ -------
Total Stockholders' Equity 3,884 16,200
------ -------
Total Liabilities and
Stockholders' Equity $6,229 $28,450
====== =======
The accompanying notes are an integral part of these financial statements.
II-8
<PAGE>
MENDELL-DENVER CORPORATION
Englewood, Colorado
Statement of Operations
for the three years Ended June 30,
Revenues: 1995 1994 1993
Interest Income $ 385 $ 2,274 $ 3,254
Miscellaneous Income 6,487 485 88,015
--------- --------- ---------
Total Revenues 6,872 2,759 91,269
--------- --------- ---------
Expenses
- --------
General and Administrative Costs 16,332 43,194 21,112
Interest 3,969
--------- --------- ---------
Total Expenses 20,301 43,194 21,112
--------- --------- ---------
Income (Loss) from Operations (13,429) (40,435) 70,157
Provision for Income Taxes (1,113) (7,115) 15,201
--------- --------- ---------
Net Income (Loss) $(12,316) $(33,320) $54,956
========= ========= =========
Net Income (Loss) Per Common Shares $(0.0022) $(0.0061) $0.0100
========= ========= =========
Weighted Average Number of
Common Shares Outstanding 5,491,558 5,491,558 5,491,558
========= ========= =========
The accompanying notes are an integral part of these financial statements.
II-9
<PAGE>
MENDELL-DENVER CORPORATION
Englewood, Colorado
Statements of Retained Earnings
for the Three Years Ended June 30,
1995 1994 1993
Beginning, balance $10,708 $44,028 $(10,928)
Net income (Loss)
for the year (12,316) (33,320) 54,956
------- ------- -------
Ending, balance $(1,608) $10,708 $44,028
======= ======= =======
The accompanying notes are an integral part of these financial statements.
II-10
<PAGE>
MENDELL-DENVER CORPORATION
Englewood, Colorado
Statements of Cash Flows
for the Years Ended June 30,
Cash Flows From Operating Activities 1995 1994 1993
- ---- ----- ---- --------- ----------
Net Income (Loss) $(12,316) $(33,320) $54,956
Changes in Operating Assets and
Liabilities:
(Increase) decrease in Escrow
Receivable (3,032)
Income Tax Refunds Receivable 1,113
Prepaid Expenses 297
Increase (Decrease) in
Accounts Payable and
Accrued Expenses (9,905) (21,716) 14,891
------- ------- -------
Net Cash Provided (Used)
By Operatings and Net Increase
(Decrease) In Cash (26,366) (55,036) 70,144
------- ------- -------
Cash Beginning of Year 28,450 83,486 13,342
------- ------- -------
Cash End of Year $ 2,084 $28,450 $83,486
======= ======= =======
The accompanying notes are an integral part of these financial statements.
II-11
<PAGE>
MENDELL-DENVER CORPORATION
Englewood, Colorado
Notes to Financial Statements
Year Ended June 30, 1995
NOTE 1: Organization and Business
------------ --- --------
Mendell-Denver Corporation (the "Company") was incorporated on July
22, 1985. The Company was formed for the purpose of acquiring,
exploring, and developing oil and gas properties.
NOTE 2: Summary of Significant Accounting Policies
------- -- ----------- ---------- --------
Oil and Gas Properties:
--- --- --- -----------
The Company followed the successful efforts method of accounting for
its oil and gas activities. Under this method, costs associated with
the acquisition, drilling, and equipping of successful exploratory
wells are capitalized and amortized ratably over the life of
production from related proved reserves. Geological and geophysical
costs, delay rentals, and drilling costs of unsuccessful exploratory
wells are charged to expenses as incurred. Costs of drilling, both
successful and unsuccessful development wells, are also capitalized
and amortized ratably over the life of production from related proved
reserves. Undeveloped properties are assessed periodically to
determine whether the properties have been impaired, and when
impairment occurs, a loss is recognized.
Property acquisition costs for unproved oil and gas properties are
initially capitalized. The acquisition costs for unproved properties
are assessed at least annually, and if necessary, an impairment in
value recognized. Proceeds from sales of partial interests in unproved
leases are accounted for as a recovery of cost without recognizing any
gain or loss. Costs of properties abandoned are expensed on date of
abandonment.
Furniture and Equipment:
--------- --- ----------
Furniture and equipment was being depreciated using the straight-line
method over estimated lives of five years.
II-12
<PAGE>
MENDELL-DENVER CORPORATION
Englewood, Colorado
Notes to Financial Statements
Year Ended June 30, 1995
Production (Lifting) Costs:
---------- --------- ------
Amounts received from working interest owners under the overhead
provisions of joint operating agreements have been off set against
production (lifting) costs in the income statement.
Miscellaneous Income:
------------- -------
Miscellaneous income in the year ended June 30, 1993, consisted of
refunds of oil and gas related taxes.
Statement of Cash Flows:
--------- -- ---- ------
The Company considers all highly liquid debt purchased with a maturity
of three months or less to be cash equivalents. Interest paid for the
year ended June 30, 1995 was $3,969; June 30, 1994 was -0-; June 30,
1993 was $43. Income taxes paid in the year ended June 30, 1995 was
$8,086; June 30, 1994 was $14,116; June 30, 1993 was -0-.
NOTE 3: Income Taxes
------ -----
The Company has adopted the Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Adoption of
SFAS No. 109 is currently required for fiscal years beginning after
December 15, 1992. Because there are no timing differences at June 30,
1995, there are no deferred assets or liabilities.
NOTE 4: Related Party Transactions
------- ----- ------------
During the fiscal year 1995, the Company paid officers for accounting
and consulting fees totaling $9,800.
II-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K OF SUNLIGHT SYSTEMS, LTD. FOR THE FISCAL YEAR ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
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